Abstract

"[B]eyond the pale" is how the drafters of Article Nine of the Uniform Commercial Code regarded tort claims. They considered tort claims to be noncommercial assets inappropriate for inclusion as collateral within the scope of a commercial financing statute. Tort claims may not be out-of-bounds much longer. The Article Nine Study Committee of the Permanent Editorial Board for the Uniform Commercial Code recommends expansion of the Article's scope to encompass security interests in claims arising out of tort. This recommendation is significant. Tort causes of action comprise an ever-expanding universe of civil wrongs for which courts afford redress. The owners of tort claims range from financially strong business enterprises seeking redress for patent infringement to impecunious pedestrians injured by automobiles.

The Study Committee's recommendations raise many important questions. Historically, transactions in tort claims, especially "personal" tort claims such as claims for personal injury, have been associated with a "witch's brew" of social evils. Therefore, two issues are whether these concerns are legitimate and, if so, whether these evils would increase if tort claims could be encumbered under Article Nine. Another set of questions centers on the practices of "reimbursees" such as insurers and medical care providers. They will want to know how the Study Committees recommendations will impact their rights to be reimbursed from the tort claims of their insureds and patients.

Part One of this Article provides terminology and concepts useful for understanding Article Nine tort claims exclusion. It also briefly describes issues of interpretation raised by the exclusion’s statutory language. Part Two explores reasons for and against including tort claims as collateral within Article Nine's scope. It concludes that, on balance, expanding the Article’s scope to encompass tort claims is a good idea. However, the various concerns associated with transactions in personal tort claims require that consideration be given to amending other parts of the Article's official text and comments. Part Three of this Article evaluates some amendments directed at these concerns. The Article concludes that Article Nine should encompass personal as well as nonpersonal tort claims and that additional tort claim-related amendments are not needed. However, it is necessary to reevaluate the Article's exclusion of judgments as collateral. The conclusion also briefly discusses remedies that would be available to creditors secured by tort claims and defenses that may be asserted against them.

Document Type

Article

Publication Date

1995

Notes/Citation Information

Kentucky Law Journal, Vol. 83, No. 2 (1994-1995), pp. 443-484

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