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February 13, 2006
This is the initial report of the Joint Task Force on Deposit Account Control Agreements established by the Business Law section of the American Bar Association.1 This report sets forth the background and reasons for the creation of the task force and a summary of the process by which the task force carried out its work. It next discusses the form of Deposit Account Control Agreement produced by the task force and set forth as Attachment A to this report, including the General Terms for Deposit Account Control Agreements set forth as Attachment B. This report then provides a discussion of the future work of the task force before making concluding remarks.
I. BACKGROUND AND REASONS FOR THE CREATION OF THE TASK FORCE
The 1998 revisions to Article 9 of the Uniform Commercial Code ("Article 9"), now in effect in every state in the United States and the District of Columbia, brought within the scope of Article 9 for the first time, as part of Article 9's Official Text, security interests in deposit accounts as original collateral.2 Although security interests in deposit accounts as original collateral in consumer transactions remain excluded from Article 9,3 security interests in deposit accounts as original, collateral in other transactions are today being granted using the provisions of Article 9 as setting forth the rules governing the attachment, perfection, priority and enforcement of the security interests.4
The provisions relating to "control" of deposit accounts as original collateral are an important component of these legal rules. A security interest in a deposit account as original collateral must be perfected by control."* Moreover, a security interest in a deposit account perfected by control is superior to a security interest in a deposit account perfected by a method other than control, such as a security interest in a deposit account claimed merely as identifiable cash proceeds of other Article 9 collateral in which a secured party had a perfected security interest.6 Furthermore, when a security interest is perfected by control, the mechanics for enforcement need not involve judicial process. The secured party may merely exercise its control rights to receive, if applicable, and in any event to apply the funds in the deposit account to the secured obligations.7
Control of...