Signature by Authorized Representative: No Name Required?

For those of you who are trying to create a ‘UCC brain’, this would be a good time to go back to the first blog and read all of them.  Probably not all in one sitting, but in several.  With a foundation in place, the material will be understood at a much higher level than the first time through.  That will continue to happen due to the nature of the UCC and the sequence in which material has been presented.

            The material has been set forth in a very structured and connected manner, and the sections as presented link up, not only within each post, but post to post.  Repetition of material which is presented in the optimum sequence creates a powerful foundation for going forward.  Referring back to the 100,000,000,000 billion neurons we all have in our brains, there is plenty of room to lay new tracks.  It is purely a matter of sufficient and properly applied focus.

            With that brief comment in place, let us return to the Uniform Commercial Code, and continue with liability of parties.  With the discussion of secondary obligors complete, and the liabilities of the maker, drawer, indorser, acceptor and accommodation parties behind us, we will turn attention back to the basic rule of liability stated in Section 3-401(a)

(a) A person is not liable on an instrument unless (i) the person signed the instrument, or (ii) the person is represented by an agent or representative who signed the instrument and the signature is binding on the represented person under Section 3-402.      Section 3-401(a)

Section 3-401(a) was discussed in an earlier post as was an extended discussion of the definition of ‘signed’ under the Uniform Commercial Code. Particular emphasis was given to the meaning and possible interpretations of the ‘present intent’ to authenticate a writing.  As we near the conclusion of the initial coverage of Article 3, I wanted to focus on some of the ‘specialty sections’ that deal with signatures on instruments, and which are exceptions to the general rule of Section 3-401(1).

The first exception is stated in Section 3-401(a)—for signatures made in a representative capacity.  Signatures in a representative capacity are governed by the rules stated in Section 3-402

(a) If a person acting, or purporting to act, as a representative signs an instrument by signing either the name of the represented person or the name of the signer, the represented person is bound by the signature to the same extent the represented person would be bound if the signature were on a simple contract. If the represented person is bound, the signature of the representative is the "authorized signature of the represented person" and the represented person is liable on the instrument, whether or not identified in the instrument. Section 3-402(a). [Emphasis added]

The answer to the question of who is liable when a signature is made in a representative capacity under Section 3-402(a) turns on whether the person ‘would be bound if the signature were on a simple contract.’  This would be determined by the law of agency. The general law of agency would be applicable under Section 1-103. 

Note, it is not necessary that the signature of the representative indicate that it is made in a representative capacity in order for the principal to be liable. Nor, as the second sentence states, must the represented person be named. The latter rule is a departure from prior law [Section 3-301(1)] which was interpreted to require the principal to be named.  Once again, I call your attention to New York law which has not enacted the amended version of Article 3. Big differences here as with the liability of secondary obligors.

          

           While an unnamed principal may be liable even when not mentioned, the representative has an incentive to mention the principal in the signature, for if he or she does so, and also indicates the representative capacity, the representative will not face the liability he would face if the signature was simply in his name.  For example, if X is signing a note on behalf of Y, X can avoid any personal liability on the note by ‘unambiguously’ showing that the signature was made in a representative capacity and identifying the person represented in the instrument:

If the form of the signature shows unambiguously that the signature is made on behalf of the represented person who is identified in the instrument, the representative is not liable on the instrument.  Section 3-402(b)(1)

In the above example, if X signed the note ‘X, on behalf of Y’, X would face no liability, for X clearly showed that he was signing in a representative capacity and identified Y as the person represented.

If on the other hand, the signature does not conform to the standard stated in Section 3-402(b)(1), the representative faces potential personal liability on the instrument to a subsequent holder in due course and others who might take the instrument, ‘unless the representative proves that the original parties did not intend the representative to be liable on the instrument’.

(2) Subject to subsection (c), if (i) the form of the signature does not show unambiguously that the signature is made in a representative capacity or (ii) the represented person is not identified in the instrument, the representative is liable on the instrument to a holder in due course that took the instrument without notice that the representative was not intended to be liable on the instrument. With respect to any other person, the representative is liable on the instrument unless the representative proves that the original parties did not intend the representative to be liable on the instrument. Section 3-402(b)(2)

Obviously it is in the best interests of the representative to sign properly and avoid the possibility of an HDC holding him or her liable. Similarly, it is in the best interests of the representative to avoid having to prove that the original parties did not intend the representative to be liable on the instrument.

