The Scope and Limits of Article 9

Article 9 governs consensual liens. Thus, involuntary liens such as garagekeepers' liens, landlords' liens and liens in favor of suppliers of services or materials, (with the exception of non-possessory agricultural liens) are beyond the scope of Article 9. U.C.C. ' 9-109(d) (1) and (2). Article 9 generally provides that these involuntary possessory liens will have priority over Article 9 liens unless they are created by statute and the statute gives priority to Article 9 liens. This provision reflects the policy that liens securing work or services that enhance or preserve collateral should take priority. U.C.C. ' 9-310 (1970), Official Comment 1. In sum, Article 9 generally defers to state law regarding perfection, priority and enforcement of involuntary liens. U.C.C. ” 9-109 (d) (1) and (2) and 9-333.

Personal Property Liens

Specifically Addressed by Federal or State Law

Article 9 does not apply to the extent it is superseded by state or federal laws addressed to specific types of collateral. The primary type of personal property that falls into this category are titled motor vehicles, airplanes, railcars, vessels and intellectual property. Every state has a title law governing motor vehicles that are registered in and driven over the roads in that state. These state title statutes generally require all vehicles that drive over the roads to be registered and titled and that all liens on such vehicles be recorded on the title. (Note: Titled vehicles held as inventory are covered by Article 9 for perfection of liens.)

As for commercial trucks operating under an ICC permit, federal law defers to the state certificate of title laws. 49 U.S.C. ' 11304. State laws, other than Article 9, can also govern perfection of liens in boats and federal law governs railcars, airplanes and many vessels. Copyrights, trademarks and patents are also all governed, at least to some extent, by federal law. In short, if the collateral rolls over the roads or rails, flies, floats or is intellectual property it is often not governed exclusively by Article 9, at least for lien perfection and perhaps for priority issues: Article 9 only governs to the extent it is not preempted. U.C.C. ' 9-109(c).

These state and federal statutes, however, often address only perfection of liens, but not priority or enforcement in which case Article 9 fills in the gaps and applies to the extent it does not conflict with the state or federal law. A secured party may generally enlist some Article 9 provisions, such as Article 9's self-help provisions, although a federal (or state) law governs perfection questions. Dietrich v. Key Bank, N.A. , 72 F.3d 1509 (11th Cir. 1996).

Airplanes

The Federal Aviation Act of 1958 governs perfection of security interests in airplane engines (and propellers) and airplanes. Secured parties should consider using a specialist as an expeditor due to complexities. The Federal Aviation Act only addresses perfection, not priority, which is governed by Article 9, except where the Cape Town Convention applies. To obtain priority in larger airplanes (eight or more people or crew or goods in excess of 2,750 kilograms) and helicopters (five or more people or crew or goods in excess of 450 kilograms), the secured party also needs to record its security interest under the Cape Town Convention by filing with the International Registry in Dublin, Ireland, to obtain priority.

Registering a security interest under the Cape Town Convention requires two steps. First, the secured party must obtain an authorization code from the FAA. Second, using the FAA authorization code, the secured party must register with the International Registry as provided above.

Vessels

The Federal Commercial Instruments and Maritime Lien Law govern the perfection of security interests in documented vessels. 46 U.S.C. ' 31301 et seq ., includes the Ship Mortgage Act of 1920. 46 U.S.C. Chap. 313. This Act addresses both perfection and priority. For undocumented boats such as recreational vehicles, the secured party should perfect under Article 9, although an undocumented boat may be titled, depending on the state. If there is a title, the secured party should record a lien on same. If the boat cannot be documented because it is too small and it is intended to be used in interstate commerce, the secured party should consider filing with the Surface Transportation Board as well. See Railroad Rolling Stock below.

The secured party should also, in each of these cases, file a UCC-1 covering not only the boat, but also all equipment, because some equipment may not be covered by the Ship Mortgage Act. The secured party should further be familiar with maritime liens, which can arise in favor of repair yards, stevedores, the master and crew as well as other providers of goods and services to the vessel. Some of these liens will be “preferred maritime liens” and trump even a preferred ship mortgage.

