THE REVI SED ART! CLE 9 OF THE UN I FORM
COMMERCIAL CODE IN TEXAS
BOB SCOTT
THE REVISED ARTICLE 9 OF THE
UNIFORM COMMERCIAL CODE IN TEXAS
This article is designed to acquaint the practitioner in Texas with +he
newly enacted changes to Article 9 of the Business and Commerce Code.
changes became effective January '1 , 1974.
These
Some of the revisions substantially
change the effect of the Code; however, other revisions present only a minor
change in form.
In some cases, entire sub-divisions have been added. · In
most cases these revisions were necessitated by the ambiguities that existed
in the prior Code.
No one article could be written to take the place of
your own thorough research in the Code; however, this article is designed
to point out the revisions that effect the day-to-day practice.
Section 9.103, "Perfection of Security Interests in Multiple State
Transaction s " is a completely rewritten section of the Code.
As is evident
by the title and a reading of this section, it deals specifically with perfection only.
interests.
No mention is made of priorities in conflicting security
The section is sub-divided into five major categorie s; "Documents,
Instruments and, Ordinary Goods", "Goods Covered By a Certificate of Title",
"Accounts, General Intangibles, and Mobile Goods", "Chattel Paperll, and
"Minerals" .
As to perfection concerning the first category, "Documents, Instruments
and Ordinary Goods", the revision states that unless otherwise provided the
jurisdiction where the last event occurs leading up to the claim of the security
inte r e s t is the governing law as to the time and effect of perfection of the
security interest. l
It is noted that the last event is usually the filing of
the Financing statement.
2
However, this is not always the case.
Further, if
a purcha s e money security interest in goods is created and at the time of
attachment the parties intend to keep the collateral in another jurisdiction, then the iaw of the second jurisdiction governs the perfection
for thirty days after possession is taken, and continues if the goods
are in fact taken to the second jurisdiction within the thirty-day period .
3
This section does not set forth a , thirty-day grace period in which no filing
is required, it merely states the, period during which the other jurisdiction
'h
t e proper p I ace f or f'l'
~ ~ng. 4
~s
It should be noted that this only applies
to purchase money security interests.
In cases where the collateral is brought into this state burdened with
a security interest p£Ui£e:ct:<id in the state from which the collateral was removed, the security interest remains perfected.
However, if perfection of
a security interest is required in this state by Section 9.301 et, seq, to
maintain priority, the out-af-state security interest remains effective no
longer than four months and it will remain perfected for a shorter period
than four months if the period of perfection in the other jurisdiction expires
within the four-month period.
If no filing is made in this state (the state
where collateral is removed to) within the four-month period, then any purchaser of the collateral who bought after the transfer to this state, has
priority.
If action is properly taken in this state within the four-month
period , the security interest continues as originally perfected.
5
The safest
and least expensive method that the secured party may use to determine whether
or not his security interest in this type
collate~al
has priority, is to be
certain that it has been 'in this jurisdiction for at least four months.
If
the collateral has been within this jurisdiction for more than four months,
and the secured party runs the normal U.C.C. search within this state, then
he can be assured of his position 'concerning the collateral.
, -2-
6
The second area of application applies to goods covered by a certificate of title, which by the statute of any state requiresthat indication
of a security interest on the certificate is a prerequisite for perfection.
7
Except as otherwise provided, the law of the jurisdiction issuing ' the certificate governs the perfection and effect of perfection for at least four
months after removal, and continues after the four-month period until the
goods are registered in another jurisdiction, but in no event after the
surrender of the certificate.
A security interest perfected in another jurisdiction other than by
notation on a certificate of title on collateral that is then brought into
this state, and thereafter covered by a certificate of title issued by this
state is governed by the rules as set forth in Section 9 .• 03(a) (4).
How-
ever, this does not apply to a buyer of goods who is not in the business of
selling goods of this type, to the extent that he gives value and receives
delivery after issuance of the title in this state.
In the case of a buyer (mentioned above), of goods brought into this
state and the goods are perfected in any manner in the former state, and a
certificate of title is issued in this state , and no notation is made on the
certificate of title concerning the prior perfected security interest
~
the
possibility of a prior perfected security interest then the ,security interest
perfected in the former state is subordinate to the rights of the buyer in
this state.
Notice that this not only concerns any notation on the certificate,
but also a notation concerning the possibility of a prior perfected security
interest.
The next general area is "Accounts, General Intangibles, and Mobile
Goods".
b;
The mobile goods must be of the type not covered"a state certificate
of title statute.
In these cases the law ,of the jurisdiction in which the
-3-
debtor is located governs the perfection and effe c t of perfection of a
,
secur~ty
, 8
~nterest.
,
h
Pr10r to t e 1973 amendments the place where the
debtor kept his records controlled the question of filing in such transactions.
Under the revisions, the debtor shall be deemed located at his
place of business if he has one, and if he has more than one place of
b usiness , then a t his chief executive office, otherwise at his residence.
9
Section 9.103(c) (5) speaks to the question of what happens when the
debtor changes his location to another state.
It states that if the security
interest is perfected under the law of the first jurisdiction, it will remain
effective for four months after the removal by the debtor , or until perfection would have ceased by the law of the first jurisdiction , whichever occurs
first .
Unless perfected in the new jurisdiction prior to that time , it be-
comes pnperfected after that time and is ' subordinate to any person who becomes a purchaser after the removal.
The next section covers "Chattel Paper".
The Code states that the
rules as set forth for goods in Section 9.l03(a) applies to a possessory
security interest in chattel paper.
The
rules as set forth for accounts
,
,
in Section 9.l03(c) applies 'to a non-possessory security interest in chattel
papers; however , a security interest may not be perfected by
a notification
to the account debtor as set forth in Section 9.103(c) (3).
A new section has been added concerning "Minerals".lO
The perfection
and effect of perfection of a security interest in minerals before extraction and which attaches as extracted or which attaches to an account resulting from the sale thereof, at the wellhead or minehead, are governed by the
law of the jurisdiction wherein the wellhead or minehead is located.
The
Code provides for filing in the real estate records in the jurisdiction where
the wellhead or rninehead is located .
11
-4-
The next section to be considered is 9.105 dealing with definitions.
The definitional reference to "contract rights,,12 has been deleted from
this section; however, the term account has been expanded to cover this
term.
