The Interaction of Articles 6 and 9 of the Uniform Commercial Code: A Study in Conveyancing,Priorities, and Code Interpretation
By 1940, the National Conference of Commissioners on Uniform State Laws no longer was content to revise the then existing uniform acts that related to commercial transactions., Rather, the National Conference joined with the American Law Institute in an effort to promulgate proposed new legislation containing principles, policies, and definitions common to a number of separate aspects of mercantile commerce, including the sale and financing of goods and methods of payment. Like all human creations, the resulting product-the Uniform Commercial Codes--imperfectly achieved the goals of its sponsors. In particular, important questions have arisen about the proper interplay among various articles of the Code, each of which was drafted by different people addressing different, and sometimes competing, concerns. The sponsors answered some of these questions by amending the Code,' and a consensus has developed on others. Other questions remain without a generally accepted answer.
This Article discusses and attempts to answer some of the remaining questions-those that arise from the interaction of Article 9 (secured transactions) with Article 6 (bulk transfers). Specifically, this Article analyzes the impact of bulk transfers on secured financing by clarifying the rights of a secured party whose collateral is or has been sold as part of a bulk transfer. That these rights are in doubt is not surprising. The primary purpose of Article 6 is to prevent a merchant from defrauding his unsecured creditors. In contrast, Article 9 sets forth the rights of secured creditors. These rights are shaped, at least in part, by a desire to prevent a type of fraud entirely different from the fraud that Article 6 addresses.
Unfortunately, the case law adds little to a principled reconciliation of the competing policies of the two articles. Instead of analyzing those policies and carefully scrutinizing the text of the Code,courts have determined the rights of the secured party in a bulk transfer by, for example, needlessly changing the meanings of defined terms in Article 6 or Article 9 to reach a desired result. As a consequence, some of the important judicial opinions in the area not only interpret the Code improperly but also reach undesirable and incorrect results. In doing so, they create needless costs. Most secured parties whose collateral is inventory and many secured parties whose collateral is equipment now face significant additional risks; the lawyers who advise them or who represent potential buyers in bulk now face increased uncertainty.
Steven L. Harris,
The Interaction of Articles 6 and 9 of the Uniform Commercial Code: A Study in Conveyancing,Priorities, and Code Interpretation,
39 Vanderbilt Law Review
Available at: https://scholarship.law.vanderbilt.edu/vlr/vol39/iss2/1