Railroad Rolling Stock

The ICC Termination Act of 1995 governs the perfection of security interests in railroad cars, locomotives and other railroad rolling stock. 49 U.S.C. ' 11301 et seq . Perfection is effected by filing a security agreement or memorandum with the Surface Transportation Board in Washington, DC.

Intellectual Property

Case law generally provides that patents, trademarks and unregistered copyrights are governed by Article 9. Moldo v. Matsco ( In re Cybernetic Servs., Inc.), 252 F. 3d 1039 (9th Cir. 2001) (Patents); Trimarchi v. Dev. Corp., 255 B.R. 606 (D. Mass. (2000) (Trademarks); Aerocon Engineering Inc. v. Silicon Valley Bank (In re World Auxiliary Power Co.), 303 F. 3d 1120 (9th Cir. 2002) (Unregistered copyrights).) Patents, trademarks and unregistered copyrights are “general intangibles” under Article 9, and thus liens should be perfected under Article 9 accordingly. Id.' But in the case of intellectual property, the secured party usually should make a filing at the federal level as well, as noted below.

Copyrights

Pursuant to the Copyright Act of 1976, secured parties in “registered” copyrights must file a security agreement or a “note” or a “memorandum” in the U.S. Copyright Office. (17 U.S.C. ' 204, 205. See 17 U.S.C. Section 101. See also In re Peregrine Entertainment, Ltd., 116 B.R. 194, 11 U.C.C. Rep. Serv. 2d 1025, 116 B.R. 194 (C.D. Cal. 1990). The secured party would be wise to file an Article 9 financing statement as well. As noted above, unregistered copyrights are governed by Article 9.

Trademarks

The Lanham Act, like the Patent Act referenced below, generally requires filings at the federal level for transfers of ownership. 15 U.S.C. 1' 1060. In the case of trademarks, the secured party should, however, file an “assignment” with the Commissioner of Patents and Trademarks, as well as an Article 9 financing statement.

Patents

The Patent Act, like the Lanham Act, arguably only requires filings at the federal level for transfers of ownership. 35 U.S.C. ' 101 et seq. See also In re Cybernetic Serv., Inc., supra. In the case of patents, the secured party should, again however, file a “conditional assignment” with the Commissioner of Patents and Trademarks, as well as an Article 9 financing statement.

In summary, in the case of unregistered copyrights, trademarks and patents, a filed financing statement should protect the secured party from a subsequent trustee and most creditors. A secured party that perfects through a finance statement only will not, however, in the cases of trademarks and patents be protected against a bona fide purchaser who buys without knowledge of the security interest. Thus, federal filings are advisable except in the case of an unregistered copyright to protect against bona fide purchasers without knowledge of the lien.

Equipment Leases

Article 9 does not apply to equipment leases. These are governed by Article 2A of the U.C.C., except to the extent the equipment leases themselves are pledged as collateral, in which case they are “chattel paper” under Article 9.

Practice Tip: It is often difficult to determine with certainty whether a transaction will be deemed a true lease. Accordingly, it is advisable that the practitioner, out of an abundance of caution, comply with Article 9. Article 9 expressly provides that filing a UCC-1 is not an admission that a transaction is a secured transaction. U.C.C. ' 9-505(b).

Miscellaneous Exempt Personal Property

Additional specific personal property excluded from Article 9 includes:

Wages

An assignment of claim for wages, salary, or other compensation of an employee. U.C.C. ' 9-109(d)(3). Note: This exclusion is limited to wages or other employee compensation. Thus, an independent contractor may create an Article 9 security interest for monies due to the independent contractor. Mass Mutual Life Insurance Co. v. Central Penn National Bank, 372 F. Supp. 1027 (E.D. Pa. 1974); Perry v. Freeman, 163 Ga. App. 186, 293 S.E. 2d 381 (Ga. 1982).

Sale of Business

A sale of accounts, chattel paper, payment intangibles, or promissory notes as part of a sale of the business out of which they arose. U.C.C. ' 9-109 (d)(4).

