2—
Ostensible Ownership

a—
Introduction

The traditional doctrine of ostensible ownership holds that creditors assume that property "held" by another person actually belongs to that person. In other words, this doctrine posits that the archetypical form of ownership is immediate physical contact with, and custody of, a visible and tangible object. Like Waldron, proponents of this doctrine implicitly reduce property to the single masculine element of possession. I take this imagery to its logical extreme and call it "property as sensuous grasp." Property interests that cannot be so reduced—either because the interest is nonpossessory or because the object of the property interest is itself intangible—are considered "problems" that need to be explained. In other words, this doctrine holds that reasonable creditors presume that the person in physical custody of a tangible thing is ostensibly the owner free and clear of any competing claims. Consequently, in order to prevent actual or constructive fraud on creditors, all noncustodial property interests (such as hypothecations) should be "perfected."^[38] "Possession," in the sense of immediate physical custody or sensuous grasp

[38] The presumption of a right to possession from the fact of possession, moreover, largely underlies the doctrine of ostensible ownership, by which one is presumed to own the property he possesses. Numerous decisions and statutes, including the Statute of 13 Elizabeth, c. 5 (1571) and its modern progeny, the Uniform Fraudulent Conveyances Act, rest upon that doctrine and the further assumption that creditors rely upon the debtor's possession. The purchaser or creditor who allowed a false inference of ownership to arise by leaving property in the debtor's possession could expect no leniency in resulting litigation.

David Morris Phillips, Flawed Perfection: From Possession to Filing Under Article 9—Part I, 59 B.U.L. Rev. 1, 4 (1979).

by the secured party, is the preferred mode of perfection because it supposedly eliminates the ostensible-ownership problems with respect to the debtor's creditors.^[39] Hypothecations of most forms of personalty are governed by Article 9 of the Uniform Commercial Code (the "U.C.C."). Article 9's primary alternate mode of perfection by filing is permitted as a substitute—a form of fictive custody—in those situations where custody is impossible or impractical.^[40] This notion is unquestioningly adopted by a large percentage of the academy and the courts—a computer search will produce literally dozens of articles and cases which parrot it as dogma.

The high priests of ostensible ownership are Douglas Baird and Thomas Jackson.^[41] Starting with their 1981 article, Possession and Owner -

[39] The secured party could best rebut the inference of the debtor's unfettered ownership and assert her own right in the collateral by taking possession of it. The original purpose of recording statutes was "rebuttal of [the] fraud created by possession." Article 9, quite conservatively, tracks this historical emphasis on possession and ostensible ownership.

Id . (quoting John Hanna, The Extension of Public Recordation , 31 Colum. L. Rev. 617, 622 (1931) (alteration in original) (footnotes omitted).

The legal system's original method of providing this information was to give primacy to possession. At common law, a debtor's possession of personal property assured a prospective creditor that the debtor could give him an unencumbered interest in that property. Possession was indeed nine points in the law.

Douglas G. Baird & Thomas H. Jackson, Possession and Ownership: An Examination of the Scope of Article 9 , 35 Stan. L. Rev. 175, 180 (1983) [hereinafter Baird & Jackson, Possession and Ownership ].

[40] [The U.C.C. takes the approach] that [a] secured creditor need not take possession of the collateral, but if he does not, he must make a public filing in a designated place before he can shift the risk of competing claims to other property claimants.

Baird & Jackson, Possession and Ownership, supra note 39, at 183.

As David Morris Phillips so accurately argues in his critique of possession as a mode of perfection, despite the availability of filing as an alternate mode of perfection, and despite the fact that "business people have discounted the importance of possession, especially in its role as a perfecting mechanism" as indicated by the fact that "[f]iling, instead, dominates as the means of perfecting security interests," Article 9 still reflects the historical "preference accorded possessory security interests over filed security interests." Phillips, supra note 38, at 3. Indeed, the filing requirements have a "structural affinity to possession reflected in the tie between the location of filing and the place of possession." Id . Moreover, "possession by the debtor generally governs the time by which . . . the secured party must so file." Id . Phillips applauds amendments made to Article 9 since its original adoption which he believes have moved it further away from what I have called the physical metaphor, and argues that numerous considerations "should continue to contribute to the decline of possession's importance." Id .

