Shylock and Article 9 of the U.C.C. (with some thoughts on bankruptcy)

shylock.gifShakespeare’s A Merchant of Venice (1598) is often misidentified as an anti-Semitic play about a contract. This is not technically correct, as the transaction at the heart of the drama seems to be a secured loan. (Albeit an anti-Semitic one.) Furthermore, contrary to Shakespeare’s conclusion, I believe that the security agreement is most likely enforceable, at least under Article 9 of the Uniform Commercial Code, a point that I hope to make to my secured transactions class. Here is Shylock’s description of the loan agreement between himself and Antonio, a Venetian merchant:

SHYLOCK: This kindness will I show; go with me to a notary; seal me there your single bond, and – in merry sport – if you repay me not on such a day, in such a place, such sum or sums as are expressed in the condition, let the forfeit be nominated for an equal pound Of your fair flesh, to be cut off and taken In what part of your body pleaseth me. (I.3.141-149)

It seems fairly clear from the passage that there is a debt. Antonio promises to pay “such sum or sums as are expressed in the condition.” However, without a valid security interest Shylock has only a personal right of action against Antonio. Indeed, even if Antonio promises the pound of flesh, all that Shylock gets in the event of a failure to deliver the bloody bond is a right to money damages. Section 9-109, however, teaches us that Article 9 governs “a transaction, regardless of form, that creates a security interest in personal property . . . by contract.” Such seems to be the case here. Indeed, Shylock casts the transaction in the form of a bond, ie a promise to deliver the pound of flesh, with a condition, ie payment of the debt, that defeats the bond, a classic pre-Code security arrangement, and the “pound of . . . fair flesh” falls under 9-102(a)(44)’s definition of “goods” (“all things that are moveable when a security interest attaches”), bringing it within the personal property requirement of 9-109.

The initial question is whether or not Shylock’s security interest has attached to Antonio’s flesh. Section 9-203 contains three conditions for attachment. First, Shylock must have given Antonio value, in this case the loan. 9-203(b)(1) Second, Antonio must have rights in the collateral. 9-203(b)(2) Note, that Article 9 leaves the definition of “rights in the collateral” undefined, but the case law indicates that less than full ownership is sufficient. Hence, even if others can claim some property right in Antonio’s flesh — e.g. a master or spouse — Antonio can still hypothecate what residual rights he retains. The third condition under 9-203(b) is a bit more complicated. In Shylock’s case it could be met in two ways. First, he could take possession of Antonio’s flesh pursuant to 9-313. This is likely impossible without cutting out the “pound of . . . fair flesh” at the time of the loan, as Antionio cannot retain possession of the flesh as Shylock’s agent. See 9-313 cmt. 3. Second, Shylock can satisfy 9-203(b)’s third requirement by having Antonio authenticate a record of the security agreement. This condition seems to satisfied by Shylock’s insistence to Antonio that he “seal me there your single bond.”

Once the security interest is attached, there are no other steps that Shylock must take in order for it to be enforceable against Antonio. See 9-203(a). The question is whether other provisions of law would make the security interest unenforceable. First, let us dispose of the argument made by Portia in the climatic scene of the play. Portia declares that Shylock’s cannot enforce the interest in Antonio’s flesh unless he can do so without the effusion of any blood, as the written contract between Shylock and Antonio contained no explicit provision allowing for the spilling of blood. This argument is clearly spurious. Section 1-205 of the code requires that “the express terms of an agreement and an applicable course of dealing or usage of the trade shall be construed wherever reasonable as consistent with each other.” Hence, provided that Shylock generally cuts out Antonio’s flesh with the effusion of blood in prior transactions or if the effusion of blood is standard in human-flesh security agreements in the trade, then Portia’s argument fails. Furthermore, given that Article 9 itself provides elaborate rules governing foreclosure, the absence of explicit contractual provisions specifying all rights in foreclosure cannot standing alone defeat a creditor’s right to repossess the collateral. Indeed, such a requirement would run flatly counter to section 1-102(a)’s statement that the underlying policy of the UCC is “to simplify, clarify, and modernize the law governing commercial transactions.” In short, the stale formalism upon which Portia’s argument rests has no place in the post-realist code of Llewellyn and Gilmore.

