September 13, 2019

I'm an Article 9 Lawyer, So Why Do I Need to Know Articles 1-8 Of The UCC?

When they think of “the Uniform Commercial Code”, many young practitioners think only of Article 9 on Secured Transactions.  Which is not unreasonable; Article 9’s forms are labeled “UCC”, not “UCC 9.”  The UCC, of course, contains many more articles, and even if one is dealing only with secured tranactions, concepts from all the other articles interact with Article 9.  Thus, it is important even for an Article 9 practitioner to understand the ways in which all the articles work with one another.

While most lawyers are probably aware and at least moderately conversant with Article 1, which contains definitions applicable to the entire UCC, and Article 2 on sales, they may have had less exposure to some of the other articles. 

In our seminar, a diverse panel of experts on the UCC will explore how Articles 1, 2, 2A, 3, 4, 5, 7 and 8 work with Article 9, and how “Article 9 expertise” is inadequate without an understanding of the entire UCC.  (We omitted Articles 4A, on funds transfers, because the panel was already large; Article 6 has been repealed in nearly every state). 

While it is impossible in a 90 minute presentation to cover every way in which Article 9 practitioners might refer back to the other articles, the panel will cover many of the highlights of the relationship among the articles of the UCC. 

Article 1 (General Provisions) contains definitions that are used throughout the UCC, as well as basic concepts, like choice of law and good faith, that are critical to practice in Article 9.  When looking for the meaning of a word in Article 9 that is not defined in Section 9-102(a) or elsewhere in Article 9, it’s always best to look at Article 1.  Article 1 also containst the “traffic cop” provision that determines whether a transaction falls under Article 2A or Article 9. 

Article 2 (Sales) directly invokes Article 9 when a seller attempts to retain title, and concepts of sale on approval or return that are closely related to secured transactions.  Article 2 sellers are often unaware that their documents create a security interest, and that failure to perfect that security interest will leave them with far fewer rights in goods they have sold than they believed.

Article 2A (Leases) (with an assist, as noted above, from Article 1) contrasts the concepts of “true lease” and a lease that is a disguised secured transaction.  The determination of which basket a transaction will fall in is a matter of substance and not of label.  Indeed, it’s often the case that it is worth documenting a transsaction both ways, just to make sure that the desired outcome is achieved.  Any practitioner dealing with something denominated a lease should consider it from both an Article 2A and an Article 9 perspective.  The UCC-1 form contains a check box that allows the secured party to give notice that the transaction is intended to fall within the “lessor/lessee” relationship, rather than debtor and secured party, although the statute contains no penalty for checking it when it is proven to be incorrect.

Article 3 (Negotiable Instruments) includes a whole category of Article 9 collateral, but also the holder in due course rule, which requires that an instrument be negotiable under Article 3, can indirectly determine who has title to goods paid for with the instrument. 

Article 4 (Bank Deposits and Collections) looks to Article 9 when determining whether someone claiming to have given “value” for holder in due course status can use its status as a secured party to prove it. 

Article 5 (Letters of Credit) also governs a whole category of Article 9 collateral, one which is often a “supporting obligation” as well.

Article 7 (Documents of Title) governs some but not all of the Article 9 collateral category of “documents”.  It also contains concepts relating to rights of warehouses that can contrast with the rights of secured parties.

Article 8 (Investments Securities) and Article 9 may interact the most of any two UCC articles; the concept of “control” in Article 9 first was adopted in Article 8 and spread.  When dealing with investment property, a practitioner will realize that flipping back and forth and back again between the two articles can be dizzying, but is necessary to ensure that a security interest in investment property can be created and perfected.