63 Tenn. L. Rev. 369 (1995-1996)
The Case for Laundered Security Interests

handle is hein.journals/tenn63 and id is 379 raw text is: THE CASE FOR LAUNDERED
SECURITY INTERESTS
STEVEN WALT*
A predominant conveyancing principle in commercial law is that the
assignee of an interest acquires only the quantum of interest its assignor
possesses. There are familiar exceptions: the power of one possessing legal
tender to transfer greater rights in the tender than it has,' the power of
transferee acquiring voidable title to goods to convey good title,2 the power
of a holder of a nonduly negotiated document to duly negotiate it,3 the
power of an owner of a certificated security to transfer it to a bona fide
purchaser free of adverse claims,4 and the power of a debtor to transfer
chattel paper free of encumbrances.' In each exception the assignee of an
interest acquires a greater interest in the asset assigned than its assignor
possesses. The exceptions allow the assignor to launder its interest: to
convey more than the legal entitlements of the assignor. In these cases,
laundering typically involves conversion, theft, or breach of contract
between the assignor and a third party. The euphemistic connotation of the
term suggests as much. Laundering is permitted as a cost associated with
Kaldor-Hicks efficient rules. It is something we tolerate.
This Article makes a case for laundered security interests under Article
9. At issue are the proper treatment of assigned unsecured claims and the
effect of an assignment on claims held by the assignee. Is an unsecured
claim, assigned to a creditor holding secured claims under a security
agreement   containing   a  cross-collateralization  clause, appropriately
considered a secured claim having the same priority as the assignee's
* Professor of Law and Class of 1963 Research Professor of Law, University of
Virginia School of Law. I thank Barry Adler, Clayton Gillette, Douglas Leslie, Saul
Levmore, Julie Roin, Robert Scott, George Triantis and participants in the Law and
Economics Workshop at the University of Virginia for helpful discussions and comments on
drafts of this paper. Cynthia Cordle provided valuable research assistance. The usual
disclaimer applies.
1. See City of Portland v. Berry, 739 P.2d 1041, 1044 (Or. Ct. App. 1987); Miller
v. Race, 97 Eng. Rep. 398 (K.B. 1758).
2. See U.C.C. § 2-403 (1989); cf § 7-205 (1992) (buyer in ordinary course of
fungible goods sold and delivered by warehouse now takes free of claims to the goods by
holds of a duly negotiated document).
3. See U.C.C. § 3-305 (1991) (holder in due course); U.C.C. § 7-502(1) (1992)
(rights acquired by due negotiation).
4. See U.C.C. § 8-302 (1991).
5. See U.C.C. § 9-308 (1992).

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