Assignment for Collection Only

An assignment of accounts, chattel paper, payment intangibles, or promissory notes that is for the purpose of collection only. U.C.C. ' -109 (d)(5).

Performing Party

An assignment of a right to payment under a contract to an assignee that is also obligated to perform under the contract. U.C.C. ' 9-109(d)(6).

Limited Assignment in Satisfaction of Debt

An assignment of a single account, payment intangible, or promissory note to an assignee in full or partial satisfaction of a preexisting indebtedness U.C.C. ' 9-109(d)(7).

Insurance Policy Claim Other Than Health Care Receivables

A transfer of an interest in or an assignment of a claim under a policy of insurance, other than an assignment by or to a health-care provider of a health-care-insurance receivable and any subsequent assignment of the right to payment. U.C.C. ' 9-109(d)(8); Insurance policies are excluded from Article 9 except for health care receivables and to the extent policies are proceeds of other collateral. U.C.C. ' 9-109(d)(8). U.C.C. ” 9-315 and 9-322 may apply to any insurance as proceeds and priorities in proceeds of other collateral.

Practice Tip : Generally, under non-Article 9 law the secured party must provide an insurance company with an assignment of insurance. Consult the insurance company for its approved form(s). Some states may also require that the secured party take possession of the policy to perfect a security interest. It is advisable to include in the loan documents a provision that the secured party may use the insurance monies to pay down the debt even if the debtor is not in default at that time. Also, a secured party may be added to the insurance as a loss payee. If the secured party is not named as a loss payee, it should comply with U.C.C. ” 9-315 and 9-322 to ensure perfection in proceeds in the hands of debtor. Some states and some insurance policies, have notice requirements. It is a best practice for the secured party to send a notice of assignments.

Judgments

An assignment of a right represented by a judgment, unless the judgment was taken on a right to payment that was collateral, such as an account. U.C.C. ' 9-109(d)(9).

Practice Tip : Generally, under the common law the secured party should obtain a written assignment, file it with the court, and if possible, notify the judgment debtor(s) .

Recoupment or Setoff Rights

A right of recoupment or set-off, except:

• U.C.C. ' 9-340 applies with respect to the effectiveness of rights of recoupment or set-off against deposit accounts; and
• U.C.C. ' 9-404 applies with respect to defenses or claims of an account debtor. U.C.C. ' 9-109(d)(10) (A) and (B).

Interests in Real Property

The creation or transfer of an interest in a lien on real property, including a lease or rents thereunder, except to the extent that provision is made for:

• Liens on real property under U.C.C. ' 9-203 (automatic attachment in supporting obligations such as a Guaranty and in supporting liens such as a mortgage) and 9-308(d) (automatic perfection);
• Fixtures under U.C.C. ' 9-334;
• Fixture filings under U.C.C. ” 9-501, 9-502, 9-516 and 9-519; and
• Security agreements covering personal and real property under U.C.C. ” 9-604, 9-109(d)(11) (A)-(D).

Practice Tip : Two important concepts must be noted in connection with promissory notes and mortgages. First, the mortgage follows the note. In re HW Partners, LLC, 81 U.C.C. Rep. 2d 704 (Bankr. E.D. Wash. 2013). Second, because the mortgage follows the note, Article 9 trumps real estate mortgage law regarding priority of liens in mortgages. Id. Thus, where a note and mortgage were double pledged, and creditor A perfected under Article 9 by taking possession of the original note and filing a UCC-1 and creditor B perfected by filing a notice of the assignment of the mortgage in the real property records, creditor A had priority in the note and mortgage. Id.

Non-Commercial Tort Claim

An assignment of a claim arising in tort, other than a commercial tort claim, except that U.C.C. ” 9-315 and 9-322 apply with respect to proceeds and priorities in proceeds. U.C.C. ' 9-109 (d)(12). Note, when a tort claim settles and becomes a contractual obligation, it is covered by Article 9 as a payment intangible. U.C.C. ' 9-102(61).

