UCC Article 9-109 Analysis and Commentary: Scope and Application under Article 9 Secured Transactions

1. Introduction

Article 9 of the Uniform Commercial Code (UCC) governs secured transactions in personal property. It provides a uniform framework for creating, perfecting, and enforcing security interests in collateral (personal property that secures an obligation).

UCC Article 9-109 defines the scope of these provisions – in other words, it specifies which transactions are covered by Article 9 and which are excluded​

This analysis offers an authoritative breakdown of UCC 9-109.

2. General Scope of UCC Article 9-109(a)

Subsection (a) of UCC Article 9-109 establishes the general scope of Article 9 by listing the types of transactions that are subject to Article 9’s rules​.

In essence, Article 9 applies to any consensual transaction that creates a security interest in personal property, as well as certain other arrangements that the Code treats like secured transactions.

The key categories covered under UCC Article 9-109(a) include:

2.1 Secured Transactions in Personal Property or Fixtures

Any deal intended to grant a security interest (an interest in personal property that secures payment or performance of an obligation​) will fall under Article 9, no matter how it is structured or labelled.

For example, a loan secured by equipment, an inventory financing arrangement, or a pledge of stocks can all create a security interest in personal property and thus are governed by Article 9.

“Fixtures” (personal property attached to real estate) are included in this category as well​.

2.2 Agricultural Liens

Article 9 also covers an “agricultural lien”, which is an interest in farm products that secures payment for goods or services furnished in a farming operation​.

Unlike a standard security interest, an agricultural lien is typically created by statute (not by contract) for the benefit of those providing services or supplies to farmers.

UCC 9-102(a)(5) defines an agricultural lien as an interest, other than a security interest, in farm products which (A) secures payment for goods or services provided in connection with a debtor’s farming operation, (B) is created by statute in favour of the provider of those goods or services, and (C) does not depend on the creditor’s possession of the property.

In practical effect, Article 9 treats many agricultural liens similarly to consensual security interests, meaning they must be perfected and will have their priority determined under Article 9’s rules (unless a specific statute dictates otherwise).

2.3 Sales of Accounts and Other Receivables

UCC Article 9-109 brings certain outright sales of intangible rights to payment within Article 9’s scope. Specifically, “a sale of accounts, chattel paper, payment intangibles, or promissory notes” is covered​.

In this context, accounts generally mean rights to payment (such as accounts receivable)​, chattel paper means records evidencing both a monetary obligation and a security interest in goods (or a lease of goods), payment intangibles are general intangibles under which the principal obligation is monetary (a residual category of payment rights), and promissory notes are written promises to pay money.

Although an outright sale of receivables is not a secured loan in form, Article 9 re-characterises it like a secured transaction for purposes of filing, perfection, and priority​.

2.4 Consignments

Article 9 covers “consignments” as defined in the UCC. A consignment is a special type of commercial arrangement in which an owner of goods (the consignor) delivers goods to a merchant (the consignee) for sale, but the consignee does not take outright ownership until the goods are sold.

Although not a secured loan, a consignment is treated under Article 9 to protect the consignor’s interest in the consigned goods against the consignee’s creditors.

UCC 9-102(a)(20) provides a detailed definition of consignment, including requirements that the consignee is a merchant not generally known to sell others’ goods, the value of goods is above a threshold, and the goods were not consumer goods before delivery​.

By including consignments in Article 9’s scope, the Code requires consignors to file UCC financing statements or otherwise give notice of their interest, similar to a secured party, in order to have priority over the consignee’s creditors.

2.5 Certain Security Interests Arising Under Other UCC Articles

UCC 9-109(a)(5) brings in security interests that arise by operation of other UCC provisions, specifically Article 2 (Sales) and Article 2A (Leases). It covers “a security interest arising under UCC 2-401, 2-505, 2-711(3), or 2A-508(5), as provided in UCC 9-110.”​

These references correspond to situations in which the UCC grants a seller or buyer a security interest in goods in a sales contract, or a lessor or lessee a security interest in goods in a lease contract, to secure performance.

