UCC Article Nine Revised: Priorities, Preferences, and Liens Effective Only in Bankruptcy

This article explores two straightforward concepts, one from bankruptcy, and one from the priority scheme of Article Nine of the Uniform Commercial Code. Together these concepts show that the current revised version of Article Nine continues and even expands a conflict between Article Nine and the federal Bankruptcy Code which should cause some Article Nine provisions to be questioned. The bankruptcy provision is section 545. The expansive approach of Article Nine is most obvious in sections 9-331, 9-325, and 9-334. Part II of this article describes the conflict by looking at the origin and scope of section 9-306 of the pre-revision version of Article Nine. That section dealt with proceeds and was seen by the drafters of the original Article Nine to raise the controversy now blossoming within the revised sections of Article Nine. Section 9-306 generated a number of significant cases, and this group of cases was recognized to contain at least one aspect of the conflict that has surfaced. The text of section 9-306 and Bankruptcy Code section 545 will be parsed and several opinions will be analyzed. Part III lays out the historical understanding of what constitutes a “lien” under section 545, its origins, and why some liens are suspect. It will also look at how the U.C.C. Drafters, both the initial and most recent Drafters, may have viewed this creation of law and equity, this thing called lien. Part IV explores how and where the conflict has been expanded and deepened by the 2000 Revision of Article Nine. In this section, the thesis is that Article Nine is knowingly being pushed by the drafters toward the commercially unsupported proposition that secured creditors should win in bankruptcy even though they would lose against reliance creditors, thereby offering the secured creditor a windfall of protection that is not likely to be the basis of a bargained-for-exchange