8.2 Commercial Transactions

Most day-to-day commercial work in a business law practice flows through the Uniform Commercial Code (UCC), a model statute adopted (with local variations) by every state. Article 2 governs the sale of goods; the NALA Certified Paralegal (CP) exam concentrates on Article 9 (secured transactions) and Article 3 (negotiable instruments) — and on the filing work paralegals actually perform.

Article 9: Secured Transactions

A secured transaction is a loan or credit sale backed by collateral — property that secures the obligation. The lender or credit seller is the secured party; the borrower or buyer is the debtor. The secured party's claim to the collateral is a security interest, created by a security agreement.

Attachment

Attachment makes the security interest enforceable against the debtor. All three elements are required (often remembered as value, rights, agreement):

1. Value has been given — the loan is made or credit extended;
2. the debtor has rights in the collateral (ownership or the power to transfer rights);
3. the debtor has authenticated a security agreement that reasonably describes the collateral — or the secured party has possession or control of the collateral.

Descriptions typically use Article 9 categories: equipment, inventory, accounts, instruments, consumer goods, farm products, and the catch-all general intangibles.

Perfection

Perfection puts the world on notice and establishes the secured party's rights against third parties — later creditors, a bankruptcy trustee, and buyers. The method depends on the collateral:

The UCC-1 financing statement contains the debtor's exact legal name, the secured party's name, and an indication of the collateral. Under the last-event test, a financing statement is effective even with minor errors unless they make it seriously misleading — a wrong legal name for a registered organization is the classic seriously misleading error.

Purchase Money Security Interests and Priority

A purchase money security interest (PMSI) arises when credit enables the debtor to acquire the very collateral that secures the loan. The baseline priority rule is first to file or perfect wins, with two headline exceptions:

• A PMSI in equipment perfected within 20 days after the debtor receives possession takes priority over an earlier-filed security interest covering after-acquired equipment.
• A PMSI in inventory must be perfected before the debtor receives possession, and the PMSI holder must notify earlier conflicting secured parties in advance.
• A buyer in the ordinary course of business takes free of a security interest created by the seller, even if perfected — this is why inventory lenders tolerate retail sales.

Lapse, Continuation, and Termination

A financing statement is effective for five years from filing. To keep perfection alive, the secured party files a UCC-3 continuation statement — and it may be filed only within the six-month window before lapse. Miss the window and perfection lapses, potentially destroying priority. UCC-3s also handle amendments, assignments, and termination statements filed when the debt is paid.

Default and Remedies

On default, a perfected secured party may repossess the collateral without judicial process if it can do so without a breach of the peace, then sell it at a commercially reasonable public or private sale and apply the proceeds to the debt, pursuing any remaining deficiency against the debtor. Article 9 requires advance notice of disposition to the debtor in most non-consumer cases.

Article 3: Negotiable Instruments

A negotiable instrument — check, draft, promissory note, or certificate of deposit — circulates as a substitute for money. To qualify under Article 3, an instrument must be:

1. in writing and signed by the maker or drawer;
2. an unconditional promise or order to pay (no stated conditions or references that make payment subject to another agreement);
3. for a fixed amount of money;
4. payable on demand or at a definite time;
5. payable to order or to bearer — the so-called magic words of negotiability (checks are excepted);
6. free of any other undertaking, except those Article 3 permits.

A holder in due course (HDC) takes the instrument for value, in good faith, and without notice that it is overdue, dishonored, or subject to defenses or claims. HDC status matters because such a holder takes free of personal defenses — breach of contract, failure of consideration, and fraud in the inducement — but remains subject to real defenses: forgery, fraud in the factum (the signer did not know the document was an instrument), material alteration, infancy, certain illegality, and discharge in bankruptcy.

The Paralegal's UCC Workload

In practice, paralegals run the UCC desk: ordering UCC search reports against debtor names, preparing UCC-1s with painstaking attention to exact legal names, calendaring lapse dates on tickler systems, drafting UCC-3 continuations and terminations, and building lien-priority charts for closing binders. Precision is the whole job — one letter off in the debtor's corporate name can leave the lender unperfected.

Exam trap: attachment is about enforceability against the debtor; perfection is about priority against third parties. A security interest can be fully attached yet completely unperfected.