Transfer of Movable Property under U.S. Law

Discussed from a Functional Perspective

by Martin Lilja (Author)
©2014 Thesis 277 Pages


This book discusses legal rules for three functional commercial conflict situations under the laws of the U.S.A., mainly analyzing the U.C.C., the Bankruptcy Code, Common Law and Equity. In this context, the term conflict situation is meant to address a certain type of conflict arising between certain parties – e.g. buyer, seller, creditors of buyer or seller, or other types of third parties, like former title-holders to the goods – having certain colliding interests in the same property. The three conflict situations addressed in this book are the protection of a buyer in the seller’s insolvency, the protection of a seller in the buyer’s insolvency, and the conflict between a person formerly entitled to the goods and a good faith acquirer.

Table Of Contents

  • Cover
  • Title
  • Copyright
  • About the Author
  • About the Book
  • This eBook can be cited
  • Table of contents
  • Preface
  • I. Introduction
  • A. Coverage and approach
  • B. Purposes pursued with this study, including argumentation analysis
  • C. The model law concept of the U.C.C., its relation to other bodies of law, and the irrelevance of “title”
  • D. Development and revisions of the U.C.C.
  • 1. The Code’s historical predecessor: The Uniform Sales Act (U.S.A.)
  • 2. Development and revisions of the U.C.C.
  • E. The various Articles of the Code
  • II. Buyer's protection in the seller's insolvency
  • A. The state of Louisiana
  • 1. Buyer’s protection under the rules in Louisiana Civil Code
  • 2. The buyer’s protection under other sources of law
  • B. All other states
  • 1. An orientation into the rules
  • 2. The buyer’s protection against the seller’s unsecured creditors (protection before delivery of the goods to the buyer)
  • 2.1. The buyer’s protection under sections 2-310, 2-507(1) and 2-511(1)
  • 2.2. The buyer's right to adequate assurance under section 2-609
  • 2.3. The buyer’s protection under section 2-502
  • 2.3.1. Introduction
  • 2.3.2. Requirements for a right to separate under 2-502 (1) U.C.C.
  • Goods must be identified according to 2-501
  • Pre-payment of the price of the goods
  • Tender of any unpaid portion of the contract price
  • Alternative 1: Seller becomes insolvent within 10 days after receiving the first installment on the price
  • Alternative 2: Goods bought for personal, family, or household purposes, and seller repudiates or fails to deliver
  • 2.3.3. Effects under section 2-502 and relation to other rights
  • Effects of the buyer fulfilling the requirements of 2-501 and 2-502
  • Buyer’s right vis-à-vis third parties
  • 2.4. Buyer’s protection in the seller’s insolvency under 2-716(1): The concept of specific performance
  • 2.4.1. Introduction
  • 2.4.2. The requirements of uniqueness or in other proper circumstances
  • 2.4.3. Specific performance in the seller’s insolvency
  • Pre-Code law
  • The law under the U.C.C.
  • 2.5. Buyer’s protection in the seller’s insolvency under 2-716(3): The concept of replevin
  • 2.5.1. Introduction
  • 2.5.2. Alternative 1: The buyer’s right to replevin when he or she is unable to effect cover
  • 2.5.3. Alternative 2: The buyer’s right of replevin with the buyer’s satisfaction of seller’s security interest in goods which was reserved by the seller upon shipment
  • 2.6. Limitations of the buyer’s right under 2-502 and 2-716
  • 2.6.1. Fraudulent retention of possession under state law
  • 2.6.2. Exceptions: Exclusion of fraud under the Code
  • 2.6.3. Fraudulent identification or delivery under the Code and other laws
  • Regarding voidable preference
  • Regarding fraud
  • 2.6.4. The effects of the rights under sections 2-502 and 2-716 in bankruptcy
  • The view that the buyer’s rights under sections 2-502 and 2-716 are not enforceable in the seller’s bankruptcy
  • Consequence of that view: buyer’s right is subject to trustee’s right to assume or reject executory contract
  • The opposite view (2-502 and 2-716(1) and (3) provide effective protection in bankruptcy), and the effect of a mere “special property” interest under 2-501
  • 2.7. The buyer’s protection under the Bankruptcy Code 507
  • 2.8. Protection of the buyer under section 2-401: Passing of title
