[**] Adapted, with apologies, from the excellent ALI-ABA series. See, e.g., The Emerged and Emerging New Uniform Commercial Code 283 (ALI-ABA Course of Study, Dec. 9-11, 1993). Return to text.

[***] Associate Professor, Florida State University College of Law; Visiting Associate Professor, Washington University School of Law. B.A., B.S., Michigan State University; M.S., University of Michigan; J.D., Yale Law School. My thanks to the tireless librarians at Florida State and Washington Universities, who unaccountably are still speaking to me. I should note that I am an Observer to the Uniform Commercial Code Article 2 Drafting Committee and a member of the Article 9 Study Committee of the Florida Bar, though nothing here should be taken to reflect anyone's views other than mine. Return to text.

[1] Article 7, on warehouse receipts and bills of lading, will not be revised in the short run. An ABA task force recently examined Article 7, concluding that no substantial overhaul was in order. In addition, the task force thought changes in the corresponding federal statutes perhaps desirable, but also perhaps infeasible. Finally, there were uncertainties as to the path electronic commerce might take and thus whether revision was yet appropriate. Accordingly, the Permanent Editorial Board of the U.C.C. decided not to recommend revision of Article 7 at present. See Fred H. Miller, Et Sic Ulterius—V, UCC BULL., Feb. 1998, at 1, 7. Return to text.

[2] See infra Part IV.C. Return to text.

[3] Usually later. For the most recent set of revisions, for instance, Florida was the next-to-last state to operate under the old version of Article 2A, and one of only six to operate under the old Article 8. See Miller, supra note 1, at 3-4. Return to text.

[4] See Act effective Oct. 1, 1999, ch. 98-11, 1998 Fla. Laws 105 (codified at FLA. STAT. chs. 678, 680 (Supp. 1998)). Governor Chiles, presumably preferring not to take a public stand on so fraught an issue, allowed the bill to become law without his signature. See id. at 161.

In the enactment of revised Articles 2A and 8, the Legislature put in place one nonuniform amendment to Article 9. Section 9-105(1)(e) of the Official Text, defining deposit account, had excluded "an account evidenced by a certificate of deposit." U.C.C. § 9-105(1)(e) (1995). The Florida amendment revised the definition to exclude "an account evidenced by a transferrable certificate of deposit that is an instrument within this article." FLA. STAT. § 679.105(1)(e) (Supp. 1998). The effect of this is to place nontransferable certificates of deposit potentially within the scope of deposit accounts, which are not governed by Article 9. See U.C.C. § 9-104(l) (1995). If a nontransferable certificate of deposit is not governed by Article 9, then a security interest in it can be perfected only under the common law rule of giving notice to the depository bank. See, e.g., Bank of Winter Park v. Resolution Trust Corp., 633 So. 2d 53, 55 (Fla. 5th DCA 1994).

It is hard to see why this amendment was put in place. A certificate of deposit, even if nontransferable, may still be an instrument, a security interest in which can be perfected by possession under Article 9. See U.C.C. § 9-305 (1995). This conclusion was easier to reach until the recent revision of Article 3, adopted in Florida, which narrowed the definition of negotiable instrument to exclude nontransferable certificates of deposit. See id. § 3-102(a). Even under the revised version, though, a number of courts have held that nontransferable certificates of deposit are instruments under the broader definition in Article 9. See, e.g., Craft Prods., Inc. v. Hartford Fire Ins. Co., 670 N.E.2d 959, 961 (Ind. Ct. App. 1996); Belke v. M&I First Nat'l Bank, 525 N.W.2d 737, 738 (Wis. Ct. App. 1994). Indeed, an earlier decision of the Florida Supreme Court, made when Florida still had old Article 3, held the very same thing. See Citizens Nat'l Bank v. Bornstein, 374 So. 2d 6, 9-10 (Fla. 1979). If the amendment was intended to remove nontransferable certificates of deposit from Article 9, then it fails at the job; a better way to have done so would have been to redefine "instrument" within Article 9 to exclude these as well. Still, the amendment seems harmless, especially because a new Article 9 is on the way and will likely be enacted in Florida in the next few years. See infra Part IV.B. If this amendment was the price of gaining the support of certain parts of the banking industry for these U.C.C. revisions, then it was well worth it. Return to text.

[5] See, e.g., Miller, supra note 1, at 4. Thirty-two states had enacted Revised Article 5 as of early 1998; others will likely have enacted it by the time this Article goes to press. Return to text.

[6] Erie R.R. v. Tompkins, 304 U.S. 64 (1938). Return to text.

[7] See, e.g., W.E. Johnson Equip. Co. v. United Airlines, Inc., 238 So. 2d 98, 99-100 (Fla. 1970); Redfern Meats, Inc. v. Hertz Corp., 215 S.E.2d 10, 15-17 (Ga. Ct. App. 1975); Glenn Dick Equip. Co. v. Galey Constr., Inc., 541 P.2d 1184, 1188-89 (Idaho 1975); see also, e.g., Amelia H. Boss, Panacea or Nightmare? Leases in Article 2, 64 B.U. L. REV. 39 (1984); William D. Hawkland, The Impact of the Uniform Commercial Code on Equipment Leasing, 1974 U. ILL. L.F. 446; Daniel E. Murray, Under the Spreading Analogy of Article 2 of the Uniform Commercial Code, 39 FORDHAM L. REV. 447 (1971). This application was more or less authorized in the comments to the statute, though rather coyly. See U.C.C. § 1-102 cmt. 1 (1995) (stating that courts "have recognized the policies embodied in an act as applicable in reason to subject-matter which was not expressly included in the language of the act . . . . Nothing in this Act stands in the way of the continuance of such action by the courts."). Return to text.

[8] See, e.g., DeKalb Agresearch, Inc. v. Abbott, 391 F. Supp. 152, 153-54 (N.D. Ala. 1974); Alpiser v. Eagle Pontiac-GMC-Isuzu, Inc., 389 S.E.2d 293, 294-95 (N.C. Ct. App. 1990); W.R. Weaver Co. v. Burroughs Corp., 580 S.W.2d 76, 81 (Tex. Civ. App. 1979). Return to text.

[9] This evidently is why leasing was not codified when the U.C.C. was first drafted. See WILLIAM H. LAWRENCE & JOHN H. MINAN, THE LAW OF PERSONAL PROPERTY LEASING ¶ 1.01 (1993). Return to text.

[10] See U.S. DEP'T OF COMMERCE, U.S. INDUSTRIAL OUTLOOK 1992, at 52-1 (1992). Return to text.

[11] See U.S. DEP'T OF COMMERCE, U.S. INDUSTRY & TRADE OUTLOOK 1998, at 47-17 (1998). These totals exclude short-term equipment leases and consumer leases. See id. Return to text.

[12] See, e.g., Amelia H. Boss, The New [1990] Article 2A: Leases, in THE EMERGED AND EMERGING NEW UNIFORM COMMERCIAL CODE 283, 283 (ALI-ABA Course of Study, Dec. 9-11, 1993). Return to text.

[13] See id. Return to text.

[14] The symposium is Symposium, Article 2A of the Uniform Commercial Code, 39 ALA. L. REV. 559 (1988). Many of the pieces in this symposium are cited to in this Article. Return to text.

[15] UNIFORM COMMERCIAL CODE COMMITTEE, STATE BAR OF CALIFORNIA, REPORT ON PROPOSED CALIFORNIA COMMERCIAL CODE DIVISION 10 (ARTICLE 2A) (1987), reprinted in Harry C. Sigman & Jeffrey S. Turner, Preface to the California Report on Article 2A (With Some Thoughts About Participation in the Legislative Process), 39 ALA. L. REV. 975, 979-1049 (1988) [hereinafter California Report]. Return to text.

[16] CAL. COM. CODE §§ 10101-10532 (West 1990). Return to text.

[17] See, e.g., Daryl B. Robertson, Report of the Commercial Code Committee of the Section of Business Law of the State Bar of Texas on UCC Article 2A, 43 BAYLOR L. REV. 235, 237 (1991). Return to text.

[18] See, e.g., Boss, supra note 12, at 283; Robertson, supra note 17, at 237-38.

19 See Act effective Nov. 1, 1988, ch. 86, 1988 Okla. Sess. Laws 1683 (current version at OKLA. STAT. ANN. tit. 12A, §§ 2A-101 to 2A-532 (West 1998)).

20 See Act effective Jan. 1, 1991, ch. 90-278, 1990 Fla. Laws 2114 (current version at FLA. STAT. ch. 680 (1997)).

21 See, e.g., Fred H. Miller, The Uniform Article 2A Amendments and the National Conference of Commissioners on Uniform State Laws After One Hundred Years, 45 CONSUMER FIN. L.Q. REP. 193, 193 (1991).

22 See id. NCCUSL creates a Standby Committee whenever it sets forth a new statute. The Standby Committee watches over the statute and can recommend changes if the need arises. See id. at 193 & n.4.

23 To some extent, Florida already had. Insofar as the Florida adoption of the California/Massachusetts version merely anticipated the 1990 amendments, Florida's Article 2A has not changed in substance (though possibly in form). For example, the 1990 treatment of finance leases drew heavily on the California version and thus does not materially change Florida law. This Article will not discuss either unamended sections of Article 2A or, with a few exceptions, sections where Florida's nonuniform version agreed in substance with the 1990 amendments. For more on Florida's initial adoption of Article 2A, see James E. Foster & David G. Shields, Personal Property Leasing in Florida: Moving 2A Uniform Treatment, 18 FLA. ST. U. L. REV. 295 (1991).

24 See infra notes 151-159 and accompanying text.

25 This discussion has general application, though, because most of Florida's Article 2A is the same as the official 1990 version, just as most of its earlier version was the same as the official 1987 version.

One point of nomenclature and citation format. For ease in reference, this Article refers to the Florida Statutes only when looking at a nonuniform variant of Article 2A. Otherwise, references to the current version of Article 2A are to the 1995 Official Text, and references to the older version are to the 1987 Official Text (and are so designated in each footnote).

26 See Edwin E. Huddleson, III, Old Wine in New Bottles: UCC Article 2A-Leases, 39 ALA. L. REV. 615, 661 & n.151 (1988). Huddleson thus characterized the finance lease provisions of Article 2A as "a sop to industry." Id. at 661.

27 See, e.g., 2 JAMES J. WHITE & ROBERT S. SUMMERS, UNIFORM COMMERCIAL CODE § 13-3(a) (4th ed. 1995).

28 As of 1995, leaving aside short-term rentals, finance leases governed 87% of the cost of equipment subject to commercial leases. See U.S. DEP'T OF COMMERCE, U.S. INDUSTRY AND TRADE OUTLOOK 1998, at 47-16 (1998).

29 See U.C.C. § 2A-103(g)(iii) (1987).

30 See U.C.C. § 2A-103(g)(iii) (1995); see also Miller, supra note 21, at 193-94.

31 Compare FLA. STAT. § 680.1031(1)(g)(3)(c)-(d) (1991) with FLA. STAT. § 680.1031(1)(g)(3)(c)-(d) (1997).

32 Another example of the latter is U.C.C. § 2A-209, the amendments to which made clearer the extent to which the finance lessee retained rights it may have had under agreements between it and the supplier. Florida already had in place a nonuniform amendment that did this, so Florida law is not changed by the advent of uniformity. See FLA. STAT. § 680.209 (1997).

33 See U.C.C. § 2A-209 (1995).

34 See U.C.C. § 2A-407(1) (1987). This reflected the main body of caselaw under the common law of leases. See, e.g., West Virginia v. Hassett (In re O.P.M. Leasing Servs., Inc.), 21 B.R. 993, 1006 (Bankr. S.D.N.Y. 1982); U.S. Roofing, Inc. v. Credit Alliance Corp., 279 Cal. Rptr. 533, 544-46 (Cal. Ct. App. 1991).

35 See U.C.C. § 2A-407(3) & cmt. 6 (1995); see also id. § 2A-108 (1995).

36 The provision states, in pertinent part, that "[t]his section does not affect the validity under any other law of a [hell or high water clause] in any lease contract . . . ." Id. § 2A-407(3); see also, e.g., 2 WHITE & SUMMERS, supra note 27, at 504.

37 See U.C.C. § 2A-517(2) (1995).

38 See id. § 2A-517(3).

39 See id. § 2A-517(1)(b).

40 See id. § 2A-516(2).

41 See FLA. STAT. § 680.516(2) (1997).

42 Of course, the lessor retains a residual interest in the leased goods, and can repossess them and dispose of them at the end of the lease term.

