CREDITORS' RIGHTS
IN TEXAS
SECOND EDITION
Volume 1
Eugene A. Cook
Editor in Chief ,
Austin
1981
Contents
Volume 1
Letter from the President of the State Bar of Texas
Preface to the Second Edition
/
/
xi
xiii
1 Ethical and Practical Considerations iIi
Handling Creditors' Claims / 1
Daniel]. Goldberg
2
Seller's Rights and Remedies Under Article 2 of the
Uniform Commercial Code / 19
Richard M. Alderman
~
Commercial Paper Under Article 3 of
the Uniform Commercial Code / 101
Iohn E. Krahmer
4
Bank Deposits and Collections Under Article 4 of
the Uniform Commercial Code / 179
Iohn E. Krahmer
5
Bulk Transfers / 205
Lennart V. Larson
6
Secured Transactions
Dellas W . Lee
7
Prejudgment Remedies
Eugene A. Cook
8
Liability of Separate and Community Property
for Obligations of Spouses to Strangers / 433
W. I. Williamson
9
Bonds and Liens on Public and Private
Construction Projects / 457
Tom D. Matthews,Ir.
/
233
/
343
vii
6
Secured Transactions
DELLAS
I. Introduction
II. Scope, Policy, and Terminology of 'Article 9
III. Creation, Attachment, and Enforceability of
Security Interest-Formal Requisites
IV. Perfection
V. Perfection and Priorities After Interstate
Removals or Change of Debtor's Location
VI. The Floating Lien: Inventory and AccountsReceivable Financing and Bankruptcy
VII. Priorities
VIII. Rights After Default
IX. Conclusion
X. Bibliography
W.
LEE
§§ 6.01-.06
§§ 6.11- .1.7
§§ 6.21- .24
§§ 6.31- .63
§§ 6.71-.83
§§ 6.91-.97
§§ 6.111-.137
§§ 6.151-.170
§ 6.181
§ 6.186
1. Introduction
§ 6.01 Impact of the UCC
§ 6.02 Security in the Commercial and Consumer World
§ 6.03 Security Interests Under the Code: § 1.201(37)
§ 6.04 Pre-Code Chattel Security Devices
§ 6.05 Differences Between Inventory and Consumer Financing
§ 6.06 Elements of an Ideal Chattel Security Law
II. Scope, Policy, and Terminology of Article 9
§ 6.11 Significance of Pre-Code Chattel Security Devices
§ 6.12 Transactions Intended To Create a Security Interest
§ 6.13 Equipment Leases
DELLAS W . LEE-Professor of law, Texas Tech University, Lubbock, Texas. Admitted to bar,
British Columbia and Canada, 1960. Education: University of British Columbia (LL.B., 1959);
University of Illinois (LL.M., 1962); University of Michigan (S.J.D., 1969). Author, "Perfection
and Priorities Under the Uniform Commercial Code," 80 Banking Law Journal 473 (1963);
"Impact of the U.C.C. on Colorado Law," 42 Denver Law Journal 67 (1965); "International
Secured Transactions," 17 Buffalo Law Review 85 (1967); "Secured Financing in Canada," 8
Alberta Law Review 389 (1970).
