The proverb “there is many a slip ‘twixt the cup and the lip” might have been written with the secured creditor in mind. Many tragedies may befall him to defeat his expectations. He takes his security interest hoping for the best, but preparing for the worst—nonperformance of the obligation secured. If he does not carefully comply with the Article Nine provisions concerning the enforceability and perfection of a security interest, he may ultimately be unsecured. If his security interest is enforceable and perfected, it may turn out that some other party has priority to the collateral. Even if the secured party has priority, the collateral may be worth less than expected. The purpose of this article is to explore the rights of a secured party in the event that this tragedy befalls him as a result of damage to the collateral caused by a third person or because the collateral proves to be defective and, thus, worth less than anticipated. Such rights may be particularly important when the collateral is uninsured through oversight of the secured party or debtor or when adequate insurance coverage cannot be obtained.
Harold R. Weinberg, Secured Party's Right to Sue Third Persons for Damage to or Defects in Collateral, 81 Com. L.J. 445 (1976).