For example, UCC Article 2-711(3) gives a buyer a security interest in goods identified to a contract if the buyer paid and the seller fails to deliver, and UCC 2-401(1) and UCC 2-401(2) address when a retention or reservation of title by the seller is treated as a security interest.

By including these, Article 9 ensures that such interests (even though they arise under Articles 2 or 2A) are perfected and prioritised under Article 9’s rules (with UCC Article 9-110 providing guidance on how those cross-references work).

In short, whenever the Sales or Leases articles create what is essentially a security interest, Article 9 governs that interest just like any other security interest.

2.6 Bank and Letter of Credit Related Security Interests

Finally, Article 9-109(a)(6) includes “a security interest arising under UCC 4-210 or UCC 5-118.”​ These sections pertain to certain rights of banks and letter of credit issuers or beneficiaries.

UCC 4-210 gives a collecting bank a security interest in items (and any accompanying deposit account) to cover charges or credit given for the item, and UCC 5-118 gives a letter of credit issuer a security interest in documents presented under a letter of credit to secure the beneficiary’s reimbursement obligation.

Although these security interests arise automatically by statute when the described circumstances occur, Article 9 governs their enforcement and priority.

Including them in Article 9’s scope means, for example, that a bank’s security interest in a check or item it holds for collection is recognised and has whatever priority Article 9 provides (often these are perfected by possession or control without filing, pursuant to the rules in Article 9).

All of the above categories in UCC Article 9-109(a) define the general scope of Article 9.

3. Security Interest in a Secured Obligation (UCC Article 9-109(b))

Subsection (b) of UCC 9-109 addresses a specific scenario: when the collateral itself is a secured obligation. It states that Article 9 applies to a security interest in an obligation even if that obligation is secured by something outside Article 9’s scope​.

In simpler terms, if you take a security interest in a debt or right that the debtor owns, Article 9 governs your security interest even if that underlying debt is itself secured by real property or another transaction not governed by Article 9.

For example, consider a lender who takes a security interest in a promissory note (a payment obligation) which is secured by a mortgage on real estate.

The mortgage on real property is outside Article 9’s domain (since Article 9 generally does not apply to interests in real estate), but the security interest in the promissory note is subject to Article 9​

Article 9-109(b) ensures that the applicability of Article 9 depends on the type of transaction at hand (here, pledging a note as collateral), not on the nature of collateral securing some other layer of the transaction.

This provision prevents potential loopholes – a creditor cannot escape Article 9’s requirements simply because the asset given as collateral happens to be a secured obligation.

The security interest in the note must still be perfected and will be governed by Article 9’s rules, even though the note is secured by a mortgage. In summary, UCC 9-109(b) clarifies that the recursive nature of collateral (collateral securing collateral) does not remove the transaction from Article 9’s scope.

4. When Article 9 Does Not Apply: Deferral to Other Law (UCC 9-109(c))

While subsection (a) outlines inclusions, subsection (c) of UCC 9-109 delineates situations where Article 9 does not apply, because other law governs instead.

These are instances of preemption or superseding statutes. Under UCC 9-109(c), Article 9 will yield to other authority to the extent that:

4.1 Federal Law Preemption

​Article 9 explicitly defers to federal law when (and only when) federal law necessitates it. Article 9 yields to federal law only if the federal statute preempts Article 9’s provisions​. In other words, there must be an actual conflict or a federal law explicitly covering the security interest in question.

If such federal law exists (for example, certain federal regulations governing security interests in intellectual property, aircraft, ships, or patents with their own filing systems), then compliance with that law is required instead of Article 9’s rules.

Article 9 will not apply to the extent of the conflict. This ensures that state commercial law (the UCC) does not override or duplicate federal schemes. However, absent true preemption, Article 9 remains applicable.

4.2 State Statutes Governing State-Created Security Interests

If another statute of the same state expressly governs the creation, perfection, priority, or enforcement of a security interest created by the state or a governmental unit of the state, that statute will take precedence.