233
SECURED TRANSACTIONS
§ 6.14
§ 6.15
§ 6.16
§ 6.17
Consignments: §§ 2.326, 9.114
Sales of Accounts and Chattel Paper: § 9.102(a)(2)
Transactions Excluded from Article 9: § 9.104
Terminology and Definitions
III. Creation, Attachment, and Enforceability of Security Interest-Formal
Requisites
§ 6.21 Effect of an Enforceable Security Interest: §§ 9.201, 9.203(d)
§ 6.22 Attachment: § 9.203
§ 6.23 Elements of Attachment and Enforceability: §§ 9.110, 9.203
(a) Possession
(b) Written Agreement
(c) Value Given by the Secured Party: § 1.201(44)
(d) Debtor's Rights in the Collateral
(1) Potential Rights in Collateral
(2) Rights in Accounts: § 9.106
(e) Defenses of an Account Debtor: § 9.206
§ 6.24 Consumer Protection Laws and Other Formal Requisites: § 9.203(d)
IV. Perfection
§ 6.31 Perfection Defined
§ 6.32 Perfection Outside Article 9: §§ 9.104, 9.302(c)
§ 6.33 Perfection Under Federal Statutes
§ 6.34 Perfection Under the Certificate of Title Act
§ 6.35 Methods of Perfection Under Article 9: §§ 9.302, 9.303
§ 6.36 Perfection by Filing-The Nonpossessory Security Interest: §§ 9.302,
9.303
§ 6.37 The Doctrine of Choateness
§ 6.38 Notice Filing: §§ 9.208, 9.402
§ 6.39 Formal Requisites: § 9.402
§ 6.40 Classifying Collateral Prior to Filing
(a) Intangibles
(1) Accounts
(2) General Intangibles
(b) Specialties-Indispensable Paper
(1) Money
(2) Instruments
(3) Documents
(4) Chattel Paper
(c) Goods
(1) Inventory
(2) Consumer Goods
(3) Farm Products
(4) Equipment
(5) Fixtures
(6) Accessions
§ 6.41 Purchase Money Security Interests: § 9.107
234
Chapter Contents
§ 6.42 Place of Filing: § 9.401
§ 6.43 Proceeds
(a) Conflicting Claims to Proceeds Not Governed by Article 9:
Equitable Tracing
(b) Continuous Perfection in Proceeds Under Article 9 Outside Insolvency Proceedings: § 9.306( c)
§ 6.44 Good-Faith Errors in Filing: § 9.401(b)
§ 6.45 Effect of Change of Debtor's Residence or Change in Use of Collateral: § 9.401(c)
§ 6.46 Delay in Filing: § 9.301
§ 6.47 Equitable Liens
§ 6.48 Filing: § 9.403
§ 6.49 Duration of Effectiveness: § 9.403(b)
§ 6.50 Continuation Statement: §.9.403(c)
§ 6.51 Dating, Indexing, and Inspection: § 9.403(d) and (g)
§ 6.52 Filing Fees: § 9.409
§ 6.53 Termination Statement: § 9.404
§ 6.54 Indexing and Fees: § 9.404
§ 6.55 Assignment of Security Interest: § 9.405
§ 6.56 Release of Collateral: § 9.406
§ 6.57 Evidence of Filing: § 9.407
§ 6.58 Financing Statements Covering Consigned or Leased Goods: § 9.408
§ 6.59 Perfection by Possession
§ 6.60 Goods in Possession of Bailee: § 9.304
(a) Negotiable Document Issued Therefor
(b) Absence of Negotiable Document
§ 6.61 Field Warehousing
§ 6.62 Perfection by Attachment of the Security Interest: § 9.302
(a) Purchase Money Security Interest in Consumer Goods:
§ 9.302(a)(4)
(b) ASSignment of Accounts: § 9.302(a)(5)
(c) Temporary Perfection for Instruments, Documents, and Goods:
.
§ 9.304(d) and (e)
(d) Temporary Perfection for Proceeds: § 9.306(c)
§ 6.63 Grace Periods Under the Code: § 9.301(b)
V. Perfection and Priorities After Interstate Removals or Change of Debtor's
Location
§ 6.71 Choice of Law and Conflict of Laws: §§ 1.105, 9.103
§ 6.72 Documents, Instruments, Goods, and Possessory Interests in Chattel
Paper: § 9.103
§ 6.73 Goods Intended To Be Removed to Another Jurisdiction :
§ 9.103(a)(3)
§ 6.74 Duration of Perfection After Removal: § 9.103(a)(4)
§ 6.75 Certificate of Title: § 9.103(b)
§ 6.76 Goods Not Subject to a Certificate of Title Before Removal :
§ 9.103(b)(3)
235
SECURED TRANSACITONS
§ 6.77 Goods Covered by a Certificate of Title After Removal:
§ 9.103(b)(4)
§ 6.78 Intangible Property, Nonpossessory Security Interests in Chattel
Paper, and Mobile Goods: § 9.103(c)
§ 6.79 Deemed Location of Debtor: § 9.103(c)(4)
§ 6.80 Debtors Located Outside the United States: § 9.103(c)(3)
§ 6.81 Duration of Perfection After Debtor Moves: § 9.103(c)(5)
§ 6.82 Chattel Paper-Possessory and Nonpossessory Interests: § 9.103( d)
§ 6.83 Minerals-Wellhead or Minehead Location Rule: § 9.103(e)
VI. The Floating Lien: Inventory and Accounts-Receivable Financing and
Bankruptcy
§ 6.91 Elements of a Floating Lien Law
§ 6.92 The After-Acquired Property Clause: § 9.204(a) .