13
The following new definitions have been added:
Deposit Accounts - Covers most accounts maintained with any
money lending institution :other than an account evidenced
by a certificate of deposit.
Encumbrances - Includes mortgages, other liens on real
property and other rights in realty that are not ownership interest.
Mortgage - A consensual interest created in r e alty .
An advance pursuant to a commitme nt - If the secured party
was originally bound to make it, whether or not a subse que nt event of default or other events , not within the
se c ured party's control has relieved or may relieve him of
thi s obligation. This added definition has made it clear
that an advance is not "pursuant to a commitment" if the
secured party may relieve himself of the obligation by any
frivolous action by the deb~or.
Goods - Has been limited to exclude minerals before extraction. Here again, the draftors were attempting to make it
clear that minerals before extraction are to be considered
realty.
In Section 9.l05(b) , numerous additional definitional references were
added.
Some of the major changes from the prior, code include:
Construction Mortgage - Section 9.3l3(a) (3) - a mortgage
that secures an obligation incurred for the construction
of improvements on land including the acquisition cost
of the land, if ,the recorded writing so 'indicates.
Fixture - 9.3l3(a) (1) - goods that become 'so related to
particular real estate that an interest arises in them
under the real estate law of the state in which the real
estate is located.
Fixture Filing - 9.3l3(a) (2) - Filing in the office where
the mortgage on the real estate would be recorded.
The next section to be considered is a new section in the code,
"Consignments" Section 9.114.
Prior to the 1973 amendments the question
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as to the right of the consignor versus t he right of the secured party
with a perfected s e curity interest wa s a nightmare to lawyers r e presenting
both sides.
It appeared to hold that the consignor could defeat the rights
o f a prior or subsequently perfected security interest if he took one of
three s teps.
14
First, if he complied with an applicable law dealing with
a consignor's interest or the like to be evidence d by a sign.
It should
be noted that Texas does not have such a law; therefore, this point should
not have been the subject of litigation in Texas.
point is a different matter .
lS
However, the second
It states that if the consignor could establish
that the person conducting the business is generally known by his creditors
to be substantially engaged in .the selling of goods of others, then his interest
would defeat the rights of a secured party who had perfected by filing.
It
is evident by reading this section that it is plagued with ambiguities. ' At
what point in the business transaction is a ,seller "generally known by his
creditors" to be "substantially engaged" in sellin'g the goods of others?
There is little case law on this point.
In the Von ins case , supra, (see
note 15) the court found uncontroverted evidence that approximately ten of
the consignee's creditors did have this general knowledge; however, approximately 55 creditors did not know of the consignment.
On these facts, the
court found that this consignment was not generally known by the creditors.
The third step under the old Code was for the consignor to comply with
the filing provisions of Article 9 of the uniform Commercial Code.
As one writer has stated, "the Code's handling of consignments is
.
II
. 16
f raugh t W1' Lh uncertalnty
Further complications arose on the question of whether or not the consignment was for the purpose of creating a security interest, or merely a
general consignment.
It has been successfully argued in some , jurisdictions
-6-
that if the consignment was for the purpose of creating a security interest
then the entire matter is governed by Article 9.
17
It can be seen that under the old Code, the consignor could have a
"secret lien" in the collateral.
The only effective method that a secured
party could use to be sure that his filed financing statement was, and would
remain effective, would be to police all invoices received by the debtor to
determine whether or not the collateral was received on consignment.
,The
drafters of the Code realized that this placed an undue burden on the secured
,party, and the new article, 9.114, was proposed.
The new section clearly provides that even if the consignment is 'not
to be taken as a security interest, certain steps must be taken by the consignor to maintain pr1ority.
The section provides that for the consignor to
have priority over a security interest holder who has a prior financing statement filed, he must;
(1)
File before the consignee receives possession of the goods,
and
(2)
Give notice in writing to the holder of the security interest
who has filed a financing statement, before the date of the
filing by the consignor, and
(3)
The notice to the holder of the financing statement must be
within five
ye~rs
before the consignee receives possession,
and
(4)
The notice must state that the consignor expects to deliver
goods on consignment to the consignee, describing the goods
by item or type.
If these four steps are not taken, the consignor will be subordinate to
the rights of the perfected secured party.
Implicit in this new section is
the point that if the consignment is to be a security interest, then the filing
provisions of Article 9 govern.
-7-
Section 9.203, "Attachment and Enforceability of Security Interest;
Proceeds, and Formal Requisites", has been revise d to clarify that a security
interest is not enforceable and does not attach unless the following requirements are met :
(1)
The collateral is in the possession of the secured party,
con sent of the debtor, or the debtor has signed a
security agreement that describes the collateral, and
£Z
(2)
Value has been given, and
(3)
The debtor has rights in the collateral.
It is further clarified that attachment does in fact take place as
soon as the above events occur, unless the parties make explicit agreement
to postpone the time of attachment.
18
A further addition has been made that no affirmative action must be
taken by the secured party to maintain a security interest in the proceeds.
section 9.204, "After Acquired Property; and Future Advances" .
19
Portions
of this section are now contained in Section 9.203 concerning when a security
inte r e s t attaches.
Also , deleted from this section is the reference that no
s e c urity interest attached under an after-acquire d property clause concerning
crops.
The practical effect of this
revi~ion
places crops, as is other
collateral, under the five-year duration of the financing statement .
,to the 1973 amendments, examples
in specific collate ral.
~ere
20
Prio r
listed to show when , the debtor had rights
These specifi,c , examples have been deleted.
There is
no definition in the Code as to 'when the debtor receives rights in the collateral;
therefore, this must be determine d on a case-by-case basis.
Section 9.301, "Persons ,Who Take Priority Over Unperfected Security
Interests; and Rights of Lien Creditors" , has been somewhat revised.
Section
(a) states that except as otherwise provided in sub-section (b), an unperfected
' security interest is subordinate to the rights of (2) a person who becomes a
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lien creditor before the security interest is perfected.
Prior to the
1973 amendments, this prior lien creditor also had to be without knowledge of the existing security interest.
Also included in the coverage
of section (a) is the buyer of farm products in the ordinary course of
business, to the extent that he gives value and receives delivery of the
collateral without knowledge of the security interest, and before it is
perfected.