[41] See generally Baird & Jackson, Possession and Ownership, supra note 39; Douglas Baird & Thomas Jackson, Security Interests in Personal Property (2d ed. 1987) [hereinafter Baird & Jackson, Security Interests]; Douglas Baird, Security Interests Reconsidered , 80 Va. L. Rev.2294 (1994). A quick LEXIS search of law reviews reveals literally dozens of articles and notes which uncritically accept the doctrine of ostensible ownership.

ship: An Examination of the Scope of Article 9 ,^[42] and continuing up through Baird's Security Interests Reconsidered ,^[43] they have taken the doctrine of "ostensible ownership" to its logical extreme and beyond.^[44] As described by Baird and Jackson:

Since Twyne's Case , . . . possession has been viewed as the best available source of information concerning "ownership" of most types of personal property. Separation of ownership and possession has been viewed as a source of mischief toward third parties, and for that reason as fraudulent.^[45]

They identify a negative pregnant in the traditional assertion that physical custody implies ownership. They infer from this that lack of physical custody implies no ownership. That is, the doctrine holds that the archetype of property is the sole element of possession reduced to the specific example of physical custody—an immediate, binary relation of subject to object. As this is the masculine strategy of denial, all attempts to complicate this simplistic account by revealing the mediated nature of noncustodial property interests must be repressed. This is why such interests are declared constructively fraudulent and voidable unless they can somehow be restated within the metaphoric imagery of the binary archetype.

Proponents try to justify this doctrine with a combination of ethical and economic grounds.^[46] Both these justifications are based on the unexamined and unverifiable empirical presumption that reasonable creditors assume (absent actual notice to the contrary) that all assets in a debtor's custody are unencumbered. This presumption is supposed to be bolstered by a historical analysis which purports to show that American

[42] Baird & Jackson, Possession and Ownership, supra note 39.

[43] Baird, supra note 41.

[44] Their casebook on secured transactions (which recapitulates arguments which they had separately or together introduced in earlier articles) is probably their most complete and sustained paean to ostensible-ownership theory. Baird & Jackson, Security Interests, supra note 41.

[45] Baird & Jackson, Possession and Ownership, supra note 39, at 180 (emphasis added).

[46] I explore these justifications at length in Jeanne L. Schroeder, Some Realism About Legal Surrealism , 37 Wm. & Mary L. Rev. 455 (1996) [hereinafter Schroeder, Legal Surrealism ]. In his critique of ostensible-ownership theory, Phillips sets forth its traditional ethical justification of preventing fraud. Phillips, supra note 38. That is, since, it is claimed, reasonable creditors assume that all assets in the custody of a debtor are unencumbered, any creditor who seeks to take a noncustodial property interest has an ethical duty to put other creditors on notice so that they are not defrauded. In their defense of ostensible-ownershiptheory, Baird and Jackson recognize the traditional ethical argument but seek to justify the rule in terms of efficiency. Baird & Jackson, Possession and Ownership, supra note 39. That is, it is supposedly cheaper for a noncustodial claimant to put all other creditors on notice of her property interest than it is for creditors generally to incur the costs of investigating title.

law has traditionally held that noncustodial property interests are presumptively voidable on the grounds of constructive fraud. Baird and Jackson do not merely argue that this historical account explains the existing positive law of perfection of security interests. Rather they believe that rationality itself insists upon the doctrine of ostensible ownership. It, therefore, should be unloosed from the confines of its traditional jurisdiction. Accordingly, not merely noncustodial security interests but all noncustodial property interests should be subjected to a perfection regime.^[47] That is, although they purport to justify ostensible-ownership doctrine in part by historical precedent, they conclude by arguing that we should adopt and expand the doctrine despite historical precedent to the contrary.

