Two Issue with the common law of contracts addressed by the Uniform Commercial Code (UCC)

Three Article 8 cases Howard Darmstadter Business Lawyer. 57.4 (Aug. 2002): p1741+. Copyright: COPYRIGHT 2002 American Bar Association http://www.abanet.org

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This Article discusses two 2001 cases, and one 2000-case, all decided under the 1994 version of Uniform Commercial Code (U.C.C.) Article 8 (Revised Article 8). (1) The first two cases proceeded to unremarkable holdings, and are included here because they illuminate basic structural features of Revised Article 8. The third case also touched a basic structural feature of Revised Article 8, but in this case the legislative history of New York's enactment of Revised Article 8 may have supported a holding that would not be reached in other states.

REVISED ARTICLE 8'S DEFINITIONAL STRATEGY

The chief innovation in Revised Article 8 was its formalization of the distinction between the "direct" and "indirect" holding systems, and the promulgation of rules (in Part 5) for the latter.

In the direct system, Jane Doe will hold 100 shares of IBM stock represented by a stock certificate registered in her name. The relation is "direct" because Jane Doe is registered as the holder on IBM's books. In the indirect holding system, Jane will be an "entitlement holder" (2) (in common parlance, a customer) holding a "security entitlement" (3) against her "securities intermediary" (4) (usually her broker) with respect to 100 shares of IBM stock credited to her securities account. Her broker may in turn be a customer of--that is, hold a security entitlement against--another securities intermediary with respect to Jane's IBM shares (more accurately, Jane's security entitlement with respect to the IBM shares) and the IBM shares of its other customers. Eventually, the train of security entitlements ends with a securities intermediary (usually a depository, such as the Depository Trust Company) that holds millions of IBM shares directly--that is, the depository holds a certificate for the IBM shares registered in its, or its nominee's, name.

Well before 1994, the indirect holding system had become the chief means by which equity securities were held in the United States, and was the subject of a number of developed legal structures, most notably the securities and commodities laws. (5) Revised Article 8 (including the corresponding changes to U.C.C. Article 9) was, however, the first thorough-going attempt to develop formal rules for the ownership and transfer of securities within the indirect holding system. (6)

Revised Article 8's description of the indirect holding system relies on a small number of interlinked concepts, including "security entitlement," "entitlement holder," and "securities intermediary." (7) The definitions of these concepts do not, however, reduce these concepts to any more fundamental concepts, but instead link them to each other in what can be a perplexing circle. Thus, an "entitlement holder" is "a person identified in the records of a securities intermediary as the person having a security entitlement against the securities intermediary," (8) while a "security entitlement" is "the rights and property interest of an entitlement holder with respect to a financial asset specified in Part 5." (9) Clearly, each definition refers to the other.

The way out of the circle is that the key concepts in Revised Article 8's description of the indirect holding system rely for a large part of their meaning on the Part 5 rules, which are framed in terms of these concepts.

[T]he meaning of "security entitlement" is to be found less in any specific definition than in the matrix of rules that use the term. In a sense, then,

the entirety of Part 5 is the definition of "security entitlement" because the Part 5 rules specify the rights and property interest that comprise a security entitlement. (10)

What makes all this work--and it does work--is that the rules link up with actual practices in the real world of securities transactions. Actual practices in the securities industry give life and meaning to the rules, while the rules impose a legal order on the practices.

S.E.C. v. Credit Bancorp, Ltd. (11) shows how the concepts and the practices work together. Credit Bancorp, Ltd. (CBL) ran a giant Ponzi scheme whose collapse has raised some interesting Article 8 issues regarding the distribution of its assets. Last year's review discussed one of those issues. (12) In this year's serial installment, the court had to decide whether property in mutual fund accounts titled "CBL FBO [for the benefit of] Jane Doe" (FBO accounts) could be distributed pro rata to CBL's customers. (13) The various Jane Does objected, arguing that the accounts should be turned over to them. (14)

The question addressed by the court was: Who is the entitlement holder of an FBO account? (15) The problem was that Revised Article 8 nowhere mentions FBO accounts.

