COMMENTS TO OFFICIAL TEXT
Prior Uniform Statutory Provision: None.
Purposes:
The purpose of this Section is to bring all consensual security interests in personal property and fixtures, with the exception of certain types of transactions excluded by Sections 9-103 and 9-104, under this Article, as well as sales of accounts, contract rights and chattel paper whether intended for security or not unless excluded by Section 9-104(f). As to security interests in fixtures created under the law applicable to real estate, see Section 9-313(1).
1. Except for sales of accounts, contract rights and chattel paper, the principal test whether a transaction comes under this Article is the transaction intended to have effect as security? For example, Section 9-104 excludes certain transactions where the security interest (such as an artisan's lien) arises under statute or common law by reason of status and not by consent of the parties. Transactions in the form of consignments or leases are subject to this Article if the understanding of the parties or the effect of the arrangement shows that a security interest was intended. (As to consignments the provisions of Section 2-326 of Article 2 (Sales) should be consulted.) When it is found that a security interest as defined in Section 1-201(37) was intended, this Article applies regardless of the form of the transaction or the name by which the parties may have christened it. The list of traditional security devices in subsection (2) is illustrative only; other old devices, as well as any new ones which the ingenuity of lawyers may invent, are included, so long as the requisite intent is found. The controlling definition is that contained in subsection (1). In connection with the inclusion of "equipment trust" in the subsection (2) list, it should be noted that Section 9-104(e) excludes from the Article equipment trusts on railway rolling stock.
2. The Article does not in terms abolish existing security devices. The conditional sale or bailment-lease for example is not prohibited; but even though it is used, the rules of this Article govern.
3. In general this Article adopts the position, implicit in prior law, that the law of the state where the collateral is located should be the governing law, without regard to possible contacts in other jurisdictions. Thus the applicability of the Article is by this Section stated to extend to transactions concerning "personal property and fixtures within the jurisdiction of this state". This "narrow" approach, appropriate in the field of security transactions, should be contrasted with the "broad" approach stated in Section 1-105 with reference to the applicability of the Act as a whole. Section 9-103 states special rules relating to the applicability of this Article where the collateral consists of certain types of intangibles or mobile equipment, or property which is brought into this state subject to a security interest which attached in another jurisdiction.
4. An illustration of subsection (3) is as follows:
The owner of Blackacre borrows $10,000 from his neighbor, and secures his note by a mortgage on Blackacre. This Article is not applicable to the creation of the real estate mortgage. However, when the mortgagee in turn pledges this note and mortgage to secure his own obligation to X, this Article is applicable to the security interest thus created in the note and the mortgage. Whether the transfer of the collateral for the note, i.e., the mortgagee's interest in Blackacre, requires further action (such as recording an assignment of the mortgagee's interest) is left to real estate law. See Section 9-104(j).
5. While most sections of this Article apply to a security interest without regard to the nature of the collateral or its use, some sections state special rules with reference to particular types of collateral. An index of sections where such special rules are stated follows:
ACCOUNTS AND CONTRACT RIGHTS
Section
9-102(1)(b) Sale of accounts and contract rights subject to Article
9-103(1) When Article applies; conflict of laws rules
9-104(f) Certain sales of accounts and contract rights excluded from Article
9-106 Definitions
9-204(2)(c) When debtor acquires rights
and (d)
9-205 Permissible for debtor to make collections
9-206(1) Agreement not to assert defenses against assignee
9-301(1)(d) Unperfected security interest subordinate to certain transferees
9-302(1)(e) What assignments need not be filed
9-306(5) Rule when goods whose sale gave rise to an account return to seller's possession
9-318(1) Rights of assignee subject to defenses
9-318(2) Modification of contract after assignment of contract right
9-318(3) When account debtor may pay assignor
9-318(4) Term prohibiting assignment ineffective
9-401 Place of filing
9-502 Collection rights of secured party
9-504(2) Rights on default where underlying transaction was sale of accounts or contract rights
CHATTEL PAPER
9-102(1)(b) Sale subject to Article
9-104(f) Certain sales excluded from Article
9-105(1)(b) Definition
9-205 Permissible for debtor to make collections
9-206(1) Agreement not to assert defenses against assignee
9-207(1) Duty of secured party in possession to preserve rights against prior parties
9-301(1)(c) Unperfected security interest subordinate to certain transferees
9-304(1) Perfection by filing
9-305 When possession by secured party perfects security interest
9-306(5) Rule when goods whose sale results in chattel paper return to seller's possession
9-308 When purchasers of chattel paper have priority over security interest
9-318(1) Rights of assignee subject to defenses
9-318(3) When account debtor may pay assignor
9-502 Collection rights of secured party
