In Re SCHWALB

AMENDED OPINION REGARDING CONFIRMATION OF CHAPTER 13 PLAN

Table of Contents to Opinion

I. Introduction..............................................................732

II. Relevant Facts............................................................732

III. Pioneer’s Property Interests................................................734

A. Pawnbrokers and the Pawning of Goods Generally.........................735

1. Short History of Pawnbroking .......................................735

2. Recent History, and the Advent of “Title Pawns”.......................736

3. Nevada’s Regulation of Pawnbrokers and Title Pawn Transactions........736

a. State .........................................................736

b. City..........................................................737

B. Application of Article 9.................................................737

1. Does Article 9 Apply to Traditional Pawnbroking Activities? .............738

2. Pioneer’s Transactions Are Not Traditional Pawn Transactions...........739

C. Applicability of Article 9 to Pioneer’s Loans...............................740

1. Attachment Generally...............................................741

a. Authenticated Agreement.......................................741

b. Attachment Based on “Constructive Possession” of the Certificates of Title...........................................745

2. Perfection.........................................................747

3. Enforcement.......................................................747

a. Unenforceable Forfeiture Clause.................................748

b. Violations of Part 6 of Nevada’s Article 9..........................749

c. The Irrelevance of Non-Nevada Statutory Law....................751

D. Summary........................................-.n^..................752

IV. Pioneer’s Claims in Bankruptcy............................................752

A. No Unsecured Claim...................................................752

B. Secured Claims........................................................753

1. Allowed Amount of Claim............................................753

2. Effect of Pioneer’s Violation of Article 9 on Its Allowed Claim............754

a. Statutory Recovery Under NEV. REV. STAT. § 104.9625 ........... 754

b. Offset Against Allowed Claim....................................756

3. Determination of Secured Claim — Valuation of Collateral................757

a. Evidence......................................................758

b. Timing........................................................758

V. Effect of Debtor’s Plan ....................................................759

A. Treatment of Secured Claim.............................................759

B. Feasibility............................................................759

*732 VI. Conclusion......................... ......................................760

I. Introduction

“Then the bird does not belong to any of you?” Spade asked, “but to a General Kemidov?”

“Belong?” the fat man said jovially, “Well, sir, you might say it belonged to the King of Spain, but I don’t see how you can honestly grant anybody else clear title to it — except by right of possession.” He clucked. “Am article of that value that has passed from hand to hand by such means is clearly the property of whoever can get hold of it.” 1

Possession is the central theme in this case. Pioneer Loan & Jewelry, a pawnbroker, possesses two certificates of title that list it as the owner of two motor vehicles. Michelle Schwalb, the debtor, possesses those vehicles. Pioneer claims exclusive ownership, and that Ms. Schwalb has no legal or equitable interest in the vehicles beyond mere possession. Schwalb counters that Pioneer has no interest in the vehicles because she never transferred title or granted any other interest in them to Pioneer.

Pioneer seeks possession of the vehicles, and has asked this court to force Ms. Schwalb to turn them over to it. Ms. Schwalb seeks to keep the vehicles and pay Pioneer nothing under her chapter 13 plan, the confirmation of which is the subject of this opinion.

Both parties’ fallback position is that Pioneer’s interest is that of a secured creditor, as it is not disputed that Pioneer originally lent money to Ms. Schwalb on the strength of the vehicles as collateral. But this presents a different problem: the documents under which Pioneer lent Ms. Schwalb money provided for an annual interest rate of approximately 120%. As a result, by the time Ms. Schwalb filed her bankruptcy, Pioneer’s claim had grown to more than double the original loan. Pioneer thus believes that Ms. Schwalb has insufficient resources to pay this claim over the life of her chapter 13 plan. Ms. Schwalb responds that Pioneer’s secured claim is less than Pioneer alleges. She offered evidence that she can afford plan payments at the current plan value. She also asserts, and Pioneer does not dispute, that Pioneer’s failure to file a proof of claim prevents Pioneer from asserting any unsecured claim related to its loans.

All of these issues were tried to the court during a confirmation hearing on March 20, 2006. After hearing the testimony, and reviewing all the evidence and the pleadings, the court finds that Pioneer is a secured creditor, and that Ms. Schwalb can fund a chapter 13 plan given the findings regarding value (after offsets for statutory damages). The court will thus require the debtor to file an amended plan consistent with this opinion, and when it is filed, the court will confirm that plan.