43 U.C.C. § 2A-307(2).

44 See id. § 2A-307(2)(a).

45 See id. § 2A-103(1)(r).

46 Statutory lien creditors also take solace from section 2A-306, which, like section 9-310 for secured creditors, gives priority to liens taken by those who furnish services or materials for goods covered by a lease contract unless the law giving rise to the lien provides otherwise. This section was not changed in the 1990 amendments.

47 See U.C.C. § 2A-307(2)(b) (1987). This leaves aside section 2A-308, which allows a creditor, secured or otherwise, to treat a lease contract as void if either the lessor's continued possession of the goods or the lease itself would be fraudulent under other law. An exception is carved out for sale-leaseback arrangements, under which the seller retains possession under a lease contract between the buyer as lessor and the seller as lessee. As long as the buyer gave value and bought in good faith, such a transaction is not fraudulent, notwithstanding section 2-402.

48 See 11 U.S.C. § 544(a)(1) (1994); see also Steven L. Harris, The Rights of Creditors Under Article 2A, 39 ALA. L. REV. 803, 819 (1988).

49 See U.C.C. § 9-312(3) (1995).

50 See Harris, supra note 48, at 819-20 & n.62. Perhaps the best reason is analogy; the bankruptcy trustee is not considered a purchase money creditor either.

51 Holders of perfected security interests prevail over holders of unperfected security interests, even if the unperfected security interests arose before the perfected security interests. See U.C.C. §§ 9-301(1)(a), -312(5) (1995). On the other hand, buyers take free of unperfected security interests only if they are in ordinary course, see id. § 9-307(1), or if the buyer, though not in ordinary course, gave value and took delivery without knowledge of the security interest and before perfection. See id. § 9-301(1)(c). See generally Harris, supra note 48, at 820-21.

52 See U.C.C. § 9-312(5)(a) (1995).

53 These amendments derive largely from California's nonuniform enactment. Compare U.C.C. § 2A-307 (1995) with California Report, supra note 15, at 1016-24. Unfortunately, Florida chose to leave this out when it enacted much of the California text. Florida's adoption of the 1990 amendments thus changes Florida leasing law substantially.

54 See U.C.C. § 2A-307(2)(b), (c) (1995).

55 See id. § 9-301(1)(c).

56 Value includes promises of payment. See id. § 1-201(44). An executory lease contract thus gives value. Presumably a gratuitous bailment would not, but one would not expect to see these very often, neighborly loans of lawnmowers aside.

57 See id. § 1-201(25) (1995); see also, e.g., Southland Corp. v. Emerald Oil Co., 789 F.2d 1441, 1445-46 (9th Cir. 1986) (holding, in the analogous context of section 9-301(1)(c), that there was no duty to make inquiries); Clark Oil & Ref. Co. v. Liddicoat, 223 N.W.2d 530, 535-36 (Wis. 1974) (same).

58 Most states have amended U.C.C. section 9-301(2) to allow 20 days to perfect purchase money security interests, the perfection to take effect retroactively. See U.C.C. § 9-301, 3A U.L.A. 14-15 (1992 & Supp. 1998) (listing 41 states that have adopted the 20-day standard).

59 See U.C.C. § 9-203(1)(c) (1995).

60 See id. § 2A-402 (anticipatory repudiation); cf. U.C.C. § 2-610 (1995) (same; sales of goods); RESTATEMENT (SECOND) OF CONTRACTS § 250 (1981) (same; common law).

61 See U.C.C. § 1-201(9) (1995) (buyers); id. § 2A-103(1)(o) (lessors).

62 After all, failing firms present a classic moral hazard problem. Secured creditors of failing firms logically wish to maximize the value of their collateral, which probably means avoiding desperate and risky maneuvers. Equity holders, on the other hand, will lose all in case of bankruptcy, so they have an incentive to take risks with the funds they have received through secured credit. See, e.g., Larry T. Garvin, Credit, Information, and Trust in the Law of Sales: The Credit Seller's Right of Reclamation, 44 UCLA L. REV. 247, 285-86, 309-11 (1996).

63 See 11 U.S.C. § 362(a)(3)-(5) (1994).

64 See California Report, supra note 15, at 1030-46.

65 See, e.g., Marion W. Benfield, Jr., Lessor's Damages Under Article 2A After Default by the Lessee as to Accepted Goods, 39 ALA. L. REV. 915 (1988); Michael J. Herbert, A Draft Too Soon: Article 2A of the Uniform Commercial Code, 93 COM. L.J. 413 (1988); Donald J. Rapson, Deficiencies and Ambiguities in Lessors' Remedies Under Article 2A: Using Official Comments to Cure Problems in the Statute, 39 ALA. L. REV. 875 (1988).

66 For example, Professor Herbert, who had excoriated the 1987 version. Compare Michael J. Herbert, Getting Better All the Time: The Official (Revised) Remedy Provisions of the Uniform Commercial Code's Article 2A, 96 COM. L.J. 1 (1991) (favoring adoption), with Herbert, supra note 65 (favoring rejection or significant amendment before adoption).

67 U.C.C. § 2A-508 cmt. (1987).

68 See, e.g., RESTATEMENT (SECOND) OF CONTRACTS § 241 (1981); see also, e.g., Jacob & Youngs, Inc. v. Kent, 129 N.E. 889, 890-91 (N.Y. 1921) (Cardozo, J.).

69 See U.C.C. § 2-601 (1995). For interesting discussions of the perfect tender and material breach rules, see William H. Lawrence, The Prematurely Reported Demise of the Perfect Tender Rule, 35 U. KAN. L. REV. 557 (1987); George L. Priest, Breach and Remedy for the Tender of Nonconforming Goods Under the Uniform Commercial Code: An Economic Approach, 91 HARV. L. REV. 960 (1978).

70 See U.C.C. § 2A-513 (1995).

71 Id. § 2A-508 cmt. 6.

72 See id. § 2A-517(1); cf. id. § 2-608(1) (sales of goods; analogous provision requiring substantial impairment for revocation).

73 See id. §§ 2A-508(1)(d), -523(1)(f), - 523(3).

74 U.C.C. § 2A-508(1)(b) (1987).

75 See U.C.C. § 2A-517(2) (1995).

76 Lease contracts under which separate lots of goods would be delivered and accepted separately. See id. § 2A-103(1)(i).

77 See id. § 1-106(1).

78 See, e.g., United States v. Algernon Blair, Inc., 479 F.2d 638, 641 (4th Cir. 1973); Scaduto v. Orlando, 381 F.2d 587, 595-96 (2d Cir. 1967); see also, e.g., RESTATEMENT (SECOND) OF CONTRACTS § 373 cmt. d (1981).

79 See U.C.C. § 2A-508(1)(b) (1995).

80 See id. § 2A-508 cmt. 2.

81 Restitution may be coming back, though. The ALI has started work on a Restatement (Third) of Restitution (though, oddly, there is no Restatement (Second) of Restitution). See Herbert P. Wilkins, Foreward, 26 HOFSTRA L. REV. 567, 570-71 (1998). The literature also shows a boom—well, a boomlet—of restitutionary scholarship. See, e.g., HANOCH DAGAN, UNJUST ENRICHMENT (1997); LORD GOFF OF CHIEVELEY & GARETH JONES, THE LAW OF RESTITUTION (4th ed. 1993); Andrew Kull, Rationalizing Restitution, 83 CAL. L. REV. 1191 (1995). Stay tuned for late-breaking developments.

82 See U.C.C. § 2A-518 (1995); cf. id. § 2-712.

83 See id. § 2A-518(2). If the lessee purchases goods as cover, it must proceed under the contract-market measure of § 2A-519. See id. § 2A-518 cmt. 2. This may be too narrow an approach. By definition, a lease may not encompass the whole economic life of the leased goods, so ordinarily purchase will give the lessee more than it had under the lease. See id. § 1-201(37)(1st a). If, however, the leased goods were new, and the lessee covered by buying used goods, the lessee might purchase goods with a useful life no greater than that under the breached lease agreement. The lessee might alternatively purchase new goods and then sell the goods as used at the end of the period of the breached lease. Finally, the lessee could simply retain the goods, with the remaining value deducted from the damages award. Under any of these scenarios, purchase would plausibly cover for a breached lease; Article 2A's failure to recognize this remains a problem, even after the 1990 amendments.

84 The term "substantially similar" goes largely undefined in the comments. See Herbert, supra note 65, at 445-48 (attacking comments as "verbose" and a "tautological mess"). In fairness, the comments were later revised, and now are somewhat clearer, though still a trifle vague.

85 See U.C.C. § 2A-518(2) (1987). This is not quite Florida's old text. Leaving aside differences of style, Florida measured present value from the commencement of the term of the cover lease, rather than from the date of default. See FLA. STAT. § 680.518(2) (1997). This change was adopted in the 1990 amendments—and a good thing, too, because using the date of default left the lessee uncompensated for the value of money between the date of default and the date it had to pay for the leased goods.

86 If the cover lease term differed too greatly from the term of the breached lease, though, the two leases might not be substantially similar; the lessee would then resort to damages under section 2A-519 (a contract-market measure, which would take no account of cover prices or extended durations).

87 One assumes, though, that the usual duty to mitigate, as well as the general rule of section 1-106, would cause set-off to the extent that the lessee derived benefit from the extended lease term.

88 See U.C.C. § 2A-518(2) (1995).

89 See id. § 2A-518 cmt. 7. There is, however, a strong suggestion in the comment that the comparable periods, whenever they begin or end, must be the same length. See id.

90 See U.C.C. § 2A-518(2) (1987).

91 See U.C.C. § 2A-518(2) (1995).

92 The same change was made to all the other damages measures, whether for lessees or lessors. See id. §§ 2A-519(1), -527(2), -528(1).

93 A lessee may cover by purchase; if so, the cover falls outside section 2A-518, and the remedy must be set by section 2A-519. See id. § 2A-518(1), (3).

94 See FLA. STAT. §§ 680.518(3), .519(1) (1997).

95 See U.C.C. § 2A-518(3) & cmt. 2 (1995).

96 See Benfield, supra note 65, at 915; Rapson, supra note 65, at 875.

97 See, e.g., California Report, supra note 15, at 1036-46; Herbert, supra note 65, at 450-58; Homer Kripke, Some Dissonant Notes About Article 2A, 39 ALA. L. REV. 791, 795-97 (1988).

98 See U.C.C. § 2A-527(3) (1995). These damages must be reduced by the amount gained through the disposition. See id. § 2A-523 cmt. 11; LAWRENCE & MINAN, supra note 9, ¶ 15.03[6][b].

99 See U.C.C. § 2A-527(2) (1995).

100 See FLA. STAT. §§ 680.527(3), .528(1) (1997).

101 See Act effective Apr. 14, 1998, ch. 98-11, § 43, 1998 Fla. Laws 105, 158 (amending FLA STAT. § 680.527(1),(2) (1997)).

102 See id. § 44, 1998 Fla. Laws at 159 (amending FLA. STAT. § 680.525(2), (3) (1997)).

103 There are other nonuniform amendments that survived the recent legislation, many both substantive and regrettable. See infra notes 151-158 and accompanying text.

104 See U.C.C. § 2A-527(2) (1995); see also supra notes 85-88 and accompanying text.

105 See id.; see also supra notes 91-92 and accompanying text.

106 See id.; see also supra notes 91-92 and accompanying text.

107 Or, then again, perhaps not. See supra notes 98-99 and accompanying text.

108 See U.C.C. § 2A-528(1) (1995). The latter change seems immaterial, because the hypothetical lease period would appear to be identical to the actual lease period. One assumes it was put in place in case it is impossible to use the actual lease term to measure the hypothetical rent; in that case, the court may use a reasonable substitute, which might produce the sort of problem this change in formula addresses. See id. § 2A-507(2).

109 See U.C.C. § 2A-528(1)(b) (1987).

110 See U.C.C. § 2A-528(1)(ii) (1995).

111 See id. § 2A-528(2).

112 See U.C.C. § 2A-528(2) (1987).

113 See U.C.C. § 2A-528(2) (1995). The original comment, though not the statute itself, said that "the concept of present value should be given effect." U.C.C. § 2A-528 cmt. (1987). The diffident should is now a bossy must, and, in any case, is now statutory. See U.C.C. § 2A-528 cmt. 5 (1995). This change comes from the California version. See Herbert, supra note 65, at 455 n.231.