  • 3. The buyer’s protection against the seller’s unsecured creditors (protection of the buyer upon delivery) by acquiring title under section 2-401
  • 3.1. Introduction
  • 3.2. Requirements of passing of title
  • 3.2.1. The requirement of identification
  • 3.2.2. The seller has completed its performance with reference to the physical delivery of the goods
  • 3.2.3. The parties have agreed on the passing of title
  • 3.3. The consequences of the buyer obtaining title
  • 3.4. When do matters concerning title become material?
  • 4. The buyer’s protection by acquisition free of existing security interest of the seller’s creditors (protection before/after delivery of the goods to the buyer) under section 9-320(a)
  • 4.1. Introduction
  • 4.2. The requirements for the buyer to fulfill
  • 4.2.1. The buyer buys in good faith
  • 4.2.2. The buyer buys without knowledge that the sale violates the rights of secured creditors
  • 4.2.3. The buyer purchases goods in ordinary course from a person in the business of selling goods of that kind, other than a pawnbroker
  • 4.2.4. The buyer takes possession of the goods or has a right to recover the goods under Article 2
  • 4.2.5. The buyer does not acquire the goods in a transfer in bulk
  • 4.2.6. The buyer does not acquire goods as security for or in total or partial satisfaction of a money debt
  • 5. The buyer’s protection by acquisition free of existing security interest of the seller’s creditors (protection after delivery of the goods to the buyer)
  • 5.1. Buyer’s protection against seller’s secured creditor where a consumer buys goods from another consumer – section 9-320(b)
  • 5.1.1. Introduction
  • 5.1.2. The requirements for the buyer to fulfill
  • 5.1.3. The effect of fulfilling these requirements
  • 5.2. Buyer’s protection against the seller’s creditors under 9-317(b): Acquisition free of security interest by taking delivery under certain requirements
  • 5.2.1. Introduction
  • 5.2.2. The requirements for the buyer to fulfill
  • 5.2.3. Effect if the buyer fulfills these requirements
  • 6. The buyer’s protection against seller’s unsecured (and sometimes secured) creditors – after creating a security interest in the goods (protection before delivery of the goods to the buyer)
  • 6.1. Buyer’s protection against the seller and the seller’s unsecured creditors by acquiring a general security interest in the goods
  • 6.1.1. Introduction
  • 6.1.2. The requirements for the buyer to fulfill – attachment of the security interest
  • Value has been given
  • Debtor has rights in the collateral
  • The debtor has authenticated a security agreement that provides a description of the collateral – or alternative conditions
  • 6.1.3. The requirements for the buyer to fulfill – perfection of the security interest
  • 6.1.4. The effect of a perfected security interest
  • Assets to which the security interest extends
  • Relation to third party rights which limit the security interest’s effect
  • Enforcement
  • 6.2. Buyer’s protection in the seller’s insolvency by creating a purchase money security interest
  • 6.2.1. Introduction
  • 6.2.2. The requirements for obtaining a purchase money security interest
  • 6.2.3. The effect of obtaining a purchase money security interest
  • 7. The buyer’s protection against seller’s unsecured (and sometimes secured) creditors (protection after delivery of the goods to the buyer) on rightful rejection or justifiable revocation of acceptance (sections 2-711(3) and 9-110)
  • 7.1. Introduction
  • 7.2. The requirements for the buyer to fulfill in order to gain protection
  • 7.3. The effect of the buyer fulfilling the requirements
  • III. Seller's protection in the buyer's insolvency
  • A. The state of Louisiana
  • 1. The seller’s protection under the Civil Code
  • 2. The seller’s protection under other sources of law
  • B. All other states
  • 1. An orientation into the rules
  • 2. Seller’s protection before delivery of the goods to the buyer
  • 2.1. Seller’s protection in sales where no specific agreement about payment exists, sections 2-310(a), 2-507(1) and 2-511(1)
  • 2.2. Seller’s protection by shipment under reservation – sections 2-505 and 2-310(b)
  • 2.2.1. Seller’s protection under the procurement of a negotiable document
  • 2.2.2. Seller’s protection under the procurement of a nonnegotiable document
  • 2.2.3. General rules applicable to both types of documents