Due to the change in Section A-2 concerning lien creditors, the
statement in the old Code that "unless all the creditors represented had
knowledge of the security interest, such a representative of creditors is
a lien creditor without knowledge even though he personally has knowledge
of the security interest", has been deleted.
A new sub-section (d) provides that a person who becomes a lien
creditor after a security interest has been perfected is subordinate to
the security interest, only to the extent that the perfected security
interest;
(1)
Secures advances made before he became a lien creditor,
or
(2)
Advances within forty-five days thereafter, or
(3)
Advances made without knowledge of the lien, or
(4)
A d vances
'
21
rna d e pursuant to a comm1trnent
entered into
without knowledge of the lien.
The practicalities of this sub-section are simple.
Assume the secured party
has filed a financing statement on equipment on January 15, 1974 and the
lien creditor obtains a judgment lien and files it on February 1, 1974.
Further assume that the secured' party has made a commitment for future advances
on February 1, 1974.
The secured
par,t~
can make the future advances if, at the
time the commitment was made, the secured party had no knowledge of the lien
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creditor.
I t is obvious by the Code that the secured party can now always
make advances within the
fo~y-five
day · period.
This is in accordance with
26 U.S.C. § 6323(d) which states that even though notice of a tax lien has
been filed, such lien will not take priortiy over a pe rfe cted security
interest which carne into existence within forty-five days after the tax lien
was filed.
Section 9.302, "When Filing is Required to Perfect a Security Interest;
and Security Interest To Which Filing Provisions of This Article Do Not Apply".
This section sets forth the cases when filing is generally not required, and
all that is necessary to bbtain a valid security interest is;
(1)
Execution of a security interest or possession by the
secured party, and
(2)
The secured party giving value , and
(3)
The debtor ·having rights in the collateral.
Prior to the 1973 amendments, a purchase money security interest in farm
equipment having a purchase price not in · excess of $2,500.00 "as
to be filed.
22
This section has been deleted by the revision :
no~
required
Tne purpose
of the original draft was to benefit the farmer; however, from a practical
standpoint the provision made it more difficult for the farmer to obtain financing.
The $2,500.00 limitation applied to each piece of equipment, there-
fore , the farmer could have obtained thousands of dollars worth of equipment,
which he could have used later as collateral, but no one piece exceeded $2,500.00
in value so no records would . show that it was burdened with a security interest.
A new section has been added to the list of security interests that do
not require filing; a security interest created by an assignment of a benefic ial interest in a trust or a decedent's estate.
-10-
23
A new sub-section C provides that the filing of a financing statement
otherwise required by this chapter is not necessary or effective to perfect
a security interest in property ' subject to; (2) the following state statute,
V.A.C.S. Art. 6687-1 "Certificate of Title Act",.24 However, during any period
in which collateral is inventory held for sale by a person who is in the
business of selling goods of that kind, the filing ,provisions of Section 9.401
et. seq. apply to any security interest taken in that collateral created by
him as debtor.
Therefore, when floor plan financing a dealer in the automo-
bile business, the filing provisions concerning inventory must be complied
with.
Sub-section D provides that when compliance with the abovementioned
statute has been made, then this is equivalent to filing a financing :, statement.
The duration and renewal of perfection are also governed the appli-
cable state statute.
Section 9.306 concerning proceeds has been extensively revised.
Prior
to the 1973 amendments it was questionable whether or not insurance was proceeds.
The amendments clearly state that insur'a nce payable by reason of loss
or damage to the collateral is proceeds, except to the extent it is payable
to a person other than a party to the security agreement.
25
The safest way
for the secured party to protect himself is to make the insurance policy payable to himself.
The security interest in proceeds now seems to be automatic,
and there is no need to check the proceeds box on the financing statement.
However, it should be noted that the security interest in proceeds becomes
unperfected ten days after receipt of the proceeds by the debtor unless;
(1)
A filed financing statement covers the original collateral
and the proceeds are the type ,collateral in which a security
interest could be perfected by filing at the same office as
the original financing statement. If the proceeds are acquired
with cash proceeds, the description of the collateral in the
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original financing statement must be broad enough to
cover these proceeds, or
(2)
If a filed financing statement covers the original
collateral and the proceeds are identifiable cash
proceeds, or
(3)
A security interest in the proceeds is perfected before
the ten-day period ends. 26
To receive the most favorable treatment possible . under this section,
it will be necessary for the financing statement to describe the collateral
in as broad of terms as possible.
However, since it is impossible to always
make the financing statement broad enough to cover any type collateral the
debtor may receive in exchange, the secured party must police his accounts
and make the proper filing within the ten-day period as authorized by the
Code.
In the event of insolvency, the secured party ' s interest in proceeds
is limited to;
( 1)
In identifiable non-cash proceeds and separate deposit
accounts 27 containing only proceeds. The last portion
of this section is an addition by ·the 1973 amendments.
(2)
In identifiable cash which is not co-mingled and not
deposited in a deposit account prior to insolvency .
He re again, the revisions substituted deposit account for
bank accounts. As a practical matter, this section will
probably provide the secured party with very little funds,
since i t only amounts to the cash on hand of the debtor.
(3)
In identifiable cash proceeds in the form of checks not
deposited prior to the insolvency proceeding.
(4)
The secured party will have an interest in all cash and
deposit accounts of the debtor in which proceeds have
been co-mingled with other funds; however, the perfected
security interest under this sub-section 4 is
(a)
' (b)
Subject to any right of set-off, and
Limited to an amount not greater than the cash proceeds
- received by the debtor, within ten days prior to the
filing of the bankruptcy petition less the sum of (1)
the payments to the secured party on account of cash
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proceeds received by the debtor within the abovementioned ten-day period, plus (2) any cash proceeds
received by the debtor within the ten-day period to
which the secured party is entitled under sub-section
(1) through (3) of sub-section (d).
Prior to the 1973 amendments, the limitation on the co-mingled accounts
was an amount not greater than the cash proceeds received by the debtor within
ten days prior to the filing of the bankruptcy petition, less only the cash
proceeds received by the debtor and actually paid
~
to the secured party
during the ten-day period.
Protection of buyers of goods is covered by Section 9.307.
Due to the
change that has been menllioned::ial>o>ve in Section 9.302, a buyer of farm equipment, regardless of the purchase price-, must now check the filing records.
After the revision, if farm equipment is collateral, regardless of its value,
the filed financing statement will defeat a buyer without knowledge of the
financing statement.