Opponents of ostensible-ownership theory have argued for years—persuasively in my opinion—that there is strong empirical evidence that, whether or not its basic underlying assumptions were ever justified, they are now obsolete.^[48] In our modern economy, property interests commonly, or even typically, are not accompanied by physical custody of tangible objects, and the persons in custody of the objects of property are commonly not the owners. An excellent example of this, which I shall discuss later in this section, is one of the most important categories of personal property in the modern economy—investment securities (i.e., stocks and bonds). The vast majority of publicly traded securities are no

[47] "That we tolerate the ostensible ownership problems created by these transactions is largely an accident of history." Id . at 177–78. To Baird and Jackson, the traditional protections of leases, bailments, and other interests are economically irrational aberrations to a general ostensible-ownership doctrine. Indeed, they repeatedly emphasize that if we are to take the "ostensible ownership problem seriously" we should impose filing or other notoriety requirements on other forms of noncustodial interests such as bailments.

[48] Many writers, including myself, question the empirical presuppositions underlying this argument. See Schroeder, Legal Surrealism, supra note 46. Probably the most trenchant critic is Charles Mooney. Similarly, Phillips states that

[c]riticism of the doctrine of ostensible ownership finds its strongest behavioral support in the actions of parties who extend secured or unsecured credit subsequent to the secured transaction. Even with respect to creditors, one can poke holes in this criticism but its case seems incontrovertible—business people look to written, not possessory evidence of ownership. And this view leads generally to recognizing filing, but not possession, as a means of notice.

Phillips, supra note 38, at 35.

longer evidenced by physical certificates held by the owners but are held indirectly through tiers of intermediaries in the form of electronic book-keeping entries. Consequently, the marketplace is fully aware that physical custody standing by itself has no evidentiary value.^[49] In other words, creditors do not have to undertake expensive investigation to learn that encumbrances exist. They can assume, based on empirical data concerning debtors on the whole, that they do.^[50]

[49] The high cost and relative ineffectiveness of possession as a means of allowing efficient use of the debtor's resources and providing certainty explain why filing dominates as the perfecting mechanism. The ineffectiveness of possession as a constructive notice is the foremost reason why the law should recognize and encourage possession's demise. These factors are related. Any attempt to make perfection through possession more effective in providing the secured party with certainty conflicts with the debtor's use of collateral. And efforts to make perfection through possession more effective in allowing collateral to be put to its most efficient use inevitably increase the risk that third parties might mistakenly rely upon the debtor's ostensible ownership and extend credit or purchase assets unaware of the secured party's interest.

Phillips, supra note 38, at 8.

[50] At least one critic also challenges Baird and Jackson's historic account. Charles Mooney argues that our legal and economic system has never had a general concern about the separation of ownership and possession per se. There has, however, been a concern for limiting opportunities for fraud. This fraud concern is separable from the ostensible-ownership concern that possession of personal property begets misleading appearances of ownership upon which creditors and purchasers may rely. Charles Mooney, Jr., The Mystery and Myth of "Ostensible Ownership" and Article 9 Filing: A Critique of Proposals to Extend Filing Requirements to Lease , 29 Ala. L. Rev. 683 (1988). According to Mooney, the landmark cases on which Baird and Jackson rely invalidated the property interests of certain parties because the facts in those situations seemed particularly amenable to being used fraudulently. Id . at 730.

I do not wish to restate Mooney's insightful analysis, but a brief discussion of one of the cases may give a flavor to the traditional case law. In Clow v. Woods, 5 Serg. & Rawle 275 (Pa. 1819), the debtor, Hancock, purported to hypothecate all of his property to two individuals, Woods and Sharp, the day before a court awarded a judgment against Hancock in favor of a certain Poe. Poe did not learn of this hypothecation until exactly a year later when he hired a sheriff to enforce his judgment against the recalcitrant Hancock. Woods and Sharp sued the sheriff for taking "their" property.