A more promising argument is to suggest that the security agreement cannot be enforced under section 1-203, which states that “Every contract or duty within this Act imposes an obligation of good faith in its performance or enforcement.” Hacking out Antonio’s flesh might violate such a duty. I suspect that it would depend on the jurisdiction in which one tried the case. As Judge Easterbrook, for example, has repeatedly stated the duty of good faith fills in gaps in the contract but should not be used to nullify its explicit terms. In this case, Antonio explicitly promised to deliver up his flesh, suggesting that in the 7th Circuit at least the appeal to 1-203 would be of little help. Of course, Antonio can always point to 1-103, which preserves “the principles of law and equity” so long as they are not displaced by the UCC to make some sort of an unconscionability argument or the like. As we have seen in class, however, 1-103 arguments tend to be the last hail-Mary attempts of regretful debtors to escape their just obligations and are seldom successful in the courts. It is also worth noting that Antonio, a merchant, as a very sophisticated party and he may be governed under 1-103 by “the law merchant,” which is preserved in addition to principles of “law and equity.”

Antonio might try to defeat Shylock by arguing that the flesh cannot be taken from him without a breach of the peace under 9-609(b)(2). The argument is problematic on a couple of fronts. Certainly, if Shylock tried to cut the flesh from a resisting Antonio it would likely be a breach of the peace. However, the Code defers to other state law in defining what constitutes a breach of the peace. For example, some particularly pro-creditor states might allow Shylock to take the flesh from a sleeping or anesthetized Antonio. Certainly, the policy rational behind 9-609(b)(2) is to prevent self-help repossession from degenerating into dangerous violence. Its purpose is not to allow the Debtor to retain possession of collateral to which a Creditor has a lawful right. Furthermore, even if there is no way of getting the flesh without a breach of the peace under 9-609(b)(2), this would only prevent Shylock from self-help repossession. He could always proceed against the collateral “pursuant to judicial process.” 9-609(b)(1). Note, however, that in the absence of a Antonio’s consent, Shylock cannot retain possession of the pound of flesh (see 9-620(b)), but must sell it at a sale that comports with 9-610’s requirement of commercial reasonableness. However, Shylock may obtain such consent from Antonio through Antonio’s silence, so long as Shylock sends to Antonio a record authenticated after default offering acceptance of the collateral in satisfaction of the debt to which Antonio does not respond within 20 days. See 9-620(c)(2). Shylock, of course, must return to Antonio any surplus from the sale of the flesh, and Antonio remains liable for any deficiency.

Of course, unless Shylock perfects the security interest, Antonio may be able to save himself from maiming by filing for bankruptcy. Under section 544(a) of the Bankruptcy Code (the so-called “Strong Arm Clause”), Antonio could avoid Shylock’s unperfect security interest. Note, however, that in this case Shylock seems to contemplate perfection, as they are to “go . . . to a notary,” presumably the public official who can accept financing statements under 9-501. Provided that Shylock filed a financing statement covering the flesh, then he should be protected from the strong arm clause by 9-317, which grants perfected security interests priority over the interest of a lien creditor. (Defined in 9-102(52)(C) to include a trustee in bankruptcy.) If there is some gap between the time when Shylock gave Antonio the money for the loan and the filing of the financing statement with the “notary,” then Antonio can also attack the security interest as a voidable preference under section 547 of the Bankruptcy Code on the theory that it promoted Shylock from an unsecured to a secured claim holder on account of a pre-existing debt. Shylock, however, can probably defeat any such argument under 547(c)(1)’s exception for a “substantially contemporaneous exchange.”