28
A new sub-section C has been added to the Code .
It states that a buyer
other than one in the ordinary course of business takes free of a security
interest; to the extent, that;
(1)
(2)
It secures future advances made after the secured party
acquires knowledge of the purchase by the buyer, or
Future advances made more than forty-five days after the
purchase, whichever occurs first, unless made pursuant
to a commitment entered into .without knowledge of the
-purchase and before the expiration of the, abovementioned
forty-five day period.
Only minor changes were made in -Section 9.308, "Purchasers of Chattel
Paper and Instruments".
The reyised portion states
~hat
a purchaser of
chattel paper or an instrument who gives new value -and takes ' possession of it
in the ordinary course of business has priority over a security interest in the
chattel paper or instrument,
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(1)
Which is perfected under Section 9.304 (permissive
filing and temporary perfection) or under Section
9.306 (perfection as to proceeds) if he acts without
knowledge that the specific paper or instrument is
subject to a security interest, or
(2)
Which is claimed merely as proceeds of inventory subject
to a security interest (9.306) even though he knows that
the specific paper or instrument is subject to the security
interest.
Prior to the 1973 amendments, the instrument had to be a non-negotiable
instrument.
In Section 9.312, "Priorities Among Conflicting Security Interests
in the Same Collateral" several references to other sections are excluded
by the amendments and new references ,to' Section 9,103 6ri :multiple state
transactions, and ' Section 9.114, on consignments ha's been added •
"
The revised
,
su,) -section C now states that a perfected purchase money security interest
in inventory also has priority over 'a ' conflicting sec'urity inter~st,~ in the
identifiable cash proceeds received on or before the delivery of the inventory to a buyer if;
(2)
the purchase money secu~ed
writing (prior to ' the 1973
required) to the holder of
interest if the holder had
covering the same types of
(i)
(ii)
party gives notification in
amendments a writing was not
the conflicting security
filed a financing statement
inventory.
before the date of the filing made by the purchase
money secured party. or
before the beginning of the 2l-day period when the
purchase money security interest is temporarily perfected without filing or possession by sub-section
E of Section 9.304. 29
Part (ii) above was added by the 1973 amendment.
Prior to these amendments,
there existed an additional requirement that notification had to be sent to
, any "secured party whose security interest is known". to the holder of the
purchase money security interest.
Now only those of record must be notified.
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The abovementioned notice must be received by the secured party within
.
..
.
30
·
f 1ve
years be f ore t h e debtor rece1ves
possess10n
0 f th e 1nventory.
In sub-section E, dealing with priorities between conflicting security
interests in the sarne collateral not governed by other rules, there was
a substantial change, whereby the revisions clarified that conflicting
s e curity interest are to rank according to the first to file or perfect,
whichever occurs first, and as long as the conflicting securitY ' interests
are unperfected, the first to attach has priority.
leads to equitable results.
The first to file rule
Any secured party who would have reason to
question what position he would take, can always check the records.
The
revision takes care of many of the questions concerning priority that were
raised by the forrne'r Code .
To conform to the other revisions concerning proceeds, sub-section
(f) has been changed to clarify the point that for the purposes of sub-section
(e), supra, a date of filing or perfection as to collateral is also a date
of filing or perfection as to proce e ds.
A new sub-section (g) , has been added which states that if futurs:' advances are made while a security interest is perfected or if a commitment
is made before or while ' the security interest is perfected , the priority
will relate back to the time of the original filing of the security interest;
however, this is operative only in relation to sub-section (e) above. , In
other cases a perfected security interest has priority from ,the date the
advance is made.
One section that received a complete face-lifting deals with priority
f 1xtures.
'
31
.
.
.
o f secur1ty
1nterests
1n
TO better understand the scope of
the change a section by section analysis i s required.
,
of fixtures is vague at best.
32
The Code's definition
A look at the Texas cases concerning fixtures
- J5-
does little to c l ear the air.
Hutchins case.
33
The landmark Texas case in this area is the
That court stated that the criteria for determining whether
a chattel has become fixture is three-fold;
(1)
Has there been real or constructive annexation of the
chattel to the realty,
(2)
Was there a fitness or adaption of such articles to the
use or purposes of the realty with which it is connected,
and
(3)
Was it the intent of the parties making the annexation
that the chattel should become a permanent accession of
the freehold?
The court further states that as to these three tests, pre-eminence
is to be given to the question of the 'intention to 'm ake the article a permanent accession to the freehold.
The Fifth Circuit has stated in a more
recent case that the criteria as set forth in Hutchins, supra, is the law
, ",
' ,
34
in Texas to determine whether or not a chattel has become a fixture.
Other courts have added other criteria, but the basic three questions remain.
35
These definitions are well and good as long as' your case does not fall into
that "gray area".
It is· clear that items such as light fixtures, and buil t-
in heating and air conditioning equipment are fixtures.
However, many writers
feel that the case of a mobile ' home upsets the tranquility that the Code seeks
to maintain .
It is the opinion of this writer that Texas has settled the law
concerning those 'Imustic mobile homes".
provisions of the Uniform Commercial code
After a comparison of the relevant
36
with the Texas Certificate of
Title Act,37 it appears that Texas has taken mobile homes out of the possibility of fixture filing.
First, one must understand the possible pr,,,,blems
that mobile homes can cause.
Is the six feet by fourteen feet self-contained
' mobile home, which is on wheels in your neighbor's backyard a fixture?
What
about the twe lve feet by seventy-two feet deluxe model that is sitting on
concrete blocks at the local trailer park, and in fact has not moved for eight
_1
c._
years?
38
. Is the fact that it ·no longer has wheels controlling?
difficult is it to put wheels back under the mobile home?
How
Is it not
possible for it to be a chattel today, a fixture tomorrow, and next
week change back to a chattel?
After seeing these problems, the approach
of the drafters of the Code in Section 9.302(c) (2) is very logical.
This
section states "the filing of a financing statement otherwise required by
this chapter (Chapter 9 which includes 9.313 Fixture Filing)39 is-not
necessary or effective to perfect a security interest in property subject
to; (2) the following statute. of this state; the Certificate of Title Act.
The drafters of the Code could not have been more explicit.
A financing
statement .is not required, in fact not effective, to perfect a security
interest in property subject to the Texas Certificate of Title Act.