We do not know much about the parties, but the skimpy facts reported in the case are suspicious. The judgment of Poe against Hancock was for the accounting of a defunct partnership between the two men. Although the court described this as an "amicable suit," it is my experience that even friendly breakups of partnerships, like uncontested divorces, often result in bitterness. This is especially the case when there is a disagreement about the division of property. For example, in the last five years my former law firm merged with another firm, split, and then split again. Two of the splinters were incorporated into other larger firms and the third has since dissolved. Several other partners and associates left or were forced out during these troubled times. Since I had resigned and withdrawn my capital a few years before in order to teach, I was able to sit and watch with morbid fascination the pitiful and disgusting sight of former friends descending into mutual recriminations and, eventually, years of litigation. Woods and Sharp were not ordinary secured lenders of Hancock. Rather, they had signed instruments as accommodation parties for Hancock. The hypothecation was to secure Hancock's reimbursement obligation in the event the accommodation parties were ever called under their suretyship obligation. People do not act as sureties without a reason. Apparently Woods and Sharp were never called to pay under the instruments. At the time the sheriff tried to execute upon the property one year and one day after the hypothecation, the "collateral" was still being used by Hancock. Were Woods and Sharp close friends or intimate business associates of Hancock whom Hancock preferred over his former associate, Poe? Rather than being a legitimate transaction which can be characterized as an abstract constructive fraud against hypothesized future creditors, this case reeks of being an actual fraud—a sham transaction entered into for the sole purpose of defrauding Poe.

In this view, the traditional doctrine of ostensible ownership did not generally void property arrangements which separated ownership and possession as fraudulent. It merely established a rebuttable presumption of fraud—in the case of certain hypothecations and a few other forms of the noncustodial transfers. Mooney, supra at 729. Moreover, most instances of separation of ownership and possession have traditionally been found to be "unproblematic." Disputes among different claimants to various forms of property are usually resolved by application of a combination of "derivation" (i.e., first in time, first in right) and "negotiability" (i.e., bona fide purchaser) principles without reference to pejorative and conclusory allegations of implied fraud.

My main argument against Baird and Jackson's theory is not, however, based on empirical claims or historical interpretation.^[51] Rather, my complaint is that they attempt not only to analyze current law but also to make policy recommendations for future law on the basis of unprovable assertions of accidental and contingent empirical facts rather than a consideration of the logical functions of property.

b—
Custody as Evidence of Ownership

Baird and Jackson assert:

Possession of personal property is the best evidence of its ownership. The law of secured transactions has ordered itself around this principle for nearly four hundred years. . . . The drafters of the [Uniform Commercial] Code did not go far enough either in abolishing metaphysical and unobservable

[51] Although I believe that the underlying presumptions are highly unlikely to be true. As Phillips argues, Baird and Jackson must be wrong in asserting that physical custody is the best evidence of ownership. Custody can never convey unambiguous information as to ownership precisely because people do not take custody of goods solely or even primarily as a form of communication but for a wide variety of practical purposes. Perhaps the only instance of possession as a communicative act is the pledge. But even then, often the secured party takes custody of the collateral not merely to put the world on notice of its security interest but also as a way of policing the debtor. The significance of custody is, consequently, always ambiguous. "Only an abstract means of perfecting security interests avoids both the uncertainty as well as other inefficiency costs associated with perfection through possession." Phillips, supra note 38, at 34. That is, if avoiding ambiguity is the goal, one should require a formal act which no one would take for any reason other than for the purpose of conveying information. Consequently, even though, historically, filing was developed as a "form of constructive possession," id ., in fact, it better serves the functions of perfection and shouldsupplant custody as the preferred norm. "[F]iling, with its attendant specifics of what, where and how, generally avoids the recurrent pitfalls that characterize perfection through possession and produce uncertainty." Id .

distinctions based on concepts such as "title" or in adopting the more concrete concept of possession as their benchmark.^[52]

This is one of the clearest statements of property as sensuous grasping of physical things in contemporary legal scholarship. Those legal relationships which are not physically observable are slandered as mere "metaphysics." Their phrase echoes Karl Llewellyn's embrace of the physical metaphor in the Official Comment to U.C.C. § 2-101, which states that under the law of sales

[t]he legal consequences are stated as following directly from the contract and action taken under it without resorting to the idea of when property or title passed or was to pass as being the determining factor. The purpose is to avoid making practical issues between practical men turn upon the location of an intangible something the passing of which no man can prove by evidence and to substitute for such abstractions proof of words and actions of a tangible character.