Consumer Deposit Accounts

An assignment of a deposit account in a consumer transaction, but U.C.C. ” 9-315 and 9-322 apply with respect to proceeds and priorities in proceeds. U.C.C. ' 9-109(d)(13). Article 9 does not preclude security interests in consumer deposit accounts, but this area is governed by common law.

Practice Tip : Generally, under applicable common law, the secured party should have the debtor assign the account in a written security agreement, the debtor should not have any control or access, and there should be notice to the bank. The bank should also agree that it will not remit any funds to the debtor without the secured party's consent, that it will remit the funds to secured party upon default and request and that it subordinates any security interests or setoff rights it has or may have.

State As Debtor

Security interest granted by a state or state agency are governed by Article 9 in the absence of a statute providing otherwise. Many states have, however, adopted non-uniform provisions of Article 9, which exclude security interests granted by states or state agencies from Article 9. U.C.C. ' 9-109(a)(1).

Conclusion

Article 9 is a tremendously valuable statute, providing the architecture for transparency and predictability in a variety of personal property liens, but it is not without its limits. Secured parties must know when they have wandered outside the scope of Article 9, in whole or in part, and in such cases, be sure to consider what law governs perfection, priority and prosecution of the liens.

Frank Peretore is a founding partner of the law firm of Peretore & Peretore, P.C. with offices in New Jersey and New York. A member of this newsletter's Board of Editors, he represents national and regional financial institutions and lessors from the transactional and financing stage throughout the litigation stage in the state, federal and bankruptcy courts. He also represents creditors in general commercial litigation and commercial foreclosure matters. Reach him at 973-729-8991.

When one thinks of personal property collateral, one surely thinks of Article 9 of the U.C.C. Article 9 covers not only the obvious types of personal property collateral like equipment and chattel paper, but it also covers many types of collateral one might not have expected, such as commercial tort claims, certain health care insurance receivables, letters of credit, nonpossessory statutory agricultural liens, public finance transactions, security interests arising under Articles 2, 2A, 4 and 5 of the U.C.C., software and supporting obligations. Article 9 even applies to consignments and sales of accounts, chattel paper, payment intangibles and promissory notes. Despite its breadth, however, there are many types of personal property excluded from Article 9. Additionally, in some cases, Article 9 applies only in part, such as where it defers to specific state or federal laws for perfection or priority issues, but still governs enforcement.

The following is a discussion of the three major categories of personal property liens excluded from Article 9, in whole or in part.

Nonconsensual Liens

Article 9 governs consensual liens. Thus, involuntary liens such as garagekeepers' liens, landlords' liens and liens in favor of suppliers of services or materials, (with the exception of non-possessory agricultural liens) are beyond the scope of Article 9. U.C.C. ' 9-109(d) (1) and (2). Article 9 generally provides that these involuntary possessory liens will have priority over Article 9 liens unless they are created by statute and the statute gives priority to Article 9 liens. This provision reflects the policy that liens securing work or services that enhance or preserve collateral should take priority. U.C.C. ' 9-310 (1970), Official Comment 1. In sum, Article 9 generally defers to state law regarding perfection, priority and enforcement of involuntary liens. U.C.C. ” 9-109 (d) (1) and (2) and 9-333.

Personal Property Liens

Specifically Addressed by Federal or State Law

Article 9 does not apply to the extent it is superseded by state or federal laws addressed to specific types of collateral. The primary type of personal property that falls into this category are titled motor vehicles, airplanes, railcars, vessels and intellectual property. Every state has a title law governing motor vehicles that are registered in and driven over the roads in that state. These state title statutes generally require all vehicles that drive over the roads to be registered and titled and that all liens on such vehicles be recorded on the title. (Note: Titled vehicles held as inventory are covered by Article 9 for perfection of liens.)