Despite the validity of Shylock’s security interest in Antonio’s flesh, however, he probably is not entitled to slice Antonio up. The reason for this is that in Act IV, Scene 1 of the play Antonio’s friend Bassanio offers to pay off the debt in full, an offer that Shylock refuses. However, 9-623 the Antonio can redeem the collateral at any time prior to its final disposition under 9-610 provided that he “shall tender fufillment of all obligations secured by the collateral; and the reasonable expenses and attorney’s fees of [Shylock].” 9-623(b)(1)-(2). Of course, 9-623 applies only to “[a] debtor, any secondary obligor, or any other secured party or lienholder,” a class that does not include Bassanio. On the other hand, there is nothing to stop Bassanio from giving the money to Antonio, who can then pay Shylock. Shylock, unfortunately for him, has no right to refuse Antonio’s offer of redemption.

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20 Responses

  1. Very interesting post about my most favorite Shakespearean play! My reading of the play is that the contract (or secured loan) was made partly in jest, as Shylock had no particular interest in getting the pound of flesh and recognized that it was worthless. Shylock was willing to lend the money gratis, but Antonio wasn’t ready to accept a gift from Shylock, so the solution was to create this rather silly “fiction” that the loan was indeed secured.

    In the interim, Antonio and Bassanio invite Shylock to dinner. During that time, Shylock’s daughter runs away with her boyfriend Lorenzo (and steals some of Shylock’s most precious possessions in the process). Shylock blames Antonio and Bassanio, thinking that they were in on the plot (which they were). And thus, in my reading, he suddenly decides to use the contract to exact revenge upon Antonio. Without this intervening event, I think it would be unlikely that Shylock would have really insisted on enforcing the contract and I believe that Antonio wouldn’t have expected Shylock to enforce it.

    I doubt that this makes much difference for the law. Although the language of the instrument is clear, I wonder whether Shylock and Antonio at the time of signing it really viewed it seriously or as just a kind of “fiction” (or even partly as a farce). Then circumstances changed, making the contract (and Antonio’s breach) mean much more to him.

    As for the anti-Semitism of the play, the play certainly depicts anti-Semitism but it isn’t an anti-Semitic play. It actually appears at times to be quite critical of anti-Semitism. Every character is depicted in a rather cynical dark light. There are no heroes in this play. Everybody is self-interested and acts quite badly. The Christian characters are depicted as just as nasty as Shylock is, though Shakespeare was clever enough not to be overt about his criticism for the Christian characters. With Shakespeare, nothing is as it seems — indeed, this is a major theme in his work (and especially in the Merchant of Venice).

  2. Nate Oman says:

    On the question of contracts made in jest, we have the authority of perrenial case-book favorite Lucy v. Zelmer, 196 Va. 493 (1954), in which the plaintiffs got specific performance of a contract entered into “as a joke.” Indeed, the point of the writing requirement (or “authenticated record” in the post-Internet age) is to channel the intentions of the parties and put them on notice that their acts will be given legal effect. I would have to once again side with Shylock on this one…

  3. Kaimi says:

    Interesting read on the contract/loan.

    There is at least some case law indicating that a “sham will” will not be probated.

    In Fleming v. Morrison, decedent wished to sleep with Fleming. In order to induce her to sleep with him, he drafted and signed a will leaving his estate to her. (Talk about an elaborate ploy to get a woman into bed!)

    However, he instructed his lawyer, who was one of the witnesses, that the will was nothing more than a ploy to induce Fleming to have sex with him. (The reported case, which is very brief, does not say whether or not decedent’s ploy was successful.)

    The court invalidated the will, based on invalid attestation (witnesses). One of the witnesses knew that it was intended as a sham, and was therefore not actually attesting to its validity.

    The question of sham will validity in general is an interesting one — had the lawyer not witnessed it, the court would have had to rule on another ground, and may well have upheld the will.

  4. tim zinnecker says:

    Very interesting post. I’ll offer a couple of thoughts.

