Opinion ID: 348299
Heading Depth: 1
Heading Rank: 1

Heading: The Description of Defendant's Security Interest

Text: 7 Contrary to the plaintiff's argument, the description of the security interest contained in the security agreement was sufficient to meet the requirements of 12 C.F.R. § 226.8(b)(5). The security agreement provided that the Debtor grants a security interest to the Secured Party in the following described personal property: . . . 3 and that, in case of default, the secured party may exercise any rights and remedies granted a Secured Party by the Uniform Commercial Code. Plaintiff argues that these phrases should be read separately and, so read, do not adequately disclose that the agreement is limited to a consensual security interest as defined in the UCC. We discern no such ambiguity. 8 The term security interest is specifically defined by Georgia law as an interest in personal property or fixtures which secures payment or performance of an obligation. . . . Ga.Code Ann. § 109A-1-201(37). The law governing a security interest in personal property is provided by the UCC. Ga.Code Ann. § 109A-9-102(1)(a); Brown v. Jenkins, 135 Ga.App. 694, 218 S.E.2d 690 (1975). 9 One major advantage of the UCC over pre-Code law was that it introduced a single device called a security interest to replace the plethora of devices that had previously existed, each with its own terminology and body of law. White and Summers, Uniform Commercial Code § 22-1 at 756 (1972). To require a secured party to specify some type of security interest in personal property other than one governed by the UCC serves no meaningful function, except to reintroduce the variety of terms Georgia has sought to encompass within a single term and a single body of law. See Ga.Code Ann. § 109A-1-102. 10 Further, the agreement here specifically refers to the UCC. It is suggested that the provision referring to the UCC remedies of the secured party would be redundant if only a UCC interest had been created by the words security interest. Such a reading is improbable, and the explicit reference to rights and remedies under the UCC is clear evidence that a UCC security interest was intended by the parties. 11 The Federal Reserve Board has interpreted a reference to a security interest under the Uniform Commercial Code to be a sufficient description of a type of security interest as required by 12 C.F.R. § 226.8(b)(5). FRB Official Staff Interpretation Letter of Nov. 22, 1976, 1976 CCH CONS.CRED. GUIDE P 31,491. This interpretation is entitled to great weight. Philbeck v. Timmers Chevrolet, Inc., 499 F.2d 971, 976 (5th Cir. 1974). The Code reference fully defines the legal rights of the parties. The agreement here, which mentions both the UCC and the personal property secured, stands in marked contrast to ambiguous language which the FRB letter finds inappropriate, such as a security interest established by our contract or a security interest through our agreement. 12 The Truth-in-Lending Act was adopted in order to give the consumer as much information as possible about his or her credit transaction. The inclusion of a term such as chattel mortgage would be misleading as to the nature of the security, the transaction by its terms being controlled by UCC law, rather than any other state law which might specifically apply to chattel mortgages. The consumer has received all the information necessary about this security interest. 13 The conclusion that the description of the security agreement in this case satisfies the Act is not contrary to the cases cited by the plaintiff. In Pennino v. Morris Kirschman & Co., 526 F.2d 367 (5th Cir. 1976), this Court held that in an open-ended transaction a disclosure that the creditor was granted a security interest in the merchandise purchased . . . in accordance with existing state laws was insufficient to satisfy section 226.7(a)(7), the portion of Regulation Z which applies to open-ended transactions. This transaction, however, was not open-ended, and is not governed by section 226.7(a)(7). See 15 U.S.C.A. §§ 1637, 1639. Also, Pennino held only that language similar to that in the instant case was insufficient to create a vendor's privilege under Louisiana law, a state which has not adopted the UCC. It did not hold that the security agreement did not describe a type of security interest. 14 Similarly, Starks v. Orleans Motors, Inc., 372 F.Supp. 928 (E.D.La.1974), aff'd without opinion, 500 F.2d 1182 (5th Cir. 1975), discussed the question of whether the transactions between the parties gave rise to a vendor's privilege under Louisiana law. Once the court determined such an interest had been created, it held that under section 226.8(b)(5), as a statutory lien, it must be disclosed. In contrast, there is no claim in the instant case that more than a UCC security interest was obtained by the creditor. The issue is whether the description of such a security interest was sufficient. 15 Pollock v. General Finance Corp., 535 F.2d 295 (5th Cir. 1976), rehearing denied, 552 F.2d 1142 (5th Cir. 1977), dealt with whether a conditionally worded after-acquired property clause met the requirement of the third portion of section 226.8(b)(5) that security interests in after-acquired property be clearly set forth. It did not discuss the description of a type of security interest. 16 Accordingly, we hold that reference to a security interest in personal property and to rights and remedies under the UCC was sufficient to apprise the borrower of the type of security interest created by the security agreement in this case. 17