One of the key Part 5 rights of an entitlement holder is the right to give "entitlement orders" to a securities intermediary, (16) an "entitlement order" being "a notification communicated to a securities intermediary directing transfer or redemption of a financial asset to which the entitlement holder has a security entitlement." (17) Another Part 5 right empowers an entitlement holder to direct the securities intermediary to "change a security entitlement into another available form of holding for which the entitlement holder is eligible, or to cause the financial asset to be transferred to a securities account of the entitlement holder with another securities intermediary." (18) In law, you would have to know whether someone is an entitlement holder before you know whether he or she has these rights. In practice, however, customers of securities firms are given the rights: to direct the firm to buy and sell securities for the customer, to change the form of the investment, and to move it to another firm.

Seen in this light, the question posed no trouble for the court (which in any case, felt no need to engage in the preceding philosophical ruminations). In each case before the court, the mutual fund's practice on the FBO account was, consistent with its usual practice, to take orders solely from CBL and not from Jane Doe. With CBL as the entitlement holder, the Article 8 rules meshed smoothly with actual practice; with Jane Doe as the entitlement holder, they did not. In particular, the court cited section 8-107(d), (19) which states that "if a securities account is maintained in the name of a person described as a representative, an ... entitlement order made by the person is effective even though the person is no longer serving in the described capacity." The court held that under Article 8, CBL was the "entitlement holder" of the FBO accounts, and that therefore the FBO accounts were to be treated like CBL's other accounts, for purposes of implementing a plan of partial distribution to CBL's customers. (20)

There is one problem with the court's analysis. The court assumed without discussion that the FBO accounts were securities accounts maintained by securities intermediaries. (21) But the accounts were maintained by mutual funds, which are issuers of securities and not securities intermediaries. (22) Accordingly, CBL would not have had security entitlements against the mutual funds, because it would have had to be an entitlement holder, which is "a person identified in the records of a securities intermediary." (23) Treating the mutual funds as issuers of securities would probably not have changed the result, however, because CBL would have been the "appropriate person" to indorse certificates or give instructions for uncertificated securities. (24) Thus, the mutual fund would have been entitled to treat CBL as the person exclusively entitled to exercise the rights and powers of an owner. (25)

SAFEGUARDING THE TRANSFER PROCESS

CAPM Corp. Advisors AB v. Protegrity, Inc. (26) involved a dispute between CAPM Corporate Advisors

AB, a Swedish corporation, and other Swedish entities as to the beneficial ownership of 1.25 million shares of Protegrity, Inc. (where do they get these names!?), a Delaware corporation, that were registered in CAPM's name. When CAPM sold 307,000 shares of the stock, it forwarded the stock certificate to Protegrity, directing it to issue certificates for the purchased shares to the purchasers, and to return certificates for the remaining 943,000 shares, registered in CAPM's name, to CAPM. Protegrity sent the certificates for the 307,000 shares to the purchasers, and issued certificates for the other 943,000 shares in CAPM's name. (I'll refer to these certificates as the "retained certificates".) At the request of a claimant, however, Protegrity refused to deliver the retained certificates to CAPM. CAPM brought an action in Delaware to require Protegrity to deliver the retained certificates, and moved for summary judgment. (27)

CAPM argued that under section 8-401(a), Protegrity had to "register the transfer" of the shares if CAPM fulfilled the requirements of that section. (28) Protegrity countered that section 8-401(a) did not govern for two reasons: First, the retained certificates were not being transferred to a new purchaser, so the rules on registration of transfer did not apply. (29) Second, CAPM was a securities intermediary to the other claimants, who were entitlement holders, so that Protegrity's duties included ensuring that the entitlement holders' "superior title" under Part 5 of Article 8 was protected. (30)