II. Relevant Facts

Michelle Schwalb is not a typical chapter 13 debtor. She holds no job, because she can’t hold one. Seven years ago she had a brain tumor removed, leaving her unsteady and unable to concentrate for extended periods of time. Social Security disability payments are her only regular income. She is 34 years old, diabetic, has a non-working pituitary gland, and has initial symptoms of Grave’s disease. She must take steroids to live. Ms. Schwalb *733 lives with a man who fathered her only child, and they have been together as a family for thirteen or fourteen years. He works outside the home, and pays most of the household expenses.

Ms. Schwalb’s chapter 13 plan is being funded entirely from her monthly disability payments, which are currently $580, and from contributions by her father. Her father’s current monthly contribution is $640. Ms. Schwalb’s father testified at confirmation that he is doing so out of a desire to take care of his daughter and his grandchild. He also testified that, before his daughter filed this chapter 13 case, he regularly contributed between $600 and $800 per month towards her support.

Ms. Schwalb’s father gave her the two vehicles at issue, a 1997 Infiniti QX4 Sport Utility Vehicle and a 2002 Cadillac Esca-lade. Before dealing with Pioneer, Ms. Schwalb had clean title to both vehicles. Then, sometime during 2004, the debtor, her father and her partner decided they needed to contribute funds to a business that Ms. Schwalb’s partner ran. They went to Pioneer and obtained two loans totaling $20,000.

The business, however, failed. Ms. Schwalb had no way to repay Pioneer. At this point, Pioneer began to take action to obtain the vehicles. To understand the actions Pioneer took, however, it is necessary to review the transactions by which Ms'. Schwalb obtained the $20,000.

Ms. Schwalb and her father initially approached Pioneer in June of 2004. Mr. Schwalb had done business with Pioneer and, at that time, enjoyed some goodwill with it. Ms. Schwalb’s Infiniti QX4 Sport Utility Vehicle was offered as collateral, and Pioneer advanced $4,000 against possession of the certificate of title for the vehicle. The parties testified that Ms. Schwalb gave Pioneer her certificate of title after she signed it as seller. The buyer’s name was left blank.

When she received the $4,000 in loan proceeds, Ms. Schwalb signed a document referred to by the parties as a pawn ticket. The pawn ticket is a preprinted form used by Pioneer in its pawnbroker business. It is a simple 5-inch-by-8-inch form, with text front and back. Among other things, the front has blanks for describing the property pawned, for the amount of the loan and for the repayment date.

On Ms. Schwalb’s pawn ticket, the parties designated the property pawned as an Infiniti QX4 Sport Utility Vehicle, and included its Vehicle Identification Number (VIN). The ticket also contained the loan terms. Ms. Schwalb was to repay the $4,000 in 120 days, plus $1,605 interest. The disclosed annual interest rate was 122.04%. 2 If Ms. Schwalb did not “redeem” the pawn and pay the loan within the 120 days, the pawn ticket indicated that “you shall ... forfeit all right and interest in the pawned property to the pawnbroker who shall hereby acquire an absolute title to the same.” Just before the blank on the pawn ticket in which the parties inserted the description of the Infiniti and its VIN, the pawn ticket indicated, in very small five-point type, 3 “You are giving a security interest in the following property: ”. Pioneer did not retain pos *734 session of the vehicle. Ms. Schwalb drove off in it with her $4,000. Pioneer put the signed certificate of title in a safe on its premises.

The transaction with the Cadillac was essentially the same, except Pioneer advanced $16,000 against possession of the signed certificate of title, and the interest rate was 121.76%. 4 This transaction occurred on August 19, 2004. In each case, Pioneer’s representative testified that the amount Pioneer lent against the certificates of title was within Pioneer’s general practice of lending no more than 30% to 40% of the retail value of the vehicle offered as collateral.

Approximately $1,605 in interest on the Infiniti loan was paid on or around November 6, 2004, thus extending the redemption period to March 6, 2005. No interest was ever paid on the Cadillac loan. The final 120-day term expired on the Infiniti loan on March 6, 2005, and on December 17, 2004, for the Cadillac loan.