Now
to see what the purpose of the Certificate of Title Act is, and what property is subject to this Act.
The Act states in Section 1 ..... it is hereby
declared to be the legislative intent of this State to lessen and prevent
. • . the sale of encumbered ••• house trailers ••• without the enforced disclosure ·t o the purchaser of · any and all liens for which any such .•• house
trailer stands as security, and the provisions hereof, singularly and
collectively, are to be liberally construed to that end. ".
" •• ; the term
motor vehicle ••. shall be construed to include house trailers."
Sub-section
, 2" states, "the term motor Vehicle . c. "'includes house trailers".
Sub-section 2a states, "the term house trailer means a vehicle without
automotive power designed for human habitation and for carrying persons and
property upon its structure and for being drawn by a motor vehicle."
Sub- s e ction 3 states, "the tenn lien means a security interest, as
defined in Section 1.201(37), of the Business and Commerce Code, created
by every kind of lease, · conditional sales contract, deed of trust, chattel
-17-
mortgage, trust receipt, reservation o f title,
~
other written security
agreement ..• of whatsoever kind or character whereby an interest, other than
an absolute title is sought to be held or given in a motor vehicle, and
means any lien created or given by the constitution or statute in a motor
vehicle. ",
section 33 states, "no motor vehicle may be disposed of at a subse-
quent sale unless the owner designated in the Certificate of Title transfers
the Certificate of Title in a form prescribed by the Department before a
Notary Public.
The form shall include .•• an affidavit to the effect that the
signer is the owner of the motor vehicle, and that there are no liens on
the motor vehicle except such as are shown on the Certificate of Title or
are fully described in the affidavit."
Sub-section 41 states, "except for a security interest in motor vehicles
held by the debtor or other mortgagor as inventory40 a security interest or
other lien in a motor vehicle that is the subject of a first or subsequent
sale may be perfected only
~
notation of the lien on the Certificate of
Title in accordance with this Act,'
A security interest or other lien in
a motor vehicle held by a debtor or other mortgagor as inventory may be
perfected only by compliance with .Chapter 9 of the Business and Commerce
. Code."
Sub-section 42 states, "presentation of an application for a Certificate
of Title with the lien disclosed therein and tender of the filing fee to the
designated agent of the Department or acceptance of the application by the
designated agent of the Department constitutes motations of the lien under
this Act."
· Sub-section 51 states, "it shall ):>e unlawful for any person, either by
himself or through any agent, . to offer for sale or to sell,
-18-
~
to offer as
security for any obligation any motor vehicle registered or licensed in
this State without then and there having in his possession the proper '
Ce,":tificate of Title concerning the motor vehicle so offered."
. ~
And finally, Section 9.302, sub-section (d) states that compliance
with this statute is equivalent to the filing of a financing statement
under this chapter, and a security interest in prope rty subject to this
statute can be perfected only
in sub-section 9.103
~
~
compliance therewith except as provided
Multiple State Transactions.
It is evident that the drafters of the Code felt that it was much
easier for a party dealing with a security' interest in a mobile' horne, or
dealing with a security interest in r e alty on which a mobile horne was
affixed, to simply check the Certificate of Title for notation of a lien ,
and not play "Russian Roulette" with the question of whether or not the
mobile horne had become a fixture.
No support can be found in the U.C.C.
or the Certificate of Title Act for the proposition that a mobile horne
should be treated any differently than any other "motor vehicle".
The amendments have also added a new term known as "fixture filing".42
The Code defines this term as a filing in the office where a mortgage on
the real esta.t e would be filed or recorded.
This filing must conform with
the requirements as set forth in Section 9.402(e) .43
It is clear bya
reading of Section 9.313, and Section 9.402(9) that a secured party could
have a valid security interest in personal property and if it is later
used in such a manner so as to become a fixture under the Real Estate
Law of Texas, then unless the secured party complies with the fixture
filing provisions, he could lose his security interest.
.
44
Another new term "construction mortgage" has been added.
A
mortgage is a construction mortgage to the extent that it secures an
-19-
obligation incurred for the construction of an improvement on land
including the acquisition costs of the land if the recorded writing
so indicates .
Other new changes in the Code deal with priorities of a perfected security interest in fixtures versus a conflicting security
interest of an encumbrancer or owner of the realty.
The Code lists four major areas in which the perfected security
interest in fixtures takes priority.
First, if the security interest
in fixtures is a purchase money security interest, perfected by fixture
filing before the goods become fixtures or within ten days thereafter,
the conflicting security interest of the owner or encumbrancer arises
before the goods become fixtures, and the debtor has an interest of records
in the real estate or is in the posseSsion ' of the realty.4S , It should be
noted that the debtor must have ,a n interest in the realty; . ,therefore, the
usual supplier or contractor who does not have an interest in realty would
not qualify for this section.
,
.'
Also', this section only applies to purchase
money security interest in fixtures.
Secondly, if the security interest in the fixture is perfected by a
fi~ture filing before the interest of the encumbrancer or owner is of
record, and the debtor has an interest of record in the real estate or is
in possession of same, then the fixture, filing has priority over any conflicting interest of a predeceasor in title of the encumbrancer or owner .
46
•
Thirdly, if the fixtures are readily removable factory or office
'
,
'
47 Wh'1C h
mach 1nes,
or read11y
removable rep1 acement" of domest1c app l 1ances
are consume r goods , and before the goods become fixtures, the security
interest is perfected in any method permitted by this chapter.
tical effect of this provision is very logical.
20
48
The prac-
A secured party having an
interest in the realty would probably not expect such items to fall
within the collateral covered by his security interest.
It must be
noted that the security interest in the above items must be perfected
before the goods become fixtures for the provision to be effective.
Also, this is one of two places in section 9.313 where the security
interest in fixtures may be perfected by any me thod permitted by this
chapter.
However, for the practitioner, dealing ' in these type fixtures
the best procedure would be to file in the chattel records, and also
the realty records.
As is evident, this is not necessary, but the
additional cost might be well worth the effort.
The ,Code handles the definition of "readily removable factor
and office machines" and "readily removable replacement of domestic
appliances" in the same manner as it does fixtures.
In other words,
the class of collateral that is covered by these provisions is not
clearly defined.
A further area that, is covered by these provisions concerns the
conflicting security interest that is a lien on the real estate obtained
by legal or equitable proceedings 'after the security interest was perfected
by any method permitted by this chapter.