As Llewellyn insisted, practical men need tangible things. Baird and Jackson seem never to use the word "title" without their intended pejorative, "metaphysical." Presumably, by "metaphysical" they intend connotations such as unreal, fictional, imperceptible, invisible, intangible, inaudible, too abstract, excessively subtle, "airy-fairy," supernatural, ambiguous, uncertain, and so on. Certainly it is not serious enough (or, dare I say, too feminine?) for real men who are only happy when grasping their tangible things. But, in context, Baird and Jackson use the term to mean the legal (symbolic) as opposed to that which physically exists (which we locate in the real).^[53] In other words, they have inadvertently limited the word "metaphysical" to a simpleminded, folk-etymological meaning—that which is other than the physical—and imply that only the physical is actual. This precisely reflects our psychoanalytic urge to achieve the impossible goal of unmediated relationships through the imaginary collapse of the symbolic into the real, as though property could be reduced to our animalistic, natural, physical relations with the material world.

Note, however, that Llewellyn's concern expressed in the Official

[52] Baird & Jackson, Possession and Ownership, supra note 39, at 212 (emphasis added).

[53] Other "metaphysical notions" they identify include "'leases,' 'bailments,' and 'security interest.'" Id . at 190.

Comment is not the misleading nature of noncustodial interests but of nonobjective ones—that is, property interests which "no man can prove by evidence." Unfortunately, as I shall discuss in greater detail in section III.B of this chapter, his physicalist imagery already presupposes that "objective" means "physical" and that "intangible" means "subjective." This is exactly Baird and Jackson's error.

Like all proponents of the physical metaphor for property, Baird and Jackson do at some level recognize its impracticability, if not impossibility. And they offer one of the usual "solutions": denial through the adoption of the physical metaphor and attribution of the pejorative "metaphysical" to alternates. That is, certain forms of nonphysical possession are implicitly analogized as being equivalent to physical custody.

For example, they do not defend the filing regime on its own intrinsic utility. Rather, its utility is defended by metaphor—filing is just like sensuous contact:

Both public recording files and possession share one central feature: Information about competing property interests is concrete and trustworthy. It is trustworthy because the information is conveyed by events—making a filing or taking possession—that themselves determine legal systems.^[54]

This is despite the fact that Baird and Jackson also recognize that filing has distinct advantages over custody in that it allows the debtor to continue to use the collateral, thereby making it more likely that the secured party will eventually be paid.

A secured creditor need not take possession of the collateral, but if he does not, he must make a public filing in a designated place. . . . [A] filing system places fewer restrictions on the use of collateral yet it still provides information that allows a creditor to avoid the uncertainty caused by the possibility of debtor misbehavior.^[55]

At one moment Baird and Jackson do recognize that the requirement of perfection must relate to some requirement that property interests be objectively manifest as a condition of general enforceability, but do not understand its full implications:^[56]

[54] Baird & Jackson, Possession and Ownership, supra note 39, at 184.

[55] Id . at 183.

[56] Of course, they try to justify this on efficiency grounds based on unverifiable empirical presumptions as to creditor behavior and the relative costs of alternate legal regimes. In contradistinction, I wish to avoid relying on that which we cannot prove. Therefore, I try to derive this requirement from jurisprudential theory of the ethical function of property.