The court made short work of Protegrity's arguments. The court cited Delaware precedent that "[g]iven ... commercial realities, it is reasonable to construe the term `register the transfer', as used in [section] 8- 401 of the UCC, to include those ministerial acts that normally accompany such registration, including, where applicable, the issuance of a new certificate." (31) Accordingly, "the statutory obligation to `register the transfer' includes a duty on the part of an issuer to deliver reissued certificates evidencing the title of the holder of retained securities." (32)

The court also gave policy reasons for this conclusion: If Protegrity's reading of section 8-401 were to be accepted, "[i]ssuers would be placed under a duty to investigate underlying transactions to ensure the absence of any disputes involving beneficial ownership," (33) adding that

Delaware law clearly does not contemplate such a scenario. [Section] 8-403 provides that only "a person who is an "[sic] appropriate person to make an endorsement or originate an instruction may demand that the issuer not register transfer of a security by communicating to the issuer a notification." An appropriate person to "make an endorsement" is defined as "the person specified by a security certificate ... to be entitled to the security." ... CAPM--not [the other claimant]--was the entity named on both the original certificate and the ... [retained] certificates.... Thus, [the other claimant] was [not] an "appropriate person to make an endorsement" ... and, therefore, was not empowered with the authority to demand that Protegrity not register transfer of the reissued certificates as requested by CAPM. (34)

One can quibble with the court's reasoning here--section 8-403, like section 8-401, refers to "registration of transfer," and so cannot support the position that "registration of transfer" must include a duty to deliver reissued certificates to the record holder for shares not sold. Nonetheless, the court's holding is sensible in light of the statutory wording and the overall thrust of Article 8. The issuance of a new certificate to the original holder where fewer than all of the shares represented by the certificate are sold is a normal part of the transfer process; if Revised Article 8 had intended to treat it differently, something surely would have been said. Moreover, such different treatment would be contrary to one of Revised Article 8's central purposes: to increase the liquidity of securities by making it possible to challenge transfers only in extreme circumstances. (35)

Protegrity's other argument--that the Part 5 securities entitlement rules overrode the Part 4 registration rules--fared no better. Whether CAPM was a securities intermediary would depend, said the court, on

the interpretation of agreements governed by Swedish law. (36) But even if CAPM were a securities intermediary, and the other claimant an entitlement holder,

the rules in [Part 5] do not affect the duties of Protegrity as issuer of the stock. Protegrity ... does not attempt to categorize its status as either the securities intermediary or the entitlement holder. As recognized by Protegrity, Part 5 imposes a duty on an intermediary to treat the entity for which the stock is held and maintained "as entitled to exercise the rights incident to the security." Part 5 does not address or contemplate the rights or duties of issuers. Instead, I am of the opinion that Part 4 defines the duties and obligations of issuers, while Part 5 is reserved for relationships between securities intermediaries (which can include legal titleholders) and entitlement holders (which can include beneficial owners). (37)

Here again the court's reasoning is consistent both with Article 8's express wording and with its overall intention to protect the transfer process.

PROTECTION OF PURCHASERS

One of the chief purposes of Article 8 has always been to accord to purchasers of securities much the same protection as is afforded to holders in due course of commercial paper under U.C.C. Article 3. (38) In Revised Article 8 there are several levels of protection. The first, applicable to "protected purchasers" of certificated or uncertificated securities, frees them from adverse claims if they give value and obtain control of the security without notice of any adverse claim. (39) Similar protection is afforded a person who acquires a security entitlement. (40) These provisions echo the provisions for holders in due course of commercial paper. (41)

A higher level of protection is afforded, however, to purchasers of financial assets (including secured lenders) from securities intermediaries. If a securities intermediary transfers a security entitlement to a purchaser, and the purchaser gives value and obtains control, an entitlement holder of the securities intermediary can assert a claim based on the entitlement holder's property interest in the transferred security entitlement only if, among other things, the purchaser "act[ed] in collusion with the securities intermediary in violating the securities intermediary's obligations under Section 8-504." (42) Section 8- 504 requires a securities intermediary to "maintain a financial asset in a quantity corresponding to the aggregate of all security entitlements it has established in favor of its entitlement holders with respect to that financial asset" and not to grant any security interest in that financial asset without the entitlement holder's authorization.