  • 2.3. Seller’s right to adequate assurance of performance – section 2-609
  • 2.3.1. The requirement of “reasonable grounds”
  • 2.3.2. The requirement of “adequate assurance”
  • 2.4. Seller’s protection by stoppage in transit – section 2-705
  • 2.4.1. The right of stoppage in transit
  • 2.4.2. Until when can a right of stoppage be exercised?
  • 2.4.3. The exercising of the stoppage in transit and its effects
  • 2.5. Seller’s protection by refusal to deliver when buyer is discovered to be insolvent before delivery: section 2-702(1) (and sections 2-703(a) and (f))
  • 3. Seller’s protection after delivery of the goods to the buyer
  • 3.1. Seller’s protection under a sale on approval – section 2-326
  • 3.2. The seller’s protection under consignment
  • 3.3. Seller’s protection in cash sales – sections 2-507(2) and 2-511(3)
  • 3.4. The seller’s right to reclaim goods delivered under U.C.C. 2-702(2) and Bankruptcy Code 546(c)
  • 3.4.1. The requirements the seller has to fulfill under U.C.C. 2-702
  • 3.4.2. The seller’s right vis-à-vis third parties and right in bankruptcy
  • 3.4.3. The seller’s protection under Bankruptcy Code section 546(c)
  • Changes of section 546(c) and effects thereof
  • The requirements for protection in bankruptcy
  • 3.5. Seller’s protection under a retention or reservation of title according to U.C.C. section 2-401
  • 3.6. The seller’s protection by acquiring a purchase money security interest
  • 3.6.1. The requirements to acquire a purchase money security interest
  • 3.6.2. Consolidation and refinancing
  • 3.6.3. Purchase-money secured creditors vs. other secured parties
  • 3.7. The seller’s protection after creating an ordinary security interest
  • 3.8. Seller's protection under Bankruptcy Code section 503
  • IV. The conflict between a person with older rights and a buyer from a non-owner (good faith acquisition)
  • A. The state of Louisiana
  • 1. Goods lost or stolen
  • 2. Transfer under “vice” of consent
  • 3. The good faith requirement
  • B. All other U.S. states
  • 1. An orientation into the rules
  • 2. The “traditional concept" of good faith purchase for value under the law of equity, still applicable under section 1-103
  • 2.1. Introduction
  • 2.2. The question of value
  • 2.3. The question of good faith
  • 2.4. Clarifications as to the “requirement” of acquiring title
  • 2.5. The consequences of attaining, or not attaining, the status of a good faith purchaser for value
  • 2.6. A third requirement to acquire the status of a good faith purchaser for value?
  • 3. The concept of good faith purchase for value under the U.C.C. section 2-403
  • 3.1. The main rule under section 2-403: nemo dat quod non habet
  • 3.2. First exception: Good faith acquisition under the “voidable title rule”, section 2-403(1)
  • 3.2.1. Requirements relating to the transfer between the transferor and the transferee
  • 3.2.2. Requirements regarding the transferee
  • 3.2.3. The requirements regarding the good faith purchaser
  • 3.3. Specific situations where a transferee has the power to transfer a good title to a good faith purchaser
  • 3.3.1. The transferor was deceived as to the identity of the purchaser
  • 3.3.2. Delivery was in exchange for a check which is later dishonored
  • 3.3.3. It was agreed that the transaction was to be a “cash sale”
  • 3.3.4. The delivery was procured through fraud punishable as larcenous under the criminal law
  • 3.4. Second exception: Good faith acquisition under the “entrustment rule” and doctrine of “estoppel”
  • 3.4.1. General
  • 3.4.2. Requirements for good faith acquisition
  • A buyer in the ordinary course of business
  • Entrustment
  • 3.5. Effects of a bona fide purchase under section 2-403
  • 4. A look at other provisions in the U.C.C. governing the same conflict situation
  • 4.1. Section 2-702(3)
  • 4.2. Section 2-706
  • 4.3. Section 9-617(b)
  • 5. Section 550 of the Bankruptcy Code
  • 5.1. First element: The transferee must have taken the property for value
  • 5.2. Second element: The transferee must have taken the property in good faith
  • 5.3. Third element: The transferee must have taken the debtor’s property without knowledge of the voidability of the transfer avoided
  • 6. Related issues: Statutes of limitations limiting the power of the owner to recover his or her goods
  • Table of cases
  • American cases
  • Foreign cases
  • Table of literature


