UCC Article 9-110 Analysis and Commentary: Security Interests Arising Under UCC Article 2 or 2A (Sales and Leases)

1. Introduction

UCC Article 9-110 addresses security interests arising under the sales and leases provisions of the UCC (specifically Articles 2 and 2A).

It serves as a bridge between Article 9 (Secured Transactions) and certain rights created by contracts for the sale or lease of goods.

By explicitly defining which security interests created in a sales or leasing context fall under Article 9, this section ensures clarity and consistency in how those interests are treated.

For these transaction-derived security interests, UCC 9-110 brings them into Article 9 and provides tailored rules on their enforceability, perfection, remedies, and priority​.

This analysis provides a general breakdown of UCC 9-110’s text and implications, focusing on its substantive provisions. The principles of UCC 9-110 apply generally wherever goods are sold or leased under the UCC.

2. Scope and Coverage of UCC Article 9-110

Security Interests Addressed: UCC 9-110 applies to security interests that arise under four specified provisions of Article 2 (Sales) and Article 2A (Leases)​:

• UCC 2-401: In a sales contract, any reservation of title by the seller after goods are identified or delivered is deemed a reservation of a security interest in the goods​. This means a seller’s attempt to retain ownership until payment effectively creates a security interest in favour of the seller.

• UCC 2-505: If a seller ships goods under a negotiable bill of lading made out to the seller’s order (or otherwise naming the seller or its agent as consignee), the seller reserves a security interest in the goods during transit​. By contrast, a non-negotiable bill of lading naming the buyer as consignee generally does not reserve a security interest.

• UCC 2-711(3): When a buyer rightfully rejects goods or justifiably revokes acceptance, the buyer has a security interest in those goods for any part of the price the buyer has already paid and for any expenses reasonably incurred in caring for the goods​. This provision grants the aggrieved buyer a secured interest to hold or dispose of the rejected goods to recoup payments and expenses.

• UCC 2A-508(5): Similarly, if a lessee (in a lease of goods) rightfully rejects or justifiably revokes acceptance of the goods, the lessee has a security interest in the goods for any prepaid rent, security deposit, and reasonable expenses incurred. The lessee can retain and dispose of the goods in a commercially reasonable manner to offset what the lessor owes the lessee.

By enumerating these specific sections, UCC 9-110 clearly delineates its scope​.

Only the security interests that the UCC explicitly creates under those provisions are brought under Article 9’s rules.

Other rights or interests arising under Article 2 or 2A that are not defined as “security interests” (for example, a seller’s right to withhold delivery, which is not characterised as a security interest) remain outside Article 9’s coverage.

This clarity avoids confusion about which transaction-related interests are treated as Article 9 security interests.

In sum, UCC 9-110 identifies the limited instances in sales and lease transactions where an interest in goods is treated as a security interest and confirms that those interests are subject to Article 9.

3. Enforceability Under UCC Article 9-110 Without a Separate Security Agreement

UCC Article 9-110 modifies some of the usual attachment requirements for the security interests it covers.

Ordinarily, under Article 9, a security interest is enforceable against the debtor only if certain conditions are met – notably including the debtor’s authentication of a security agreement describing the collateral (UCC 9-203(b)(3)).

For the security interests arising under the specified Article 2 or 2A provisions, UCC 9-110 provides that the interest “is enforceable, even if UCC 9-203(b)(3) has not been satisfied”.​ In other words, no separate written security agreement or debtor signature is required to enforce these particular interests.

The effect of this rule is that the sales or lease contract itself (and the circumstances giving rise to the security interest under Article 2 or 2A) suffices to establish an enforceable security interest, without the formalities typically demanded by Article 9.

These security interests arise automatically from the transaction, and UCC 9-110 ensures they are legally effective as if a traditional security agreement were in place.

This prevents any gap in enforceability; a reservation-of-title clause in a sales contract will be honoured as a security interest even absent a standalone security agreement​.

The debtor cannot contest the interest on the basis that no Article 9 security agreement was signed, because the statute itself supplies the enforcement mechanism.

Essentially, UCC 9-110 dispenses with the usual formality of a security agreement for these statutorily created interests until the debtor obtains possession of the goods.

This special rule reflects the drafters’ recognition that such interests are integral to the underlying transaction and should be enforceable by their very creation under Article 2 or 2A.

4. Automatic Perfection Without Filing

UCC Article 9-110 also provides an exception to the normal requirement of public notice (filing) for perfection of these security interests. It states that, until the debtor obtains possession of the goods, “filing is not required to perfect the security interest”.​

In effect, the security interest is perfected upon attachment (creation) without the need for a financing statement. This is an automatic perfection rule, meaning the secured party’s interest is protected against third parties during the pre-possession period without any additional steps.

This automatic perfection is also reflected in UCC 9-309, which lists security interests perfected upon attachment, including those arising under UCC 2-401, 2-505, 2-711(3), or 2A-508(5) (until the debtor takes possession)​.

The rationale is that before the debtor has possession, the secured party’s interest (arising directly from the transaction) should be protected without additional steps.

