Does the Secured Transactions Course Make Sense?

I’ve never taught Secured Transactions, so I’ll start by saying that the following is purely speculative and subject to correction.

We had a job candidate come through at some point this Fall who generally is interested in the field of commercial law.  That person mentioned in passing that although they were more than willing to teach the traditional secured transactions course, in their opinion it wasn’t well structured.  Why? Not, as the navel-gazer might imagine, because the field of commercial law is supposedly intellectually dead.  Rather because the traditional secured transaction course is too narrowly conceived — it usually is limited in coverage to personal property security interests under Article 9.  But many security interests that matter to lawyers aren’t held on movable property.  Since secured is ordinarily the foundational course for the commercial curriculum, students are left starting on too narrow a footing in understanding bankruptcy and bank regulation.  It’s even worse than having a corporations course that excludes LLCs.  Because of its technicality, ST is traditionally so difficult to teach that many students are turned off to the idea of commercial law practice at all.

Again, I don’t know much about this area of law.  I never took ST in law school, I haven’t taught it, and (worse) I haven’t even read a ST syllabus at my current institution.  But it struck me as an interesting thought, at least worth airing.  It’s related to concerns I have about the general corporate curriculum — is “corporations” really a subject that ought to be taught in a single course, or is it really a merger of too many (or too few) legal principles that have glommed together over time.  It’s also related to concerns that one might have about continuing to use the increasingly outdated, purportedly uniform, UCC to teach when States’ adopted versions are moving ever-further-away from that ideal.

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15 Responses

  1. Jeff Lipshaw says:

    Dave, I don’t know what your candidate is talking about. I taught Secured Transactions twice. While the tangible personal property collateral is the easiest to begin with, we studied security interests in intangibles, like copyrights or patents, or in securities. I can’t imagine anything more relevant to project finance of social networking ventures. In particular, the super priorities that are designed to protect securities intermediaries (like clearing houses) are directly relevant to aspects of the financial crisis.

    Also, it’s been a while since I’ve taught anything but some of the Article 2 provisions in first year contracts, but what about either Article 2 or 9 is “increasingly” non-uniform? Inquiring minds want to know!

  2. Marc Roark says:

    I second Jeff’s thoughts here. Having taught secured transactions for the last five years, I would add that Secured Transactions is really a foundational course for understanding some basic concepts of commercial law.

  3. Marc Roark says:

    The only big thing that I can think of as being non-uniform in Article 9 is the definition of fixtures, which the code punts to state law — but even still forces some level of uniformity through safe-harbors and exclusions. There was some conflict in the states on what constituted a legal name under 9-503, but that was addressed by a revision last year. Here is a nice summary by Jennifer Martin on the alternative approach.

    I’m not sure what could be conceived as non-uniform in Article 2.

  4. Tim Zinnecker says:

    Drop this candidate like the proverbial hot potato!

    I’ve taught Sadistic Transactions probably close to thirty times and it remains by far my favorite course to teach. We can disagree about the order of course coverage (do we lead with attachment? default and bankruptcy?), but that’s a quibble we each bring to any course book we select and any subject we teach. And nonuniformity? Unless you’re teaching in the state of confusion, I’m guessing that 95% of Article 9 in every state is uniform (and that number could be low). There just isn’t that much nonuniformity to worry about (and if you’re teaching “to the bar exam,” you’ll quickly come up with a brief list of bullet points to share with your students). And you don’t need to be a bankruptcy expert to teach the course effectively. Sure, you want to mention the automatic stay, the strong-arm clause, and voidable preferences, but you don’t need to have an LLM in Insolvency Law to master those simple concepts (which you can cover in class in probably four hours or less). Also, take it from someone who has taught a Banking Law course on a few occasions. You don’t need to know the ins and outs of our nation’s labyrinth of financial regulations to teach a secured credit course. Some mastery of basic math skills will be much more handy.

    Secured credit has been with us for many years, it is with us now, and it will remain with us forever (or until Yale Law Review publishes one of my articles, whichever comes first). Consumers need it. As do businesses. Mastering Article 9 principles is oh so much more important for the typical lawyer than trying to figure out how five judges will view a particular issue of constitutional law. Have the methods of financing changed over the years? Sure. Have we seen a shift in the typical types of collateral? Probably. But the beauty (dare I say elegance?) of Article 9 is that its rules tend to work for all secured transaction involving personal (nonrealty) property, regardless of who the players are, the dollars involved, or the type of collateral.

    And as an added bonus, the course is an excellent teaching tool for mastering basic statutory analysis, a skill that many lawyers use more than any other.

  5. Dave Hoffman says:

    It was an offhand comment – don’t blame the candidate (or the messenger, for goodness sake).

    Interesting and illuminating comments, thanks guys. Sounds like ST is the best course since sliced bread!

    On uniformity, I really was thinking about Article 2. I read an article a year or so ago – of course the details now escape me – that said that after the failure of the Revision, states have moved increasingly toward nonstandard versions. It got talked about on the Contracts Professor Listserv, I believe. If anyone remembers the cite, please post. It’s useful to know that the same trend isn’t apparent for Article 9. Probably not surprising given Tim’s passion 🙂

  6. Marc Roark says:

    One of my colleagues wrote a piece on the virtue of teaching the Rule Against Perpetuities and one of her points was that it made students smarter. I think Secured Transactions, besides being incredibly practical, I think Secured Transactions makes students better lawyers because it forces students to analytically process multiple problems at once.