9-504(2) Rights on default where underlying transaction was sale
DOCUMENTS AND INSTRUMENTS
9-105(1)(e) Definition of document (and see 1-201)
9-105(1)(g) Definition of instrument
9-206(1) Rule where buyer of goods signs both negotiable instrument and security agreement
9-207(1) Duty of secured party in possession of instrument to preserve rights against prior parties
9-301(1)(c) Unperfected security interest subordinate to certain transferees
9-302(1)(b) What interests need not be filed
and (f)
9-304(1) How security interest can be perfected
9-304(2, 3) Perfection of security interest in goods in possession of issuer of negotiable document or of other bailee
9-304(4, 5) Perfection of security interest in instruments or negotiable documents without filing or transfer of possession
9-305 When possession by secured party perfects security interest
9-308 When purchasers of nonnegotiable instruments have priority over security interest
9-309 When purchasers of negotiable instruments or negotiable documents have priority over security interest
9-501(1) Rights on default where collateral is documents
9-502 Collection rights of secured party
GENERAL INTANGIBLES
9-103(2) When Article applies; conflict of laws rules
9-105 Obligator is "account debtor"
9-106 Definition
9-301(1)(d) Unperfected security interest subordinate to certain transferees
9-318(1) Rights of assignee subject to defenses
9-318(3) When account debtor may pay assignor
9-502 Collection rights of secured party
GOODS
(See also Consumer Goods, Equipment, Farm Products, Inventory)
9-103(2) When Article applies with regard to goods of a type normally used in more than one jurisdiction; conflict of laws rules
9-105(1)(f) Definition
9-109 Classification of goods as consumer goods, equipment, farm products and inventory
9-203 Formal requisites of security agreement covering certain types of goods (crops, oil, gas, minerals or timber)
9-204(2)(b) When debtor acquires rights in certain types of goods (crops, fish, timber, oil, gas, minerals)
9-204(4) Validity of after-acquired property clause covering certain types of goods (crops, consumer goods)
9-205 Permissible for debtor to accept returned goods
9-206(2) When security agreement can limit or modify warranties on sale
9-301(1)(c) Unperfected security interest subordinate to certain transferees
9-304(2, 3) Perfection of security interest in goods in possession of issuer of negotiable document or of other bailee
9-304(5) Perfection of security interest without filing or transfer of possession where goods in possession of certain bailees
9-305 When possession by secured party perfects security interest
9-306(5) Rule when goods whose sale gave rise to account or chattel paper return to seller's possession
9-307 When buyers of goods from debtor take free of security interest
9-313 Goods which are or become fixtures
9-314 Goods affixed to other goods
9-315 Goods commingled in a product
9-401(1)(c) Place of filing for fixtures
9-402 Form of financing statement covering fixtures
9-504(1) Sale of goods by secured party after default subject to Article 2 (Sales)
CONSUMER GOODS
9-109(1) Definition
9-203(2) Transaction, although subject to this Article, may also be subject to certain regulatory statutes
9-204(4)(b) Validity of after-acquired property clause
9-206(1) Buyer's agreement not to assert defenses against an assignee subject to statute or decision which establishes rule for buyers of consumer goods
9-302(1)(d) When filing not required
9-307(2) When buyers from debtor take free of security interest
9-401(1)(a) Place of filing
9-505(1) Secured party's duty to dispose of repossessed consumer goods
9-507(1) Secured party's liability for improper disposition of consumer goods after default
EQUIPMENT
9-103(2) When Article applies with regard to certain types of equipment normally used in more than one jurisdiction; conflict of laws rules
9-109(2) Definition
9-302(1)(c) When filing not required to perfect security interest in certain farm equipment
9-307(2) When buyers of certain farm equipment from debtor take free of security interest
9-401(1) Place of filing for equipment used in farming operation
9-503 Secured party's right after default to remove or to render equipment unusable
FARM PRODUCTS
9-109(3) Definition
9-203(1)(b) Formal requisites of security agreement covering crops
9-204(2)(a) When debtor acquires rights in crops
9-204(4)(a) Validity of after-acquired property clause in crops
9-307 When a buyer of farm products takes free of security interest
9-312(2) Priority of secured party who gives new value to enable debtor to produce crops
9-401(1)(b) Place of filing
9-402(1, 3) Form of financing statement covering crops
INVENTORY
9-103(2) When Article applies with regard to certain types of inventory normally used in more than one jurisdiction; conflict of laws rules
9-109(4) Definition
9-306(5) Rule where goods whose sale gave rise to account or chattel paper return to seller's possession
9-307(1) When buyers from debtor take free of security interest
9-312(3) When purchase money security interest take priority over conflicting security interest
Cross References:
Sections 9-103 and 9-104.
Point 1: Section 2-326.
Point 2: Section 1-105.
Definitional Cross References:
"Account". Section 9-106.
"Chattel paper". Section 9-105.
"Contract". Section 1-201.
"Contract right". Section 9-106.
"Document". Section 9-105.
"General intangibles". Section 9-106.
"Goods". Section 9-105.
"Instrument". Section 9-105.
"Security interest". Section 1-201.
Law Journals and Reviews
Transition to the UCC in the Case of Secured Transactions. 4 HBJ, Nov 1966, at 2.
A Further Analysis of the Operation of the Uniform Commercial Code Transition Provisions. 5 HBJ 89.