| 2. Validity of Unrestricted "Floating Lien." This Article |
expressly validates the "floating lien" on shifting collateral. |
See Sections 9-201, 9-204 [Maine cite section 9-1201, section 9- |
1204] and Comment 2. This section provides that a security |
interest is not invalid or fraudulent by reason of the debtor's |
liberty to dispose of the collateral without being required to |
account to the secured party for proceeds or substitute new |
collateral. As did former Section 9-205, this section repeals |
the rule of Benedict v. Ratner, 268 U.S. 353 (1925), and other |
cases which held such arrangements void as a matter of law |
because the debtor was given unfettered dominion or control over |
collateral. The Benedict rule did not effectively discourage or |
eliminate security transactions in inventory and receivables. |
Instead, it forced financing arrangements to be selfliquidating. |
Although this section repeals Benedict, the filing and other |
perfection requirements (see Part 3, Subpart 2, and Part 5) |
provide for public notice that overcomes any potential misleading |
effects of a debtor's use and control of collateral. Moreover, |
nothing in this section prevents the debtor and secured party |
from agreeing to procedures by which the secured party polices or |
monitors collateral or to restrictions on the debtor's dominion. |
However, this Article leaves these matters to agreement based on |
business considerations, not on legal requirements. |