§ 6.93 The Future Advances Clause: § 9.204(c)
§ 6.94 Use or Disposition of Collateral Without Accounting: § 9.205 '
§ 6.95 Proceeds During Bankruptcy: § 9.306(d) I
§ 6.96 Proceeds Not Traceable to Original Collateral
§ 6.97 Bankruptcy Trustee's Power To Avoid Preferences
(a) Less Than Full Perfection
(b) UCC Section 9.108
(c) The Single Entity or Res Theory
(d) The Substitution of Collateral Doctrine
VII. Priorities
§ 6.111 Priorities Between Security Interests and Conflicting Claims Not
Governed by Article 9: § 9.104
§ 6.112 Priorities Under Article 9
§ 6.113 Unperfected Security Interests Versus General Creditors : § 9.201
§ 6.114 Unperfected Security Interests Versus Lien Creditors: § 9.301
§ 6.115 Unperfected Security Interests Versus Transferees in Bulk or Other
Buyers Out of the Ordinary Course of Business: § 9.301(a)
§ 6.116 Priorities Among Unperfected Security Interests : § 9.312(e)(2)
§ 6.117 Perfected Security Interests Versus Simple Creditors: §§ 9.201,
9.301
§ 6.118 Perfected Versus Unperfected Security Interests: §§ 9.201, 9.301,
9.312(e)
§ 6.119 Perfected Security Interests Versus Lien Creditors; § 9.301(a)(2)
and (d)
§ 6.120 Perfected Security Interests Versus Artisans' Liens: § 9.310
§ 6.121 Perfected Security Interests Versus Purchasers: § 1.201(33)
§ 6.122 The General Rule for Buyers Not in the Ordinary Course of Business: §§ 9.306(b), 9.307(a)
§ 6.123 The Inventory Exception: § 9.307(a)
§ 6.124 Purchasers of Consumer Goods: § 9.307(b)
§ 6.125 Purchasers Not in the Ordinary Course of Business and Future
Advances: § 9.307(c)
236
Chapter Contents
§ 6.126 Transferees of Instruments, Documents, and Securities: § 9.309
§ 6.127 Value Given by an Earlier Secured Party Against Chattel Paper
or Instruments Left in Debtor's Possession : § 9.308
§ 6.128 Chattel Paper or Instruments Claimed As Proceeds by an Earlier
Secured Party: § 9.308
§ 6.129 Returned Goods: § 9.306(e)
(a) Secured Parties Versus Transferees of Chattel Paper:
§ 9.306(e)(2)
(b) Secured Parties Versus Transferees of an Account: § 9.306(e)(3)
and (4)
§ 6.130 A Perfected Security Interest Versus Other Perfected Security Interests in the Same Collateral-The General Rule: § 9.312(e)
§ 6.131 Future Advances Under the General Rule: § 9.312(g)
§ 6.132 The Perfected Purchase Money Security Interest in Inventory and
Proceeds Versus the Perfected Security Interest in After-Acquired
Property : § 9.312(c)
, I§ 6.133 The Perfected Purchase Money Security Interest in Noninventory
and Proceeds Versus the Perfected Security Interest in MterAcquired Property: § 9.312(d)
§ 6.134 A Perfected Security Interest in Crops Versus a Prior Perfected
Security Interest in Crops: § 9.312(b)
§ 6.135 Perfected Security Interests in Fixtures: § 9.313
(a) Fixture Filing of Security Interests Versus Encumbrancers or
Owners-First in Time, First in Right: § 9.313(d)(2)
(b) Fixture Filing of Purchase Money Security Interests Versus
Prior Encumbrancers or Owners : § 9.313(d)(1)