The reason for the higher level of protection for such purchasers (and for similar protections given to securities intermediaries transferring financial assets (43) and to issuers registering transfers of securities (44)) is to protect the securities transfer and indirect holding systems.

The limitations ... on the ability of customers of a failed intermediary to recover securities or other financial assets from transferees are consistent with the fundamental policies of investor protection that underlie [Revised Article 8] and other bodies of law governing the securities business. The commercial law rules for the securities holding and transfer system must be assessed from the forward-looking perspective of their impact on the vast number of transactions in which no wrongful conduct occurred or will occur, rather than from the post hoc perspective of what rule might be most advantageous to a particular class of persons in litigation that might arise out of the occasional case in which someone has acted wrongfully. Although one can devise hypothetical scenarios where

particular customers might find it advantageous to be able to assert rights against someone other than the customers' own intermediary, commercial law rules that permitted customers to do so would impair rather than promote the interest of investors and the safe and efficient operation of the clearance and settlement system. (45)

There are, of course, other views on the proper policy in such cases. It could be argued, for example, that a "notice" standard would encourage participants in the system to take more care in their dealings, and would thus lead to less unlawful behavior by system participants. Not surprisingly, the proper standard was a contentious issue in the drafting process that led to Revised Article 8. (46) Obviously, the "acts in collusion" standard represents something of a victory for the "system first" over the "customer first" viewpoint.

The "acts in collusion" locution is not defined in the U.C.C. The Official Comments, however, give some guidance. Stated affirmatively, acting in collusion happens "in extremely unusual circumstances where the [purchaser] was itself a participant in the transferor's wrongdoing," (47) where the conduct "rises to a level of complicity in the wrongdoing," (48) and "reaches a level of affirmative misconduct in assisting the [wrongdoer] in the commission of a wrong." (49) The collusion test is "akin to the tort rules that determine whether a person is liable as an aider or abettor for the tortious conduct of a third party." (50) Expressed negatively, neither notice of an adverse claim, (51) failure to investigate, (52) nor even knowledge of the adverse claim or wrongful act, (53) are sufficient conditions for a collusive act.

New York was one of the last states to adopt Revised Article 8, in part delayed by a debate over the meaning of "collusion." Here, the "customer first" view got something back. In a statement of legislative intent, the New York legislature found that

The legislature intends collusion to include acting in concert, acting by conspiratorial arrangement, or acting by agreement for the purpose of violating the entitlement holder's rights or with actual knowledge that the securities intermediary is violating those rights. Under this standard, "collusion" includes transactions with a securities intermediary in which the purchaser has actual knowledge that the securities intermediary has violated or is violating an entitlement holder's property interest. The legislature intends that the purchaser's knowledge will be judged on a subjective, not an objective basis. When considering whether a purchaser has the requisite actual knowledge of the wrongdoing, the legislature intends that the purchaser be charged with possession of information that is brought to the purchaser's attention or that is contained in communications made or sent to the purchaser but that the purchaser has declined to receive or to communicate to persons within its own organization who are conducting the transaction. Nevertheless, nothing in this standard imposes a duty of inquiry. Thus, for example, a purchaser's knowledge of the precarious financial situation of the financial intermediary coupled with rumors, allegations, or reports of suspected wrongdoing does not amount to collusion. (54)

The legislature's statement is inconsistent with the Official Comments to Revised Article 8 that state that knowledge is a necessary, though not sufficient condition for acting in collusion. (55) Nor does the discussion of"actual knowledge" square with the U.C.C.'s provision on when "knowledge" becomes effective. (56) But the legislature does not adopt the Official Comments, nor does the American Law Institute or the National Conference of Commissioners on Uniform State Laws approve them. (57) And because the legislature's views on "actual knowledge" are only used in characterizing "collusion," the legislature's interpretation of collusion should be controlling for cases decided under New York law.