            An examination of the language of Section 3-402(b)(2) provides an opportunity to see some of the interrelationships we have discussed in some of the posts.  First, of course, is the holder in due course doctrine.  This brings to life the importance of taking the instrument in good faith—honest and within standards of commercial standards of fair dealing.  Of equal importance is that the holder in due course not otherwise have ‘notice that the representative is not intended to be liable in the instrument’.  This activates Section 1-202 on notice and with that, the question of what is ‘reason to know’ which might give rise to notice.  This in turn raises the question discussed in an earlier post—is this an objective or subjective standard?

            The simple analysis above is what you will see in almost all Code cases--   Sections which logically cluster together as well as an enormous number of possibilities for the trained eye.

 

 

The Comprehensive Approach: An Application

This post will be used to demonstrate the impact of the Comprehensive Approach to UCC problems.  The Comprehensive Approach was discussed in detail in an earlier post, but the essence of the concept is that multiple Articles of the UCC apply to all transactions under the Code; multiple sections apply within each Article; and the best Code analysis is one that takes these realities into account.  Once you have a solid working knowledge of the Code—which you will if you do the work—this analysis will take 10-15 minutes.  It will take me several hours because I must write it out.

In an earlier post we discussed the critical importance of the knowing the facts cold when dealing with Uniform Commercial Code transactions. This is equally important in drafting and litigation.  Once the facts are thoroughly digested and I suggest placed in diagram form, the process of activation of Articles and sections moves quickly.  At that point, with the facts firmly embedded in your brain, you go to front index of each of the Articles activated.  With a working knowledge of the Code in place, as you skim down the index the facts of your case, code sections will be activated where appropriate.  The interaction is automatic, and at the end of the process you may have 45-50 sections.
Obviously, certain sections are more important than others.  Nevertheless the process provides the participant with the ‘UCC story’.  Gaps will appear which require further information, and the key sections will have become clear.  Those sections are dissected word for word, always with the understanding that there are underlying Code policies which impact everything and are part of every analysis. 

The following hypothetical will be used to illustrate the concept. The list of sections activated is not exhaustive, but illustrative.

1. Lender [secured party] agrees to loan borrower [debtor] $4,000,000 provided that debtor is secures an accommodation maker—satisfactory to lender—to sign on the note; further, that debtor agrees to give secured party a security interest in debtor’s inventory;

2. Debtor is able to get his credit worthy brother in law to sign as an accommodation maker and gives secured party a security interest in his inventory which is comprised of high quality paintings, some of which are extremely old and delicate;

3. Secured party is an art dealer and has debtor’s inventory being exhibited at the secured party’s main gallery;

4. Debtor’s artsy lifestyle is far more extravagant than his income and after paying back a little over a million dollars, debtor defaults;

5. Secured party sells the collateral for $2,000,000 leaving a balance owing of a little over $1,000,000.

6.  Accommodation maker is sued for the balance owed and he objects noting that proper climate control was not maintained for the paintings and this resulted in an ‘impairment of the value of collateral’ for which accommodation maker should be discharged;

7. Accommodation maker further alleges that secured party did not act in a commercially reasonable manner in his disposition of collateral.


            The analysis for this problem, under a Comprehensive Approach, starts with identifying the Articles activated by the facts.  From the facts stated, we know that Article 3 applies because the note is a negotiable instrument; we know that Article 9 applies because we have a security interest in personal property; and we know that Article 1 applies because Article 1 applies to all transactions under the Uniform Commercial Code:
This article applies to a transaction to the extent that it is governed by another article of the Uniform Commercial Code.  Section 1-102
           
            With some basic facts in place, it is time to go to the indexes of the articles identified to see which sections are activated by the facts known to you.  This will give you a basic structure from which to determine what follow up questions to ask your client, and where to start looking in the substantive text of the Code. Under Article 1, the following sections are activated.  Most of the Article 1 provisions and Article 3 provisions have been discussed in earlier posts.


1.    Section1-102—applicability of Article 1.  Although you know this, it is very possible that the attorney on the other side as well as the court, will not.  By simply citing this section, you are demonstrating to both that you know a key piece of information they do not. 