In essence, when a state or local government itself creates a security interest (often pursuant to special legislation, for example in public finance or tax liens), and the state’s law says how that security interest is perfected and enforced, those specific provisions displace Article 9.

Similarly, per UCC 9-109(c)(3), if a statute of another state or a foreign country (or their governmental units) expressly governs a security interest created by that government, and is not a general secured transactions law, then Article 9 does not apply to that security interest​.

These provisions acknowledge that certain governmental or public interests are governed by specialiSed legal regimes.

For instance, a state might have a law detailing how a municipality’s pledge of revenues for a bond issue is perfected – such a law would override Article 9 for that pledge.

Article 9 defers in these cases to avoid inconsistency or double regulation. Notably, the exclusion applies only to security interests created by the governmental unit; private security interests generally remain under Article 9 unless federal law preempts as discussed above.

4.3 Letter of Credit Rights

Under UCC Article 9-109(c)(4), Article 9 does not apply to the rights of a transferee beneficiary or nominated person under a letter of credit to the extent that the rights are independent and superior under UCC 5-114.

This refers to the principle of independence in letter of credit law: a beneficiary’s rights to payment under a letter of credit are independent of any security interest.

In practice, while Article 9 does govern security interests in letter of credit rights (as a type of collateral called a “letter of credit right”), the independent right of a beneficiary to draw on a letter of credit is governed by Article 5 of the UCC (UCC Article 5-114) and is not subject to Article 9 enforcement.

Thus, if someone tries to take a security interest in the right of a beneficiary to draw on a letter of credit, they must contend with the rule that such right is independent of the underlying transaction.

Article 9 acknowledges this by excluding those independent beneficiary rights from its scope. The practical upshot is that a creditor cannot use Article 9 to interfere with the beneficiary’s direct right to payment under a letter of credit, except as allowed by Article 5.

Article 9 can still apply to a proceeds of a letter of credit or to a letter of credit right as collateral, but not in a way that violates the independent nature of the credit engagement.

5. Transactions Excluded from UCC Article 9-109(d)

Perhaps the most detailed part of Article 9-109 is subsection (d), which lists specific types of transactions and transfers that are excluded from Article 9’s coverage.

These exclusions are essentially carve-outs for transactions that either are governed by other legal regimes or that the drafters of the UCC deemed inappropriate to regulate as secured transactions.

Importantly, the fact that Article 9 “does not apply” to these transactions means that the creation, perfection, and enforcement of interests in these contexts are outside the Article 9 notice filing/priority system. (However, some of these remain subject to certain limited Article 9 rules, like priority of proceeds, as noted below.)

The excluded transactions under Article 9-109(d) are:

a. Landlord’s Liens (except agricultural liens)

Traditional landlord’s liens – for example, a landlord’s statutory lien on a tenant’s personal property for unpaid rent – are not governed by Article 9.

These liens arise by statute or common law and typically have their own enforcement rules. If a lien qualifies as an “agricultural lien,” however, it is covered by Article 9 per subsection (a)(2), so agricultural liens are the exception to this exclusion.

b. Liens for Services or Materials (Mechanics’ Liens)

This exclusion covers mechanics’ liens, artisan’s liens, materialman’s liens, and similar non-consensual liens that secure payment for services or materials furnished (for example, a mechanic’s lien on a car for unpaid repair charges, or a contractor’s lien on property for labor and materials).

These liens are generally possessory or arise by operation of law and are outside Article 9’s scope. However, Article 9-109(d)(2) includes a caveat: “but Article 9-333 applies with respect to priority of the lien.”​

This means that although Article 9 does not govern the creation or enforcement of such liens, the priority rules of Article 9 (UCC 9-333) will still determine their priority in competition with Article 9 security interests.

UCC 9-333 essentially gives possessory liens (like mechanics’ liens) priority over perfected security interests in the same goods, under certain conditions.

