Personal Property Secured Transactions.

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Date: Fall 2021
From: Business Lawyer(Vol. 76, Issue 4)
Publisher: American Bar Association
Document Type: Article
Length: 12,975 words
Lexile Measure: 2020L

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Perhaps the most important legal developments last year involving secured transactions were two new commentaries issued by the Permanent Editorial Board. (1)

Commentary No. 21, (2) which was issued largely in response to a 2019 decision of the U.S. Court of Appeals for the Eleventh Circuit, (3) amended the official comments to Article 9 of the Uniform Commercial Code ("U.C.C.") to make it clear that the term "assignment," as used in Article 9--and specifically in Part 4 of Article 9--refers to both an outright transfer of ownership and a transfer of an interest to secure an obligation. (4) Consequently, a lender that obtains a security interest in accounts to secure a loan is, like a buyer of accounts in a transaction to which U.C.C. Article 9 applies, an "assignee" of the accounts. Each has the enforcement rights against the account debtor that section 9-406 provides. Although not cited, the Commentary might have assisted the Nebraska Supreme Court when, six months later, the court issued a decision consistent with the Commentary and its analysis. (5) The court ruled that a bank that had a security interest in a debtor's accounts to secure a loan had a cause of action against an account debtor that, despite the bank's instruction to remit payment to the bank, had paid $412,000 directly to the debtor. (6) Unfortunately, before the Commentary was issued, the Connecticut Court of Appeals ruled to the contrary in a similar case. The Connecticut decision should be regarded as incorrect. (7)

Commentary No. 22 (8) was issued in response to a New York state court decision dealing with a secured party's disposition of collateral to a transferee who did not act in good faith. (9) In that case, the debtor sought to have the disposition set aside. (10) The court, citing a policy against disturbing foreclosure sales in the interest of commercial certainty, rejected the debtor's argument and concluded that the debtor's only remedy was to seek monetary damages. (11) The Commentary explains that because, under U.C.C. section 9-617(c), (12) a transferee of collateral who does not act in good faith takes subject to the debtor's rights, the debtor retains whatever rights the debtor had in the collateral before the disposition, including the right to redeem the collateral. (13)


Article 9 applies to any transaction, regardless of the transaction's form, in which personal property secures an obligation. (14) Many transactions that are not structured as a secured loan--a lease of goods, (15) a conditional sale, (16) a sale with an option or obligation to repurchase or resell (17)--might nevertheless be a secured transaction. If the economics of the deal are such that the transaction is really a loan, then the transaction will be a secured transaction and will be governed by Article 9 (absent the application of some exception). Several consequences can flow from this recharacterization of the transaction. If the secured party fails to recognize that Article...

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Gale Document Number: GALE|A681135815