1999 UCC Committee Report on Uniform Commercial Code, Revised Article 9

Appendix I

Uniform Commercial Code Revised Article 9 (Secured Transactions)
Washington Comments

Prepared by
UCC COMMITTEE
BUSINESS LAW SECTION
WASHINGTON STATE BAR ASSOCIATION

SEPTEMBER 1999

RCW 62A.9A-102. Definitions and Index of Definitions

1. In general. Subsection (a) contains definitions for use "in this article." Being designed for financing transactions, these definitions do not necessarily apply by analogy in other contexts, especially when the same term is defined differently in other articles of the Uniform Commercial Code. For example, there is a different definition of "goods" in Article 2 (Sales), of "instrument" in Article 3 (Commercial Paper), and of "good faith" in Article 5 (Letters of Credit).

2. Manufactured Homes as Goods. For many years manufactured homes were treated as personalty and titled under the Washington motor vehicle statute, and a security interest in a manufactured home could be perfected only by notation on the certificate of title. See chapter 46.12 RCW. Chapter 65.20 RCW, enacted in 1989, provides a means for eliminating the title certificate and converting or merging a manufactured home into the real property on which it is installed. Once converted, the manufactured home is treated no differently than any other real property for title or security purposes. But until the title has been eliminated, the manufactured home is "not . . . real property in any form, including fixture law". RCW 65.20.030. (Emphasis added.) Consistently with this scheme, the last sentence of the definition of "goods" in subsection (44) has been revised to make clear that a manufactured home converted to real property under chapter 65.20 RCW cannot be "goods".

3. Instruments. In the second sentence of subsection (47), the definition of "instrument," clauses (iv) and (v) have been added to the official text to make clear that an instrument under Article 9 must contain a promise or order to pay and does not include a writing that is expressly nontransferable – – for example, a nontransferable "certificate of deposit."

4. Manufactured home. – The definition of this term contained in Title 46 and chapter 65.20 RCW has been substituted for that of the official text.

5. Manufactured-home transaction. The definition of this term, found in subsection (54) of the official text, has been omitted as unnecessary under the Washington statutory scheme. See Washington Comment No. 2, supra.

6. Mortgage. Under Washington property law, the definition of "mortgage" in subsection (55) encompasses deeds of trust and real estate contracts as well as traditional mortgages, but does not include an ownership interest.

The official text is varied by adding a sentence to subsection (c) to make clear that the requirement of a reasonable identification of collateral, as distinguished from a supergeneric description (e.g., "all assets of debtor"), applies only to the security agreement and not to the financing statement. Likewise, the caption to this section is expanded to indicate that the section pertains to security agreements.

Until now, the official text of Article 9 has excluded coverage of transfers by governments and governmental units. The official text of Revised Article 9 eliminates that exclusion. However, Washington's distinctive case law on municipal finance makes that elimination inappropriate in this state. Consequently, subsection (d)(14) has been added to continue the exclusion with respect to the State of Washington and its governmental units.

Subsection (b) is intended to make clear that transactions subject to the Uniform Commercial Code remain subject to other applicable laws relating to consumers, to the regulation of loans and the extension of credit, and to consumer protection, including, without limitation, chapter 19.52 RCW (Interest-Usury), chapter 19.86 RCW (Consumer Protection Act), chapter 31.04 RCW (Consumer Loan Act), and chapter 63.14 RCW (Retail Installment Sales).

Subsection (b) only applies to collateral in the possession of a secured party. Collateral must be capable of possession in order for subsection (b) to apply (See Official Comment 7 to this section, indicating that intangibles are not susceptible of "possession"). Therefore subsection (b) does not conflict with or limit the provisions of RCW 62A.9A-408(d), which restricts a secured party's use of certain intangible collateral.

Subsection (2) of the official text continues automatic perfection (without filing) for an assignment of accounts which does not transfer to the assignee a "significant" part of the assignor's outstanding accounts. Washington had eliminated automatic perfection in that situation in response to the decision in Architectural Woods, Inc. v. State, 88 Wn. 2d 406, 562 P. 2d 248 (1977), which held an assignment to be automatically perfected because it was casual and isolated, although it evidently constituted a large percentage of the assignor's total accounts. By specifying a quantitative test – – $50,000, or 10% of the total amount, of the assignor's outstanding accounts and payment intangibles – – RCW 62A.9A-309(2) allows automatic perfection in accordance with the policy of the uniform act, while avoiding the uncertainty created by Architectural Woods.

Subsection (b) provides that the filing of a financing statement does not perfect a security interest in (1) motor vehicles, (2) boats, or (3) fixtures, timber or minerals on property registered under the Torrens system.

Subsection (g) expands the official text to provide that the crop lien statute, chapter 60.11 RCW, governs priority conflicts between secured parties and holders of agricultural liens subject to that statute.

Subsection (b) continues the Washington variation in RCW 62A.9-310 by which a possessory lien has priority over a security interest only if the lien is statutory and the statute expressly confers priority.

1. Manufactured homes. Subsection (e)(4) of the official text provides a special priority rule for security interest in manufactured homes that become fixtures. This rule has been deleted as irrelevant under the Washington statutory scheme. See Washington Comment No. 2 to RCW 62A.9A-102.

2. Crop liens. The Washington variation of subsection (j), in conjunction with subsection (i) and Washington's crop lien statute, chapter 60.11 RCW, gives a security interest in growing crops priority over real property interests except as otherwise provided in RCW 60.11.050. The real property interests thus subordinated include all liens arising under Titles 60 and 61 of RCW except those expressly given priority by RCW 60.11.050.