As for commercial trucks operating under an ICC permit, federal law defers to the state certificate of title laws. 49 U.S.C. ' 11304. State laws, other than Article 9, can also govern perfection of liens in boats and federal law governs railcars, airplanes and many vessels. Copyrights, trademarks and patents are also all governed, at least to some extent, by federal law. In short, if the collateral rolls over the roads or rails, flies, floats or is intellectual property it is often not governed exclusively by Article 9, at least for lien perfection and perhaps for priority issues: Article 9 only governs to the extent it is not preempted. U.C.C. ' 9-109(c).

These state and federal statutes, however, often address only perfection of liens, but not priority or enforcement in which case Article 9 fills in the gaps and applies to the extent it does not conflict with the state or federal law. A secured party may generally enlist some Article 9 provisions, such as Article 9's self-help provisions, although a federal (or state) law governs perfection questions. Dietrich v. Key Bank, N.A. , 72 F.3d 1509 (11th Cir. 1996).

Airplanes

The Federal Aviation Act of 1958 governs perfection of security interests in airplane engines (and propellers) and airplanes. Secured parties should consider using a specialist as an expeditor due to complexities. The Federal Aviation Act only addresses perfection, not priority, which is governed by Article 9, except where the Cape Town Convention applies. To obtain priority in larger airplanes (eight or more people or crew or goods in excess of 2,750 kilograms) and helicopters (five or more people or crew or goods in excess of 450 kilograms), the secured party also needs to record its security interest under the Cape Town Convention by filing with the International Registry in Dublin, Ireland, to obtain priority.

Registering a security interest under the Cape Town Convention requires two steps. First, the secured party must obtain an authorization code from the FAA. Second, using the FAA authorization code, the secured party must register with the International Registry as provided above.

Vessels

The Federal Commercial Instruments and Maritime Lien Law govern the perfection of security interests in documented vessels. 46 U.S.C. ' 31301 et seq ., includes the Ship Mortgage Act of 1920. 46 U.S.C. Chap. 313. This Act addresses both perfection and priority. For undocumented boats such as recreational vehicles, the secured party should perfect under Article 9, although an undocumented boat may be titled, depending on the state. If there is a title, the secured party should record a lien on same. If the boat cannot be documented because it is too small and it is intended to be used in interstate commerce, the secured party should consider filing with the Surface Transportation Board as well. See Railroad Rolling Stock below.

The secured party should also, in each of these cases, file a UCC-1 covering not only the boat, but also all equipment, because some equipment may not be covered by the Ship Mortgage Act. The secured party should further be familiar with maritime liens, which can arise in favor of repair yards, stevedores, the master and crew as well as other providers of goods and services to the vessel. Some of these liens will be “preferred maritime liens” and trump even a preferred ship mortgage.

Railroad Rolling Stock

The ICC Termination Act of 1995 governs the perfection of security interests in railroad cars, locomotives and other railroad rolling stock. 49 U.S.C. ' 11301 et seq . Perfection is effected by filing a security agreement or memorandum with the Surface Transportation Board in Washington, DC.

Intellectual Property

Case law generally provides that patents, trademarks and unregistered copyrights are governed by Article 9. Moldo v. Matsco ( In re Cybernetic Servs., Inc.), 252 F. 3d 1039 (9th Cir. 2001) (Patents); Trimarchi v. Dev. Corp. , 255 B.R. 606 (D. Mass. (2000) (Trademarks); Aerocon Engineering Inc. v. Silicon Valley Bank (In re World Auxiliary Power Co.), 303 F. 3d 1120 (9th Cir. 2002) (Unregistered copyrights).) Patents, trademarks and unregistered copyrights are “general intangibles” under Article 9, and thus liens should be perfected under Article 9 accordingly. Id.' But in the case of intellectual property, the secured party usually should make a filing at the federal level as well, as noted below.

Copyrights

Pursuant to the Copyright Act of 1976, secured parties in “registered” copyrights must file a security agreement or a “note” or a “memorandum” in the U.S. Copyright Office. (17 U.S.C. ' 204, 205. See 17 U.S.C. Section 101. See also In re Peregrine Entertainment, Ltd., 116 B.R. 194, 11 U.C.C. Rep. Serv. 2d 1025, 116 B.R. 194 (C.D. Cal. 1990). The secured party would be wise to file an Article 9 financing statement as well. As noted above, unregistered copyrights are governed by Article 9.