The doctrine of ostensible ownership assumes that such contractual divisions [i.e., of property rights] are irrelevant insofar as third party rights are concerned. What matters is that third parties be able to observe the division easily and accurately.^[57]

Unfortunately, after this correct starting place, their argument gets lost. Based on historical, but unverified, empirical assumptions, they first assume that physical custody is clear and informative and can serve as an effective way of objectively evidencing a property interest. From this they draw the non sequitur that noncustodial property interests are so problematic that they must be voided unless they can be cured by analogy to custodial interests. This means that Baird and Jackson do not fully recognize that the question of objectification arises in all property claims. Because they conflate objectivity with physicality, they believe that the need for objectification (what they call the ostensible-ownership problem) is created not by the claim to property but by the separation of such claims and physicality. Consequently, the test of an enforceable property interest depends not on whether it is sufficiently objectified but on whether it is sufficiently physicalized:

A party who wishes to acquire or retain a nonpossessory interest in property that is effective against others must, as a general matter, make it possible for others to discover that interest.^[58]

Therefore, filing is judged by whether or not it can serve as a substitute for physical custody and thus become a form of fictive possession.^[59]

A similar conflation of objectification with physicality can be seen in Stephen Munzer's otherwise insightful property analysis. Munzer makes the quite remarkable statement that the only way that "embodied entities such as human persons can have property in nonmaterial things . . .

[57] Baird & Jackson, Possession and Ownership, supra note 39, at 190.

[58] Id . at 179.

[59] Id . Elsewhere, they note in passing that possession may not be so unambiguous or even possible, but they minimize this by assertorially denying the materiality of this problem:

Cases might also arise in which there is ambiguity about which of two parties is in possession of property. . . . First, although the question of whether a party is in possession of property might be difficult in some cases, at least when goods are involved the inquiry will be quite straightforward. . . . Second, many problem cases do not have to be resolved on a case by case basis. . . . As we have seen, the doctrine of ostensible ownership provides potential claimants with a method for obtaining this knowledge. If a debtor is in possession of property, and there is no filing, potential claimants can be confident they will prevail over earlier claimants.

Id . at 193–94.

[is] through some physical manifestation."^[60] "It is, therefore, essential to property as it can exist for human beings that it involve, at some point, material objects. Without a physical manifestation people cannot have rights in nonmaterial things."^[61] He thinks that this is demonstrated by the fact that copyright and patent applications require a writing, drawing, or model.^[62] But in context, it becomes clear that his real concern is intersubjective communication. He refers to recent legislation as instituting "legal conventions that allow for more transitory physical manifestations."^[63] He gives as an example a California statute that recognizes property rights in "any original work of authorship that is not fixed in any tangible medium of expression."^[64] Music performed but not transcribed, or a mime performance seen but not filmed, is, to Munzer, a "fleeting" physical manifestation of property.^[65] Presumably, on this analysis, electronic records of property interests (such as uncertificated securities) and conveyances (such as wire transfers) are also "physical" manifestations.

Even if one buys (which I do not) their assertion that physical custody of goods is unproblematical in most cases, Baird and Jackson are presupposing an economy in which most (or at least the archetypical forms of) property interests involve tangibles. This means that the law of perfection of security interests in intangibles is developed by analogy to the presumed "norm" of tangibles. If the law of tangibles is based on the presence or absence of physical custody, the law of intangibles is developed by reference to the presence or absence of something that, by definition, cannot exist.^[66] This requires the development of ever more elaborate fictions and metaphors. This is precisely the same inverted logic which Waldron used to support the positive masculine phallic metaphor in property jurisprudence.

[60] Stephen R. Munzer, A Theory of Property 72 (1990).

[61] Id . at 73.

[62] Id .

[63] Id . at 78.

[64] Cal. Civ. Code §980(a)(1) (Deering Supp. 1989) (amended 1982), cited in Munzer, supra note 60, at 78.

[65] Munzer, supra note 60, at 78.