49
Here again, the security interest '
ma y be perfected in any manner, not necessarily by fixture filing.
This
section was probably added by' the drafters to cover the trustee in bankruptcy situation.
As stated earlier, the ' logical reason for this is that
the lien creditor obtaining such an interest in the real estate would not
expect to obtain an interest in these , fixture items also.
Sub-section (e) of section' 9.313 now covers the right of an unperfected
security interest in fixtures versus 'the conflic't ing se.curity interest of an
encumbrancer or owner of the realty.
There are two specific situations
, 21
wherein, even an unperfected security interest in fixtures, will take
priority.
First, if the encumbrancer or owner has consented in writing
to the security interest or has disclaimed an interest in the goods or
fixtures.
50
No reliance can be placed on the oral .consent of the realty
owner.
Secondly, if the debtor has a right to remove the goods as against
the encumbrancer or owner of the realty.
51
This would cover the situation
where the debtor is a tenant and has no interest in the realty.52
The 1973 amendments added sub-section (f) to 9.313 which in .effect
states that you must file a fixture filing prior to the filing of a construction mortgage or do not take a security interest in goods that become
fixtures before the construction mortgage is filed, and the construction
is completed.
The best practical way to get around this problem is to obtain
the written consent provided by Section 9.3l3(e) (1) •
A catch-all section has been added which states that in all other
cases not covered by this section, a security interest in fixtures is
subordinate to the conflicting security interests of an encumbrancer or
owner of the real estate who is not the debtor.
53
Finally, the last sub-section of Section 9.313, sub-section (h),
states that when the secured party who has fixtures as collateral takes
priority over an owner or encumbrancer of the real estate, he may on default, subject to the provisions in Section 9.501 et. seq., remove his
collateral from the realty but he must reimburse any encumbrancer or owner
of the realty, other than the debtor, for any physical injury to the realty.
However, he is not liable for any loss in the value of the realty caused
by the absence of the goods removed, or by the necessity of replacing them;
-22-
Also, the party entitled to reimbursement may refuse permission to remove
the goods until the secured party gives adequate security
of this obligation.
fixture may be.
~or
the performance
This provision raises the question of how , "affixed" the
The cases which ' t~rn on the fact that the fixture must be
IIr/!!...
.
.
easily removable ...,. dl.lUl.nJ.shed somewhat by this ·section.. in that it holds
some damage may be done to the realty since reimbursement i~ ordered if
necessary.
AS is evident by reading the above, the treatment of fixtures by the
Code has been completely revised by the 1973 amendments.
For example, prior
to the amendments the Code provided that if the security interest in goods
had attached before the goods had become fixtures, then the secured party
having fixtures as collateral would prevail over other parties who had an
interest in the realty (mortgages and liens) .54
NOW it is clear that a fixture filing is essential for the secured
, party to have priority with three basic exceptions;
(1)
Readily removable office and factory machines and
replacement of domestic appliances;
(2)
Priority against a holder of a lien obtained by legal
or equitable proceedings (trustee in bankruptcy), and
(3)
Tenant ' s Fixtures .
.
Minor changes have been made concernl.ng
the place
0
f f'l'
l. l.ng. 55
The
main changes were made ' to confo'rrn with the new fixture filing provisions
of the revised Code.
Sub-section (a) (2) of Section 9.401 , has been changed
to read that when the collateral is timber to be cut or is minerals or the
' like (including oil and gas) or accounts subject to sub-section (e) of
settion 9.103, or when the financing statement is filed as a fixture filing
(Section 9.313) and the collateral' is goods which are to become fixtures,
then filing shall be in the office of the County Clerk in' the county where
, -23-
a mortgage on the real estate would be filed.
Also, a change to conform
with Section 9.l03(c) (4) has been made to state that for the purposes of
this section, the residence of an organization is its place of business
if it has one, or its chief executive office if it has more than one place
of
.
bus~ness.
56
The drafters of the Code are clearly seeking to pin-point
the place of management of the corporation.
This is the logical place
for a party to look when filing his U.C.C. request for information.
Similar changes have been made with respect to the formal requisite of
the financing statement. 57 . The financing statement must include the names
and addresses of the debtor and the secured party; however, it .is no
longer mandatory that the secured party sign the financing ::statement.
58
It . was further added by the amendments that when a financing statement
covers timber to be cut or covers minerals or the like, or accounts
subject to sub-section E of Section 9.103, or when the financing statement
is filed as a fixture filing (9.313) and the collateral is goods which
are or are to become fixtures, the financing statement must also comply
with sub-section (e).59
A copy of the security agreement signed solely by the debtor is
.
·
su·Jff·~c~ent
as a f·1nanc1ng
stat ement. 60
It is also further provided that a carbon, photographic, or other
reproduction of a security agreement or a financing statement is sufficient
as a financing statement if the · security agreement so provides, or if the
original has been filed in this State.
The statement in the prior Code
that "the party attacking the effectivenes·s of a filing has the burden of
establishing that the secured party knew at the time · he filed the financing
statement that the name entered on the financing statement was not that of
the record owner," has been deleted by the 1973 amendments.
-24-
Two new subdivisions have been added to aid the secured party
who files a financing statement that is signed solely by the secured
party.
61
The above mentioned financing statement is effective if filed
to perfect a security interest in;
(3)
Collateral as to which the filing has lapsed, or
(4)
Collateral acquired after a change of name, identity
or corporate structure of the debtor.
The 1973 amendments make it clear that a financing statement may
be amended by filing a writing signed by both the debtor and the secured
party; however, the amendment does not extend the period of the effectiveness
0
f
62
"
t h e f 1nanc1ng statement.
A new sub-section (f) provides that a mortgage may be effective as
a financing statement filed as a fixture filing from the date of its
filing if;
(1),
The goods are described in the mortgage by item or
type,
(2)
The goods are, or are to become fixtures related to
the real estate described in the mortgage,
(3)
The mortgage complies with the requisites for a
financing statement in this section, except that
it does not have to ~nclude the statement that it
is to be filed in the real estate records., and ,
(4)
The mortgage is duly recorded.
63
,
The new sub-section (g) states that if the debtor changes his name
or does business differently ·, to the point that the original filed financing statement becomes seriously misleading, you must refile · in the new
name, within four months.
section 9.403 deals with the mechanics of filing the financing
statement.