114 See, e.g., Charles J. Goetz & Robert E. Scott, Measuring Sellers' Damages: The Lost-Profits Puzzle, 31 STAN. L. REV. 323, 326 (1979); Robert J. Harris, A Radical Restatement of the Law of Seller's Damages: Sales Act and Commercial Code Results Compared, 18 STAN. L. REV. 66, 83-87 (1965).

115 This appears to have been the intent of the drafters. Section 2-708(2) was amended in 1954 to add the critical phrase. The drafting committee explained that the new phrase was "to clarify the privilege of the seller to realize junk value when it is manifestly useless to complete the operation of manufacture." EDITORIAL BOARD OF THE UNIFORM COMMERCIAL CODE, DECEMBER 1954 RECOMMENDATIONS 14 (1955).

116 See U.C.C. § 2A-528(2) (1995).

117 And no one can say that the drafters were not warned. Both Professor Herbert and the California Bar committee pointed out this problem. See Herbert, supra note 65, at 454-55; California Report, supra note 15, at 1040-41.

118 See U.C.C. § 2A-528(2) (1995); cf. id. § 2-708(2).

119 See id. § 2A-528 cmts. 4 & 5.

120 The Harris article outlined the classes of sellers that might take advantage of U.C.C. section 2-708(2): (1) lost volume sellers, who now have unsold units because of the breach and resulting resale; (2) jobbers, who maintain no inventory and thus have no opportunity for resale; and (3) components sellers, who do not complete the goods and consequently cannot resell them. See Harris, supra note 114, at 98. This leaves aside the large literature asking whether, in an efficient market, there is such a thing as a lost volume seller, or whether this measure of damages is appropriate if there is such a creature. See, e.g., Goetz & Scott, supra note 114, at 326-27; Victor P. Goldberg, An Economic Analysis of the Lost-Volume Retail Seller, 57 S. CAL. L. REV. 283, 283-84 (1984).

121 See Herbert, supra note 65, at 454.

122 See U.C.C. § 2A-529(3) (1987). The original comment sought to prevent double recovery, by pointing out that, according to the statute, the lessor was obliged to hold the goods for the lessee. See U.C.C. § 2A-529 cmt. 3 (1995); see also id. § 2A-529(2) (providing this right). However, this obligation was subject to a critical limit: the lessor was entitled to dispose of the goods at any time until the damages were collected, though its damages would be limited to re-lease or contract-market if it did so during the remaining lease term. See U.C.C. § 2A-529(3) (1987). Thus, if the lessor did collect damages from the lessee, the lessor could not then re-lease the goods, but the lessor could, if it chose, do so after judgment (and the expiration of the lease term) and before the damages were collected and still claim the full damages.

123 See U.C.C. § 2A-529(1)(a) (1987).

124 See Rapson, supra note 65, at 902-04.

125 See, e.g., United Chemicals, Inc. v. Welch, 460 So. 2d 540, 541-42 (Fla. 1st DCA 1984); see generally Benfield, supra note 65, at 940 & n.78.

126 See U.C.C. § 2A-529(1)(a) & cmt. 1 (1995).

127 See id. § 2A-529(3).

128 See FLA. STAT. § 680.529(1)(a) (1997).

129 See U.C.C. §§ 2A-529(1)(a)(i), - 529(1)(b)(i) (1995); cf. FLA. STAT. §§ 680.529(1)(a)(1), .529(1)(b)(1) (1997).

130 See U.C.C. § 2A-523(3) (1995).

131 See id. § 2A-523(3)(a), (b).

132 Id. § 2A-523(2).

133 Which is the general damages measure under the U.C.C. See id. § 1-106(1).

134 See, e.g., id. §§ 2-703 cmt. 1, 9-501(1); see also id. § 2A-523 cmt. 1 (rejecting election of remedies).

135 See U.C.C. § 2A-523 drafting note (1990). These damages would be precluded under section 2A-529(1)(a) of the U.C.C., assuming that the lessor would have been able to re-lease the goods. See U.C.C. § 2A-529 cmt. 1 (1995).

136 The 1990 amendments added a section on the lessor's residual interest in goods, simply providing that the lessor might, in addition to the remedies mentioned above, recover damages if the lessee's default caused damage to the lessor's residual interest in the goods. See U.C.C. § 2A-532 (1995). This section merely codified what has long been understood: the lessor, by definition, has some lingering property right in the leased goods, which the lessee may not impair (beyond whatever wear and tear is contemplated under the lease agreement, and any damage consistent with the lessee's duty of ordinary care under the bailment for hire). See, e.g., Davis v. M.L.G. Corp., 712 P.2d 985, 987-88 (Colo. 1986); Stephens v. Thompson, 339 S.E.2d 784, 785 (Ga. Ct. App. 1986). The section conforms almost exactly to a Florida nonuniform amendment, drawn from the California Bar report, and thus does not change Florida law. See FLA. STAT. § 680.532 (1997); see also California Report, supra note 15, at 1045-46. Professors White and Summers find this section mysterious, perhaps because they have assumed that this right was so obvious that it could be taken for granted. See 2 WHITE & SUMMERS, supra note 27, § 14-3, at 42. Two grizzled veterans of Code wars probably should know better than to assume that anything in the Code is so obvious that it cannot be mucked up by the naive, foolish, or willful. In any event, here it is.

137 See U.C.C. § 2A-306 (1995). In Florida, the statutes creating these liens are generally found in chapter 713 of the Florida Statutes.

138 See id. § 2A-307.

139 See id. § 2A-309; cf. id. § 9-313 (fixtures).

140 See id. § 9-316.

141 See id. § 9-316 cmt. ("This section is inserted to make it entirely clear that a person entitled to priority may effectively agree to subordinate his claim.").


143 See U.C.C. § 2A-311 & cmt. (1995). The only change in the comment renders it gender-neutral.

144 See, e.g., Avery Katz, The Strategic Structure of Offer and Acceptance: Game Theory and the Law of Contract Formation, 89 MICH. L. REV. 215 (1990).

145 See U.C.C. § 2A-517(1) (1987).

146 See U.C.C. § 2A-517(2) (1995).

147 See id. § 2A-517(3).

148 Cf. Payne v. Tennessee, 501 U.S. 808, 828 (1991) ("Considerations in favor of stare decisis are at their acme in cases involving property and contract rights, where reliance interests are involved . . . .") (citations omitted).

149 See, e.g., Richard Craswell & John E. Calfee, Deterrence and Uncertain Legal Standards, 2 J.L. ECON. & ORG. 279, 279-80 (1986); Louis Kaplow & Steven Shavell, Accuracy in the Assessment of Damages, 39 J.L. & ECON. 191, 194 (1996).

150 See Kaplow & Shavell, supra note 149, at 192.

151 Florida's leasing law has one provision not contained within Article 2A, but affecting it greatly. When Article 2A was put in place, Florida added to its motor vehicle laws a provision stating that for motor vehicles and trailers, "a transaction does not create a security interest merely because it provides that the rental price is permitted or required to be adjusted under the agreement either upward or downward by reference to the amount realized upon sale or other disposition of the motor vehicle or trailer." FLA. STAT. § 319.271 (1997). This sort of statute has been enacted in a good many states, and a version of it appears in the Internal Revenue Code. See 26 U.S.C. § 7701(h) (1994); see also, e.g., Corinne Cooper, Identifying a True Lease Under UCC § 1-201(37), in 1 EQUIPMENT LEASING § 4.08, at 4-81 n.89 (Jeffrey J. Wong ed., 1998) [hereinafter Cooper, Lease]. Its effect is to validate so-called terminal rent adjustment clauses (TRACs) as leases, thus excusing those who use them from complying with the filing requirements and procedural restrictions of Article 9.

TRACs are used when the parties anticipate that the lessor will sell the leased goods at the end of the lease term. The parties set a value for the residual interest in the goods. If the goods are sold or appraised for more than this value at the end of the lease, then the lessee gets the gain; if the goods are worth less, the lessee is liable for the difference. The question, then, is how much of the risk associated with this sale is retained by the lessor. At times, a clause of this sort merely protects the lessor against excessive mileage or wear and tear. It may be defensible as a true lease. Most of these clauses, though, effectively divest the lessors of any real residual interest in the leased goods. If the lessee insures the lessor against any downside market risk, and retains any upside gain, then the lessee effectively has taken the full risk of any market change. This sounds like a classic security interest, because the lessor has handed off its real residual right in the goods. It is guaranteed a certain amount—the lease payments, plus a lump-sum payment at sale. The lessee is thus, in essence, the economic owner of the goods. See, e.g., Cooper, Lease, supra, § 4.08[1]; see also, e.g., In re Zerkle Trucking Co., 132 B.R. 316 (Bankr. S.D. W. Va. 1991) (holding TRAC lease a disguised security interest).

Article 2A avoided this issue, in large part to prevent conflict with the TRAC leasing industry. See Corinne Cooper, The Madonnas Play Tug of War with the Whores or Who is Saving the UCC?, 26 LOY. L.A. L. REV. 563, 574-76 (1993) [hereinafter Cooper, Madonnas]. We thus see legislation, as in Florida, that validates them. It is hard to justify these statutes as a matter of principle, and especially hard to justify placing them apart from the rest of the relevant statutory scheme. See Cooper, Madonnas, supra, at 574-76 (noting that the location "despicably hides the ball"). One hopes that the legislature will clear out this anomaly, to use a polite term, when it next revises Article 2A.

152 One nonconsumer change is to the risk of loss section. The change shifts the risk of loss to the lessee when the loss resulted from the lessee's negligence. See FLA. STAT. § 680.219(1) (1997); cf. U.C.C. § 2A-219(1) (1995). This seems inconsequential. Though Article 2A does not say so in as many words, the Official Comment states that the parallel provisions in Article 2 that expressly allow the parties to allocate risk of loss contractually "are not incorporated as they are not necessary." Id. § 2A-219 cmt. One may infer from this that the parties are free to allocate risk by contract, the apparently firm rule of section 2A-219(1) notwithstanding. See, e.g., LAWRENCE & MINAN, supra note 9, ¶ 13.02[5]; 2 WHITE & SUMMERS, supra note 27, at 462. If so, the lessor is likely to shift the risk to the lessee in its form contract. In any event, this provision may appropriately place the risk on the party better able to avoid it, which is not inconsistent with the conventional economic analysis of tort. See, e.g., Guido Calabresi & Jon T. Hirschoff, Toward a Test for Strict Liability in Torts, 81 YALE L.J. 1055, 1057 (1972).

153 See U.C.C. § 2A-108(2), (4) (1995). Subsection 4 also provides that the party against whom a claim of unconscionability is made may collect its fees if the lessee's claim proves groundless. This has been attacked as creating excessive uncertainty for consumer lessees, thus perhaps chilling unconscionability litigation. See Donald B. King, Major Problems with Article 2A: Unfairness, "Cutting Off" Consumer Defenses, Unfiled Interests, and Uneven Adoption, 43 MERCER L. REV. 869, 873-77 (1992). One could solve this problem, if problem it be, by enacting only section 2A-108(4)(a) without the reverse fee shifting. See also infra notes 343-352 and accompanying text (fee shifting in revised Article 5).

154 See FLA. STAT. § 680.1081 (1997).

155 The uniform version of Article 2A allows the parties to a consumer lease to choose only the law of the jurisdiction in which the lessee resides at the time the lease agreement becomes enforceable or within thirty days after, or that in which the leased goods are to be used. See U.C.C. § 2A-106(1) (1995). Florida's version also allows the parties to choose the law of the jurisdiction where the goods will be used. See FLA. STAT. § 680.1061(1) (1997). While this is convenient for the lessor, the lessee, often a tourist, may find the law unfamiliar and irksome (especially in light of the attenuated consumer protections granted by Florida's Article 2A).

156 See U.C.C. § 2A-406 cmt. (1995).

157 Seven, as of 1997. See U.C.C. § 2A-406(1)(b), 1B U.L.A. 227 (Supp. 1998).

158 See FLA. STAT. § 680.406(1) (1997). A similar change was made in the section dealing with casualty to leased goods. See id. § 680.221(b); cf. U.C.C. § 2A-221(b) (1995).