Subsection (f) of the official text has been omitted so as to preserve existing Washington statutes that expressly prohibit, or require governmental approval for, transfers of accounts or chattel paper; e.g., RCW 67.70.100, which requires court approval to assign lottery winnings.

Subsection (b) of the official text provides an extended period for the effectiveness of a financing statement relating to a public-finance transaction or a manufactured home transaction. This subsection has been omitted as unnecessary in Washington because of the exclusion for Washington State public-finance transactions and the treatment of manufactured homes under chapter 65.20 RCW. See, respectively, Washington Comment to RCW 62A.9A-109 and Washington Comment No. 2 to RCW 62A.9A-102.

Instead of fixing filing fees by statute, the Washington variation gives the department of licensing rule-making authority similar to that previously conferred by RCW 62A.9-409. The statute specifies those services for which fees are allowed and expressly allows an additional fee for expedited service.

RCW 62A.9A-527 omits as unnecessary the official text provision detailing what subjects must be covered in the annual reports submitted by the department of licensing.

To avoid doubt, subsection (h) states that rights and remedies under Part 6 of Revised Article 9 do not override applicable provisions of RCW 62A.9A-408, which restricts a secured party's use of certain types of intangible collateral.

Consistently with Washington case law (e.g., Freuhauf Trailer Co. of Canada Ltd. v. Chandler, 67 Wn. 2d 704, 409 P. 2d 651 (1966)), Washington variations of this section and RCW 62A.9A-624(a) preserve the ability of a guarantor to waive suretyship defenses prior to default.

The rules in subsection (c) and (d) on removal of fixtures are made expressly applicable to manufactured homes. Otherwise, under chapter 65.20 RCW, those rules would not apply to manufactured homes. See Washington Comment No. 2 to RCW 62A.9A-102.

When a promissory note secured by a mortgage of real property has been sold or pledged, subsection (b) gives the transferee the same right that the transferor had to foreclose the mortgage nonjudicially. In Washington, of course, the only kinds of "mortgage" that can be foreclosed nonjudicially are real estate contracts and deeds of trust satisfying the requirements of chapter 61.24 RCW. To exercise a right of nonjudicial foreclosure, the transferee of the secured note must record an affidavit setting forth specified facts concerning his right to foreclose.

Subsection (f) varies the official text by stating explicitly that the safe harbor form of disclaimer disclaims all warranties by a secured party making a nonjudicial disposition of collateral.

Subsection (c) continues the policy of the existing Washington variation in RCW 62A.9-504(c)(3) by requiring a secured party to give notice of nonjudicial disposition of collateral to other secured parties only if they have filed financing statements or have perfected by title certificate notation or under federal law.

In conformity with the official text, subsection (b) eliminates "constructive" strict foreclosure by which a secured party who delays too long to dispose of collateral is deemed to have elected to retain the collateral in full satisfaction of the secured obligations. Revised Article 9 thus overrules Service Chevrolet, Inc. v. Sparks, 99 Wn. 2d 199, 660 P. 2d 760 (1983). However, as noted in Official Comment No. 5, excessive delay in disposing of repossessed collateral is a factor in determining whether the eventual disposition is commercially reasonable.

RCW 62A.9A-621(a) continues the policy of the existing Washington variation in RCW 62A.9-505(2) by requiring a secured party to give notice to another secured party of its intention to retain collateral in satisfaction of secured obligations only if the other secured party has filed a financing statement or has perfected by title certificate notation or under federal law.

See Washington Comment to RCW 62A.9A-602.

When a secured party seeks to collect a deficiency judgment after disposing of collateral in a manner that is not commercially reasonable, subsection (a) follows the official text by adopting the rebuttable presumption rule for commercial transactions; i.e., the value of the collateral is rebuttably presumed to have been equal to the amount of the secured obligations. RCW 62A.9A-626(b) also follows the official text by adopting no rule for consumer transactions and providing instead that the courts shall decide what rule to apply to those transactions. Although the Washington Supreme Court has not yet addressed the issue, Division II of the Court of Appeals has applied the rebuttable presumption rule in a consumer transaction, McChord Credit Union v. Parrish, 61 Wn. App. 8, 809 P. 2d 759 (1991), while Divisions I and III have applied the rebuttable presumption rule in commercial transactions based on reasoning that would apply equally to consumer transactions. Empire South, Inc. v. Repp, 51 Wn. App. 868, 756 P. 2d 745 (1988); Rotta v. Early Indus. Corp., 47 Wn. App. 21, 733 P. 2d 576 (1987). It is therefore expected that under Revised Article 9, unless the supreme court should decide otherwise, Washington courts will apply the rebuttable presumption rule in consumer transactions as well as commercial transactions.

Subsections (2) and (3) reflect the policy of RCW 62A.9A-406, which generally invalidates anti-assignment provisions in a contract between an account debtor and the obligee. Subsection (7) has been added to enable a party to a sales contract to demand adequate assurances of performance when an assignment by the other party provides reasonable grounds for insecurity. If the assignment is merely for security, it is not likely to impair the other party's ability to obtain future performance due from the assignor. But even then, if under the circumstances the non-assigning party has reasonable grounds for insecurity, subsection (7) makes available the remedy afforded by RCW 62A.2-609.

Subsection (4)(c) has been added to conform to RCW 62A.9A-335(d).