The revision states that except as to a real estate mortgage
which is effective as a financing statement filed under sub-section (f)
-25-
of Section 9.402 which remains effective as a fixture filing until the
mortgage is released or satisfied of record, or its effectiveness otherwise terminates as to the real estate, a filed financing statement is
effective for a period of five years from the date filed.
Unless a
continuation statement is filed before this five-year period ends, the
financing statement will lapse.
If insolvency proceedings are instituted
against the debtor during the five-year period, the financing statement
continues for the five-year period; or until termination of the insolvency
proceedings and thereafter for sixty days, whichever is longer.
If the
financing " statement lapses, the security interest becomes unperfected
unless it was perfected without filing. " If the security ' interst lapses,
it becomes unperfected and it is ' deemed to ' have ' been unperfected as
,
against a person who became a purchaser or line creditor before the lapse.
Due to the changes by the
re~ision , concerningfixture , fili~g
the
mention of the real estate record exception was added to the Code.
The
1973 amendments also deleted the useless provision concerning the effect
of a financing statement which had a maturity date of five years or less.
Under the former Code, a sixty-day extension' was given if the above
occurred.
NOW,
it is clear that all financing statements other than
fixture filings are effective for five years only.
Also"it was unclear
prior to the 1973 amendments what priority ,a purchaser o'r lien creditor
,
,
prior to the lapse of the financing statement would take in relation to
the secured party holding the lapsed financing statement who later refiles.
It is now clear that the purchaser or lien creditor will take priority. ,
Sub-section (c) provides that a continuation statement may be filed
by the secured party within six months prior to the expiration of the
five-year period.
This statement must be signed by the secured party
(the debtor does , not have to sign the s tatement), it must identify the ',
_? h _
original statement by file number, and state that the original statement
is still effective.
If the continuation statement is timely filed, another
five years is added to the effectiveness of the original financing statement.
Succeeding continuation statements may be filed in the same manner
to continue the effectiveness of the originally filed financing statement.
Also, new instructions to the filing officer have been added by the amendmenta.
A new provision dealing with termination statements states that if
a Einancing statement covering consumer goods is filed on or after January
1, 1974, then within one month, or within ten days following written demand
by the debtor, after there is no outstanding secured obligation and no
commitment to make advances, the secured party must file a termination
statement with each filing officer with whom the financing statement has
been filed.
Non-compliance with this section will cost the secured party
,
64
$100.00 plus any loss caused to the debtor by , such "failure -. ,, '
The revision places an affirmative duty 'on the secured party to file
a termination statement within one month after full payment by the debtor,
only in cases involving consumer goods.
65
On its : face this appears to be
a harsh obligation to place on the secured party; however, filing when
,
,
' h '
dea11ng
1n
consumer goods 1S
t e except10n.'66
The section dealing with assignments of security interests has now
clarified the point that the records of assingrnents of a security interest
may be filed in the place where the original financing statement was filed.
Also, new provisions concerning assignments of fixtures, timber, and accounts
has been added to state that an assignment dealing with these items must be
indexed under the name of the assignor as grantor and to the extent that
the , law of this State provides 'for, indexing the assignment of a mortgage
-27-
under the name of the assignee, he shall index the assignment of the
"
'
67
f 1nanc1ng
statement un d er t h e name of t h
e ass1gnee.
In the area concerning release of col lateral, a new provision
has been added which states that when a statement of release is signed
by someone other than the secured party of record, the statement must
be accompanied by a separate written statement of assignment signed
by the secured party.
68
The only revisions concerning request s for information from the
fi1ing officer states that if the request is not in the standard form,
69
the charge is $10.00.
The standard form mentioned is U. C.C. -II,
which is approved by the secretary of State of Texas.
A
completely new section has been added to the Code which was
necessitated by the 1973 amendments to clarify what rights the consignor
had in consigned goods.
70
The section provides that a consignor or
lessor of goods may file a financing statement using the terms "consignor" ,
IIconsignee", "lessor", and "lessee" or the like, instead of the terms
as specified in Section 9.402.
This new section clearly points out that
merely filing a financing statement under the provisions of this section
is not of itself determinative of whether or not the consignment or lease
"1nten
dd
"
t.
15
e as a secur1ty
1nteres
71
The significance of this section
is that if it is not a security interest then it is not subject to the
default pro vJ
i, ns under the Code.
72
The section concerning default has been s'lightly revised.
Section
9.504 dealing with the secured party's right to dispose of collateral
after default ,now states that the secured party may lease the collateral
if he desires ' to do so, and the expenses incurred in leasing are deductible.
This ,idea was 'implicit prior to the revision; however, it was not explicitly
-28-
73
set forth.
74
Another new provision states that if the debtor has signed,
after default, a statement renouncing or modifying his rights to a notification of sale, then notice of a public or private sale need not be sent
to the debtor.
75
Also, a provision has been added that in cases involving
consumer goods, the secured party must send notification of the sale to any
other secured party who has sent the secured party holding the sale written
notice of a claim of an interest in the collateral .
This written notice must
be received by the secured party prior to sending his notification to the
deb<tor or before the debtor' has renounced his right to notification. 76
Prior
to the 1973 amendments ; nO,tice wa", "equired to be sent to any secured party
who was "merely known" by the secured party holding the sale to have a
security interest in the collateral.
This statement has now been deleted.
Finally, the section dealing with compulsory disposition of collatera1
77
has been revised to state that the signed statement mentioned in sub-section
(c) of Section 9.504 concerning the debtor's renunciation of his right to a
written notice also applies to the notice which the secured party must send
the debtor if he intends to retain the collateral in satisfaction of the
obligation .
However, this only pertains to a de btor who has paid 60% of
the cash price in the case of a purchase money security interest in consumer
goods, or 60% of the loan in the case of another type interest in consumer
goods .
After , the 1973 revisions, the debtor or any other secured party who
has a right to r eceive notification must object to the secured party ' s
retaining the collateral within twenty-one days after the notification was
sent.
As stated in the outset, this article is merely designed to acquaint
the Texas practitioner with the 1973 amendments to Article 9 of the U. C.C.
-29 -
At this early date no cases are reported by the Texas courts interpreting
the language in these new provisions; therefore, the effect of the provisions as stated by this article are solely the ,conclusions of this writer.