Thus, Article 9 defers to other law for the lien’s existence, but steps in to coordinate priority if that lien clashes with a security interest.

c. Assignments of Wage Claims

Article 9 does not cover assignments of wages or wage garnishments. These are typically governed by labor laws or other statutes.

For instance, if an employee assigns part of their future wages to a creditor, that arrangement is outside Article 9 (and often is subject to separate restrictions in state law).

This exclusion avoids any implication that one must file a financing statement or follow Article 9 formalities to enforce a wage assignment – such assignments are simply not Article 9 security interests.

d. Sale of Business Out–of–Which Accounts Arise

This exclusion deals with the sale of receivables in connection with selling an entire business. If a business is sold (e.g., via a merger or acquisition) and the accounts receivable or other payment rights are transferred to the buyer as part of that sale, Article 9 doesn’t apply to that transfer.

The rationale is that such a transfer is incidental to the sale of the business and not a secured financing transaction.

It would be burdensome and unnecessary to treat the transfer of receivables in this context as if it were a separate secured transaction requiring Article 9 filings.

e. Assignments for Collection Only

If a company or individual temporarily assigns a receivable to someone (say, a collection agency or an attorney) solely to collect the debt on their behalf, this assignment is not governed by Article 9.

The assignment is not a transfer of ownership for financing purposes; it is more of a contract for services (to collect money).

Once collected, the proceeds typically go back to the original owner (minus a fee). Because the assignee in this scenario is not extending value against the receivable as collateral, but merely acting to collect it, Article 9’s secured transaction rules are not needed.

f. Assignments of Contract Rights to an Assignee Who Must Perform

This exclusion covers situations where a contracting party assigns its right to be paid and delegates the duty to perform to the same assignee.

For example, imagine Company A has a contract to perform services for a client, and Company A assigns the contract to Company B, such that Company B will perform the services and also receive the payments from the client. Company B’s right to payment is tied to its obligation to perform under the contract.

Such an assignment is effectively a novation or transfer of a contract, not a security interest to secure a loan. Therefore, Article 9 does not treat this as a secured transaction.

Article 9 is concerned with assignments used as collateral; here the assignment is part of taking over the contract’s performance, which is outside Article 9’s realm.

g. Single Account Assignment in Satisfaction of Debt

This refers to a one-time transfer of a debtor’s specific payment claim to a creditor, to pay down or satisfy a debt.

For example, a debtor who owes money to a creditor might assign one particular account receivable or promissory note it holds to that creditor, so the creditor collects that account to settle the debt.

Article 9 excludes this scenario because, functionally, the creditor is being paid (with the assigned asset) rather than engaging in a financing transaction. There is no ongoing security interest; it’s a singular transfer of an obligation to extinguish another – more akin to payment than collateralisation.

Such transfers, being isolated and payoff-oriented, do not invoke the policies of secured financing that Article 9 addresses.

Items d, e, f, and g above all involve transfers of receivables in contexts that are not part of a financing arrangement. These types of sales or assignments do not concern commercial financing transactions, and therefore are excluded​. This grouping prevents Article 9 from complicating ordinary business sales or administrative assignments that are not about borrowing against assets.

h. Transfers of Interests in Insurance Policies

Life insurance policies, casualty insurance claims, and similar insurance-related transfers are outside Article 9. For instance, if someone assigns their life insurance policy or the proceeds of an insurance claim to a lender or other party, that assignment is governed by insurance law and contract law, not Article 9.

The reason is that insurance policies often have their own anti-assignment clauses and are regulated by state insurance statutes.

Article 9 generally stays out of insurance.

Exception: The only exception in this clause is for healthcare insurance receivables. If a healthcare provider is assigning its right to payment under an insurance policy (for example, a doctor assigning the right to be paid by an insurance company for services rendered to a patient), such healthcare insurance receivables can fall under Article 9.

The text elucidates this by excluding insurance assignments except an assignment by or to a healthcare provider of a healthcare insurance receivable. That means a medical provider’s accounts receivable owed by insurers are treated as ordinary accounts and can be Article 9 collateral.

