## Facts

- Four commonly owned automobile dealerships entered financing arrangements with Chrysler Financial Company, L.L.C. (CFC).
- A dealership executed a retail financing agreement under which it assigned retail installment contracts to CFC; the agreement included a “chargeback” mechanism requiring the dealer to maintain a reserve (the greater of $1,000 or 1.5% of purchased contracts) to cover losses from prepayment or default.
- Later, the dealerships entered wholesale (“floorplan”) financing agreements with CFC to fund inventory purchases and granted CFC a security interest in dealership assets.
- Each wholesale agreement contained a dragnet clause stating that the security interest secured all obligations the dealerships owed to CFC, without limiting the obligations by time or type.
- After the dealerships satisfied the wholesale obligations, they demanded that CFC release its first-priority security interest.
- CFC refused to release its security interest unless the dealerships deposited and maintained 1.5% of certain outstanding retail contracts in a non-interest-bearing account to cover contingent future chargeback obligations.
- The dispute arose after Massachusetts adopted revised UCC Article 9, including revised § 9-204 and an Official Comment rejecting older, restrictive judicial tests for dragnet clauses.

## Issues

1. Whether, under revised Massachusetts UCC § 9-204, the wholesale agreements’ dragnet clauses secured the dealerships’ retail chargeback obligations, permitting CFC to retain its security interest as collateral for those contingent obligations.
2. Whether CFC’s refusal to release its security interest and insistence on a non-interest-bearing reserve breached contract, violated the revised Article 9 good-faith standard, or constituted an unfair or deceptive act under Mass. Gen. Laws ch. 93A.

## Decision

- The First Circuit affirmed judgment for CFC.
- The court held the dragnet clauses were enforceable under revised § 9-204 and extended the wholesale collateral to cover the retail chargeback obligations.
- The court held CFC did not breach its agreements and did not violate the revised Article 9 good-faith requirement.
- The court held CFC’s conduct did not constitute an unfair or deceptive practice under Mass. Gen. Laws ch. 93A.

## Legal Principles

- Under revised UCC § 9-204, dragnet clauses are generally interpreted according to their plain terms; restrictive, judicially created “same or similar type or class” tests are disfavored where the statutory scheme and Official Comment reject them.
- A broadly drafted security agreement may cross-collateralize distinct obligations owed by the same debtor to the same secured party, including obligations arising under separate agreements and at different times.
- Revised Article 9’s good-faith standard includes “the observance of reasonable commercial standards of fair dealing,” but a secured party acts in good faith when it enforces clear contractual allocation of credit risk absent proof of commercially unreasonable conduct.
- Conduct consistent with enforceable contract rights and commercial reasonableness generally does not amount to an “unfair or deceptive” act under Mass. Gen. Laws ch. 93A.

## Conclusion

The court enforced broad dragnet clauses under revised Massachusetts Article 9 to secure contingent retail chargeback obligations with wholesale collateral, and it rejected breach, bad-faith, and ch. 93A claims based on the lender’s refusal to release its security interest without a contract-based reserve.


Pride Hyundai, Inc. v. Chrysler Fin. Co., 369 F.3d 603 (1st Cir. 2004)