-30-
FOOTNOTES
1.
UCC § 9.103(a)(2)
2.
UCC § 9.103 , Official Conunent 1
3.
UCC § 9.103(a) (3)
4.
UCC ~ 9.103, Official Conunent 2
5.
UCC § 9.103(a) (4)
6.
UCC Request f o r Information Form UCC-l1 Rev 1-1-74 . The fee for the
use of this standard form is $5.00. If a non-standard form is u sed,
the fee is doubled. These and other UCC standard forms may be obtained from most office supply stores for about $4 . 40 per 100 forms.
7.
UCC § 9 . 103(b)
8.
ucc § 9 . 103(c) (1)
9.
ucc § 9.103(c) (4) '
10.
UCC (j 9.103(e)
11.
UCC § 9.401(a) (2)
12.
Any right ,to pp.yme nt under a contract not yet performed and not
evidencedl\~ instrument or chattel paper.
13.
UCC § 9.106 "Account" menas any right to p ayme nt for goods sold or
leased or for services rendered which is not evidence d by an instrume nt or chattel paper whether or not i t has been earned by performance .
14.
UCC § 2.326(c)
15.
Vonin, Inc. v. Raff, 101 N.J. Super . 172, 243 A.2d 836 (1968), states
t hat i f the particular state doe s not have an applicable sign statute
the n sub-se c tion (c) (1) of Section 2.326 has no application.
16.
White and Summers" Hornbook on the Uniform Conunercial Code, (1972-West)
p. 765.
17.
Mann v. Clark Oil & Refining Corp., 302 F.Supp. 1376, (Mo. 1969).
18. , UCC § 9.203(b)
19.
ucc § 9.203(c )
20.
UCC
S 9.403(b)
21. . UCC § 9.105 (a) (11)
FOOTNOTES (Con t. )
22.
Former UCC § 9.302(a) (3)
23.
UCC § 9.302(a) (3)
24.
This act requires registration of motor vehicles, house trailers,
and trailers and semi-trailers having a. gross we.ight in excess of
4,000 pounds.
25.
UCC § 9.306(a)
26.
UCC § 9.306(c)
27.
UCC § 9.105(5)
'"Deposit Account '" , means a demand, time, passbook
or like account maintained with a bank, savings and loan association, credit union or iike organization, other than an account
evide nced b y a certificate of deposit .
28.
The buyer cannot fall under the protection of UCC · § 9.307(1) unless
the farm equipment is purchased from a dealer who sells farm equipment. See UCC § 1.201(9).
29.
UCC § 9.312(c)
30.
UCC § 9.312(c) (3)
31.
UCC § 9.313
32.
UCC § 9.313(a) (1), goods are fixtures when the y become so related
to real e state that an interest arises under the real estate law
of the state in which the real estate is situated.
33~._
Hutchins v. Masterson
34.
Carmichall v. U.S., 273 F.2d 392 (5th Cir. 1960).
35.
C. D. Shamburge r Lumber Co. v. Bredthauer, 62 s.W.2d 603 (Tex. Civ.
App. 1933) dismissed, added a fourth criteria, that being the ease
in which the chattel could be removed.
36.
UCC § 9.302(c) (2).
37.
V. A.C.S. Art. 6 6 87-1.
38.
For a background of the facts considered by the Texas courts when
the que stion arises as to whether' or not a mobile home is a fixture, see Capitol Aggregates, Inc. v. Walker, 448 S.W.2d 830 (Tex.
Civ. App. 1970) Ref.n.r.e.
-
&
Street, 46 Tex. 551, 26 Ann. Rep. 286 (1877).
ii
FOOTNOTES (Co nt.)
39.
Parenthicals added.
40.
See Parallel Language in UCC § 9.302(c) (2).
41.
UCC § 9.302Comrnent 9, Perfection of a security interest under a
state or Federal statute of the type referred to in sub-section
3 of Section 9.302(c) has 'all the consequences of perfection under
the provisions of this article.
42.
UCC § 9.313(a)(2).
43.
UCC § 9.402(e) sets out that the financing statement must show that
it covers fixtures, it must recite that it is to be filed for record
in the real estate records, and a description of the real estate,
sufficient to give constructive notice of the mortgage if it were
contained in a mortgage on the real estate must be included. Further,
if the debtor does not have an interest in the real estate -, the financing statement must show "the .name of the record owner.
44.
UCC § 9 . 313(a) (3).
45.
ucc
§ 9.313(d) (1).
46.
ucc
§ 9.3l3(d) (2).
47.
Note that this does not cover original installations.
48.
UCC § 9.313(d) (3).
49.
UCC § 9.3l3(d) (4).
50.
ucc
51.
ucc 13
52.
§ 9.313(e) (1).
9.3l3(e) (2).
See V.A.C.S . Art. 5236d (13 2) for items which a tenant may remove
.' from the premises notwithstanding a landlord' s lien for rent.
53.
UCC § 9.3l3(g).
54.
UCC § 9.3l3(b) . prior to the 1973 amendments •
. 55.
UCC § 9.401.
56.
UCC § 9.40l(e).
57.
UCC § 9.402.
58.
UCC
§
9.402(a).
iii
FOOTNOTES (Cont.)
59;
See footnote 43.
60.
UCC § 9.402(a) •
6l.
UCC § 9.402(b) (3 and 4) •
62.
UCC § 9.402(d).
63.
ucc
64.
ucc §
65.
UCC § 9.404, Official Comment l.
66.
See UCC § 9.302(a) (4) • .
67.
ucc
68.
UCC § 9.406 .
§ 9.402(f) •
9.404.
§ 9.405(b) •
. 69. · UCC § 9.407(b) •
70.
UCC § 9.408, Financing statement covering consgined or leased goods.
The text of former Section 9.408 now appears in section 9.409.
7l.
See UCC § 1.201 (37) •
72.
See UCC § 9.501(a) when a debtor . is in default of a security agreement,
a secured party has the rights· and remedies provided in this sub-section.
73. ·UCC § 9.504(a) (1) ·.
74.
UCC § 9.504 (a) (1) prior to the revisiol1 :~ it· merely stated that the
reasonable expenses of retaking, holding, preparing for sale, selling
and the like were deductible. .
-----75.
ucc
76.
ucc §
77.
UCC § 9.505.
§ 9.504(c).
9.504(c~.
iv