[66] The common law, of course, dealt with this in two ways. First, it generally made it difficult to convey property interests in intangibles. The assignment of choses in action was prohibited (although the numerous exceptions which grew up around this general proposition perhaps made it a rule more honored in the breach). 1 Grant Gilmore, Security Interests in Personal Property 196–249 (1965). Second, it "reified" certain intangible and noncustodial interests into pieces of paper called negotiable instruments, negotiable documents, and securities certificates so that we could fictively convey possession of the underlying property by handing over physical possession of the paper.

c—
Benedict v. Ratner

It is significant that Baird and Jackson include the infamous case of Benedict v. Ratner^[67] in the chapter of their casebook which covers the history of the ostensible-ownership principle.^[68] In this pre-U.C.C. case, the United States Supreme Court invalidated an assignment of accounts receivable—what we would today call a non-notification security interest in accounts.^[69] Specifically, the court voided a purported assignment by a corporation of all of its existing and future accounts receivable when the assignee not only lacked the right to collect the accounts but the assignor had no obligation to account to the assignee for the collected accounts. The assignee did not notify the account debtors that he was now the owner of the accounts, collect, ask for an accounting, or attempt to assert any rights whatsoever with respect to the accounts until after the corporate-assignor's bankruptcy. That is, the assignor retained the right to collect, settle, or otherwise deal in the accounts without either paying the proceeds over to the assignee or substituting new accounts. The Supreme Court found that this transaction was a fraud on the corporate-assignor's debtor as a matter of law (i.e., it is objectively fraudulent even if the corporate-assignor acted with subjective good faith as a matter of fact)^[70] because the assignor retained, and the assignee did not obtain, "dominion" over the accounts.

Baird and Jackson's inclusion of this case as an example (or, at least, a close relative) of ostensible-ownership theory follows from their custodial/

[67] 268 U.S. 353 (1925).

[68] Baird & Jackson, Security Interests, supra note 41, at 51–58. Baird and Jackson do not state expressly that ostensible-ownership principles literally apply to security interests in accounts. Their placement of the discussion, however, suggests that they see a strong family resemblance.

Other authors have more expressly linked the rule of Benedict v. Ratner with ostensible-ownership principles. For example, "The Twyne rule (and perhaps the Benedict rule) also may reflect the early common-law dissatisfaction with the notion that possession and ownership can be separated." John Dolan, The U.C.C.'s Consignment Rule Needs an Exception for Consumers , 44 Ohio St. L.J. 21, 34 n.84 (1993). Dunham similarly sees a close relation between the rule of Benedict and ostensible-ownership doctrine:

Perhaps the United States' most noteworthy extension of Twyne's case was articulated by the Supreme Court in Benedict v. Ratner . . . . Reservation and dominion over the accounts by the debtor was inconsistent with the assertion that title had been given to [the assignee]. The debtor's grant of unrestricted domain over the goods which rendered ownership more than ostensible troubled the court.

Darrell W. Dunham, Postpetition Transfers in Bankruptcy , 39 U. Miami L. Rev. 1, 41–42 (1984).

[69] U.C.C. §§ 1-201(37) and 9-104. The term "security interest" includes virtually all assignments of accounts, including outright sales, in addition to assignments for security.

[70] Although the court did not find that there was evidence of an actual intent to defraud the assignor's creditors in this case, the facts are, obviously, suspicious. Not only wasthe assignee the father of the assignor's president, the assignment was made four months and three days prior to the assignor's bankruptcy at a time when the voidable preference period was four months.

noncustodial distinction: if noncustodial interests are defined as problematical, then property interests in accounts which are, by definition, intangible must always raise the concerns which underlie ostensible-ownership theory.^[71]

Baird and Jackson take the position that, when one is analyzing the validity of the secured party's property interest, then the logic of ostensible-ownership doctrine demands that we ask not only whether the debtor retains physical custody but also whether the secured party ever obtained physical custody. That is, under the classic version of the ostensible-ownership theory, the debtor's creditors supposedly would be fooled into thinking that the debtor owned his property free and clear of liens if they looked at the debtor and saw the debtor in possession of the collateral. In the rewritten theory, creditors would also be fooled into thinking that a rival creditor did not have a lien on the debtor's property if they looked at the creditor and did not see it in possession. This seems to follow directly from the underlying presumption that property is possession and possession is physical custody.