It should be noted that not all of the changes that affect consumers do so for the worse. One, to a provision on rejection and revocation, excepts most consumer finance lessees from a bar on revocation when the lessee knows of a nonconformity when it accepts the goods. See FLA. STAT. § 680.516(2) (1997); cf. U.C.C. § 2A-516(2) (1995) (barring all finance lessees from revocation under those circumstances). Florida did not, however, make a corresponding amendment to the parallel provision in section 2A-517(1)(a), which creates some internal inconsistency. One assumes that the nonuniform enactment trumps the uniform language, thus giving consumer finance lessors an expanded revocation right. In the same vein, Florida removed the requirement of timely notice of default in the case of revocation for all consumer leases, which clears away one procedural hurdle otherwise faced by consumers. See FLA. STAT. § 680.516(6) (1997); cf. U.C.C. § 2A-516(3)(a) (1995) (requiring timely notice). Other states have chosen this nonuniform path. See U.C.C. § 2A-516, 1B U.L.A. 243-44 (Supp. 1998) (Alabama, Maryland, South Dakota). Finally, the Article 2A Statute of Frauds has been amended in Florida to require all consumer leases to be in writing, subject to a limited list of exceptions; the uniform version excuses leases with total payments of less than $1,000. Compare FLA. STAT. § 680.201(1)(a) (1997) with U.C.C. § 2A-201(1)(a) (1995).

159 It could do so earlier, of course, perhaps either in a glitch bill or as part of the next U.C.C. amendments (presumably Articles 5 and 9). See infra Parts IV.A.- B.

160 See, e.g., King, supra note 153, at 877-80.

161 For a somewhat jaundiced view of these provisions, see 2 WHITE & SUMMERS, supra note 27, § 13-4; for a more optimistic view, see Fred H. Miller, Consumer Leases Under Uniform Commercial Code Article 2A, 39 ALA. L. REV. 957, 959-64 (1988).

162 Perhaps the most important is the Consumer Leasing Act, 15 U.S.C. §§ 1667-1667e (1994), and the corresponding regulation, Regulation M, 12 C.F.R. § 213 (1998). The Uniform Consumer Credit Code also gives consumer lessees special rights, though it is not in force in most states.

163 The drafts are available at the NCCUSL Website, located at (visited Jan. 28, 1999).

164 Indeed, the new Article 8 no longer covers those bits of contract law on the sale of securities which old Article 8 had covered. Thus, for instance, the old provisions on performance and remedies have been deleted on the theory that a statute should either regulate contracts comprehensively or not at all. See U.C.C. art. 8 pref. note IV.B.8. (1995); cf. U.C.C. § 8-107 (1977) (remedies); id. § 8-314 (breach).

165 See infra Part III.A.


167 See id.

168 See id. at 2899-900.

169 See id. at 2902-07; see also Emily I. Osiecki, Comment, Alabama By-Products Corp. v. Cede & Co.: Shareholder Protection Through Strict Statutory Construction, 22 DEL. J. CORP. L. 221, 225 (1997).

170 See Osiecki, supra note 169, at 224-25.

171 The literature of the time was rife with calls for uncertificated securities. See, e.g., Egon Guttman, Toward the Uncertificated Security: A Congressional Lead for the States to Follow, 37 WASH. & LEE L. REV. 717 (1980); Thomas H. Jolls, Can We Do Without Stock Certificates? A Look at the Future, 23 BUS. LAW. 909 (1968); Richard B. Smith, A Piece of Paper, 25 BUS. LAW. 923 (1970); Richard B. Smith, "A Piece of Paper Revisited," 26 BUS. LAW. 1769 (1971).


173 Including in this esteemed periodical. See Paul B. Rasor, A Critical Look at Secured Transactions Under Revised UCC Article 8, 14 FLA. ST. U. L. REV. 859, 865-67 (1987); see also, e.g., Martin J. Aronstein et al., Article 8 Is Ready, 93 HARV. L. REV. 889 (1980).

174 See James Steven Rogers, Policy Perspectives on Revised U.C.C. Article 8, 43 UCLA L. REV. 1431, 1443 (1996). Indeed, a good many states continued to require that share certificates be issued by their corporations, including New Jersey and, for quite a while, Pennsylvania, both corporate havens. See GUTTMAN, supra note 172, ¶ 1.04[2]. Even many of the states that allowed their corporations to issue uncertificated securities still allowed shareholders to demand stock certificates. See id.

The principal exception for publicly-held corporations is the dividend reinvestment plan, under which the issuer automatically uses dividends to purchase more shares, often fractional, of the issuer's stock. If a broker holds the shares in street name—that is, the broker's name—this is no different from any other indirect system of holding. If, however, the shares are held in the customer's name, but the issuer has its own reinvestment plan, then the issuer will usually reinvest the dividends and hold the shares as a book entry rather than issue new certificates with each reinvestment. See Martin J. Aronstein, Security Interests in Securities: How Code Revision Reflects Modern Security-Holding Practices, 10 UCC L.J. 289, 292-93 (1978).

175 In contrast, mutual funds, though dating back a good many years (at least as closed-end funds), did not become very important until the 1960s. Accordingly, there was less accumulated practice to dislodge, and the industry could adopt more readily a new method of dealing with securities. The government's move toward uncertificated securities may be explained, at least in part, by its unitary structure. Though a single corporation might choose not to rely on uncertificated securities, given dominant industry practice to the contrary, the federal government need not worry about losing out to rival governments or to any resulting reluctance on the part of investors to purchase its securities. For more on federal uncertificated securities, see Guttman, supra note 171.

176 The description that follows is drawn from a number of sources. See, e.g., U.C.C. art. 8 intro. (1995); JOHN F. DOLAN, COMMERCIAL LAW: ESSENTIAL TERMS AND TRANSACTIONS § 14.4 (2d ed. 1997); Charles W. Mooney, Jr., Property, Credit, and Regulation Meet Information Technology: Clearance and Settlement in the Securities Markets, LAW & CONTEMP. PROBS., Summer 1992, at 131, 136-38.

177 Some small brokerages and financial intermediaries may not be members of DTC. In that case, they generally contract with members to handle their clearance tasks. See Jeanne L. Schroeder, Is Article 8 Really Ready This Time? The Radical Reform of Secured Lending on Wall Street, 1994 COLUM. BUS. L. REV. 291, 327-28.

178 The transactions are netted out by the National Securities Clearing Corporation (NSCC), another creation of brokerages and banks.

179 See U.C.C. § 8-313 (1995).

180 See, e.g., Charles W. Mooney, Jr., Beyond Negotiability: A New Model for Transfer and Pledge of Interests in Securities Controlled by Intermediaries, 12 CARDOZO L. REV. 305 (1990); James Steven Rogers, Negotiability, Property, and Identity, 12 CARDOZO L. REV. 471 (1990); Schroeder, supra note 177.

181 See, e.g., Rogers, supra note 174, at 1437-38, 1445-46.

182 See Charles W. Mooney, Jr., et al., An Introduction to the Revised U.C.C. Article 8 and Review of Other Recent Developments with Investment Securities, 49 BUS. LAW. 1891, 1892 & n.3 (1994).

183 I take solace that two leading scholarly commentators on Article 8 have recently made similar laments—and then gone on to write very lengthy articles that did not cover the whole terrain. See Rogers, supra note 174, at 1433 n.2 (disclaiming comprehensive coverage in an article of 113 pages); Schroeder, supra note 177, at 301 (same disclaimer in an article of 212 pages). The best overviews of new Article 8 are EGON GUTTMAN, MODERN SECURITIES TRANSFERS (3d ed. Supp. 1998), 7A WILLIAM D. HAWKLAND & JAMES S. ROGERS, UNIFORM COMMERCIAL CODE SERIES, REVISED ARTICLE 8: INVESTMENT SECURITIES (1996), and Bryn R. Vaaler, Revised Article 8 of the Mississippi UCC: Dealing Directly with Indirect Holding, 66 MISS. L.J. 249 (1996).

184 This is not to say that new Article 8 makes no other significant changes. For example, until these revisions, the issuer would have been liable to a former owner of securities for wrongful registration if the issuer had received written notice of an adverse claim far enough ahead of the presentation of the security for registration that it could act appropriately. See U.C.C. § 8-403(1) (1977). Once the issuer had received notice, it would have been under a duty to inquire about the merits of the claim, an inquiry potentially satisfied by notice to the adverse claimant that registration would proceed in 30 days unless the issuer received either an appropriate court order or a bond. See id. § 8-403(2). This honored a long line of American cases but imposed significant burdens on transfers by fiduciaries. See, e.g., Lowry v. Commercial & Farmers' Bank, 15 F. Cas. 1040 (C.C.D. Md. 1848) (No. 8581). Various fiduciary statutes, consistent with this principle, excused issuers from liability, save in the presence of notice. See, e.g., Vaaler, supra note 183, at 292-93. Revised Article 8, following in its tendency to increase the negotiability of interests in securities, entirely eliminated issuer liability, whether or not notice had been given of adverse claims, unless the issuer had been served with an injunction or similar order or the issuer colluded with the wrongdoer. See U.C.C. § 8-404(a) (1995).

185 Federal law had adjusted somewhat earlier, with the enactment of the Electronic Funds Transfer Act (EFTA), covering consumer transactions, in 1978. See 15 U.S.C. §§ 1693, 1693a-1693r (1994). Transactions governed in part by the EFTA do not fall within Article 4A. See U.C.C. § 4A-108 (1995). In addition, a number of Federal Reserve regulations and operating circulars of Federal Reserve Banks regulate electronic funds transfers; perhaps obviously, these prevail over Article 4A. See id. § 4A-107. Article 4A has been part of Florida law since 1991. See Act effective Jan. 1, 1992, ch. 91-70, 1991 Fla. Laws 515 (current version at FLA. STAT. §§ 670.101-.507 (1997)).

186 Thus, for example, the current draft of Article 2 no longer refers to "writings," but, rather, uses "records," a term that includes both traditional writings and information stored in an electronic medium. See U.C.C. § 2-102(26) (Draft Mar. 1, 1999) (defining "record"); see also U.C.C. § 2-201 (Draft Mar. 1, 1999) (Statute of Frauds; refers to "record," rather than "writing").

187 See UNIF. ELEC. TRANSACTIONS ACT (Draft Jan. 29, 1999). At least at present, the statute would defer to other bodies of law, including the U.C.C., should they have their own rules about electronic contracting. See id. § 103(c).

188 See U.C.C. § 8-113 & cmt. (1995); see also U.C.C. art. 8 pref. note IV.B.7. (1995) (explaining reasons further); cf. U.C.C. § 8-319 (1977) (old Statute of Frauds).

189 See U.C.C. art. 8 pref. note B.7. (1995); see also, e.g., Goldfinger v. Brown, 564 N.Y.S.2d 459, 460-61 (App. Div. 1991); Davenport v. Island Ford, Lincoln, Mercury, Inc., 465 S.E.2d 737, 738-39 (S.C. Ct. App. 1995); Beta Drilling, Inc. v. Durkee, 821 S.W.2d 739, 740 (Tex. Ct. App. 1992); GUTTMAN, supra note 172, ¶ 5.03[1][b].

190 See Douglas R. Heidenreich, Article 8—Article 8?, 22 WM. MITCHELL L. REV. 985, 991-92 (1996).

191 See U.C.C. § 2-201 (Draft Mar. 1, 1999).

192 Perhaps appropriately. With no Statute of Frauds, it is true that, say, a buyer could bring in oral evidence of a sales agreement that the seller sought to deny. It is just as true, though, that a seller could do the same with a buyer, which might reopen the door to the sort of fraud which the Statute of Frauds was designed to discourage. For the sale of goods, then, there might be something to be said for an asymmetric Statute of Frauds, which would bar only the seller to a consumer from asserting the existence of an oral contract over a certain amount. In contrast, many of the Statute of Frauds cases under Article 8 may well have involved statute-induced fraud, if, say, an employer sought to avoid an oral contract to sell stock to an employee. In the reverse set of circumstances—an employee either making up an offer to sell, or, more charitably, misinterpreting vague suggestions as firm contracts—presumably the plaintiff's burden of proof, along with the threat of suits in tort (and even criminal sanctions) will sufficiently prevent fraud. Hence Professor Guttman's comment that "[t]he continuation of such a formalistic anachronism is difficult to justify." GUTTMAN, supra note 172, ¶ 5.03[1][b], at 5-22.

193 See U.C.C. § 8-313 (1977).

194 Id. § 8-313(4).

195 U.C.C. § 8-102 (1995) contains this definition and the others in this illustration, except where noted.

196 Id. § 8-501(a).

197 If Dewey were not a member of DTC, but instead contracted with a DTC member to handle its dealings, both firms would be securities intermediaries. See id. § 8-102(a)(14)(ii) & cmt. 14. In addition, NSCC, which clears accounts for all DTC members, is itself a securities intermediary. See id.