Which brings us to Nathan W. Drage, P.C. v. First Concord Securities, Ltd. (58) First Concord, a Nevis, West Indies, securities intermediary that was not registered with the Securities and Exchange Commission, cleared trades through Manufacturers and Traders Trust Company (M&T Bank), based in New York. (59) M&T Bank provided credit to First Concord for its trading activities, secured by First Concord's securities account at M&T Bank. Eventually, First Concord defaulted, and M&T Bank foreclosed. It developed that First Concord, contrary to its duties under Revised Article 8, had not maintained sufficient unencumbered financial assets to cover all the security entitlements of its entitlement holders. Nathan Drage, P.C., a law firm customer of First Concord, sued M&T Bank for damages in foreclosing on shares of GS Telecom, Ltd. that First Concord had pledged to M&T Bank, and M&T Bank moved to dismiss the claim.

The question facing the court was whether Drage's complaint stated a cause of action. (60) In deciding the issue, the court had to "accept each and every allegation, and reasonable inferences therefrom, as true, and, if plaintiff is entitled to recovery based upon any reasonable view of the stated facts, the complaint as a pleading is legally sufficient." (61) This is, of course, an easy standard to meet, a point that bears emphasis given the court's holding that

the amended complaint satisfactorily alleges that M&T Bank acted in collusion with [First Concord] to deprive plaintiff of its entitlement holding. Specifically, the amended complaint alleges that M&T Bank ... extended credit to [First Concord] far in excess of the amount provided for in the [Secured Grid Note and Pledge] Agreement [between M&T Bank and First Concord], knowing that [First Concord] did not have sufficient assets to cover the increased credit, and by artificially inflating the price of [Drage's] GST shares in order to recover as much as possible of [First Concord's] debit balance. (62)

Unfortunately, this passage is the court's entire discussion, so we must puzzle out how the court reached its holding.

Let's start with the second allegation. There are some grammatical obscurities in the court's phrasing, but a fair reading is that M&T Bank and First Concord conspired to manipulate the price of the GST shares. That's "acting in collusion" alright, but Revised Article 8 requires more: The purchaser must act in collusion with the securities intermediary "in violating the securities intermediary's obligations under Section 8-504," (63) which is the obligation to "maintain a financial asset [here, the GST shares] in a quantity corresponding to the aggregate of all security entitlements it has established in favor of its entitlement holders with respect to that financial asset," and not to pledge such financial asset. (64) What is missing in the allegation is any connection between the collusive act and a violation of that duty.

The first allegation, however, seems to pass muster under the New York legislature's interpretation of collusion. It's a fair inference that if M&T Bank knew that First Concord did not have enough non- customer assets to cover M&T Bank's loans, then M&T knew that customer assets were being pledged by First Concord, in violation of its duty to customers.

This allegation would probably not be adequate, however, in any other state. As noted, and following "the tradition of giving [the Official] Comments a degree of respect just shy of the statutory text," (65) knowledge is not a sufficient condition for collusion. (66) If knowledge is not a sufficient condition for collusion, it's hard to support an argument that takes us from the first allegation directly to collusion.

Drage does nothing to dispel the sense that New York's version of Revised Article 8 is more favorable to customers of securities firms, and less favorable to the firms or their secured lenders, than any other state's version of Revised Article 8. Will secured lenders be less willing to lend to securities intermediaries if the arrangements are subject to New York law? My guess is that most lenders and intermediaries are unaware of the differences, and will remain so until some event brings these

differences to wider attention. (67) The Drage decision, which contains virtually no discussion, and was not widely noted, is not that event. (68)

(1.) In connection with the recent revisions to Article 9 of the U.C.C., conforming amendments to Article 8 were adopted in all the states. Those changes would not have affected the analysis in the three cases discussed here. For a description of the conforming amendments to Article 8, see Robert A.Wittie, Review of Legislative Developments Affecting U.C.C. Article 8 and Investment Securities, 53 BUS. LAW. 1511 (1998).