Trademarks

The Lanham Act, like the Patent Act referenced below, generally requires filings at the federal level for transfers of ownership. 15 U.S.C. 1' 1060. In the case of trademarks, the secured party should, however, file an “assignment” with the Commissioner of Patents and Trademarks, as well as an Article 9 financing statement.

Patents

The Patent Act, like the Lanham Act, arguably only requires filings at the federal level for transfers of ownership. 35 U.S.C. ' 101 et seq. See also In re Cybernetic Serv., Inc., supra. In the case of patents, the secured party should, again however, file a “conditional assignment” with the Commissioner of Patents and Trademarks, as well as an Article 9 financing statement.

In summary, in the case of unregistered copyrights, trademarks and patents, a filed financing statement should protect the secured party from a subsequent trustee and most creditors. A secured party that perfects through a finance statement only will not, however, in the cases of trademarks and patents be protected against a bona fide purchaser who buys without knowledge of the security interest. Thus, federal filings are advisable except in the case of an unregistered copyright to protect against bona fide purchasers without knowledge of the lien.

Equipment Leases

Article 9 does not apply to equipment leases. These are governed by Article 2A of the U.C.C., except to the extent the equipment leases themselves are pledged as collateral, in which case they are “chattel paper” under Article 9.

Practice Tip: It is often difficult to determine with certainty whether a transaction will be deemed a true lease. Accordingly, it is advisable that the practitioner, out of an abundance of caution, comply with Article 9. Article 9 expressly provides that filing a UCC-1 is not an admission that a transaction is a secured transaction. U.C.C. ' 9-505(b).

Miscellaneous Exempt Personal Property

Additional specific personal property excluded from Article 9 includes:

Wages

An assignment of claim for wages, salary, or other compensation of an employee. U.C.C. ' 9-109(d)(3). Note: This exclusion is limited to wages or other employee compensation. Thus, an independent contractor may create an Article 9 security interest for monies due to the independent contractor. Mass Mutual Life Insurance Co. v. Central Penn National Bank , 372 F. Supp. 1027 (E.D. Pa. 1974); Perry v. Freeman , 163 Ga. App. 186, 293 S.E. 2d 381 (Ga. 1982).

Sale of Business

A sale of accounts, chattel paper, payment intangibles, or promissory notes as part of a sale of the business out of which they arose. U.C.C. ' 9-109 (d)(4).

Assignment for Collection Only

An assignment of accounts, chattel paper, payment intangibles, or promissory notes that is for the purpose of collection only. U.C.C. ' -109 (d)(5).

Performing Party

An assignment of a right to payment under a contract to an assignee that is also obligated to perform under the contract. U.C.C. ' 9-109(d)(6).

Limited Assignment in Satisfaction of Debt

An assignment of a single account, payment intangible, or promissory note to an assignee in full or partial satisfaction of a preexisting indebtedness U.C.C. ' 9-109(d)(7).

Insurance Policy Claim Other Than Health Care Receivables

A transfer of an interest in or an assignment of a claim under a policy of insurance, other than an assignment by or to a health-care provider of a health-care-insurance receivable and any subsequent assignment of the right to payment. U.C.C. ' 9-109(d)(8); Insurance policies are excluded from Article 9 except for health care receivables and to the extent policies are proceeds of other collateral. U.C.C. ' 9-109(d)(8). U.C.C. ” 9-315 and 9-322 may apply to any insurance as proceeds and priorities in proceeds of other collateral.

Practice Tip : Generally, under non-Article 9 law the secured party must provide an insurance company with an assignment of insurance. Consult the insurance company for its approved form(s). Some states may also require that the secured party take possession of the policy to perfect a security interest. It is advisable to include in the loan documents a provision that the secured party may use the insurance monies to pay down the debt even if the debtor is not in default at that time. Also, a secured party may be added to the insurance as a loss payee. If the secured party is not named as a loss payee, it should comply with U.C.C. ” 9-315 and 9-322 to ensure perfection in proceeds in the hands of debtor. Some states and some insurance policies, have notice requirements. It is a best practice for the secured party to send a notice of assignments.