A.Coverage and approach

This book discusses legal rules for three "functional" commercial "conflict situations" under the laws of the U.S.A. The term “conflict situation”, here, is meant to address a certain type of conflict arising between certain parties (e.g., buyer, seller, creditors of buyer or seller, or other types of third parties, like former title-holders to the goods) having certain colliding interests in the same property. The three conflict situations addressed in this book are (1) the protection of a buyer in the seller's insolvency; (2) the protection of a seller in the buyer's insolvency; and (3) the conflict between a person formerly entitled to the goods (the original owner) and a good faith acquirer buying these goods from a non-owner who has no right to dispose of the goods. The aim is to clarify the rules comprehensively and rather exhaustively.

This requires a couple of clarifications.

A first, brief, clarification relates to the types of assets the transfer of which is covered by this study. The discussion of the three conflict situations listed above is limited to the law of corporeal movable property (“goods”). Excluded from the discussion, therefore, are all movable assets which are not corporeal, such as receivables and intellectual property rights, and different types of rights to use property under lease contracts, as well as all law related to immovable property, with reference to real property, such as land, including not only the earth but everything of a permanent nature over or under it.

A second clarification concerns the three “conflict situations” named above: Who are the parties to these types of conflicts, and which interests collide? The first conflict, referred to as the buyer’s protection in the seller’s insolvency, addresses the following type of situation: A buyer and a seller have concluded a contract for the sale of goods. Since the seller’s financial means do not suffice to discharge all of the seller’s debts, there is a conflict between the buyer and the seller’s other creditors about who will “get” the goods. The buyer has an interest in separating them from the seller’s estate (in order to do with them whatever he or she intended to do when entering the contract). The other creditors’ interest will be keeping the goods as a part of the seller’s estate, in order to get their own claims against the insolvent debtor satisfied at a higher percentage. A comparable conflict may also arise where the seller is not insolvent, but another creditor seeks to seize the goods in execution of a claim that creditor has against the seller. But if the seller’s funds are sufficient, he may either satisfy that other creditor’s claim, or procure substitute goods for the buyer or pay damages to the buy ← 19 | 20 → er for not performing the contract. The conflict becomes more vital where the seller’s funds are insufficient. Therefore, we will henceforth use ”protection of a buyer in the seller’s insolvency” as a short-hand description of this kind of conflict.

The issue addressed in the second type of conflict, described as the seller’s protection in the buyer’s insolvency, relates to the reverse situation: A contract for sale has been concluded and the buyer does not have sufficient funds to discharge all of his obligations. The seller’s interest is in receiving the full purchase price from the buyer. The other creditors of the buyer, however, will have an interest in maximizing the percentage to which their claims can be discharged. The optimal result for these creditors would, evidently, be to both “get” the goods and keep the money, in order to distribute the proceeds of these (and all other) assets amongst each other.

Finally, the third conflict stands between an original owner and a buyer from a non-owner. This conflict involves a situation with three parties: One party (later referred to as “A”) originally owns certain goods. These goods, however, are later sold by a second party ("B") lacking any right or authority to dispose of the goods. The third party buying from “B” is “C”. In this triangle, “A” typically has an interest in having the goods returned. “C”, on the other hand, will be interested in keeping the goods. Alternatively, "A" and "C" may be interested in receiving compensation for their loss if they have to relinquish the goods to the other party. The solution to these issues usually depends on whether the relevant legal system provides rules on good faith acquisition.

A third clarification concerns the reference to the term "functional". This term is commonly used to denote a specific way of structuring legal problems – in particular, problems related to transfers of movable property – in the Scandinavian countries. The basic idea of this “functional approach” is to discuss, and solve, the different conflict situations (as referred to above) independently from each other, each on its own merits, taking into account (only) those interests and arguments that are actually relevant for the particular type of conflict.5 As a con ← 20 | 21 → sequence, there may exist different solutions for different conflict situations. It should be noted that there are potentially an unlimited number of possible conflict situations; the three conflicts picked for this study, however, are the most common and prevalently discussed ones in Scandinavia and also of significant importance in other legal systems. It is also important to note that each conflict situation involves two, and only two, incompatible claims: If more parties are involved, the issue is solved by splitting the problem into several conflict situations. This means that one party may have a "better right", or priority, against one adverse claimant, but not against another.

This Scandinavian “functional” approach to matters of law is based upon a fiery criticism of legal formalism and the use of concepts:6 Under functional approach-thinking, concepts such as “ownership” or “title” are considered too comprehensive to provide a clear look at the “real problems”, as they imply too many consequences resting on the location of ownership or title, while the concept of ownership, in turn, is resting on too many legal facts. Instead, particular legal facts triggering certain legal consequences should be connected directly, making it possible to better adjust the legal facts to the desired legal consequence: One party should not have priority to the property over another party based on examination of where "title" or "ownership" is located, but rather by linking certain relevant facts with legal consequences directly.