198 But not DTC, which is merely a depositary. See id. § 8-102(a)(5) & cmt. 14.

199 See id. § 8-501(b)(1).

200 See id. § 8-505.

201 See id. § 8-506.

202 See id. § 8-507.

203 See id. § 8-508.

204 See id. § 8-504(a).

205 See id. § 8-503(a), (b).

206 This property interest becomes important if Dewey becomes insolvent, and Dewey's general creditors seek to seize the financial assets Dewey holds for its entitlement holders. Ordinarily, entitlement holders prevail over any creditors of the securities intermediary. See id. § 8-503(a). Ordinarily? Yes, but there is an important exception. One hates to hold the reader in suspense, but . . . . See infra notes 283-309 and accompanying text.

207 More fully, nemo dat quod non habet (one cannot give what one does not have).

208 See John F. Dolan, The U.C.C. Framework: Conveyancing Principles and Property Interests, 59 B.U. L. REV. 811, 812-13 (1979).

209 U.C.C. § 2-403(1) (1995).

210 See, e.g., Alamo Rent-a-Car, Inc. v. Williamson Cadillac Co., 613 So. 2d 517, 518-19 (Fla. 3d DCA 1993); Candela v. Port Motors Inc., 617 N.Y.S.2d 49, 50 (App. Div. 1994); Butler v. Buick Motor Co., 813 S.W.2d 454, 458 (Tenn. Ct. App. 1991).

211 See U.C.C. § 8-313(1)(d)(iii) (1977). The term is rooted in commodities. See, e.g., U.C.C. § 2-501 cmt. 5 (1995).

212 See id. § 8-313(2). This avoids the use of especially messy tracing rules, which might depend on coordinating the actual and ostensible balances of shares. For more on tracing, see LIONEL D. SMITH, THE LAW OF TRACING (1997); LAUNDERING AND TRACING (Peter Birks ed., 1995).

The problem with stockbrokers (or, to use the new term for indirect holding, securities intermediaries) who might hold too little for their entitlement holders is not as great as it may have been. Federal statutes and regulations, most notably the Securities Investor Protection Act (SIPA), 15 U.S.C. §§ 78aaa to lll (1994), now protect customers against most shortfalls. See Michael E. Don & Josephine Wang, Stockbroker Liquidations Under the Securities Investor Protection Act and Their Impact on Securities Transfers, 12 CARDOZO L. REV. 509 (1990). This system of protection is not infallible, though, and might be strained or broken in a market crash; in addition, the changes in Article 8 may require some strengthening of this backup system. See, e.g., David A. Kessler, Note, Investor Casualties in the War for Market Efficiency, 9 ADMIN. L. REV. 1307 (1996).

213 Shemp probably committed fraud, which nowadays is not thought to yield void title. The Article will deal with this shortly.

214 See U.C.C. § 8-302(1) (1977).

215 Section 8-302(1)(c) allows for bona fide purchase only when the purchaser's rights come through section 8-313(1)(c), -313 (d)(i), or -313(g). Section 8-313(1)(g), in turn, refers to entries made to the account of the purchaser or its designee on the books of a clearing corporation. We may assume that Larry's broker would serve as his designee.

216 See Mooney, supra note 180, at 333-34 & n.95.

217 See Dolan, supra note 208, at 813-16.

218 See U.C.C § 2-403(1) (1995); see also, e.g., Interstate Cigar Co. v. United States, 928 F.2d 221, 224 (7th Cir. 1991); Southeast Foods, Inc. v. Penguin Frozen Foods, 203 So. 2d 39, 43 (Fla. 3d DCA 1967); Jernigan v. Ham, 691 S.W.2d 553, 556 (Tenn. Ct. App. 1984).

219 See, e.g., Grant Gilmore, The Commercial Doctrine of Good Faith Purchase, 63 YALE L.J. 1057 (1954). Professor Gilmore later regretted somewhat his enthusiasm for negotiability and the rights of the good faith purchaser, enthusiasm rendered tangible not merely in his article but in Article 9 of the U.C.C., for which he was the main drafter. See generally Grant Gilmore, The Good Faith Purchase Idea and the Uniform Commercial Code: Confessions of a Repentant Draftsman, 15 GA. L. REV. 605 (1981) [hereinafter Gilmore, Good Faith].

220 See U.C.C. § 3-305(a)(1) (1995).

221 See id. § 2-403(2); see also, e.g., Touch of Class Leasing v. Mercedes-Benz Credit of Canada, Inc., 591 A.2d 661, 667-71 (N.J. Super. Ct. App. Div. 1991); Thorn v. Adams, 865 P.2d 417, 420 (Or. App. Ct. 1993).

222 The entrustment analogy has been made by Schroeder, supra note 177, at 496.

Indeed, one can go further. Perhaps, as Professor Rogers has suggested, negotiability is not a very good analogy because it is based on the assumption that one owns a thing that is then negotiated. Investment securities are abstract rights—rights that may be represented by stock certificates, but rights all the same—and thus may not really be said to exist in any sense that makes analogies drawn from the transfer of goods directly helpful. See Rogers, supra note 180, at 507-08.

223 See U.C.C. § 8-503(b) (1995).

224 See id. § 8-502 & cmt. 2.

225 See id.; see also, e.g., Rogers, supra note 174, at 1469.

226 See U.C.C. § 8-303 (1995).

227 Such as first-in-time, last-in-time, or the like. See supra note 212.

228 See U.C.C. §§ 8-502 cmt. 4, 8-503(b) (1995).

229 Incidentally, what if Dewey never buys any shares? Technically, Moe may well have a security entitlement; though no financial asset actually existed, the presence of a financial asset is not essential if the other steps required to create a security entitlement took place. See id. § 8-501(c) & cmt. 3. Moe would then have a claim against Dewey for the value of this entitlement, as well as possible actions under state and federal law. This may, as before, be a hollow claim if Dewey lacks unencumbered assets, though some resources may be available under SIPA. See Schroeder, supra note 177, at 472-73.

230 Though stock is a narrower term than securities, I shall use it here to avoid over-repetition of the word security.

231 See U.C.C. § 9-203(1) (1972).

232 See id. §§ 9-302(1), -305. Though certificated securities are not named in section 9-305, the definition of instrument includes them. See U.C.C. § 9-105(1)(i) (1995).


234 Particularly because it has been parsed lucidly by others. See, e.g., CLARK, supra note 233, ¶ 7.17[2][a]; Peter F. Coogan, Security Interests in Investment Securities Under Revised Article 8 of the Uniform Commercial Code, 92 HARV. L. REV. 1013 (1979); Mooney, supra note 180; Jeanne L. Schroeder & David Gray Carlson, Security Interests Under Article 8 of the Uniform Commercial Code, 12 CARDOZO L. REV. 557 (1990).

235 See U.C.C. § 8-321(1) (1977).

236 See id. § 8-321(3)(a).

237 The intermediary could perfect as the secured party's intermediary, as long as the certificate was either indorsed to the secured party or had been issued to it. See id. § 8-313(1)(c). This is not holding in bulk, though, and more properly falls under the general head of agency law.

In addition, the security interest would be perfected for 21 days if the security interest were taken under a security agreement and transfer had not yet been effected. See id. § 8-321(2). This is analogous to the rights under Article 9 for the holder of a security interest in instruments, certificated securities, or negotiable documents. See U.C.C. § 9-304(4) (1995).

238 See U.C.C. § 8-313(1)(d)(ii) (1977).

239 See id. § 8-313(1)(g).

240 See id. § 8-313(1)(h).

241 See id. § 8-313(1)(i).

242 On the other hand, it beats "delivery," for there is no delivery in the indirect holding system. See Aronstein, supra note 174, at 301-02.

243 See U.C.C. art. 8 pref. note IV.B.2. (1995).

244 See, e.g., Schroeder & Carlson, supra note 234, at 588-98.

245 See Mooney, supra note 180, at 334-36; Schroeder & Carlson, supra note 234, at 602-04. Happily, the matter seems never to have been litigated to a reported judgment, though one cannot be sure whether this provision might have had some subterranean effect.

246 See U.C.C. art. 8 pref. note IV.B.2. (1995).

247 See id. § 9-203(1)(a).

248 See id. § 9-115(4).

249 See id. § 9-203(1).

250 See id. § 8-106 cmt. 1; see also id. § 9-115(1)(e) & cmt. 2 (showing relation of control to taking of security interest).

251 See id. § 8-106(b).

252 See id. § 8-301(a).

253 See id. § 8-106(d). Much the same system applies for security interests in uncertificated securities. See id. § 8-106(c) & cmt. 4.

254 These rules cover all forms of control, including purchase, so the scenario is not very outré, except perhaps for secured credit. Even then, one may see sales, as the common "repo" transaction suggests. See infra notes 265-269 and accompanying text.

255 See U.C.C. § 8-106(f) & cmts. 4 & 7 (1995). Indeed, example 3 to comment 4 does exactly that.

256 See id. Creating junior security interests or disposing of the entitlement may cause a default under the security agreement, but that is not the concern of the law that allows the security interests to be created and perfected.

257 See id. § 9-115(1)(e) & cmt. 4. To be truly complete, I should mention that commodities contracts and accounts are also covered by these sections, even though they are not securities for the purposes of Article 8. See, e.g., Vaaler, supra note 183, at 314-15.

258 See U.C.C. § 9-115(4)(b) (1995). If, however, the debtor is a securities intermediary, the financing statement is irrelevant; the security interest is perfected when it attaches. See id. § 9-115(4)(c).

259 See infra notes 290-294 and accompanying text.

260 See U.C.C. § 9-116(1) & cmt. 2 (1995).

261 Id. § 9-115 cmt. 6.

262 Id.; see also Howard M. Darmstadter, Revised Article 8 and the Agreement to Pledge, 28 UCC L.J. 202, 205-06 (1995).

263 See Darmstadter, supra note 262, at 203-04.

264 See U.C.C. § 9-115(4)(c) & cmt. 6 (1995); see also Darmstadter, supra note 262, at 206-07. This kindness may be more apparent than real, though, because the lender under an agreement to pledge has lost some of its old priority. See infra notes 290-294 and accompanying text.

265 See Jeanne L. Schroeder, Repo Madness: The Characterization of Repurchase Agreements Under the Bankruptcy Code and the U.C.C., 46 SYRACUSE L. REV. 999, 1000 (1996).

266 See Jeanne L. Schroeder, Repo Redux: Repurchase Agreements Under the 1994 Revisions to the UCC, 29 UCC L.J. 3, 4 (1996); see also generally MARCIA STIGUM, THE REPO AND REVERSE MARKETS (1989).

267 See U.C.C. art. 8 pref. note III.C.10 (1995).

268 The courts and commentators seem divided on the issue. See, e.g., Schroeder, supra note 265; Schroeder, supra note 266; William F. Hegarty, IV, Note, Lifting the Cloud of Uncertainty Over the Repo Market: Characterization of Repos as Separate Purchases and Sales of Securities, 37 VAND. L. REV. 401 (1984).

269 This is unlike, say, the distinction between a sale and a lease, which has potentially huge consequences in a wide range of instances. See U.C.C. § 1-201(37) (1995); 4 WHITE & SUMMERS, supra note 27, § 30-3.

270 See George T. Morrison & John J. Donlon, Pending Revisions to Articles 8 and 9 of the Florida UCC: An Opportunity for Florida to Merge onto the Information Superhighway, FLA. B.J., Jan. 1998, at 45, 46.

271 For those inclined to take the plunge, here are some of the leading sources pro and contra: Symposium, The Priority of Secured Debt, 82 CORNELL L. REV. 1279 (1997); Lucian Arye Bebchuk & Jesse M. Fried, The Uneasy Case for the Priority of Secured Claims in Bankruptcy, 105 YALE L.J. 857 (1996); Garvin, supra note 62; Steven L. Harris & Charles W. Mooney, Jr., A Property-Based Theory of Security Interests: Taking Debtors' Choices Seriously, 80 VA. L. REV. 2021 (1994); Lynn LoPucki, The Unsecured Creditor's Bargain, 80 VA. L. REV. 1887 (1994); Ronald J. Mann, Explaining the Pattern of Secured Credit, 110 HARV. L. REV. 625 (1997); Steven L. Schwarcz, The Easy Case for the Priority of Secured Claims in Bankruptcy, 47 DUKE L.J. 425 (1997); Alan Schwartz, Security Interests and Bankruptcy Priorities: A Review of Current Theories, 10 J. LEGAL STUD. 1 (1981); Paul M. Shupack, Solving the Puzzle of Secured Transactions, 41 RUTGERS L. REV. 1067 (1989); Elizabeth Warren, An Article 9 Set-Aside for Unsecured Creditors, 51 CONSUMER FIN. L. Q. REP. 323 (1997); James J. White, Efficiency Justifications for Personal Property Security, 37 VAND. L. REV. 473 (1984).