2.    Section 1-103(a)—purposes and policies of the Code which will ultimately be used to support whatever argument you make;

3.    Section 1-103(b) which incorporates all areas and rules of law not displaced by substantive provisions of the Code;

4.    Section 1-201—general definitions;

5.    Section 1-201(b)(12)—what was the parties contract?

6.    Section 1-201(b)(3)—what was the parties’ agreement?

7.    Section 1-303(a)—was there a course of performance between the parties?

8.    Section 1-303(b)—was there a course of dealing between the parties?

9.    Section 1-303(c)—what industry is involved—art or commercial lending or both?

10. Section 1-304—was the obligation of good faith satisfied?

11. Section 1-309—was there an acceleration clause in the note that was activated, and if so, was acceleration done in good faith?

Article 3

1.    Section 3-104—was the writing negotiable in form?  This determines the applicability of Article 3 to the transaction;

2.    Section 3-103(a)(11)—definition of principal obligor;

3.    Section 3-103(a)(17)---definition of secondary obligor;

4.    Section 3-116—dealing with joint and several liability on an instrument;

5.    Section 3-301—person entitled to enforce;

6.    Section 3-305—defenses and claims in recoupment;

7.    Section 3-401—signature—was there a ‘present intent to authenticate?

8.    Section 3-412—obligation of issuer of a note;

9.    Section 3-501(a)—presentment;

10. Section 3-502—dishonor;

11. Section 3-503—notice of dishonor;

12. Section 3-601—discharge and effect of discharge;

13. Section 3-605—discharge of secondary obligors;

Article 9

            Section 3-605 (c) activates Article 9 by referencing ‘impairment to collateral’.  To the extent the collateral is goods in which a security interest is claimed, Article 9 will be activated. The UCC Made Easy blog has not yet discussed Article 9 so that selecting the activated sections will not make much sense unless an individual has an independent understanding of Article 9.  However, for purposes of demonstrating the impact of the Comprehensive Approach, some of the key sections to Article 9 will be listed.  It is interesting to note at the outset, that there is no ‘scope’ section to Article 9 as in other articles.  However, as stated earlier, Article 9 applies to transactions which create a security interest or agricultural lien in goods.


1.    Section 9-102(a)(7)—definition of authenticate;

2.    Section 9-102(a)(28)—definition of debtor;

3.    Section 9-102(a)(12);--definition of collateral;

4.    Section 9-102(a)(28)—definition of debtor;

5.    Section 9-102(a)(47)—definition of instrument;

6.    Section 9-102(a)(59);--definition of obligor;

7.    Section 9-102(a)(65)—definition of promissory note;

8.    Section 9-102(a)(71)—definition of secondary obligor;

9.    Section 9-102(a)(72)—definition of secured party;

10. Section 9-102(a)(73)—definition of security agreement;

11. Section 9-102(a)(77)—definition of supporting obligation;

12. Section 9-201—general effectiveness of the security agreement;

13. Section 9-203—attachment and enforceability of security interest;

14. Section 9-301—law governing perfection and priority of security interests;

15. Section 9-308—when security interest or agricultural lien is perfected;

16. Section 9-313—when possession by secured party perfects without filing;

17. Section 9-319—rights and title of consignee with respect to creditors and purchasers;

18. Section 9-320—buyers of goods;

19. Section 9-625 Remedies for Secured Part’s for Failure to Comply With Article;

Once the foregoing analysis is complete—and I emphasize this will go quickly once you have the Code and facts I place-- the basic analysis that I suggest for all UCC related transactions is as follows:

 What was the parties’ contract?  That takes us to Section 1-201(b)(12):

”Contract", as distinguished from "agreement", means the total legal obligation that results from the parties' agreement as determined by the Uniform Commercial Code as supplemented by any other applicable laws.

The definition of contract refers us to the definition of agreement:

(3) "Agreement", as distinguished from "contract", means the bargain of the parties in fact, as found in their language or inferred from other circumstances, including course of performance, course of dealing, or usage of trade as provided in Section 1-303.
This provides us with the elements of agreement, the legal impact of which is the contract:
 
 

1.    Language;

2.    Course of performance;

3.    Course of dealing;

4.    Usage of trade;

5.    Inference from other circumstances.

Language encompasses anything spoken or written.  When the client walks in the door, you will hear his or her statement of the facts—but of course—there will be another side to the story from the other party.  Understanding this, and the reality that it is rare to get the full picture from a client—at least at the beginning—this will form the basis of further inquiry.
Among the preliminary questions:

1.    What was the content of any discussions between SP & D;

2.    What written documents exist which reference, in any way, the transaction under dispute; this 
includes letters, emails, memos—anything in written form which may shed light on the transaction;

3.    Have SP & D dealt with one and other in the past?

4.    If so, how many times?

5.    What were the specifics of the transaction?

6.    Was there anything in the past transactions which might shed light on the current dispute?

7.    What is the trade involved in the transaction?—is it art or is it finance?

The contract/agreement analysis is going to be important in every transaction.  For example, assume that secured party and debtor had dealt before, and that in past dealings debtor had shared responsibility for insuring proper conditions for the paintings.  Further assume that in past dealings, secured party had always given debtor as many extensions as he needed to make the payments, and that in fact, debtor had always made them.   Or, assume that secured party had a demand note and called it due because he had an argument with debtor and ‘wanted to get even’.  The list of possibilities is endless, but the main point is clear:  The wider and more focused the inquiry, the more powerful the weapons to go forward.

The power of going into court or drafting documents in exponentially stronger for the individual who has a comprehensive grasp of the case. The ability to shape litigation and create a climate for a favorable settlement corresponds directly to the power brought to the table.  Imagine the disparity between an attorney with a one or two section arsenal versus someone who has a command of the whole UCC.  Once again, I emphasize that the Uniform Commercial Code offers a very fertile arena for lawyers to create a unique space which benefits the clients and their practice.

 

Secondary Obligors and the Link to Article 9

This post will further examine Section 3-605 in preparation of next week’s post which present an illustration of the Comprehensive Approach in dealing with Uniform Commercial Code related matters.  In the last post, we looked at Sections 3-605(a)(b) which deal with releases and extensions of obligations, on behalf of a principal obligor on an instrument, by a  person entitled to enforce.  The sections parallel one and other insofar as no release or extension has any impact on obligations owed to a secondary obligor by the principal obligor at the time of the extension.  The release or extension impacts obligations and rights which occur after the release or extension.

This basic scheme is followed in Section 3-605(c) which deals with modifications other than a release or extension of time.  Section 3-605(c) reads as follows:

(c) If a person entitled to enforce an instrument agrees, with or without consideration, to a modification of the obligation of a principal obligor other than a complete or partial release or an extension of the due date and another party to the instrument is a secondary obligor with respect to the obligation of that principal obligor, the following rules apply:

(1) Any obligations of the principal obligor to the secondary obligor with respect to any previous payment by the secondary obligor are not affected. The modification correspondingly modifies any other duties owed to the secondary obligor by the principal obligor under this article.

(2) The secondary obligor is discharged from any unperformed portion of its obligation to the extent that the modification would otherwise cause the secondary obligor a loss.

(3) To the extent that the secondary obligor is not discharged under paragraph (2), the secondary obligor may satisfy its obligation on the instrument as if the modification had not occurred, or treat its obligation on the instrument as having been modified correspondingly.

Note at the outset, no consideration is required to make the modification binding. Subsection (a)(1) states the basic rule stated.  No modification affects the obligation of the principal obligor to the secondary obligor for any payments made.  However, the modification given by the person entitled to enforce to the primary obligor ‘modifies any other duties owed to the secondary obligor by the principal obligor under this article’.

         

         As with a release or extension, if the modification causes the secondary obligor a loss, he or she is discharged to the extent of any loss caused to the secondary obligor per Section 2-605(c)(2)  If the secondary obligor is not discharged under subsection (c)((2), Section 2-605(c)(3) gives the secondary obligor the option of accepting the modification and proceeding accordingly, or ignoring the modification and adhering to the terms of the original instrument.

        

        The final provision of Section 3-605 which deals with discharge of secondary obligors on instruments is contained in section 3-605(d).  Unlike the other sections discussed, this particular provision has nothing to do with any contractual changes on the note, but rather has to do with the collateral securing the note, which will almost always be in play when there is a note.  Lenders want more protection than a signature; they want assets.

        

           And this is where you can clearly see the interrelationships between Articles.   The law regarding promissory notes— negotiable instruments—is governed by Article 3; secured transactions [reference to collateral in Section 3-605] are governed by Article 9; both are directly impacted by Article 1.  This sets a basic structure for the comprehensive analysis noted above which will be presented next week.