The approach taken in the USA reveals significant parallels with the approach taken by the Scandinavian legal systems with respect to fundamental starting points: Article 2 of the Uniform Commercial Code (U.C.C.), which regulates sales of goods, including most of the issues related to the transfer of movable property, deliberately abandons the idea of linking a large number of aspects to the passing of “title”.

Each provision of this Article with regard to the rights, obligations and remedies of the seller, the buyer, purchasers or other third parties applies irrespective of title to the goods except where the provision refers to such title.7 ← 21 | 22 →

When Karl Llewellyn, the main draftsman of the U.C.C., called for a realistic jurisprudence on these matters of law, he did so with a very critical attitude towards the use of concepts, calling title a "mythical" or "mystical something" and comparing it to a "halo", which is hung over the buyer's or the seller's head.8 In fact, Llewellyn did this by ridiculing the prior law (the Uniform Sales Act), where the concept of title practically governed every available consequence.9 In the words of Llewellyn, sales law issues were traditionally solved in a "silly" manner: "To a silly issue no sane answer is possible. This one we currently pose thus: Has Title passed?" And since "[n]obody ever saw a chattel's Title", the question is considered simply irrational.10 His suggestion was therefore to abolish the "lump" or "title" concept in favor of what he called a "narrow-issue approach".11 This meant to structure the problems, or conflicts between adverse claims concerning the same property, by addressing quite narrowly defined situations from the angle of, for example, events occurring during performance, or the remedies available in various instances of breach. In Article 2 of the U.C.C., the "narrow-issue approach" is used, for instance, to determine the risk of loss,12 ← 22 | 23 → to provide the buyer with a right to “recover” goods in the seller's insolvency in certain narrow circumstances,13 and to determine the right to sue third parties for injury to the goods.14 The approach is also visible in one of the opening comments to Article 2:

The legal consequences are stated as following directly from the contract and action taken under it without resorting to the idea of when property or title passes or was to pass as being the determining factor. The purpose is to avoid making practical issues between practical men turn upon the location of an intangible something, the passing of which no man can prove by evidence and to substitute for such abstractions proof of words and actions of a tangible nature.15

Llewellyn's aversion to concepts such as ownership has certainly made its impact on the Code. However, the rhetoric does not exactly correspond to the actual situation. While title does play a much diminished role in the Code of today, other concepts have taken the role of "title", but with more limited scope, such as in the case of "special property"16 (which is nothing other than "identification") and "replevin".17 These are as "mythical" or "mystical" as title – and can only be understood by studying the requirements to acquire the position addressed by one or the other concept.18

In addition to the use of other concepts as replacements for the despised title, ownership and title still play a role in deciding matters within the areas that the U.C.C. covers. This is, for instance, reflected by the bankruptcy courts which use the location of title in U.C.C. section 2-401 in determing whether certain property should belong to the estate.19

As will become evident in the course of this study, the “narrow issue approach” applied in Article 2 U.C.C. implies working with a much narrower focus than the one applied when structuring problems according to relatively broad conflict situations, defined according to the colliding interests between certain categories of parties, as suggested by the Scandinavian “functional approach”. The structure chosen in this book to present the relevant American ← 23 | 24 → rules follows the latter approach for a number of reasons. First, employing broadly defined conflict situations in a “functional approach” fashion makes it easier for parties to get a full overview of when, and under what circumstances, legal protection can be expected if a particular type of problem (e.g., the other contracting party becoming insolvent) is envisaged. If it turns out that the requirements imposed for one particular rule cannot be met, one might still be able to resort to some other provision potentially granting protection in the same type of conflict. There are also methodological reasons pointing in the same direction: The functional approach structure fits perfectly with conducting comparative legal research employing the classic “functional method of comparative law”, as well as for conducting analytical research employing a method of argumentation analysis designed for transfer issues, as briefly referred to in the subsequent chapter I.B.20 Ultimately, this structural approach is more easily understandable for lawyers with a European background, certainly where the background is a Scandinavian one, but also for lawyers from continental Europe, and perhaps even for lawyers from a common law jurisdiction.