(2.) U.C.C. [section] 8-102(a)(7) (2001).

(3.) Id. [section] 8-102(a)(17).

(4.) Id. [section] 8-102(a)(14).

(5.) See id. Article 8 Prefatory Note [subsection] I(D), IV(B).

(6.) See id. [section] II(c).

(7.) Id. [subsection] 8-102 (a)(7), 8-102(a)(14), 8-102(a)(17).

(8.) Id. [section] 8-102(a)(7).

(9.) Id. [section] 8-102(a)(17).

(10.) Id. Article 8 Prefatory Note [section] II(C). Cf. id. [section] 8-102 cmt. 17 (which repeats part of the explanation); id. [section] 8-501 cmt. 1 (providing a similar description relating to the meaning of "security account").

(11.) 168 F. Supp. 2d 122, 46 U.C.C. Rep. Serv. 2d (West) 517 (S.D.N.Y. 2001).

(12.) See Howard Darmstadter, Recent Article 8 Cases, 56 BUS. LAW. 1825, 1828 (2001).

(13.) Credit Bancorp, 168 F. Supp. 2d at 124, 46 U.C.C. Rep. Serv. 2d (West) at 518.

(14.) Id., 46 U.C.C. Rep. Serv. 2d (West) at 518.

(15.) Id. at 131, 46 U.C.C. Rep. Serv. 2d (West) at 530.

(16.) U.C.C. [section] 8-507(a) (2001).

(17.) Id. [section] 8-102(a)(8).

(18.) Id. [section] 8-508.

(19.) Credit Bancorp., 168 F. Supp. 2d at 132, 46 U.C.C. Rep. Serv. 2d (West) at 530.

(20.) Id. at 131-32, 46 U.C.C. Rep. Serv. 2d (West) at 530-31.

(21.) Id. at 131, 46 U.C.C. Rep. Serv. 2d (West) at 530.

(22.) Id. at 124, 46 U.C.C. Rep. Serv. 2d (West) at 519.

(23.) U.C.C. [section] 8-102(7) (2001); see also id. [subsection] 8-102(8), 8-102(17) (defining entitlement order and security entitlement).

(24.) See id. [section] 8-107 & cmt. 5.

(25.) See id. [subsection] 8-207(a), 8-401.

(26.) No. C.A. 18676-NC, 2001 WL 1360122, 46 U.C.C. Rep. Serv. 2d (West) 16 (Del. Ch. Oct. 30, 2001).

(27.) Id. at *2-*3, 46 U.C.C. Rep. Serv. 2d (West) at 20-21.

(28.) Id. at *3, 46 U.C.C. Rep. Serv. 2d (West) at 22.

(29.) Id. at *4, 46 U.C.C. Rep. Serv. 2d (West) at 22-23.

(30.) Id. at *7, 46 U.C.C. Rep. Serv. 2d (West) at 28.

(31.) Id. at *5, 46 U.C.C. Rep. Serv. 2d (West) at 25 (quoting Bender v. Memory Metals, Inc., 514 A.2d 1109, 1115, 2 U.C.C. Rep. Serv. 2d (Callaghan) 1650, 1659 (Del. Ch. 1986)) (alteration in original).

(32.) CAPM Corp. Advisors, 2001 WL 1360122, at *6, 46 U.C.C. Rep. Serv. 2d (West) at 27.

(33.) Id. at *5, 46 U.C.C. Rep. Serv. 2d (West) at 26.

34.) Id. at *6, 46 U.C.C. Rep. Serv. 2d (West) at 26 (quoting DEL. CODE ANN. tit. 6, [subsection] 8-403, 8-107).