Additionally, even for generally excluded insurance assignments, Article 9’s proceeds rules (Article 9-315 and Article 9-322) apply to any proceeds of insurance that are collateral.

For example, if collateral covered by Article 9 is destroyed and an insurance payout results, that payout (as proceeds of collateral) is governed by Article 9’s rules on proceeds and priority, even though a direct assignment of an insurance policy would not be.

i. Assignments of Judgments

Once a claim or debt has been reduced to a judgment (a court judgment confirming the debt), an assignment of that judgment to another party is not covered by Article 9.

Judgments are part of the judicial process and are typically enforced via court procedures, not through UCC filings.

However, the exclusion makes an exception for judgments that originate from a collateral claim. If the original collateral was a right to payment (e.g., an account or note) and the secured party obtains a judgment on that collateral (perhaps against the account debtor), that judgment effectively stands in place of the original claim.

In such a case, because the judgment is the proceeds of the original collateral, Article 9 continues to apply.

Essentially, if a secured creditor had a security interest in a loan or receivable and then that receivable turned into a judgment, the security interest now extends to the judgment (as proceeds) and Article 9 governs that, despite the general exclusion of judgments.

Outside of that narrow situation, buying or selling judgments outright is left outside Article 9.

j. Rights of Set-Off or Recoupment

Set-off is the right of a debtor to net out mutual obligations with a creditor (for example, a bank’s right to seize funds from a depositor’s account to offset an unpaid loan, or two parties owing each other money offsetting their debts).

Recoupment is a similar defence allowing a party to withhold funds due to breach in the same contract. These rights are not security interests; they arise by operation of law or contract as defences, and Article 9 does not govern them.

Thus, a creditor’s ability to exercise a set-off is determined by other law (banking law, contract law, etc.), not by Article 9’s filing or priority rules.

UCC Article 9-109(d)(10) notes that two specific Article 9 sections do apply in limited contexts: UCC 9-340 and UCC 9-404. UCC 9-340 deals with the effectiveness of a set-off against a deposit account that is used as collateral (essentially, when a bank’s set-off right competes with a secured party’s interest in the same deposit account)​.

UCC 9-404 addresses an account debtor’s defences and claims (including recoupment/set-off) against an assignee of a payment right.

In short, while the existence and exercise of set-off rights are outside Article 9, the Code provides rules for how set-off interacts with secured transactions in those two scenarios.

Apart from those, one does not perfect or prioritise a set-off under Article 9; it’s simply not within Article 9’s scope.

k. Real Property – Interests and Liens (except fixtures and related provisions)

Security interests in real estate (land and buildings) are fundamentally excluded from Article 9. This includes real estate mortgages, deeds of trust, liens on land, and assignments of rents from real property.

Such transactions are handled by real property law (recording in land records, etc.), not by the UCC filing system.

However, Article 9 does intersect with real property in specific ways, and those intersections are preserved.

The statute lists exceptions to the exclusion “to the extent that provision is made for” certain cases: (A) liens on real property in Article 9-203 and Article 9-308; (B) fixtures in Article 9-334; (C) fixture filings in UCC Articles 9-501, 9-502, 9-512, 9-516, 9-519; and (D) security agreements covering personal and real property in Article 9-604​.

These references indicate that while the mortgage or lien on real estate itself is not governed by Article 9, Article 9 does have rules for related personal property aspects:

• UCC 9-203 and 9-308 include provisions about when a security interest in a fixture (goods that are or will become attached to land) attaches and is perfected relative to real property interests​.

• UCC 9-334 governs priority of security interests in fixtures versus real property claims.

• UCC 9-501 et seq. detail the requirements for making a fixture filing (filing a financing statement in local real estate records to perfect a security interest in fixtures).

• UCC 9-604 provides rules for a creditor who has an interest in both real and personal property (mixed collateral) on how they may proceed upon default (e.g., whether to follow UCC foreclosure for personal property and mortgage foreclosure for real property, etc.).