Consequently, the relevant rules found in U.S. law are placed into this “functional” context and scheme – no matter whether the particular rule(s) are meant to be applied only to the relevant “functional” problem, or whether the rule’s scope is smaller or broader than the relevant “conflict situation”. In fact, it will turn out that when it comes to the first two conflict situations addressed above; the U.S. rules governing these situations are not targeting these problems exclusively. It may even happen that some rules are not even explicitly intended to apply in the context of insolvency, but are also not excluded from being applied in this context.

Finally, apart from a difference in structuring problems, there is another distinctive difference between the approaches taken in the U.S. and Scandinavia: While the Scandinavians solve these situations almost entirely without the use of concepts, the U.C.C. has not done away with concepts, but to a large extent only replaced the title-concept with the use of smaller concepts, such as "special property".21 ← 24 | 25 →

In the following discussion, references to specific statutory provisions will be references to sections of the U.C.C., unless otherwise indicated. Also, the U.C.C. will often be addressed simply as “the Code”, following broadly applied U.S. terminology.

B.Purposes pursued with this study, including argumentation analysis

As already indicated above, this volume intends to provide rather comprehensive information on certain practically and dogmatically important aspects of U.S. law, in a way presumably useful for commercial actors as well as for academic purposes. Presenting the U.S. rules under the present perspective also has the purpose of filling a gap that American literature usually does not address: American scholars tend to be very focused on the study and presentation of either the Uniform Commercial Code or Bankruptcy – but they very rarely combine these areas of laws, even if the areas do tend to overlap with each other from a practical point of view.22 This has the effect that when reading about the U.C.C., one may easily be misled without taking into account additional bankruptcy literature in order to determine the effects of these (state law) provisions in the other party's insolvency.23 Since bankruptcy is governed by the federal Bankruptcy Code, and since these provisions often take precedence over state-enacted laws such as those adopting the U.C.C.,24 it is advisable to look at the relevant rules for the whole functionally-framed broad conflict situation, taking into account both of these areas of law.25 ← 25 | 26 →

Taking a too narrow view can blind one to the actual, final, solution for a particular situation.

As indicated previously, the idea of formulating the problems functionally in a Scandinavian functional fashion has a broader purpose, since this way of formulating the problems also is the foundation of a method of argumentation analysis particularly apt in dealing with transfer matters. This method was developed within the same research project from which this study results.26 When applying argumentation analysis methods to the discourse of law, the problems should be formulated functionally – but also broadly enough to solve actual problems; the question should relate to, for instance, the buyer's right to separate the goods in the seller's insolvency, instead of the buyer's right to replevin – not just because replevin is a concept that arguments cannot relate to (unless one confines the analysis to one legal system accepting this very concept, and one is ready to take an unnecessary conceptual detour), but also because one would otherwise have to formulate the conflict situations based upon the factual requirements the right to separate is based upon.27

Employing argumentation analysis to the discourse of law is, in turn, based upon the assumption that legal rules related to the transfer of corporeal movable ← 26 | 27 → goods can be enhanced by a segmentation of the legal discourse into “functional” conflict situations connecting relevant legal facts with legal consequences directly, and by applying available argumentation theories to the discourse. It is suggested that this would enhance the transparency of the debate, and provide a more structured and complete discourse – making it easier to make decisions on “optimal” rules depending on what interest(s) one wants to pursue.

As has been presented elsewhere28 and will be further elaborated in a separate book,29 the suggested method of employing argumentation analysis to the discourse of law includes carrying out the analysis in five steps:

1.Segmentation of the argumentation discourse into functional conflict situations (in a Scandinavian functional fashion);

2.Reconstruction of main categories or clusters of argumentation;

3.Reconstruction of argumentative strings and argumentation: Creating argumentation surveys, based upon a method presented by Arne Næss;

4.Structural and material analysis of single arguments, based upon a method presented by Stephen Toulmin and broadly accepted rules of critical discussion; and

5.Final evaluation of the argumentation analyzed in previous steps.

This book contains the first step of such suggested analysis – the segmentation of the discourse – in the field of the transfer of movables under U.S. law (and leaves out the other four steps). The focus, as mentioned, is on the rules and related arguments of three (main) conflict situations. Attached to the descriptive analysis, this volume will reflect the primary arguments motivating the different solutions, as presented by American courts and legal writings.