(35.) See James Steven Rogers, Policy Perspectives on Revised U.C.C. Article 8, 43 UCLA L. REV. 1431, 1460-73 (1996).

(36.) CAPM Corp. Advisors, 2001 WL 1360122, at *8, 46 U.C.C. Rep. Serv. 2d (West) at 29.

(37.) Id. at *8, 46 U.C.C. Rep. Serv. 2d (West) at 29-30 (quoting Defendant's Response at 22).

(38.) U.C.C. Article 8 Prefatory Note [section] II(B) (2001).

(39.) Id. [section] 8-303.

(40.) Id. [section] 8-502.

(41.) Id. [section] 3-305(b).

(42.) Id. [section] 8-503(e).

(43.) Id. [section] 8-115.

(44.) Id. [section] 8-404.

(45.) Id. [section] 8-503 cmt. 3.

(46.) Rogers, supra note 35, at 1530-36.

(47.) U.C.C. [section] 8-511 cmt. 1 (2001); cf. id. [section] 8-503 cmt. 2 (containing virtually the same explanation).

(48.) Id. [section] 8-115 cmt. 5.

(49.) Id.

(50.) Id.

(51.) Id. [section] 8-115 cmt. 3.

(52.) Id. [section] 8-503 cmt. 3.

(53.) Id. [section] 8-115 cmt. 5.

(54.) N.Y. U.C.C. LAW Art. 8, Part 1 Legislative Intent--1997 Revision of Article 8 (McKinney Supp. 2002) (emphasis added).

(55.) U.C.C. [section] 8-115 cmt. 5 (2001).

(56.) Id. [section] 1-201(27).

(57.) Here I am indebted to Professor Kettering's discussion of the role of the Official Comments. Kenneth C. Kettering, Repledge Deconstructed, 61 U. PITT. L. REV. 45, 230-35 (1999).

(58.) 707 N.Y.S. 2d 782, 41 U.C.C. Rep. Serv. 2d (West) 673 (N.Y. Sup. Ct. 2000). Additional factual background may be found in an earlier proceeding, Nathan W. Drage, P.C. v. First Concord Securities, Ltd., 1999 WL 1293635, 39 U.C.C. Rep. Serv. 2d (West) 853 (N.Y. Sup. Ct. July 1, 1999).

(59.) It is not stated whether M&T Bank cleared for First Concord on a disclosed or omnibus basis. If M&T Bank cleared on a disclosed basis, it would have had a record of the securities in Drage's First Concord account; if M&T Bank cleared on an omnibus basis, it would have treated First Concord as a single customer, and would have been less likely to know what securities Drage held through First Concord.

(60.) Drage, 707 N.Y.S.2d at 784, 41 U.C.C. Rep. Serv. 2d (West) at 674.

(61.) Id. at 785, 41 U.C.C. Rep. Serv. 2d (West) at 675-76.

(62.) Id. at 787, 41 U.C.C. Rep. Serv. 2d (West) at 678.

(63.) U.C.C. [section] 8-503(e) (2001).

(64.) Id. [section] 8-504.

(65.) Kettering, supra note 57, at 234.

(66.) U.C.C. [section] 8-115 cmt. 5 (2001).

(67.) A situation that creates conflicting aspirations for the dissemination of this survey of Article 8 cases.

(68.) Drage is a 2000 case. It apparently had still not been officially reported when it was discussed in Francis J. Facciolo, Reviewing Article 8's Revised Collusion Standard, NEW YORK LAW JOURNAL, Mar. 27, 2001, at 1.

Howard, Darmstadter, Assistant general counsel--corporate law, Citigroup Inc., New York City. You can contact Mr. Darmstadter at darmstadterh@citi.com.

Darmstadter, Howard

Source Citation (MLA 8th Edition) Darmstadter, Howard. "Three Article 8 cases." Business Lawyer, Aug. 2002, p. 1741+. Academic

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