This, of course, is the logical extension of the phallic metaphor. If a secured party is claiming a property interest, it is not enough to show that the debtor has been castrated from her phallic property. Rather, the secured party must show that he now wields the Phallus . For this analysis, it is irrelevant whether the reason why the secured party lacks physical custody is that the debtor retains physical custody (as in classic ostensible-ownership analysis) or that the nature of the collateral makes physical custody an impossibility (as in the case of assignments of accounts and other intangibles). This approach may be implicit in the rule announced in Benedict v. Ratner . Justice Brandeis might be read as analo-

[71] Mooney criticizes this approach because the Supreme Court expressly denied that it was applying ostensible-ownership law precisely on the grounds that it is impossible to take physical custody of an intangible. Mooney, supra note 50, at 733–34. "But it is not true that the rule stated above and invoked by the receiver is either based upon or delimited by the doctrine of ostensible ownership." 268 U.S. at 362–63.

Here I will defend Baird and Jackson as accurately reflecting the logic of the case. Mooney does not recognize that Baird and Jackson's (and, implicitly, the Supreme Court's) analysis extends the reasoning underlying ostensible-ownership doctrine beyond its common-law boundaries to its logical extreme. The common law of ostensible ownership concentrated on the fact that the debtor retained physical custody of the collateral. But Baird and Jackson are correct in realizing that this was a red herring.

gizing ownership of accounts to the sensuous grasp of goods and fixating on the lack of physical custody, or its analogue, in the secured party. In this reading the term "dominion" stands in for physical custody of intangibles.

Perhaps tellingly, the assignee in this case was the father of the assignor's president. Does his paternal status of the assignee explain, in part, why the Supreme Court was so concerned with the assignee's lack of dominion? For the father to function as a father he needs to appear to be holding the Phallus . But in Benedict v. Ratner , the father is castrated and it is the son who wields phallic property.

Modern lawyers love to sneer at this case as a relic of a financially unsophisticated era. The drafters of the U.C.C. claimed that they rejected the rule of Benedict v. Ratner with respect to accounts.^[72] By this they meant that they did not adopt the Supreme Court's specific solution to the secured party's lack. That is, they did not insist that the secured party take dominion and control over an assigned account. Instead, as I shall discuss below, Article 9 permits secured parties to perfect their interest through filing. Consequently, Article 9 makes it much easier for lenders to offer what is known as "nonnotification" accounts receivable financing.^[73]

In contradistinction, I agree with Baird and Jackson's intuition that Benedict v. Ratner remains relevant because it identifies a recurring problem of commercial law, albeit in a partial and imperfect manner. Although the drafters sought to assure a different outcome from that of Benedict v. Ratner , they implicitly embraced both its obvious general conceptual errors as well as its hidden insight. This can be seen in Article 9's rules for the perfection of security interests.

[72] Official Comment 1 to U.C.C. § 9-205 states that this section "repeals the rule of Benedict v. Ratner ." It continues:

The principal effect of the Benedict rule has been, not to discourage or eliminate security transactions in inventory and accounts receivable—on the contrary such transactions have vastly increased in volume—but rather to force financing arrangements in this field toward a self-liquidating basis. Furthermore, several lower court cases drew implications from Justice Brandeis' opinion in Benedict v. Ratner which required lenders operating in this field to observe a number of needless and costly formalities: for example it was thought necessary for the debtor to make daily remittances to the lender of all collections received, even though the amount remitted is immediately returned to the debtor in order to keep the loan at an agreed level.

[73] U.C.C. § 9-205 provides that

[a] security interest is not invalid or fraudulent against creditors by reason of liberty in the debtor . . . to collect or compromise accounts . . . or to use, commingle or dispose of proceeds or by reason of the failure of the secured party to require the debtor to account for proceeds or replace collateral.