When Ms. Schwalb did not repay either loan, Pioneer took both certificates of title to the Nevada Department of Motor Vehicles (“DMV”) where, sometime in April 2005, Pioneer requested that the DMV reissue the certificates showing Ms. Schwalb as the owner and Pioneer as the “lienholder.” The DMV complied. After Pioneer’s initial efforts to obtain the vehicles were unsuccessful, Pioneer then presented the newly reissued certificates of title to the DMV, this time requesting that the DMV reissue the certificates of title without any mention of Ms Schwalb, and listing Pioneer as the sole owner. Again the DMV complied. Pioneer then filed a state court lawsuit apparently alleging conversion and seeking recovery of both vehicles. There was testimony that Pioneer consulted with the local police regarding the necessity of changing the certificates of title to facilitate its legal action seeking recovery of the vehicles.

Ms. Schwalb filed her chapter 13 case on August 9, 2005. Pioneer elected not to file a proof of claim, instead opting to claim ownership of the vehicles. Pioneer attempted to obtain relief from stay so that it could obtain the vehicles, but withdrew that motion for procedural reasons.

Ms. Schwalb’s plan, filed with her chapter 13 petition, proposes to pay her creditors over 36 months. Her monthly payment is $555 for the first 12 months of her plan, and $709 per month for the remaining 24 months of her plan.

Initially, Ms. Schwalb contends that Pioneer is not a secured creditor, and is barred from participating in her case as an unsecured creditor. Her initial proposal is thus to pay Pioneer nothing under her plan. If Pioneer is found to be a secured creditor despite her objection, she proposes to value the collateral for the secured claims at $16,000 for the Cadillac loan and $4,000 for the Infiniti loan. The plan would then pay these two secured claims full over the life of the plan, together with 10% simple interest.

III. Pioneer’s Property Interests

The parties have focused on the nature of Pioneer’s property interest, if any, in the two vehicles. Relying on its pawn ticket and the laws of other states, Pioneer contends that it owns both vehicles, and that Ms. Schwalb has no legal or equitable interest in them. Ms. Schwalb counters that Pioneer is not a pawnbroker with respect to the vehicles since it did not retain possession of them after making the *735 loans. Ms. Schwalb further argues that the language of the pawn ticket is insufficient to create an Article 9 security interest under Nevada’s version of the Uniform Commercial Code (UCC). 5

Pioneer, if forced to yield on its ownership claims, contends that the language in the pawn ticket is sufficient under Nevada’s version of Article 9 to create a security interest, and that it has not violated any of Article 9’s requirements or restrictions. Ms. Schwalb, however, contends that Pioneer did not comply with significant and mandatory provisions of Article 9, and requests that this court reduce Pioneer’s claim.

A. Pawnbrokers and the Pawning of Goods Generally

All around the cobbler’s bench

The monkey chased the weasel

The monkey thought that all was fun

Pop! Goes the weasel!

A penny for a spool of thread

A penny for a needle

That’s the way the money goes

Pop! Goes the weasel! 6

Under Nevada law, a pawnbroker is a “person engaged, in whole or in part, in the business of loaning money on the security of pledges, deposits or other secured transactions in personal property.” Nev. Rev. Stat. § 646.010. The parties agree that Pioneer is a licensed pawnbroker under this law. They disagree, however, on the significance of Pioneer’s status, and to resolve those differences the court must investigate the history and current status of pawnbrokers, and the impact of pawnbroker status with respect to a nonposses-sory vehicle loan.

1. Short History of Pawnbroking

Pawnbrokers engage in transactions in which a debtor pawns 7 goods in return for a short-term loan. Pawnbroking has a significant and positive place in the history of lending. Italian Banks and Pawnbroking: In Hock, The Economist, May 27, 2006, at 73 (reporting that pawnbroking is a 500-year old business and stating that the bank claiming to be the world’s oldest bank, the Monte dei Paschi di Siena, began in the pawn business). According to some accounts, Queen Isabella of Spain pawned her jewels to finance Columbus’ trip of *736 discovery. Jarret C. Oeltjen, Florida Pawnbroking: An Industry in Transition, 23 Fla. St. U.L. Rev. 995, 996 (1996). 8 At various times in our history, pawning one’s clothes and other possessions was an ordinary and common occurrence. 9

Pawning one’s goods differs from lending against them; in a typical pawn, a debtor deposits goods with the pawnbroker, and receives money in return. If the customer does not “redeem” his pawn within a specified time, tradition has it that the power to sell the goods deposited automatically passes to the pawnbroker. If the pawnbroker’s subsequent sale of the goods does not cover the loan, the pawnbroker takes the loss; conversely, if the pawnbroker sells the goods for more than the money lent, custom allows the pawnbroker to keep the surplus. Caskey, supra note 7, at 1. Another way to characterize the transaction is as a nonrecourse loan by the pawnbroker to the customer, with agreed strict foreclosure on the redemption date.