272 See U.C.C. § 8-321(3) & cmt. 3 (1977).

273 See U.C.C. § 9-312(5) (1995).

274 See id. §§ 9-109, -312(3), (4).

275 See id. § 9-306. This statement, like most of the others in this synopsis, is oversimplified, but may be useful to set up the new provisions on security interests in investment securities.

276 See id. § 9-307(1).

277 See id. § 9-307(2), (3).

278 See, e.g., Coogan, supra note 234; Schroeder & Carlson, supra note 234, at 618-40.

279 See supra notes 196-206 and accompanying text.

280 See 11 U.S.C. § 544(a) (1994).

281 See U.C.C. § 9-301 cmt. 2 (1995).

282 Recall that control need not be limited to one secured party. See supra note 256 and accompanying text.

283 See U.C.C. § 9-115(5)(b) (1995).

284 See id. §§ 9-115(5)(f), -312(5)(a). The purchase money superpriority rule does not apply here. See id. § 9-115(5)(f).

285 See id. § 9-115(5)(a) & cmt. 5. Examples one through three in the comment contain variations on this theme.

286 See id. § 9-115 cmt. 5.

287 See Rogers, supra note 174, at 1477-83.

288 See U.C.C. § 9-115(5)(c) (1995).

289 See id. § 9-115(4)(c).

290 See supra notes 261-264 and accompanying text.

291 See U.C.C. § 9-115 cmt. 6 (1995).

292 See id.

293 But the real problem is up ahead. See infra notes 301-09 and accompanying text.

294 There is much more to this analysis, but not for present purposes. See, e.g., Schroeder, supra note 177.

296 See supra notes 272-278 and accompanying text.

297 See, e.g., Mooney, supra note 180, at 366-79.

298 See id. at 377.

299 See U.C.C. § 8-511(a), (b) (1995); see also Darmstadter, supra note 262, at 207-08.

300 See Darmstadter, supra note 262, at 208; Rogers, supra note 174, at 1523-26. Whether there will be any lasting benefit is less clear. If lenders under agreements to pledge respond by taking control, then the entitlement holder will lose anyway, and will have succeeded only in forcing the securities intermediary to pay more for its loan. See Mooney et al., supra note 182, at 1901.

301 See U.C.C. § 8-511(b) & cmt. 1 (1995).

302 See Rogers, supra note 174, at 1511-12.

303 See id.

304 See supra notes 223-226 and accompanying text.

305 See U.C.C. § 8-504(b) (1995).

306 See Rogers, supra note 174, at 1527-28.

307 See Rogers, supra note 174, at 1533-34. Much the same result may obtain when a customer sells short. See id. at 1528-29.

308 The curious may wish to consult U.C.C. § 8-511 cmts. 1 & 2 (1995); see also Rogers, supra note 174, at 1511-40; Schroeder, supra note 177, at 486-502.

309 Rights under SIPA are, however, limited, and could in extreme cases run out entirely. See, e.g., Egon Guttman, Mediating Industry and Investor Needs in the Redrafting of UCC Article 8, 28 UCC L.J. 3, 13-18 (1996); Kessler, supra note 212.

310 See 31 C.F.R. § 357.10(c) (1997). For a vigorous critique of the earlier proposals and the earlier law, see Charles W. Mooney, Jr., Good Faith Transferees of U.S. Treasury Securities and Other Weird Ideas: Making Federal Commercial Law, 26 LOY. L.A. L. REV. 715 (1993). On the appropriate means of complying with revised Article 8, see CLARK, supra note 233, ¶ 7.17[3] (Supp. 1998).

311 The lender could, of course, lend on the basis of any securities held by the intermediary on its own account, and separate arrangements could be effected to deal with margin accounts—which, in any case, have proved problematic enough in our history that very modest discouragement may not be amiss.

312 This may be caused by a good many factors, including excessive discounting of future events, over-optimism, cognitive dissonance, and the infrequency, and resulting underassessment, of this sort of risk. In the securities context, see Donald C. Langevoort, Selling Hope, Selling Risk: Some Lessons for Law from Behavioral Economics About Stockbrokers and Sophisticated Customers, 84 CAL. L. REV. 627 (1996); Robert B. Thompson, Securities Regulation in an Electronic Age: The Impact of Cognitive Psychology, 75 WASH. U.L.Q. 779 (1997). On cognitive error more generally, see Larry T. Garvin, Disproportionality and the Law of Consequential Damages: Default Theory and Cognitive Reality, 59 OHIO ST. L.J. 339 (1998); Christine Jolls et al., A Behavioral Approach to Law and Economics, 50 STAN. L. REV. 1471 (1998).

313 As others have suggested. See, e.g., Francis J. Facciolo, Proposed Article 8: Why it Should Not Be Adopted in Its Current Form, UCC BULL., Apr. 1997, at 1, 5.

314 See Mooney et al., supra note 182, at 1895.


316 See JOHN F. DOLAN, THE LAW OF LETTERS OF CREDIT ¶ 4.01[4] (rev. ed. 1996 & Supp. 1998).

317 The states were Alabama, Arizona, Missouri, and New York. See id. ¶ 4.05. Since then, all save New York have enacted revised Article 5. See U.C.C. art. 5, 2B U.L.A. 127-29 (Supp. 1998).

318 In part to bring order to this important area, the International Chamber of Commerce recently codified international standby practices. See Robert S. Rendell, Stand By for New Set of Rules on Letters of Credit, NAT'L L.J., Nov. 2, 1998, at B8. These obviously are not referred to in new Article 5, but presumably will be treated in much the same manner as the UCP. See infra notes 322-323 and accompanying text.

319 See generally An Examination of U.C.C. Article 5, 45 BUS. LAW. 1521 (1990).

320 See U.C.C. art. 5, 2B U.L.A. 127-29 (Supp. 1998).

321 For more thorough summaries of the Article 5 revisions, see James G. Barnes & James E. Byrne, Revision of U.C.C. Article 5, 50 BUS. LAW. 1449 (1995); Dellas W. Lee, Letters of Credit: What Does Revised Article 5 Have to Offer to Issuers, Applicants, and Beneficiaries?, 30 UCC L.J. 234 (1996); Milton R. Schroeder, The 1995 Revisions to UCC Article 5, Letters of Credit, 29 UCC L.J. 331 (1997); B. Lynn Kremers, Note, Letters of Credit: Should Revised Article 5 of the Uniform Commercial Code be Adopted in Missouri, 65 UMKC L. REV. 567 (1997); James J. White, Trade Without Tears, or Around Letters of Credit in 17 Sections, UCC BULL., Dec. 1995, at 1.

322 See U.C.C. § 5-116(c) (1995). The nonvariable provisions, listed in section 5-103(c), go to the expiration of letters of credit, the assignability of proceeds of letters of credit, and certain definitions. In addition, the ability of the parties to vary the subrogation right is somewhat limited under section 5-117(d), and Article 5 is generally subject to section 1-102(3), which provides a good-faith limit on variation. On variability, see, e.g., Clark A. Remington, Llewellyn, Antiformalism and the Fear of Transcendental Nonsense: Codifying the Variability Rule in the Law of Sales, 44 WAYNE L. REV. 29, 60-100 (1998).

323 Article 5 thus recognizes the importance of extralegal norms in commercial behavior and gives legal force to these norms generated outside of law. Put positively, Article 5 thereby gives effect to relational contract; though the rules that govern actual behavior may have developed outside of commercial law, the law will nevertheless recognize these rules. See Lisa Bernstein, Merchant Law in a Merchant Court: Rethinking the Code's Search for Immanent Business Norms, 144 U. PA. L. REV. 1765 (1996). Less positively, perhaps, Article 5 provides little basis for attacking standard commercial practice as unfair, inefficient, or misguided. This may not matter much in the law of letters of credit, though the same cannot be said of, say, the law of sales.

324 Some also codify nonuniform Florida law. For example, at present Article 5 is silent about whether letters of credit are irrevocable. Florida's version of Article 5 contains a nonuniform amendment that creates a default rule of irrevocability. See FLA. STAT. § 675.103(a) (1997). This concept is found in revised Article 5. See U.C.C. § 5-106(a) (1995).

325 On the functions of letters of credit, see, e.g., DOLAN, supra note 316, ¶ 3.07 (rev. ed. 1996).

326 The relevant provision says merely that "[a]n issuer must honor a draft . . . which complies with the terms of the relevant credit . . . ." U.C.C. § 5-114(1) (1968).

327 See, e.g., American Nat'l Bank v. Cashman Bros. Marine Contracting, 550 So. 2d 98, 100-02 (Fla. 1st DCA 1989); Fidelity Nat'l Bank v. Dade County, 371 So. 2d 545, 546-47 (Fla. 3d DCA 1979). On the general rule, see DOLAN, supra note 316, ¶ 6.04.

328 See First Nat'l Bank v. Wynne, 256 S.E.2d 383, 385-86 (Ga. Ct. App. 1979); see also, e.g., Banco Espanol de Credito v. State St. Bank & Trust Co., 385 F.2d 230, 234-37 (1st Cir. 1967).

329 See U.C.C. § 5-108(a) (1995).

330 Id. § 5-108 cmt. 1.

331 See id. § 5-108(c) & cmt. 3. Waiver is addressed most clearly in section 5-108 cmt. 7.

332 See id. § 5-108(i). As noted earlier, the revision's general deference to commercial practice, especially as found within the UCP, is an important move toward uniformity. See supra notes 322-323 and accompanying text.

333 U.C.C. § 5-114(3) (1968).

334 See An Examination of U.C.C. Article 5, supra note 319, at 1625.

335 See 3 JAMES J. WHITE & ROBERT S. SUMMERS, UNIFORM COMMERCIAL CODE § 26-7, at 160 (4th ed. 1995).

336 U.C.C. § 5-108(i)(1) (1995).

337 A majoritarian default rule is a rule that supplies what most contracting parties would choose if they could negotiate costlessly and with perfect information. Such a rule can be efficient because it lowers transaction costs: fewer contracts will have to provide alternative terms. In addition, a majoritarian default rule can provide a sensible result where the costs of contracting around the default would exceed the benefit derived from the departure. In those cases, the parties will not depart from the default rule; making the default rule anything other than their preferred result would thus yield an unwanted contract term. See Ian Ayres, Preliminary Thoughts on Optimal Tailoring of Contractual Rules, 3 S. CAL. INTERDISC. L.J. 1, 12 (1993); Ian Ayres & Robert Gertner, Filling Gaps in Incomplete Contracts: An Economic Theory of Default Rules, 99 YALE L.J. 87, 93 (1989); Russell Korobkin, The Status Quo Bias and Contract Default Rules, 83 CORNELL L. REV. 608, 613-17 (1998).

338 See U.C.C. § 5-109(2) (1962).

339 See U.C.C. § 1-102(3) (1995).

340 See id. § 5-108.

341 See id.

342 See id. § 5-103(c) & cmt. 2.

343 See Margaret L. Moses, The Impact of Revised Article 5 on Small and Mid-Sized Exporters, 29 UCC L.J. 390, 407 (1997). The provision, U.C.C. § 5-111(e) (1995), states that "[r]easonable attorney's fees and other expenses of litigation must be awarded to the prevailing party in an action in which a remedy is sought under this article." (emphasis added).

344 See ALA. CODE § 7-5-111(e) (1997) (making fee-shifting discretionary); N.J. STAT. ANN. § 12A:5-111(e) (Supp. 1998) (same).

345 See U.C.C. § 5-111(e) (1995).

346 See id. § 5-111 cmt. 1; see also Fred H. Miller, Realism Not Idealism in Uniform Laws: Observations from the Revision of the UCC, 39 S. TEX. L. REV. 707, 723 (1998).


348 See, e.g., Samuel R. Gross & Kent D. Syverud, Getting to No: A Study of Settlement Negotiations and the Selection of Cases for Trial, 90 MICH. L. REV. 319, 368-73, 379 (1991).

349 See U.C.C. § 5-111(a) (1995).

350 See id. § 5-111 cmt. 1. One imagines that the beneficiary will still tend to mitigate. First, its action against the issuer may be combined with other actions for breach, for which a duty to mitigate would still apply. Second, it may seek to limit its (unrecoverable) consequential damages and, in so doing, may also mitigate its direct damages. By implication, the applicant still has a duty to mitigate.