(c) Perfected Security Interests in Factory or Office Machines or
Removable Appliances Versus 'Encumbrancers or Owners:
§ 9.313( d)(3)
(d) Perfected Security Interests Versus Subsequent Lien Creditors:
§ 9.313(d)(4)
(e) Perfected or Unperfected Security Interests Versus Owners or
Encumbrancers-Disclaimer or Right of Removal: § 9.313(e)
(1) Consent to Security Interests
(2) Debtor's Right To Remove the Goods
(f) Security Interests in Fixtures Versus Construction Mortgages:
§ 9.313(f)
(g) The Residual Rule: § 9.313(g)
§ 6.136 Perfected Security Interests in Accessions Versus Perfected Security
Interests in the Whole : § 9.314
§ 6.137 Perfected Security Interests in Commingled Goods: § 9.315
VIII. Rights After Default
§ 6.151 Sources of Rights and Remedies
§ 6.152 Rights of Secured Parties on Default: § 9.501
§ 6.153 Action on the Debt: § 9.501(a) and (e)
§ 6.154 Action on the Contract: §§ 9.206, 9.318(a)
237
§ 6.01
SECURED TRANSACTIONS
§ 6.155 Action on the Note: §§ 3.302, 3.304(d)(2)
§ 6.156 Recovery of Attorney's Fees As Damages for Breach of Contract :
§§ 2.302, 2.718
§ 6.157 Foreclosure
(a) Under Real Property Law: § 9.501(d)
(b) Under Article 9
§ 6.158 Repossession After Default: §§ 9.207,9.305,9.503
§ 6.159 Constitutional Validity of Repossession
§ 6.160 Documents, Accounts, or Other Intangibles: §§ 9.501(a), 9.502(a)
§ 6.161 Rights and Duties When Collateral Is in Secured Party's Possession: § 9.207
§ 6.162 Secured Party's Right To Sell Repossessed Collateral: § 9.504
§ 6.163 Commercially Reasonable Public or Private Sale or Lease of Repossessed Collateral: §§ 9.504(c), 9.507(b)
§ 6.164 Purchase by the Secured Party: § 9.504(c)
§ 6.165 Rights of a Purchaser at a Sale : § 9.504(d)
§ 6.166 Rights of a Subrogee of a Security Interest: § 9.504(e)
§ 6.167 Application of Proceeds and Deficiency: § 9.504(a) and (b)
§ 6.168 Liability for Failure To Make a Commercially Reasonable Disposition: § 9.507(a)
§ 6.169 Retention of Collateral in Satisfaction of Obligation: § 9.505
§ 6.170 Debtor's Rights After Default
IX. Conclusion
§ 6.181 Present and Future Adaptability of Article 9
X. Bibliography
§ 6.186 Helpful References
[Unassigned section numbers are reserved for possible use in supplementation.]
1.
INTRODUCTION
§ 6.01 Impact of the uee
In the next century the question may be asked, What was the most remarkable piece of legislation of the twentieth century? The answer may well be
article 9 of the Uniform Commercial Code. This chapter is an overview of
article 9, setting forth its basic principles with brief explanations and commentaries. In adopting the VCC , the Texas legislature renamed "article" 9
as "chapter" 9, but the following discussions will continue to refer to "article" since that is the common usage nationwide and even in Texas. The
form of citations to the VCC used in the following discussions is that of the
Texas Business and Commerce Code, which differs slightly from that of the
uniform act.
In discussing an aspect of pre-Code chattel security law in the first edi-
238