Louisiana s Non-Uniform Variations in U.C.C. Chapter 9

• Author: James A. Stuckey
• Position: Partner, Phelps Dunbar, L.L.P
• Pages: 793-879

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Partner, Phelps Dunbar, L.L.P. The author is the Chairman and Reporter of the U.C.C. 9 Committee of the Louisiana State Law Institute. The views expressed in this article are strictly the personal views of the author, and should not be attributed to the Law Institute or the other members of the U.C.C. 9 Committee, nor to the law firm of Phelps Dunbar, L.L.P., or its other attorneys or clients.

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I Introduction

Louisiana was the last of the fifty states to adopt Article 9 of the Uniform Commercial Code,¹ which took effect in Louisiana on January 1, 1990, long after the other states and the District of Columbia. Ironically, in that same year, a comprehensive revision and restatement of Uniform Commercial Code Article 9 commenced. After a decade long process, Revised Article 9 was promulgated by the National Conference of Commissioners on Uniform State Laws and The American Law Institute in 1999.²

Louisiana's former Chapter 9 was adopted with multiple changes from the uniform model version of former U.C.C. Article 9. Recognizing that non-uniformity, and due to the complexity and length of the proposed legislation, when revised U.C.C. Article 9 was first introduced in the Louisiana Legislature it was referred to the Louisiana State Law Institute for study, redrafting and the addition of comments.³ After a two year process of committee meetings and Institute Council sessions, a modified version of U.C.C. Article 9 containing Louisiana non-uniform variations was recommended by the Louisiana State Law Institute to the Legislature for the 2001 regular session.⁴ With one substantive amendment made in the Senate Committee on Judiciary A,⁵ this legislation was enacted, effective July 1, 2001.⁶ This legislation is known officially as the Uniform Commercial Code-Secured Transactions, and is referred to in this article as "Chapter 9."⁷

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This article reviews the material variations in Chapter 9 from U.C.C. Article 9. The four areas of largest variation are (1) the scope of collateral, which in Chapter 9 is expanded as to certain types⁸ and restricted as to fixtures,⁹ (2) the inventive filing system under Chapter 9,¹⁰ (3) the inclusion in Chapter 9 of an express priority rule governing the competition between security interests and statutory privileges,¹¹ and (4) the remedies and damages available under Chapter 9.¹² But, there are other significant non-uniform provisions in Chapter 9 as well. This article assumes a familiarity with the provisions and workings of U.C.C. Article 9, and focuses on the Louisiana additions and omissions contained in Chapter 9. As will be discussed in detail below, in many cases the omissions made in Chapter 9 are as significant as, if not more significant, than the added text.¹³

II Definitions

A Louisiana Definitions

The definitions in U.C.C. Article 9 are fundamental to an understanding and application of its provisions. Many of the definitions in U.C.C. Article 9 are new. U.C.C. Article 9 also adopts a new drafting approach different from former U.C.C. Article 9, consolidating all defined terms in Section 9-102, with some exceptions.¹⁴ U.C.C. Section 9-102 contains three subsections. Page 797 Subsection (a) sets forth 80 definitions. Subsection (b) adopts thirty- five definitions by cross-reference to other Articles of the U.C.C. Subsection (c) adopts by general cross-reference the definitions and principles of U.C.C. Article 1.¹⁵

Section 9-102 in Chapter 9 is by necessity non-uniform for several reasons. First, Louisiana has not enacted Articles 2 and 2A of the U.C.C., nor is their adoption likely in the foreseeable future.¹⁶As a result, Chapter 9 excludes eleven definitions relating to U.C.C. Articles 2 and 2A, and instead includes Louisiana definitions for most of those terms in a new non-uniform Subsection 9-102(d).¹⁷

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Subsection 9-102(d) of Chapter 9 contains nineteen additional non-uniform definitions. As noted above, seven of these definitions are added in lieu of terms defined in U.C.C. Articles 2 and 2A.¹⁸Four other definitions are added to translate the common law terminology used in U.C.C. Article 9 to fit within the language of Louisiana's civil law property concepts and principles. Thus, "intangible" is defined to mean "incorporeal," "personal property" to mean "movable property," "real property" to mean "immovable property and real rights therein," and "tangible" to mean "corporeal."¹⁹ This drafting approach avoids having to change those terms innumerable times in the text of Chapter 9 to these parallel but not identical Louisiana counterparts which-unlike these four common law terms-have meaning in Louisiana. For a similar reason, definitions of "bailee," "bailor,"²⁰ "lien," and "lienholder"²¹are included in Subsection 9-102 (d) because such terms do not have established and recognized meanings in Louisiana's civil law. For similar reasons, Chapter 9 replaces the phrase "rule of law" used in U.C.C. Article 9 with the terms "statute or regulation."²²

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Five other non-uniform definitions are added to Chapter 9 in Subsection 9-102(d). A definition of "collateral mortgage note" is used to permit the inclusion of special non-uniform provisions pertaining only to collateral mortgage notes in Chapter 9, and to restrict their application to collateral mortgages encumbering Louisiana immovable property.²³ At the request of the Law Institute Council a non-uniform definition of "local law" was added. "Local law" is a term used in U.C.C. Article 9 without definition to mean the substantive law of a particular jurisdiction and not its choice-oflaw rules.²⁴ Definitions of "mineral rights,"²⁵ "recorded timber conveyance,"²⁶ and "titled motor vehicle"²⁷ are included in Chapter 9 for convenience in drafting.

The application of the definitions in Chapter 9 is intended to be restrictive in two respects. First, consistent with U.C.C. Article 9, the introductory language in Section 9-102 regarding definitions has been changed from prior law in former Chapter 9 and former U.C.C. Article 9. In former Louisiana Revised Statutes 10:9-105(1), the introductory clause specified that the context in which a defined word was used might require a different meaning to be given to the word. That language gave the courts some latitude in determining whether the precise definition provided in the U.C.C. should be applied in a particular case. In Chapter 9, each definition is only used in the context in which it was intended. Thus, the prior statement of flexibility is deleted as no longer appropriate. Second, the definitions in Chapter 9 take precedence over the general definitions in Article 1. Furthermore, it is the express intent of the language "in this Chapter" that these definitions be used by the courts only in the interpretation of Chapter 9, and they not otherwise be imported or used in interpreting other matters of Louisiana law.²⁸

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B Agricultural Matters

Chapter 9 contains four definitions particularly pertinent to the provisions bearing upon agricultural matters.²⁹ The definition of "farming operations" in Chapter 9 is uniform. It is added in U.C.C. Article 9 for clarification only.³⁰ However, the definition of "farm products" in Chapter 9 reproduces additional non-uniform language of former Chapter 9 by listing specific examples of crops, livestock and products.³¹

This enumeration of specific examples of farm products is less important in revised Chapter 9 due to the breadth of the expanded definition in U.C.C. Article 9, but is carried forward to avoid creating any negative implication by their removal. Goods are "farm products" if the debtor is engaged in farming operations with respect to the goods. Crops, livestock, and their products cease to be "farm products" when the debtor ceases to be engaged in farming operations with respect to them. Products of crops or livestock, even though they remain in the possession of a person engaged in farming operations, lose their status as farm products if they are subjected to a manufacturing process.³² The terms "crops," "livestock," and "manufacturing process" are not defined.

The definition of "farm products" in Chapter 9, as in U.C.C. Article 9 and former Chapter 9,³³ excludes standing timber. However, this definition continues to differ from the definition of farm products in Louisiana Revised Statutes 3:3652(10) pertaining to the Louisiana agricultural central registry established pursuant to the Federal Food Security Act of 1985...