351 Article 2A's unconscionability provision grants consumer lessees reasonable attorney's fees if the court finds unconscionability but gives the lessor reasonable attorney's fees only if the lessee knew the action to be groundless. See id. § 2A-108(4). This provision is modeled on the corresponding provision in the Uniform Consumer Credit Code. See UNIF. CONS. CRED. CODE § 5.108(6) (1974). It also resembles greatly the asymmetric fee-shifting system used under some federal civil rights statutes, including 42 U.S.C. § 1988. See, e.g., Christiansburg Garment Co. v. EEOC, 434 U.S. 412, 422 (1978); see generally 1 ROBERT L. ROSSI, ATTORNEYS' FEES §§ 10:17 to 10:22 (1995) (collecting authority).

352 It should be added that Professor Miller, though understandably against this nonuniform amendment, does not see it as a major threat to uniformity. See Miller, supra note 346, at 723.

353 New Jersey has enacted another nonuniform amendment to revised Article 5, which specifies that whether the issuer observes the standard practice of financial institutions regularly issuing letters of credit is a question for the court, rather than the jury. Compare U.C.C. § 5-108(e) (1995) with N.J. STAT. ANN. § 12A:5-108(e) (Supp. 1998). The problem raised here is whether the provision leaves an issue of fact for the judge, which might limit unconstitutionally the right to a jury trial. See Moses, supra note 343, at 391-407. But see generally James E. Byrne, Revised UCC Section 5-108(e): A Constitutional Nudge to Courts, 29 UCC L.J. 419 (1997) (suggesting that section 5-108(e) is constitutional). The difficulty here is the sweeping language of the statute. As Professor Miller has noted, the intent was merely to leave to the court the determination of what standard practice is, not to take from the finder of fact any disputed fact questions as to whether the issuer complied with that standard. See NEW JERSEY REPORT, supra note 347, at 6. New Jersey's amendment clarifies this meaning, though at some cost to uniformity. This amendment may not be too consequential; presumably a constitutional challenge would result at most in a limiting interpretation of this section, and the amendment seems only to carry out what Professor Miller has suggested was the drafters' intent. It is hard to say, as has been suggested, that this is a fundamental departure from nonuniformity. See Miller, supra note 346, at 723.

354 To illustrate, compare the provisions on the priorities of purchase money security interests. Compare U.C.C. § 9-324 (1998) with U.C.C. § 9-312(3), (4) (1995).

355 See Louis Kaplow, Rules Versus Standards: An Economic Analysis, 42 DUKE L.J. 557, 585-86 (1992).

356 Alternatively, they may choose a sort of rational ignorance; if they conclude that the costs of revising their business practices exceed the likely value of the revisions, they may choose to remain ignorant. See id. at 571-77, 596-99. Apart from the direct costs of legal nonconformity, though, knowing that one may be afoul of the law may lead to excessive risk-aversion and thus a loss of potential gain. See Richard Craswell & John E. Calfee, Deterrence and Uncertain Legal Standards, 2 J.L. ECON. & ORG. 279, 299 (1986).

357 The main drafter of Article 9, Grant Gilmore, later regretted that change. See Gilmore, Good Faith, supra note 219, at 627. For an example of the loss in standing of unsecured creditors, see, e.g., Garvin, supra note 62.

358 See U.C.C. § 9-109 (1998).

359 For instance, by allowing perfection by filing for instruments. Compare id. § 9-312(a) (perfection may be by filing) with U.C.C. § 9-304(1) (1995) (perfection only by taking possession). Perfection by possession will still give greater security to the creditor, though. See U.C.C. § 9-330(d) (1998) (perfection by possession has priority over other forms of perfection).

360 Compare U.C.C. § 9-501 (1998) with U.C.C. § 9-401(1) (1995). This is likely to yield a measure of nonuniformity as states that have elected a dual filing system choose to retain part or all of it beyond the remnant left in the revision. Local filing officers, typically the clerks of the county courts, may well bemoan the lost revenue and urge such a change.

361 This may well be the greatest advance in clarity in the new Article 9. Compare U.C.C. §§ 9-301, -306 (1998) with U.C.C. § 9-103 (1995). Here, too, a state filing officer, usually the Secretary of State, may worry about the resulting shifts in filing patterns and agitate for nonuniform amendments, most likely consisting of the old rules.

362 See U.C.C. art. 9 pref. note at 29-33 (Annual Meeting Draft July 1998); see also, e.g., Memorandum from the UCC Article 9 Drafting Committee to Commissioners (Apr. 1998) (outlining changes and rationales) (copy on file with Florida State University Law Review).

363 See, e.g., Kenneth N. Klee, Barbarians at the Trough: Riposte in Defense of the Warren Carve-Out Proposal, 82 CORNELL L. REV. 1466 (1997); David W. Leebron, Limited Liability, Tort Victims, and Creditors, 91 COLUM. L. REV. 1565 (1991); LoPucki, supra note 271; Robert K. Rasmussen, An Essay on Optimal Bankruptcy Rules and Social Justice, 1994 U. ILL. L. REV. 1. Cf. Alan Schwartz, A Theory of Loan Priorities, 18 J. LEGAL STUD. 209 (1989) (granting many tort claimants some priority, but not complete). The coreporters of Article 9, not surprisingly, hold quite different views. See Steven L. Harris & Charles W. Mooney, Jr., Measuring the Social Costs and Benefits and Identifying the Victims of Subordinating Security Interests in Bankruptcy, 82 CORNELL L. REV. 1349 (1997).

364 See U.C.C. § 2-816 cmt. (Draft May 16, 1997).

365 Consumer advocates did take part in the drafting of new Article 9 and had a role in the truncation of consumer provisions near the end of the drafting process. More to the point, consumer groups could choose to lobby for nonuniform amendments, or, if sufficiently peeved, for nonadoption. This is unlikely to happen. Despite the late rollbacks, there remain some advances for consumers in new Article 9. Many consumer advocates may well take their half-loaf. In addition, as part of the late compromise, consumer advocates agreed not to oppose new Article 9 in the legislatures. See U.C.C. art. 9 pref. note at 30 (Annual Meeting Draft July 1998). Though not all consumer groups were represented in the late bargaining, the most active generally were, which will blunt any sustained attack on that front.

366 Excepting, of course, Gilbert and Sullivan's Iolanthe.

367 There is one nonuniform enactment that Florida should consider, whatever the outcome of these other issues. The Florida version of section 9-312(4), which gives the holder of a purchase money security interest a superpriority if it perfects its security interest within a limited time after the debtor takes possession, contains an extra sentence: "Failure to so perfect shall cause the priority of the purchase money security interest to be determined under subsection (5)." FLA. STAT. § 679.312(4) (1997). This added sentence is surplusage if one reads the following section: "In all cases not governed by other rules stated in this section (including cases of purchase money security interests which do not qualify for the special priorities set forth in subsections (3) and (4) of this section) . . ." U.C.C. § 9-312(5) (1995). Florida enacted this to reverse International Harvester Credit Corp. v. American National Bank, 296 So. 2d 32 (Fla. 1974), which did violence to Article 9 by giving the holder of the purchase money security interest its superpriority even though it did not comply with section 9-312(4). The leading treatise on Article 9 has termed this "The World's Worst UCC Decision" and "probably the low point in judicial construction of Article 9." CLARK, supra note 233, ¶ 3.09[4][d]. Florida's nonuniform amendment was designed to overturn International Harvester Credit, restoring the statute to its otherwise universal meaning. As International Harvester Credit remains in the Southern Reporter, it may be prudent to carry forward the nonuniform language in order to remind future generations of that decision's fatuity.



370 See UNIFORM COMMERCIAL CODE REVISED ARTICLE 2B—PREFACE 3-4 (Draft Dec. 1, 1995), available at (visited Dec. 22, 1998).

371 See, e.g., Letter from R. Bruce Josten, Executive Vice President, Government Affairs, Chamber of Commerce of the United States of America, to Members of the Uniform Commercial Code Article 2 Drafting Committee (Mar. 6, 1998) [hereinafter Josten Letter] (complaining about formation and warranties sections); Memorandum from Jeffrey S. Edelstein & Debra Freeman, Attorneys, Hall Dickler Kent Friedman & Wood, to Members of the Uniform Commercial Code Article 2 Drafting Committee (Mar. 2, 1998) [hereinafter Edelstein & Freeman Letter] (letter from advertising trade associations, complaining about treatment of warranties created by advertising); Letter from Andrew D. Koblenz, Senior Attorney, American Automobile Manufacturers Association, to Members of the Uniform Commercial Code Article 2 Drafting Committee (Jan. 26, 1998) (complaining mainly about formation and warranties sections) (copies on file with Florida State University Law Review).

372 See, e.g., Letter from Gail Hillebrand, Senior Attorney, Consumers Union of U.S., Inc., to Uniform Law Commissioners (July 1997) (applauding balance in draft and noting the provisions that favor sellers and that favor buyers).

373 Enactability is an obvious and important issue for any uniform statute because there is always the concern that nonuniform amendments may degrade the uniformity of a statute, or that incomplete enactment will lead to divergent rules. See, e.g., Fred H. Miller, Consumers and the Code: The Search for the Proper Formula, 75 WASH. U. L.Q. 187, 214-15 (1997).

374 Letter From Charles R. Keeton, Counsel, General Electric Company, to Members of the Uniform Commercial Code Article 2 Drafting Committee 2 (Feb. 5, 1998); see also, e.g. Letter From American Gas Association to Members of the Article 2 Drafting Committee, National Conference of Commissioners on Uniform State Laws 3 (Mar. 6-8, 1998); Josten Letter, supra note 371, at 2.

375 Compare U.C.C. ' 2-202(a)(1)(B) (Draft Mar. 1, 1999) with U.C.C. ' 2-202 cmt. 3 (1995).

376 See U.C.C. ' 2-202(b) (Draft Mar. 1, 1999).

377 See RESTATEMENT (SECOND) OF CONTRACTS ' 212 & cmt. b (1979); Arthur L. Corbin, The Interpretation of Words and the Parol Evidence Rule, 50 CORNELL L.Q. 161, 189-90 (1965).

378 See, e.g., Barbara Oil Co. v. Kansas Gas Supply Corp., 827 P.2d 24, 35 (Kan. 1992); Herman Oil, Inc. v. Peterman, 518 N.W.2d 184, 188 (N.D. 1994); Sundlun v. Shoemaker, 617 A.2d 1330, 1334 (Pa. Super. Ct. 1992); II E. ALLAN FARNSWORTH, FARNSWORTH ON CONTRACTS ' 7.3, at 216 (2d ed. 1998).

379 Though it should be noted that some jurisdictions still use something like the four-corners approach to parol evidence under the common law. See, e.g., Ralph James Mooney, The New Conceptualism in Contract Law, 74 OR. L. REV. 1131, 1148-59 (1995).

380 See U.C.C. ' 2-408(c) (Draft Mar. 1, 1999).

381 See, e.g., Edelstein & Freeman Letter, supra note 371, at 2; Josten Letter, supra note 371, at 4.

382 See U.C.C. '' 2-313 cmt. 2, -318 cmt. 3 (1995).

383 See, e.g., Ferguson v. Sturm, Ruger & Co., 524 F. Supp. 1042, 1046-47 (D. Conn. 1981); Prairie Prod., Inc. v. Agchem Div.-Pennwalt Corp., 514 N.E.2d 1299, 1302-04 (Ind. Ct. App. 1987); Spring Motors Distribs., Inc. v. Ford Motor Co., 489 A.2d 660, 674-77 (N.J. 1985); Inglis v. American Motors Corp., 209 N.E.2d 583, 586-88 (Ohio 1965).

384 See U.C.C. ' 2-408(f)(3) (Draft Mar. 1, 1999).

385 See, e.g., Letter from Steve Brobeck et al., Consumer Federation of America, to Charles Alan Wright & Gene N. Lebrun, Presidents, ALI (Nov. 10, 1998) (letter from Consumer Federation of America, Consumer Project on Technology, National Consumers League, and U.S. Public Interest Research Group); Letter from Gail Hillebrand to Uniform Law Commissioners (June 24, 1998) (letter from Consumers Union). The letters and other items referred to in this note and those that follow may be found on The 2BGuide, the preeminent website on proposed Article 2B, at (visited Nov. 18, 1998).