The upshot is that real estate transactions per se are outside Article 9, but when personal property and real estate collide – as with fixtures or as with combined collateral – Article 9 steps in with specific provisions.

A mortgage on land is not an Article 9 security interest, but a security interest in a furnace installed in a building (a fixture) is covered by Article 9, and Article 9 provides how to handle that within the real property recording system​.

l. Tort Claims (except commercial tort claims)

Generally, personal injury claims or other tort claims cannot be used as Article 9 collateral. This exclusion reflects policy concerns about trafficking in lawsuit claims and complexities outside commercial finance.

However, commercial tort claims are an important exception – these are claims that businesses may have for harm (defined in UCC Article 9-102 as tort claims that do not involve personal injury or death and that arose in the course of business).

Article 9 does allow security interests in commercial tort claims, provided they are described with particularity in the security agreement (as required by UCC Article 9-108).

Thus, while a claim for personal injury or similar personal tort cannot be collateral under Article 9, a claim that, for example, a business has against another for unfair competition or damage to business property can be taken as collateral.

Additionally, even for excluded tort claims, if a tort claim is settled or reduced to a contractual obligation (e.g. a settlement agreement or judgment), the resulting right to payment is no longer a “claim arising in tort” but becomes a payment intangible, which would be subject to Article 9​.

Article 9 also applies to proceeds of tort claims: if collateral covered by Article 9 (or a commercial tort claim) generates proceeds through a tort recovery (for example, damages awarded for harm to inventory), those proceeds (being a right to payment) are within Article 9’s domain​.

In short, personal/consumer tort claims themselves are excluded, but business-related tort claims and any monetary proceeds from tort claims are within scope, reflecting a balance between excluding sensitive claims and covering valuable commercial assets.

m. Consumer Deposit Accounts

A deposit account means a bank account (like checking or savings account). Under Article 9, non-consumer deposit accounts can be collateral, and are perfected by control under UCC Article 9-104.

However, if a deposit account is part of a consumer transaction (essentially, an individual’s personal bank account being pledged in a consumer loan), that is excluded from Article 9.

The UCC drafters decided not to extend Article 9 to cover security interests in ordinary consumer bank accounts, likely due to policy concerns about consumers pledging away their bank funds and the overlap with garnishment law.

So, a bank or lender cannot take a blanket security interest in a consumer’s deposit account under Article 9. They can use set-off rights or other mechanisms if applicable, but not Article 9 filings.

Note: As with torts and insurance, the exclusion has a proceeds caveat – Article 9-109(d)(13) says that Articles 9-315 and 9-322 (on proceeds and their priority) still apply to proceeds of a consumer deposit account.

This means if collateral is sold and the money is deposited into a consumer account, the secured party’s interest might continue in that money as identifiable proceeds, even though the deposit account itself wasn’t an eligible original collateral.

But as a general rule, one cannot directly secure a loan with a consumer’s deposit account via Article 9.

Each of these exclusions (a – m) has the effect of excluding certain transactions from the Article 9 regime. Parties dealing with these types of transactions must look to other law or common-law principles for validity and enforcement of their interests.

It is important to identify when a transaction is excluded, because if Article 9 does not apply, the creditor cannot rely on Article 9’s provisions for perfection (such as filing a financing statement) or its remedies.

Conversely, if a transaction seems to fall within an exclusion but actually meets an exception (for example, a “commercial tort claim” vs a tort claim, or an “agricultural lien” vs a landlord’s lien), then Article 9 rules would apply. ​

In other words, Article 9 is intended primarily for consensual liens, and it carves out those assignments or liens that are either non-consensual, peripheral to financing, or governed by other specialised law.

6. Conclusion

UCC Article 9-109 serves as the gatekeeper for Article 9, drawing a clear line between transactions that are governed by the UCC’s secured transactions rules and those that are not.

By enumerating exactly what is covered – from traditional security interests in goods to sales of accounts and consignments – and what is not covered – such as wage assignments, certain statutory liens, real estate interests, and non-commercial assignments – UCC Article 9-109 provides predictability and clarity​.