The subject of this discussion is Article IX of the Uniform Commercial Code. For those who are not lawyers, Article IX deals with secured transactions. Basically, Article IX gives the lender the power to go after particular property that is the subject of what is called a security interest.
There are many controversial problems in this area. Let me make it clear what I am not going to cover. I am not going to discuss a lot of the problems with default in terms of repossession; I think that is simply a subject to be covered on another day. I am going to talk about the following things: how a lender creates a security interest in property; how to go about perfecting it, and what perfection is; who prevails if there is more than one party claiming the same collateral; and how a secured party can defeat a trustee in bankruptcy, if a fellow were to get in to bankruptcy.
I am going to start with the question of scope, specifically “Does Article IX of the Uniform Commercial Code apply to your problem?” If you are a lender, that is crucial because the lender has to decide, “Do I have to comply with the formal requirements of Article IX?” If you are a trustee in bankruptcy, and you’re dealing with somebody who did not comply with Article IX, obviously your concern is whether Article IX applies with that transaction. If it does apply, and the lender has not done what he is supposed to do, the trustee is going to be able to knock that secured creditor down to what is called a general creditor. General creditors get virtually nothing in bankruptcy these days.
. . .