The Modernization of Commercial Security under the Uniform Commercial Code

Abstract

Article 9 of the proposed Uniform Commercial Code had as its background substantial bodies of earlier statutory material on security in chattels and receivables, such as the Uniform Conditional Sales Act,2 the Uniform Chattel Mortgage Act,3 the Uniform Trust Receipts Act,4 Factors' Lien Acts,5 and conditional sale and chattel mortgage in nearly every state, and receivable legislation in the majority of states.0 Article 9 is among the most novel of the articles of the Code in the extent to which it represents a complete recasting of the prior statutory material dealing with the same subject matter, with new concepts replacing the old. Article 9 covers the whole field of security in tangible chattels, thereby replacing the earlier statutory material on such subjects. It also deals with the whole subject of the transfer of receivables (choses in action), whether by way of security or by way of transfer of absolute ownership therein, thereby replacing all of the state on that subject adopted in the last ten years. It will be seen that the article links up very closely with the Articles on Sales and on Commercial Paper (negotiable instruments). A sale of goods, unless it is strictly a cash sale, gives rise to a receivable of some sort. Even if the receivable is an ordinary 30 or 6o day open account, it may itself become a subject of a separate financing transaction. Such financing occurs in large volume when the merchant does not have the working capital with which to cover the lag between the time when he is required to pay for his merchandise and the time when he has sold it and his customer is required to pay for it. Thus arise the fields of factoring (which is basically the purchase by a financial institution of open accounts without recourse,