C.The model law concept of the U.C.C., its relation to other bodies of law, and the irrelevance of “title”

The Uniform Commercial Code is not the result of an ordinary legislative process. It was produced by legal scholars and Commissioners appointed by the states of the U.S.A. The U.C.C., as such, is not legally binding. Its purpose is to ← 27 | 28 → serve as a model law that each state of the U.S. may implement into its legislation. Although one of its main purposes is to unify the law within the different American states,30 the states may choose to implement only parts of the Code, or adopt their own variations.

Under this model law, the law(s) relating to one party’s interest in goods, as against another party’s creditors’ interest or another party’s interest in the same goods can be best understood by both acknowledging and comprehending the interrelationship between Article 2 (Sales) and Article 9 (Secured transactions) of the U.C.C., as well as between the Code and other bodies of law (state and federal). As a general provision, the Code provides that, unless expressly stated otherwise in a different Code provision, “the principles of law and equity, including the law merchant the law relative to capacity to contract, principal and agent, estoppel, fraud, misrepresentation…[and]…bankruptcy…” shall be supplemental to the effect of its other provisions.31

If there are two different kinds of codifications; one merely to reproduce the existing law, translating case law into statutory law without major changes, and the other one aiming to produce new sets of principles, the aim of the U.C.C. is said to be the latter.32 A "true" Code, however, is also understood to intend to replace prior common law.33 The struggle prior to the Code appears to have been fought between those who wanted a "true" code methodology "…supersed[ing] all prior uncodified law dealing with subject matter and include[ing]… all of the law on [the] subject matter"34 and those who advocated for other law filling in ← 28 | 29 → the gaps.35 The Code ultimately implements both approaches: The "true" code methodology – where the code does not only have the force of law, but also is a source of law, is found in section 1-103(a):36 "[The Uniform Commercial Code] must be liberally construed and applied to promote its underlying purposes and policies…". The other approach, that other laws supplement the provisions in the U.C.C., is found in section 1-103(b). The tension between these subsections that exists appears to tip towards an over-usage of section 1-103(b),37 partly because of a "judicial reluctance" to abandon prior law.38 One scholar states that the invoking of common law and equitable remedies under 1-103(b) may hinder the "modernization"39 (such as the abolishment of the use of "title"40) that the code is supposed to enhance.41

So even though the Uniform Commercial Code is the primary source of commercial law in the areas that are governed by the Code, the “…principles of common law and equity may supplement provisions of the Uniform Commercial Code, [but] they may not be used to supplant its provisions, or the purposes and policies those provisions reflect, unless a specific provision of the Uniform Commercial Code provides otherwise”.42 In the absence of such specific provision the Code abolishes principles of common law and equity inconsistent with ← 29 | 30 → the Code’s provisions or its purposes and policies.43 In other words, the Code supersedes any and all inconsistent rules of common law and equity. Furthermore, the effect of this concept is not limited to common law and equity, as it is also applicable to statutory law, as well as potentially other sources of law.44

Furthermore, the provisions within the Code are only “the law” insofar as they are implemented by the respective states and are interpreted by state courts; any state can decide not to adopt the Code or to make revisions to the Code.45 Accordingly, the Code is not entirely uniform in all states. In fact, state law is the law, and, therefore, each state court will interpret and apply the Code provisions as it chooses.46 As a result, there sometimes occur variations in the application of the Code’s official text that exist amongst the various states. Thus, in this respect, “uniformity” is only an abstract concept in its most literal sense.47 The official comments issued by the permanent editorial board48 of the Code do not have the force of law; however, the courts often cite them as persuasive authority when interpreting the Code. ← 30 | 31 →


ISBN (Hardcover)
Publication date
2014 (March)
Sachenrecht Eigentumsübertragung Insolvenz Gutglaubenserwerb Functional Approach Commercial conflict situations Uniform Commercial Code seller's insolvency
Frankfurt am Main, Berlin, Bern, Bruxelles, New York, Oxford, Wien, 2014. 277 pp.

Biographical notes

Martin Lilja (Author)

Martin Lilja is a Swedish scholar and doctorate from the University of Salzburg (Austria) with Master of Laws degrees from the University of Gothenburg (Sweden) and McGeorge School of Law in Sacramento, CA (U.S.A.). He collaborated within the projects Study Group on a European Civil Code and Argumentation Analysis in the Field of the Transfer of Movables at Salzburg University.


Title: Transfer of Movable Property under U.S. Law