Judgments

An assignment of a right represented by a judgment, unless the judgment was taken on a right to payment that was collateral, such as an account. U.C.C. ' 9-109(d)(9).

Practice Tip : Generally, under the common law the secured party should obtain a written assignment, file it with the court, and if possible, notify the judgment debtor(s) .

Recoupment or Setoff Rights

A right of recoupment or set-off, except:

• U.C.C. ' 9-340 applies with respect to the effectiveness of rights of recoupment or set-off against deposit accounts; and
• U.C.C. ' 9-404 applies with respect to defenses or claims of an account debtor. U.C.C. ' 9-109(d)(10) (A) and (B).

Interests in Real Property

The creation or transfer of an interest in a lien on real property, including a lease or rents thereunder, except to the extent that provision is made for:

• Liens on real property under U.C.C. ' 9-203 (automatic attachment in supporting obligations such as a Guaranty and in supporting liens such as a mortgage) and 9-308(d) (automatic perfection);
• Fixtures under U.C.C. ' 9-334;
• Fixture filings under U.C.C. ” 9-501, 9-502, 9-516 and 9-519; and
• Security agreements covering personal and real property under U.C.C. ” 9-604, 9-109(d)(11) (A)-(D).

Practice Tip : Two important concepts must be noted in connection with promissory notes and mortgages. First, the mortgage follows the note. In re HW Partners, LLC, 81 U.C.C. Rep. 2d 704 (Bankr. E.D. Wash. 2013). Second, because the mortgage follows the note, Article 9 trumps real estate mortgage law regarding priority of liens in mortgages. Id. Thus, where a note and mortgage were double pledged, and creditor A perfected under Article 9 by taking possession of the original note and filing a UCC-1 and creditor B perfected by filing a notice of the assignment of the mortgage in the real property records, creditor A had priority in the note and mortgage. Id.

Non-Commercial Tort Claim

An assignment of a claim arising in tort, other than a commercial tort claim, except that U.C.C. ” 9-315 and 9-322 apply with respect to proceeds and priorities in proceeds. U.C.C. ' 9-109 (d)(12). Note, when a tort claim settles and becomes a contractual obligation, it is covered by Article 9 as a payment intangible. U.C.C. ' 9-102(61).

Consumer Deposit Accounts

An assignment of a deposit account in a consumer transaction, but U.C.C. ” 9-315 and 9-322 apply with respect to proceeds and priorities in proceeds. U.C.C. ' 9-109(d)(13). Article 9 does not preclude security interests in consumer deposit accounts, but this area is governed by common law.

Practice Tip : Generally, under applicable common law, the secured party should have the debtor assign the account in a written security agreement, the debtor should not have any control or access, and there should be notice to the bank. The bank should also agree that it will not remit any funds to the debtor without the secured party's consent, that it will remit the funds to secured party upon default and request and that it subordinates any security interests or setoff rights it has or may have.

State As Debtor

Security interest granted by a state or state agency are governed by Article 9 in the absence of a statute providing otherwise. Many states have, however, adopted non-uniform provisions of Article 9, which exclude security interests granted by states or state agencies from Article 9. U.C.C. ' 9-109(a)(1).

Conclusion

Article 9 is a tremendously valuable statute, providing the architecture for transparency and predictability in a variety of personal property liens, but it is not without its limits. Secured parties must know when they have wandered outside the scope of Article 9, in whole or in part, and in such cases, be sure to consider what law governs perfection, priority and prosecution of the liens.

Frank Peretore is a founding partner of the law firm of Peretore & Peretore, P.C. with offices in New Jersey and New York. A member of this newsletter's Board of Editors, he represents national and regional financial institutions and lessors from the transactional and financing stage throughout the litigation stage in the state, federal and bankruptcy courts. He also represents creditors in general commercial litigation and commercial foreclosure matters. Reach him at 973-729-8991.