    First, my initial reaction was that a pound of flesh is not a “good.” But you may be right. The definition includes “unborn young of animals,” so it must include the “born” young of animals. And as we’re all born (some more than once), and we’re mammals (a type of animal), we must all be goods (consumer goods? farm products?). (This all becomes a bit surreal to me, as I write this while feeding my 10-day-old daughter!) If the flesh is not a “good,” I suppose that it’s a general intangible” — the catch-all category, even though most of us wouldn’t consider our flesh as intangible. Oh, the language of the Code. But I digress.

    My second thought is to suggest why the security interest might never attach, at least if the parties rely on the “authenticated security agreement” option/requirement. The agreement must include a description of the collateral that reasonably identifies the matter. 9-203(b)(3)(A), 9-108. From the posting, I gather the description of collateral is “an equal pound Of your fair flesh, to be cut off and taken In what part of your body pleaseth me.” In my opinion, that description fails to “reasonably identify” the collateral because the debtor has more than one pound of “fair flesh.” Which pound? Whatever pound the creditor chooses? From where? The torso? The foot? Not sufficient, in my opinion. (The same problem may arise if the collateral refers to “five computers” and the debtor has more than five. Which five?) So because the description is inadequate, the parties have failed to satisfy the “agreement” prong of attachment, leaving themselves without an enforceable security interest. What sort of description might work? How about: “A pound of flesh to be extracted from the front part of the debtor’s upper left thigh, in an area so marked (see attached photo).” But again, might the “area so marked” include more than one pound of fair flesh? Hmmmm. All very interesting. (Perhaps I should add more, but I need to run and change a diaper.)

  5. Raffi says:

    Nate – isn’t there some sort of gloss forbidding turning organs into a secured interest. I mean, can you give someone a security interest against your lung? The pound of flesh doesn’t seem so different than that.

  6. Nate Oman says:

    Raffi: Perhaps not 9-408(c) states: “A rule of law, statute, or regulation taht prohibits . . . the assignment or transfer of, or creation of a security interest in . . . [a] general intangible is ineffective.”

    As tim points out above, the flesh may be a general intangible, which is the Code’s catch-all category for all personal property that doesn’t fall into the other categories. If I am mistaken in classifying the pound of flesh as a good, then it would be a general intangible and section 9-408 would apply, allowing the creation of the security interest. Of course, under subsection (d)(1) the security interest would not be enforceable against Antonio, but it would still be good in bankruptcy!

  7. Syd says:

    Given that Portia is masqerading as a judge, I think Shylock should be able to collect on his debt and Portia should be punished.

  8. vannessa says:

    I don’t like this play,cause I don’t like the end of Shylock.

  9. Stephen L. Sepinuck says:

    I think the analysis misses a fundamental preliminary point: a security interest can attach only to property. While a pound of animal flesh might well be property (specifically, goods), a person’s body is not normally treated as property. Hence, Antonio cannot and did not grant a security interest in a pound of his own flesh.

  10. jeremiah bobbins says:

    shylock is a vile character who deserves everything that he gets, therefore the contract doesnt even matter

  11. Oliver says:

    Shylock is a frail character who fail to see his downfall and ultimatly gets boid off

  12. ben thomson says:

    i like men

  13. Shylock is some bare big chav blud, dont get me wrong yeh but he seems like a nice guy but he daughter is bare fit so id stab him just to get on her. Shylock is some bare big stouty breh!

  14. ieuan padfield says:

    i agree with ben thomsons post, i also like men

  15. Shylock says:

    Oi blud, dont go getting rude wiv me I know where you live and will come bang you one time!! Shut up blud!

  16. Oliver Harkin says:

    Shylock makes my groin all tingly.
    I want him inside of me…. 🙂
    Beattie Is a Boi

  17. OLIVER HARKIN says:


  18. oliver harkin says:

    i hate shakespeare its so hard and confusing, why am i so stupid!!??

  19. Beattie is a batty man says:

    Shylock Floats My Boat Big Time.
    He can receive my bond any time he likes.. 😉

  20. Mr Furness says:

    Children – do get on with your work.