The Intangibles of Payment Stream Stripping: Why Article 9 Should Not Leave You Baring Your Assets (Applying a Common Law Remedy to a Creature of Statute)

Abstract:     
This article explores the current uncertainty regarding hidden priority interests in Article 9 following the Commercial Money Center decision, and how a literal interpretation of Article 9 could reward holders of hidden priority interests at the expense of subsequent good faith purchasers. In addition to potential statutory amendments, the article proposes two immediately available alternative approaches to provide clarity in the secured transaction marketplace while also giving respect to the current language of the code. This article’s argument regarding the importation of the common law “merger doctrine” to Article 9 in this context, as one of the two potential solutions mentioned above, offers a fundamentally new approach to the secured interest marketplace. By importing the merger doctrine, the Article 9 reporter or a subsequent court could obtain a remedy that would provide for a subsequent good faith purchaser to prevail over a competing hidden priority interest. Such a result would coincide with both the purpose and the other competing priority sections of Article 9.

Number of Pages in PDF File: 48

Keywords: Article 9, payment intangible, hidden, secret, priority interest, Commercial Money Center, merger doctrine, competing priorities, secured transactions

JEL Classification: K22

Accepted Paper Series