Hot Topics In Commercial Law

A version of this article originally appeared in Business Law Today, the ABA Business Law Section's digital magazine offering in-depth articles, quick summaries of the month's key developments by practice area, checklists and other practical tools, and more.

IN BRIEF

• A CLE from the ABA Business Law Section's 2025 Fall Meeting explored more than 300 recent commercial law decisions, focusing on evolving issues in the application of UCC Article 9 and the enforcement of security interests.
• Panelists analyzed cases involving unconventional collateral, such as intellectual property, rare diamonds, antique automobiles, and cannabis licenses, emphasizing the importance of enforceable rights and clear security agreements.
• Courts continue to refine standards for commercial reasonableness in collateral sales, considering factors like timing, notice, third-party interest, and asset preservation.
• Emerging trends include UCC application in digital asset transactions, electronic records, and fraud prevention, with the 2022 UCC Amendments already effective in many states.

What happens when a jeweler offers a 103-carat diamond, previously obtained from a thief, as collateral for a loan? When does a cannabis license create a property right that can be offered as collateral? If a factor recoups its investment from a fashion designer in an Article 9 sale, then attempts to resell those goods, do the security interests and priorities in the underlying licenses transfer as well? These are just a few of the questions litigated recently that were discussed at the ABA Business Law Section CLE 2024 Commercial Law Developments during the Section's 2025 Fall Meeting. This engaging program featured insights from Teresa Harmon, Partner, Sidley Austin LLP; Steven Weise, Partner, Proskauer Rose LLP; and Stephen Sepinuck, Special UCC Advisor, Paul Hastings LLP. For full details, in addition to viewing the program recording, you'll want to familiarize yourself with the written materials, which summarize more than 300 recent commercial law decisions.

The panel began with an overview of cases that address the basic elements of security interests.

Scope of Article 9

Pursuant to § 9-109(a)(1) of the Uniform Commercial Code ("UCC"), Article 9 applies to any transaction that creates a security interest in property. Weise noted that form or labels do not govern the applicability of Article 9 and subjective intent is irrelevant, highlighting In re Stephenson, 728 F. Supp. 3d 1181 (D. Colo. 2024). In In re Stevenson, the court upheld a bankruptcy court's ruling that a sale of a vintage automobile for $120,000 with an option to buy it back anytime within one year was a true sale, not a loan, particularly because the parties understood it to be a sale. Sepinuck noted that the court did not consider the value of the collateral in its analysis, which should be a significant factor in assessing the true nature of these transactions.

Attachment: Description of Collateral

Under Article 9, a security agreement must include a description of its collateral. While the description need not be descriptive, it must make the collateral reasonably identifiable. Weise offered insights on In re Genesis Global Holdco LLC, 658 B.R. 31 (Bankr. S.D.N.Y. 2024), in which the court considered a security agreement that described the collateral to include "all property from time to time transferred by or on behalf of [the debtor] to or for the benefit of [the secured party]." The description was later updated to provide that the debtor's remote parent would transfer 31,180,804 additional shares of stock to the debtor, which the debtor would promptly thereafter "transfer or cause to be transferred" to the secured party. Because the additional shares were never transferred, the court held that there was no security interest in those shares.

The panel also discussed the distinction between commercial tort claims, which arise out of a duty under the law and require a more robust description of impacted collateral, and contract claims, which arise out of a contractual dispute and simply require that the collateral is reasonably identifiable from the description. See In re Main Street Business Funding, LLC, 2024 WL 4056601 (3d Cir. 2024), 2024 WL 1296907 (Bankr. D. Del. 2024).

Rights in the Collateral

For a security interest to be enforceable, a debtor must have rights to pledge or transfer the collateral in question. Harmon discussed United States v. Lee, 748 F. Supp. 3d 1142 (M.D. Fla. 2024), in which a jeweler pledged a stolen 103-carat diamond as collateral on a $4 million loan. In this instance, there was an understanding of the security interest between the parties, but no written security agreement. The jeweler transferred the diamond to the lenders. The diamond was later seized in a forfeiture collection, and the lenders tried to retrieve it. The court held that the lenders did not have a valid security interest in the diamond because the jeweler had no rights to pledge the stolen diamond as collateral.

After addressing these foundational elements of security interests, the panel went on to discuss additional issues related to the enforcement of security interests, including priority, disposition, liability (including in consignment transactions), bankruptcy, guaranty, contract interpretation, contract remedies, forum selection, and hybrid contracts.

In AmeriCredit Financial Services, Inc. v. Bell, 707 S.W.3d 639 (Mo. Ct. App. 2024), Clover Private Credit Opportunities Origination (Levered) II, L.P. v. Sanberg, 212 N.Y.S.3d 287 (N.Y. Sup. Ct. 2024), and In re Strudel Holdings, LLC, 659 B.R. 659 (Bankr. S.D. Tex. 2024), courts considered whether sales of collateral were commercially reasonable. This analysis includes a number of factors, including, but not limited to, the timing of the sale and effective notice of the sale, third-party interest in the sale, public advertisement of the sale, bidding qualifications, the pricing of the assets in relation to the value of the security interest, and efforts to preserve the value of the assets leading up to the sale. In considering third-party interest in the sale, the panel noted that courts do not necessarily consider the absence of third-party interest to be a determining factor, but they will treat high third-party attendance as evidence that notice and advertisements were effective.

Sepinuck deemed Intellectual Tech LLC v. Zebra Technologies Corp., 101 F.4th 807 (Fed. Cir. 2024), the "best case of the year" for secured parties. The case involved an intellectual property owner's standing to sue for infringement after granting a security interest, an issue on which courts have been divided. Sepinuck noted the differences between constitutional and statutory standing for these issues and discussed the court's holding that a licensee retains all exclusionary rights unless those rights are expressly transferred away. A debtor's default on a loan obligation does not impact these rights, and a secured party cannot exercise any exclusionary rights unless the security agreement expressly transfers them away from the debtor.

The panel was a timely reminder that trends in commercial law will continue to evolve as technology, goods, and services grow in sophistication. Relatedly, the 2022 UCC Amendments, which were drafted to address these evolving trends, have passed the legislature in all states and are already effective in some jurisdictions. Other notable efforts include an initiative from the Permanent Editorial Board for the UCC to identify ways to try to use controlled electronic records to transfer securities. The Permanent Editorial Board is also exploring efforts to combat fraud in connection with wire transfers and funds transfers. Finally, the BLS Commercial Law Education Task Force is working to ensure commercial law continues to be taught in law schools and tested on bar exams, particularly given the proliferation of tokenization and digital asset transactions.

Stay tuned for next year's update, which we already know will feature cases involving cattle as collateral, broken hyperlinks, and transactional scandals involving your favorite luxury goods.

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