Section 3-605(d) reads as follows:

(d) If the obligation of a principal obligor is secured by an interest in collateral, another party to the instrument is a secondary obligor with respect to that obligation, and a person entitled to enforce the instrument impairs the value of the interest in collateral, the obligation of the secondary obligor is discharged to the extent of the impairment. The value of an interest in collateral is impaired to the extent the value of the interest is reduced to an amount less than the amount of the recourse of the secondary obligor, or the reduction in value of the interest causes an increase in the amount by which the amount of the recourse exceeds the value of the interest. For purposes of this subsection, impairing the value of an interest in collateral includes failure to obtain or maintain perfection or recordation of the interest in collateral, release of collateral without substitution of collateral of equal value or equivalent reduction of the underlying obligation, failure to perform a duty to preserve the value of collateral owed, under Article 9 or other law, to a debtor or other person secondarily liable, and failure to comply with applicable law in disposing of or otherwise the interest in collateral.enforcing  the interest in collateral.

           

        At the outset, we see a major difference in the content of Section 3-605(d) and the other subsections discussed.  This subsection, unlike the others, is not contingent upon a release, extension or modification of the original note.  Rather, subsection (d) to Section 3-605 is focused on property which in which an interest has been taken [collateral] which may be utilized by the lender in the event the principal obligor fails to make payment as called for by the note.

       

          In order for Section 3-605(d) to make sense, a brief introduction to Article 9 is required.  Article 9 is entitled Secured Transactions and envisions a situation in which a loan is made by a lender [secured party] to a borrower [debtor], with the loan being secured by certain property [collateral] of the debtor.  For example, borrower wants a $100,000.00 loan from lender.  Lender agrees to loan borrower the $100,000.00 provided that borrower agrees to give lender a ‘security interest’ in his inventory to secure payment of the loan.  Although Secured Transactions are governed by Article 9, the definition of a ‘security interest’ is contained in Article 1:

“Security interest” means an interest in personal property or fixtures which   secures payment or performance of an obligation…. Section 1-201(b)(35)

The property is called collateral:

“Collateral” means the property subject to a security interest…. Section 9-102(a)(12)

The agreement between the secured party and the debtor is called a ‘security agreement’:

“Security agreement” means an agreement that creates or provides for a security interest.  Section 9-102(A)(72)

            Placing the foregoing discussion in the context of Section 3-605(d) we have the following: 

1.    Secured party loans debtor $!00,000.00;

2.    Secured party requires a secondary obligor to back debtor’s obligation;

3.    Accommodation maker signs the note as a secondary obligor;

4.    The note is further secured by a security interest in debtor’s inventory;

5. Action by lender impairs the value of the inventory.

Section 3-605(d) is activated when the person entitled to enforce [typically the lender/secured party] ‘impairs the value of the interest in the collateral’.  Section 3-605(d) states that the value of collateral is impaired:

1.    “to the extent the value of the interest is reduced to an amount less than the amount of the recourse of the secondary obligor; or

2.    “the reduction in value of the interest causes an increase in the amount by which the amount of the recourse exceeds the value of the interest.”

The section provides examples of behaviors by a secured party which would constitute an impairment of collateral:

1. Failure to obtain or maintain perfection or recordation of the interest in collateral;

2.  Release of collateral without substitution of collateral of equal value or equivalent reduction of the underlying obligation;

3.  Failure to perform a duty to preserve the value of collateral owed, under Article 9 or other law, to a debtor or other person secondarily liable;

4.  Failure to comply with applicable law in disposing of or otherwise the interest in collateral.enforcing  the interest in collateral.

These are illustrative only and therefore there are other examples of impairment of value of collateral.  The comments to Section 3-605 state that this has been heavily litigated which provides fertile ground for case law support for statutorily based theories.

           

           I think it is safe to say that several more posts could be written on Section 3-605; however, to keep pace with the flow of the posts and to move through as much statutory material as possible, it is time to move on.  The core concepts of Section 3-605 have been articulated and can be refined to whatever extent is necessary in a particular situation.             

           Section 3-605 will be further discussed in the next post as part of the fact pattern presented in connection with the comprehensive approach.

            Below, I have reproduced a brief excerpt from The Uniform Commercial Code Made Easy which discusses some of the basics of Article 9.  This is not a book promotion, but is presented to assist in understanding the basic Article 9 concepts which intersect with Section 3-605(d).