386 See, e.g., Letter from Gordon Pence to UCC Article 2B Drafting Committee (Oct. 12, 1998) (letter from Caterpillar, Inc.); Letter from John Stevenson to Carlyle C. Ring, Jr., Chair, NCCUSL Article 2B Drafting Committee (Oct. 8, 1998) (letter from SIM).

387 See, e.g., Letter from John R. Reinert, President, IEEE-USA, to Carlyle C. Ring, Jr., Chair, & Raymond T. Nimmer, Reporter, NCCUSL Article 2B Drafting Committee (Oct. 9, 1998).

388 See, e.g., Letter from Jack Valenti, Director, Motion Picture Association of America, et al., to Carlyle C. Ring, Jr. Chair, NCCUSL Article 2B Drafting Committee & Geoffrey Hazard, Jr., Director, ALI (Sept. 10, 1998) (letter from Motion Picture Association of America, Recording Industry Association of America, Newspaper Association of America, National Association of Broadcasters, National Cable Television Association, and Magazine Publishers of America).

389 See, e.g., Letter from National Writers Union (UAW Local 1981) to Carlyle C. Ring, Jr., Chair, NCCUSL Article 2B Drafting Committee, et al. (Oct. 9, 1998); Letter from Robert Oakley, Washington Affairs Representative, American Association of Law Libraries, et al. to Charles Alan Wright, President, ALI (Oct. 8, 1998) (letter from American Association of Law Libraries, American Library Association, Association of Research Libraries, and Special Libraries Association).

390 See Letter from Joan Z. Bernstein, Director, Division of Financial Practices, Bureau of Consumer Protection, et al. to Carlyle C. Ring, Jr., Chair, NCCUSL Article 2B Drafting Committee, & Geoffrey Hazard, Jr., Director, ALI (Oct. 30, 1998) (letter from Bureau of Consumer Protection, Bureau of Competition, and Federal Trade Commission).

391 See, e.g., Memorandum from Business Software Alliance to Article 2B Drafting Committee (Oct. 10, 1998); Memorandum from Information Industry Association to Article 2B Drafting Committee (Oct. 8, 1998).

392 One illustration comes in contract formation. Many software manufacturers use shrink-wrap licenses—licenses, the terms of which are located within the packages and that provide that assent occurs on the use of the software. If the buyer does not learn the terms of the license until she has paid for the software, are the license terms part of the sales contract? Federal circuit courts have split on the issue. Compare Step-Saver Data Sys., Inc. v. Wyse Tech., 939 F.2d 91, 102 (3d Cir. 1991) (not enforceable), with ProCD, Inc. v. Zeidenberg, 86 F.3d 1447, 1455 (7th Cir. 1996) (Easterbrook, J.) (enforceable). Parenthetically, draft Article 2B generally validates shrink-wrap licenses even though they appear somewhat inconsistent with traditional rules of contract formation and, for that matter, the principles of federal warranty law. See U.C.C. §§ 2B-207, -208 (Draft Feb. 1, 1999); see also, e.g., Magnuson-Moss Warranty Act § 102(b)(1)(A), 15 U.S.C. § 2302(b)(1)(A) (1994) (presale availability of warranty terms); Zachary M. Harrison, Note, Just Click Here: Article 2B's Failure to Guarantee Adequate Manifestation of Assent in Click-Wrap Contracts, 8 FORDHAM INTELL. PROP. MEDIA & ENT. L.J. 907 (1998).

393 This cuts both ways. A statute that placed excessive restrictions on software licensors might well stunt the growth of that industry. On the other hand, a statute that tilts too far in their favor might dissuade customers from licensing software from American firms, thus providing an obstacle to growth.

394 See Carlyle C. Ring, Jr., Summary of Actions at Article 2B Meeting, Nov. 13-15, 1998 at 1 (n.d.), available at (visited Jan. 9, 1999); cf. Letter from Jack Valenti et al., supra note 388. This change has not mollified those groups. Though they have escaped coverage as licensors, they are still covered as licensees. Furthermore, just as happened with Article 2, courts might apply Article 2B by analogy to other licensing transactions. They have thus renewed their objections. See Letter from Jack Valenti, President and CEO, Motion Picture Association of America et al. to Gene N. LeBrun, President, NCCUSL et al. (Dec. 7, 1998)).

395 See Ring, supra note 394, at 1; see also, e.g., Charles R. McManis, The Privatization (or "Shrink-Wrapping") of American Copyright Law, 87 CAL. L. REV. 173 (1999) (assailing the use of such terms).

396 One may, however, doubt that enough changes will occur to palliate the objectors, or that the remainder of the process will be at all smooth. Even before the ALI decided to delay considering Article 2B, acrimony plagued the drafting. A random selection of the comments in The 2B Guide illustrates this. More disturbingly, the acrimony appears in official statements made by the drafters. See, e.g., U.C.C. art. 2B pref. 20 (Draft Aug. 1, 1998) ("In the political process that surrounds any new law, many public statements have been made about the effect of Article 2B on consumer protection. Most are political efforts to mislead."). There have even been more or less polite intimations that some on the drafting committee have improperly communicated the views of others. See Letter from Gail Hillebrand, Senior Attorney, Consumers Union, to Gene Lebrun, President, NCCUSL, & Carlyle C. Ring, Jr., Chair, NCCUSL Article 2B Drafting Committee (May 11, 1998) (protesting use of Consumers Union's name with an implicit endorsement of Article 2B), available at (visited Jan. 28, 1999). The amount of criticism itself would make bridging the gaps difficult; the tone suggests that it may be impossible. Moreover, it is hard to explain NCCUSL's decision not to change its schedule, even in light of the ALI's decision to delay consideration of Article 2B by a year. See Press Release from National Conference of Commissioners on Uniform State Laws (Jan. 9, 1999), available at (visited Jan. 28, 1999). Possibly NCCUSL thinks the remaining problems can be dealt with by with a bit of polish on the current draft. See id. It may also be that NCCUSL has in mind proceeding ahead, even if ALI ultimately tables the draft or gives firm objections after NCCUSL has approved it. In any event, the prospects are uninviting.

397 See U.C.C. § 2B-107 (Draft Feb. 1, 1999).

398 Furthermore, should one state in a region adopt Article 2B, other states will be under pressure to do so, lest they lose software publishers to the neighboring state. Thus, if Washington adopts 2B, California may follow. This, in turn, might lead competitive states to act similarly. If Article 2B is approved, then, its opponents may need to fight hard in the states in which it is first proposed, and its friends may want to pick early states with care and concentrate on them.

399 Something along these lines has already started. Though NCCUSL has not yet finished with Article 2B, and though the drafts have undergone, and are likely to undergo, significant changes, legislators in Connecticut and Virginia filed bills to put in place the then-current version of Article 2B. Interview with Gail Hillebrand, Senior Attorney, Consumers Union, in Los Angeles, Cal. (Feb. 6, 1999). Remarkably, when NCCUSL was informed of these premature attempts to enact Article 2B, it did not attempt to stop, or at least slow, legislative action. Id. Though it appears that these attempts have been abortive, they do presage similar attempts, especially if NCCUSL, as expected, approves a draft in July 1999 (though before ALI has reviewed it in May 2000). Should this happen, and should NCCUSL not act vigorously to hold back the legislatures, one may ask about the future of ALI-NCCUSL collaboration.

400 See Garvin, supra note 62, at 264-66.

401 See, e.g., Larry E. Ribstein & Bruce H. Kobayashi, An Economic Analysis of Uniform State Laws, 25 J. LEGAL STUD. 131 (1996).

402 See supra note 151. For that matter, these amendments may prove ineffective, thus doing nothing more than sowing confusion in the minds of future readers. See supra note 4 (nonuniform amendment to deposit account definition).

403 Most importantly, by commissioning empirical work or by hiring outside experts to prepare background papers in unfamiliar or relatively unstudied areas. Others have pointed to the lack of empirical work in so fact-driven an area as a deficiency in the drafting process. See, e.g., Edward L. Rubin, Thinking Like a Lawyer, Acting Like a Lobbyist: Some Notes on the Process of Revising UCC Articles 3 and 4, 26 LOY. L.A. L. REV. 743, 770-73 (1993).

404 The URL is (visited Jan. 9, 1999).

405 A modest reform along these lines would be to hold drafting committee meetings in law schools. The committee members and observers would then have ready access to law libraries, and thus could check the accuracy of statements made during meetings and do research on matters otherwise unanticipated. Law students might also be available to assist. I am indebted to David Frisch for this observation.

406 The comments are made available for inspection before they are made final, but there is no opportunity for discussion.

407 See, e.g., Rapson, supra note 65.

408 After Pennsylvania enacted the U.C.C., the New York Law Revision Commission issued a report that, though generally favorable, found a good many spots where the U.C.C. needed improvement. See WALTER P. ARMSTRONG, JR. A CENTURY OF SERVICE: A CENTENNIAL HISTORY OF THE NATIONAL CONFERENCE OF COMMISSIONERS ON UNIFORM STATE LAWS 77 (1991). To avoid having nonuniform versions throughout the states, NCCUSL revised the U.C.C. significantly, bringing it closer to the New York approach. See JAMES J. WHITE & ROBERT S. SUMMERS, UNIFORM COMMERCIAL CODE § 1, at 4 (3d student ed. 1988).

It is true that the whole Code was available by then, which would seem to undercut the point made above. Having the whole Code, text and comments alike, does not guarantee that the states will pass on it in advance. It makes early comment more likely, though, which would be a help.

409 See Peter A. Alces & David Frisch, Commenting on "Purpose" in the Uniform Commercial Code, 58 OHIO ST. L.J. 419, 447-58 (1997).

410 Mistrust of the reporter, on the other hand, may lead those worried about the comments either to fight harder for changes in the text, or to oppose the statute altogether. Some of those involved in the drafting of Article 2B have said as much to me, and one suspects that Article 2B, though extreme, is not unique.

411 See Alces & Frisch, supra note 409, at 447-58; see also, e.g., Laurens Walker, Writings on the Margin of American Law: Committee Notes, Comments, and Commentary, 29 GA. L. REV. 993 (1995).

412 It should be noted that the argument for may also be an argument against. The drafting process is already prone to manipulation by groups of those affected by the statutes. Threats of opposition are common currency and can yield some great changes in the draft statutes. In contrast, the comments are not always run by members of these groups and thus may be more nearly pristine. Because they generally are not voted on by the legislatures, they also are not amended by them and so will remain impervious to attack.

One may thus prefer the comments to be drafted after approval so that they may moderate some of the influences brought to bear on the statute. The potential opponents will still be watching, though, and the comments will be out before virtually every legislature passes on the proposed statute. If the comments move greatly away from the understanding of an affected group, it may push for a nonuniform amendment to the statute or seek to bring the statute down.

Furthermore, the notion that the comments might be better, or at least more neutral, if drafted after approval requires that one have great faith in the reporter and committee chair. While I can think of no reporter or chair who is less than superbly able, it is fair to say that some may tilt one way or another on issues and that all, though able, are mortal. From time to time, there have been disputes over whether a reporter has faithfully captured the sense of NCCUSL or ALI in revising the statute after a request, or order, to do so. Leaving aside the details of these disputes, the fact that they arise suggests that a good many affected parties might be uneasy about approving a commentless statute.

413 See, e.g., supra note 412.

414 I should add that I know of no such domination in any such committee with which I have worked. I raise the issue as at least a theoretical problem (and perhaps an actual problem, if anecdotal evidence from outside of Florida is to be believed).

415 See supra notes 151-159 and accompanying text.

416 For more on the New Jersey Law Revision Commission, see its website at (visited Jan. 9, 1999).

417 See, e.g., Swift v. Tyson, 41 U.S. (16 Pet.) 1 (1842) (Story, J.) (creating general federal common law for negotiable instruments).

418 See, e.g., ARMSTRONG, supra note 408.

419 See, e.g., Frederick K. Beutel, The Proposed Uniform [?] Commercial Code Should Not Be Adopted, 61 YALE L.J. 334 (1952).

420 See Rubin, supra note 403, at 745-46.

421 See supra notes 354-56 and accompanying text.


423 See Cooper, Madonnas, supra note 151, at 564.

424 See, e.g., Rubin, supra note 403. Interestingly, much of the present strife over Article 2B may be caused by the relative balance of power between the software manufacturers, on the one hand, and the array of software licensees, information providers, and consumers on the other.

425 On the problems posed by capture and enactability, see Edward J. Janger, Predicting When the Uniform Law Process Will Fail: Article 9, Capture, and the Race to the Bottom, 83 IOWA L. REV. 569 (1998). Return to text.