This eliminates the need for the secured party to file a financing statement during the interim period when the goods have not yet changed hands, while still protecting the interest against other creditors.

The special status of automatic perfection under UCC 9-110 lasts only “until the debtor obtains possession of the goods”.​

Once the debtor takes possession of the collateral, the normal Article 9 rules resume. At that point, if the original secured party (such as the seller or lessor) wishes to continue its security interest, it would need to ensure perfection through the usual means (for instance, by filing a financing statement, unless another automatic-perfection rule applies).

In short, UCC 9-110 grants a temporary period of automatic perfection for these unique security interests, covering the gap before the goods are in the debtor’s hands.

For this interim period, the law effectively treats the security interest as perfected by default, safeguarding the secured party’s rights without administrative formalities in that interval.

4.1 Default and Applicable Remedies Under Article 2 or 2A

Additionally, UCC 9-110 directs that the secured party’s rights and remedies after the debtor’s default are governed by the relevant provisions of Article 2 or 2A, rather than by Article 9’s default rules, so long as the debtor has not yet obtained possession of the goods​.

In effect, this means that the enforcement of the security interest in such cases will follow the normal sales or lease contract remedies instead of the foreclosure and sale process outlined in Article 9.

An unpaid seller who retained a security interest (through title retention or shipment under reservation) will invoke Article 2 remedies if the buyer defaults on payment.

The seller may withhold delivery, stop delivery in transit, or exercise the right of reclamation as provided in Article 2, rather than proceeding under Article 9’s collateral disposition rules​.

Similarly, a buyer or lessee holding a security interest in goods (after rightful rejection or revocation of acceptance of the goods) will look to Article 2 or 2A remedies to recover what is owed, as permitted by UCC 2-711(3) and 2A-508(5)​.

In these ways, the rights of the secured party are exercised via the Sales or Leases article, treating the security interest as part of the contractual remedy framework.

This approach preserves the integrity of the specialised remedies in Articles 2 and 2A, ensuring that an unpaid seller’s traditional rights (such as stoppage of delivery or reclamation) are not superseded by Article 9 procedures, and that a buyer’s or lessee’s right to recover payments by holding and disposing of goods is governed by the rules set forth in the sales/lease context.

Essentially, the security interest under UCC 9-110 functions as an adjunct to the underlying contract rights. As long as the situation remains in the pre-possession stage where Article 2 or 2A applies, those articles’ default rules take precedence; only after the debtor has obtained the goods (ending the special conditions of UCC 9-110) would the ordinary Article 9 enforcement provisions become applicable.

This ensures a coherent and context-appropriate handling of defaults, aligning secured transaction law with the substantive rights of the parties under their sales or lease agreement. It thereby maintains consistency in enforcement within the UCC.

4.2 Priority over Other Security Interests

UCC Article 9-110 includes an explicit priority rule to protect these Article 2 or 2A-based security interests against competing claims. It provides that, until the debtor obtains possession of the goods, the security interest arising under the specified Article 2 or 2A section has priority over any conflicting security interest created by the debtor​.

In simpler terms, the statutorily created security interest will trump any other security interest the debtor may have granted in the same goods during that time.

This priority rule is particularly important if the debtor has another secured creditor with a broad security interest (for example, a lender holding a blanket lien on the debtor’s inventory or other assets).

UCC 9-110 ensures that the seller’s reserved security interest (under UCC 2-401 or UCC 2-505) will take precedence over the lender’s interest in those goods, at least until the buyer takes possession​.

Similarly, a buyer’s or lessee’s security interest in rejected goods (under 2-711(3) or 2A-508(5)) will have priority over any security interest claimed by the seller’s or lessor’s secured lender in those goods​

Therefore, this rule grants a purchase-money-like priority to the Article 2 or 2A interest, recognizing that the interest arises directly from the transaction by which the debtor acquired (or failed to acquire) the goods.

By codifying this priority outcome, UCC 9-110 provides certainty and avoids potential injustice. Without such a rule, a security interest arising solely from the sales or lease context might otherwise be vulnerable to being subordinated behind a previously perfected general security interest of another creditor.

The Code’s drafters deemed it appropriate that the party who directly facilitated the transaction (the seller, lessor, buyer, or lessee) should have the first claim to the goods in these circumstances​.

5. Conclusion

UCC Article 9-110 plays a crucial role in harmonising secured transactions law with the realities of sales and lease transactions.

By clearly specifying the security interests to which it applies and by laying down tailored rules for their enforceability, automatic perfection, applicable remedies, and priority, this section provides an authoritative and predictable framework for these hybrid situations.

Its provisions operate uniformly across all industries and sectors, preserving the intended security rights of sellers, buyers, lessors, and lessees while fitting those rights into the broader Article 9 priority and enforcement scheme.

In sum, UCC 9-110 ensures that when a security interest arises as an incident of a sales or lease contract, it will be recognised and treated with appropriate protections under Article 9, thereby making the transition from contract remedies to the secured financing regime seamless, clear, and fully predictable for all parties involved.