    Kudos to TIm (commercial law’s patron saint) and Jeff for correcting this false view.

  7. Another Secured Transactions Prof says:

    I’ve also taught secured transactions over the past 10 years.

    Anyone who believes that personal property is a small or narrow legal category or that secured transactions only covers “movable “property” is not fit to be teaching any area of commercial law.

  8. Dave Hoffman says:

    ASTP: I think that’s much, much too strong. To take an analogy from a field I actually know something about, if someone said that the corporations course was narrow and useless because it ignored what ought to the real foundation of practice — the fiduciary relationships between LLC members – I’d disagree with the conclusion, but I wouldn’t say the were excluded from the business law curriculum!

  9. Dave Hoffman says:

    It’s also worth saying (as I did in a recent comment thread) that these discussions are tons better if commentators use their real names. There’s no particular reason not to, and the resulting thread will be more thoughtful as a result.

  10. Another Secured Transactions Prof says:

    I was responding to this specific part of your post:

    ” But many security interests that matter to lawyers aren’t held on movable property.”

    I probably shouldn’t have jumped all over that sentence without checking first if that was what the candidate said (as you best paraphrased) or your own characterization of it based on this not being your field. But as the other above noted, personal property (as defined for Article 9 coverage) is extremely broad, and it most certainly is *not* confined to “movable property.” So someone who believes that security interests under Article 9 is far too narrow conceived because it’s just about movable property does not understand the scope of Article 9 at all. That statement is verifiably false and troubling for anyone who would have to understand the interaction of different components of commercial law.

    It would be akin to someone suggesting that while they enjoy corporations, a course in unincorporated business associations would be too narrow, because “it only applies to entities that have unlimited liability.” Such a statement is verifiably false as a matter of law and would be evidence of someone who clearly does not understand the fundamental nature of business associations generally.

    The key is that personal property is not just movable property at all. It’s securities and intellectual property and contract rights and so much more.

    Perhaps that’s not what the candidate really said, though, and the nuance was lost in translation.

    And on the other points:
    – There is some healthy debate about which should come first as between bankruptcy & secured transactions (you need some coverage of each in the other course as traditionally taught anyway).

    – I do teach LLCs in Business Associations, and it makes Article 9 look like paradise in terms of uniformity between jurisdiction & clarity of statutory language or coverage (though to be fair, LLC law will get worked out over time)

    – I’d be happy to continue conversations privately with my real name, but as a rule of thumb, I do not wish to have my real name on publicly searchable blogs and forums

  11. Juliet Moringiello says:

    Perhaps the candidate meant that the Secured Transactions course is poorly structured because it covers only security interests in personal property (of all types) and not security interests in real property. My state, Pennsylvania, no longer tests ST on the bar exam (a cynic would say that the 2001 amendments made the field too complex), but mortgages are on the bar and not covered in any depth even in a six credit Property course. A revamped ST course that covers real and personal property might be more appealing for many reasons, and particularly to students who want to focus on bar courses. Although I love my Secured Transactions course (although perhaps not as much as Tim loves his), I might love it more if it I could find a good way to add mortgages to it.

  12. A.J. Sutter says:

    ST may be intellectually dead, but as a young associate I prepared many dozens of UCC-9s annually — as well as, let it be said, security instruments in aircraft, rolling stock and IP interests — in connection with M&A deals, re-incorporations of Fortune 100 companies, motion picture financings, etc. And even for those types of assets subject to Federal statutes relating to perfecting security interests, most lenders used a “belt-and-suspenders” approach, and our UCC-9 collateral descriptions included those assets too. Can’t say ST was my favorite course in real-time, but it turned out to come in very handy in practice.

  13. Marc Roark says:

    Juliet — Have you used the Lopucki (Sp? Sorry – its 11:00 at night and did not feel like using google) and Warren Text. They take a comparative approach between real property conveyances and liens. My favorite book to use.

  14. anon prof says:

    I’ve taught Secured Transactions seven times in classes averaging 40-50 students. I agree with the view that the candidate who thinks the subject is too narrow may not understand it. If someone of that view were allowed to teach students, I don’t think the students would be receiving full value for their money.
    As one example, any student who studies Article 9 can easily adapt to real estate law (even though real property is not covered by Article 9). Attachment, perfection, and priority have similar counterparts in real estate law.
    Also, the Secured Transactions class will teach how credit decisions are made by lenders. As I tell my students, someone may actually pay them money for knowing that (along with the specific Article 9 knowledge).

  15. Jeff Lipshaw says:

    One more plug for secured transactions. It’s one of the few doctrinal courses that actually emphasizes before-the-fact planning and structuring as opposed to after-the-fact litigation.

    Another appeal, about which I’ve written, is the “game-ness” of ST, which is fun in the same way that the “game-ness” of real property is fun. A theme of the paper was that much of law is about the creation of models to super-impose over the real world to generate results when there are disputes. Where ordinary contract rules, however, merely regulate independently existing human interaction, the ST rules actually create the game. Put another way, there’s nothing inherently legal about an agreement; it’s the superimposition of the law over it that makes it enforceable in a court. But a security interest is wholly a creation of the legal system – the rule is constitutive rather than merely regulative. (The normative point in the paper was that models and games bear a family resemblance, and there are real consequences of applying the game metaphor to the law when the model metaphor should apply, and vice versa. An example would be treating accounting rules as a game when they should be viewed as creating a model.)