Explanation Through Dialogue: Secured Transactions

“What is a ‘security interest’?” asked Stephen.

“Remember,” responded Alan, “when we were at the bank and Fred Luvick told you that the bank would need security of some sort before it would fund the loan?”

Stephen nodded.

“Well,” continued Alan, “the legal vehicle by which it will get the security in the property listed in paragraphs 1, 2, 3 and 4 is called a ‘security interest’. It is defined in the Uniform Commercial Code in part as: “…an interest in personal property…which secures payment…of an obligation.’ 3

“What is the obligation being referred to?” Stephen interrupted.

“Your obligation to repay the bank per the payment schedule you ultimately agree upon,” responded Alan.

“What interest in the property will the bank have?” Stephen asked.

“Its interest will be comprised of certain legal rights it will have in the listed property,” responded Alan, “which it can exercise in the event you fail to perform your obligations to it under the terms of the Security Agreement or Loan Agreement.”

“If for example, you failed to meet your obligations to the bank under the Loan Agreement by not meeting your payment schedule, the bank could, under certain circumstances, take possession of your inventory and sell it to recover the money you owe it.”

“By the way,” Alan said, “this property is called ’collateral’ under the Code.” 4

Alan could see that Stephen was having some trouble grasping the concept, “Stephen,” he said, “Let me give you an example which can help clear this up for you. Let’s assume that instead of borrowing money from the bank for the boat business, you are borrowing $750 from a pawnbroker. As you know, he won’t give you the money unless you give him some property. And of course the property must be worth at least as much as the loan or he probably won’t lend. Anyway, let’s assume that he takes your watch worth $1200 and you agree that if you don’t pay him back within, say, 60 days, he can keep the watch. In Article 9 language, he would have a ‘security interest’ in the watch.

“That is, the pawnbroker would have ‘an interest in personal property’ i.e. the rights you and he agree that he shall have in the watch, which secures payment of an obligation: your obligation to repay the money you borrow from him.

“Your situation with the bank,” Alan continued, “is basically the same, except, of course, that bank won’t have physical possession of the boats. First, the bank, like the pawnbroker, won’t lend money without security. In the pawnbroker situation, the security is the watch, in the bank situation, it will primarily be the boats. Failure to make your payments to the bank will give the bank similar rights with the boats and other property listed that the pawnbroker would have with the watch. For example, subject to certain rules, it can sell the boats to recover money you owe if you don’t meet your obligations to it. Thus, the interest which the bank has in the collateral, i.e., the security interest, like the pawnbrokers interest in the watch, secures payment of your obligations to it to repay the money borrowed.

As you can see, the loan agreement is specifically referred to in the Security Agreement in the last paragraph before the default provisions. As you notice, the bank is under an obligation to lend you additional money in the amount of $400,000 upon your securing either the Crown or Marina account. This obligation on the part of the bank is sort of like the after acquired property clause we discussed this morning. This particular clause is called a “future advance clause”. It, like the after acquired property clause, was looked upon with disfavor in earlier case law. It has now been validated by §9-204 of the Uniform Commercial Code.

“The Uniform Commercial Code gives special names to the parties in such a transaction. Since the bank would be a lender in whose favor you would be creating the security interest, the bank would be called the ‘secured party’. 5 Since you have an interest in the collateral, you will be called the ‘debtor’. 6 As you can see, this agreement is titled “Security Agreement”. The reason is because it is an agreement which creates a security interest.” 7

___________________________

3 Section 1-201(b)(35)

4 “Collateral” means the property subject to a security interest . . . Section 9-102(a)(12)

5 “Secured party” means a person in whose favor a security interest is created or provided for under a security agreement. . . Section 9-102(a)(72)(A)

6 Debtor” means  a person having an interest, other than a security interest or other lien, in the collateral, whether or not the person is an obligor;  Section 9-102(a)(28)(A)

7 “Security agreement” means an agreement which creates or provides for a security interest. Section 9-102(a)(73)

The general validity of a security agreement is set forth in §9-201:

Except as otherwise provided in [the Uniform Commercial Code] a security agreement is effective according to its terms between the parties, against purchasers of the collateral, and against creditors. Section 9-201(a)

There are exceptions to the basic rule noted above which are contained in subsections (b), (c) and (d).  Most notable among these exceptions is subsection (b) which deals with “any applicable rule of law which establishes a different rule for consumers. . . .”