2. Recent History, and the Advent of “Title Pawns”

Despite its venerable history, pawnbroking has lately experienced something of a public relations crisis. Pawnbrokers are regulated in a manner designed to deter personal property theft, and often are found in low-income neighborhoods on the fringe of respectability. Despite efforts to improve this image, “the negative portrait lingers; pawnshops continue to be cast as ‘nuisance businesses,’ in the company of tattoo shops and massage parlors, and somewhere in rank between liquor stores and houses of prostitution.” Oeltjen, supra, at 1001.

This negative perception has not been helped by the type of loans present here. As noted in a recent report sponsored in part by the Consumer Federation of America, “car title loans are marketed as small emergency loans, but in reality these loans trap borrowers in a cycle of debt. Car title loans put at high risk an asset that is essential to the well-being of working families — their vehicle.” Amanda Quester & Jean Ann Fox, Car Title Lending: Driving Borrowers to Financial Ruin 2 (2005). As noted by Quester and Fox, some states have passed laws favorable to the title loan industry, id. at 10, while others have specifically prohibited pawnbrokers from engaging in “title pawn” transactions, id at 11 & n. 101. See id. at App. A, pp. 32-34 (collecting state statutes permitting and regulating title loans).

3. Nevada’s Regulation of Pawnbrokers and Title Pawn Transactions

Nevada has not directly enacted legislation regarding the relationship between traditional pawnbroking and title lending. As a consequence, Pioneer attempts to support its position with extrapolations of existing state and local regulations, as well as of recent Nevada Attorney General opinions. As will be seen, however, these arguments are unavailing.

a. State

Nevada regulates pawnbrokers through a series of provisions found in Chapter 646 of the Nevada Revised Statutes. Nev. Rev. Stat. §§ 646.002 to 646.060. Most of these provisions regulate the business and accounting side of pawnbroking; for exam- *737 pie, pawnbrokers are required to keep detailed records of their transactions, id, § 646.020, and are required each day to turn over records of the previous day’s transactions to law enforcement officials. Id. § 646.030.

Of all the sections in Chapter 646, only one — Section 646.050 — provides substantive restrictions on the terms of a loan made by pawnbrokers. It requires that pawnbrokers cannot charge more than 10% per month on their loans, and must offer a redemption period of at least 120 days to their customers. Id. § 646.050.1. The criminal provisions of the chapter, however, do not refer to this rate regulation; rather, they are concerned with compliance with the recordkeeping provisions. Id. § 646.060. This limitation underscores the basic fact that the main purpose of Chapter 646 is not consumer protection, but law enforcement.

Chapter 646 also covers “motor vehicles received in pledge,” and permits the storage of such vehicles at a location apart from the pawnbroker’s principal place of business. In the late 1990s, when title pawns began to expand in Nevada, the state attorney general was asked to opine on the appropriate classification of such activity. In two opinions cited by counsel, the attorney general found that nonposses-sory lending against the strength of a vehicle’s title fit within the definition of “pawnbroker” for regulatory purposes because, although it was not the typical possessory lending historically associated with pawnbrokers, it did fit the statutory definition of someone in the business of “loaning money on the security of pledges, deposits or other secured transactions in personal property.” Nev. Rev. Stat. § 646.010 (emphasis supplied). See OP. Nev. Att’y Gen. 97-03 (1997); Op. Nev. Att’y Gen. 95-20 (1995). See also Op. Nev. Att’y Gen. 97-13 (1997) (clarifying that opinions were meant to aid in the proper regulations of such lending). The attorney general apparently assumed that such nonpossessory lending was subject to Article 9 of Nevada’s version of the UCC, see, e.g., Op. Nev. Att’y Gen. 95-20 (“Since pawn transactions authorized by NRS Chapter 646 allow the pawnbroker to engage in ‘other secured transactions in personal property.... ’ ”), but opined that when practiced with the traditional pledge of personal property, it was within the business of pawnbroking, at least for purposes of exempting pawnbrokers from regulation under the installment lending provisions of Chapter 675 of the Nevada Revised Statutes. Id.

