Written by attorneys · grounded in primary & secondary sources — see below
A category of collateral under Article 9 of the Uniform Commercial Code consisting of negotiable documents of title such as bills of lading and warehouse receipts. A security interest in negotiable documents may be perfected by filing a financing statement. Perfection in the documents also perfects an interest in the underlying goods while they remain in the bailee's possession.
Sources & Authorities
How it applies
Common Examples
2
Filing Perfects Interest in Bills of Lading
Central Shipping Corporation obtains a security interest in negotiable bills of lading from Green Harbor Corporation and files a financing statement describing the collateral as negotiable documents. Several weeks later Pinnacle Marine LLC receives some of the same bills of lading from Green Harbor in satisfaction of a debt and takes physical possession. When Green Harbor defaults, Central Shipping's filed security interest remains perfected in the documents even though it never took possession.
Possession Required for Certain Instruments
Paribas and MBank claim a security interest in a promissory note treated as an instrument but neither party ever takes physical possession of the note. The debtor files for bankruptcy and the trustee challenges perfection. Because the note is an instrument rather than a negotiable document, filing alone does not perfect the interest and the banks lose to the trustee.
Put it into practice
Test Yourself
10
Practice Questions5
· 7 primary sources
Select any source to read its text and confirm it supports the definition.
Uniform Acts
Restatements
Hornbooks
Study Supplements
Coral Petroleum, Inc. v. Banque Paribus (In re Coral Petroleum, Inc.)50 B.R. 830 (S.D. Tex. 1985)
Common questions
Frequently Asked
4
Can a security interest in negotiable documents be perfected by filing?+
Yes. UCC § 9-312(a) expressly authorizes perfection by filing for negotiable documents along with instruments, chattel paper, and investment property. Filing provides public notice and satisfies the perfection requirement without the need for possession.
Supporting sources
Does perfection in a negotiable document perfect an interest in the underlying goods?+
Yes. When goods are in the possession of a bailee that has issued a negotiable document covering the goods, perfecting a security interest in the document also perfects the interest in the goods while they remain with the bailee. No separate filing or possession of the goods is required during that period.
Supporting sources
What duty does a secured party owe when it possesses negotiable documents?+
A secured party in possession must exercise reasonable care in the custody and preservation of the collateral. For instruments and negotiable documents this duty includes taking necessary steps to preserve rights against prior parties such as carriers and warehouses.
Supporting sources
How does priority work between a filed interest and a later possessory interest in negotiable documents?+
The first-to-file-or-perfect rule generally gives priority to the party that filed first. A later party that obtains the documents through due negotiation under Article 7 may obtain superpriority under § 9-331 even against an earlier filed interest.
Supporting sources
Secured TransactionsRights of third parties; perfected and unperfected security interests; rules of priority (§ 9-301, et seq.) · Requirement of filing and steps to be taken for perfection (§§ 9-308 through 9-316; § 9-501, et seq.); assignment of security interest (§§ 9-514, 9-519)UBEFoundational