Chapter 6: Secured Interests

The law of secured interests in property, both in the Roman and common law traditions, is highly technical and involves elements not only of property law but also contract law and, when there is the potential for taking unfair advantage, what might be called equitable considerations.  The general concept is simple enough: a contingent right to seize property of a debtor is created for a creditor as security for repayment of the debt.  The complexity arises from the creation of concurrent interests in the secured property, the diverse kinds of property that can be secured, the negotiable character of security interests, determining the parties’ intent when the interest was created, the potential alteration in value or character of the property that has been taken in security, and constraints on the disposal of the security.  An additional complication in the civil law tradition is the issue of possession, as distinct from ownership.

In the United States today, security interests in movable property are largely regulated by Article 9 of the Uniform Commercial Code (UCC) as enacted in its various state forms.  This is a comprehensive statutory scheme that addresses the creation, attachment, perfection, priority, and termination of security interests.  The UCC does not apply to real property or any security interests that are regulated by landlord-tenant statutes.  It does apply to “farm products” and farm equipment, if used in connection with the farming operation.  It also applies to agricultural liens on future crops.  Article 2 of the UCC regulates “purchase money” security agreements in connection with the sale of goods.

With regard to land, the most common security and financing device at common law is the mortgage.  The mortgage exists in essentially two forms, depending upon whether the creditor’s right involves a possessory right that is contingent upon the debtor’s default or actual ownership of the property, subject to an obligation to reconvey upon satisfaction of the debt.  Generally speaking, the real mortgage is comparable in function to the Roman and civil law “hypothec” of immovable property, under which “possession” (in the civil law sense) of the secured property remains with the owner/debtor. Mortgage law has been substantially affected by equitable doctrines, including especially the “equity of redemption,” which gives to a defaulting mortgagor a right to redeem the property prior to a forclosure sale.  

Common law and statutory schemes also recognize the “chattel mortgage,” which is typically used as the security device for the purchase of expensive items like automobiles. A landlord’s security interest in the personalty of a tenant in both commercial and residential leases is now mostly regulated by state statutes.  Generally speaking, these statutory schemes in U. S. jurisdictions fall into one of two groups: “The landlord has no lien on the tenant’s property until the rent is due or until a distress levy is made. In the second group, the landlord has a lien on the tenant’s property either from the beginning of the term or whenever the goods are moved onto the leased premises, or for rent ‘to become due.’”  Restatement 2d of Property: Landlord and Tenant § 12.1 (2011) Statutory Note 5.  The second of these statutory regimes is the more similar to the Roman rules governing a landlord’s right of distraint.

Further reading on the origin and development of the common law mortgage:

Baker, J. H.  An Introduction to English Legal History, 4th ed. Oxford: Oxford University Press,  2007, 311–315.

Chapter 6: Introduction | A. Cases 155–170a
B. Cases 171–185

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