b. City

Nevada pawnbrokers are also regulated by municipal governments, and Pioneer was (and is) subject to regulation by the City of Las Vegas. Chapter 6.60 of the Las Vegas Municipal Code in most parts copies and expands on Chapter 646 of the Nevada Revised Statutes. It also requires a pawnbroker to be licensed, and requires a separate license if the person “accepts a motor vehicle as pledged property or in any other matter allows the use of a motor vehicle as collateral or security for a loan.” Las Vegas Municipal Code, §§ 6.6.020 (definition of “auto-pawnbroker”); 6.60.035 (requirement of a separate license for auto-pawnbroker).

The municipal provisions applicable to Pioneer are also primarily related to law enforcement, and not to consumer protection. The municipal code, however, does contain certain disclosure requirements for borrowers, and also makes it unlawful for the pawnbroker to charge or receive more than 10% interest per month.

B. Application of Article 9

Neither the state nor the local regulation specifically refers to the applicability *738 of the primary statute related to personal property collateral — Article 9 of the UCC. 10 Conversely, Nevada has not explicitly excluded pawnbroking from the scope of Article 9. The initial question is thus easily stated: Does Article 9 apply to Pioneer’s two transactions with Ms. Schwalb?

1. Does Article 9 Apply to Traditional Pawnbroking Activities?

Pioneer contends (and often assumes without argument) that pawnbroking is excluded from Article 9. That contention is false as a matter of statutory construction. Article 9 is intended to be the primary statute regarding the consensual personal property security. It is a marvel of drafting that consolidates and resolves many issues into one single statute. And it is intentionally broad; as noted in the comments, “all consensual security interests in personal property and fixtures are covered by this Article .... When a security interest is created, this Article applies regardless of the form of the transaction or the name that parties have given to it.” Cmt. 2 to UCC § 9-109.

To achieve this breadth of coverage, Article 9 looks to substance over form. This is confirmed by its text: Article 9 states that it applies to any “transaction, regardless of its form, that creates a security interest in personal property or fixtures by contract.” Nev. Rev. Stat. § 104.9109.1(a) (emphasis supplied).

Given this broad scope, some states have altered the breadth of Article 9 by either expanding the list of exclusions to Section 9-109 as adopted, or by restricting the effect Article 9 gives to security interests in Section 9-201. Compare Nev. Rev. Stat. § 104.9109.4(n) (excluding “[a] transfer by a government or governmental unit” from scope of Nevada’s Article 9) and Nev. Rev. Stat. § 104.9201.2 (excluding consumer transactions under Chapters 97 and 97A from Article 9’s section validating security agreements) with UCC § 9-109(d) (containing no exclusion for governmental transfers) and UCC § 9-201(b) (containing generic exclusion for consumer protection laws from Article 9’s section validating security agreements generally). See also UCC § 9-109(c)(2) (permitting exception for categories of transactions expressly provided by another state statute).

In the area of pawnbroking, however, Nevada has not adopted other states’ practice of excluding some or all of pawnbroking’s practices from Article 9. See, e.g., Cal. Comm. Code § 9201(b) (2006) (exempting California’s Pawnbroker Law, Cal. Fin. Code §§ 21000 et. seq. from Article 9); 810 III. Comp. Stat § 5/9-201 (b)(5) (2006) (exempting Illinois’ Pawnbroker Regulation Act); N.C. Gen. Stat. 25-9-201(b) (2006) (exempting North Carolina’s Pawnbrokers *739 Modernization Act of 1989 (Chapter 91A of North Carolina’s General Statutes)).

Given this lack of express exclusion, the court believes that Nevada would join the other states and commentators who have examined the issue, and concluded that pawnbroking is an activity governed by Article 9 of the UCC that neither the parties’ contrary language nor an industry’s contrary practice can alter. In re Davis, 269 B.R. 914 (Bankr.M.D.Ala.2001) (applying Alabama law); In re Jones, 206 B.R. 569 (Bankr.M.D.Ala.1997) (applying Alabama law); Mattheiss v. Title Loan Express (In re Mattheiss), 214 B.R. 20, 28 (Bankr.N.D.Ala.1997) (applying Alabama law); In re Lopez, 163 B.R. 189, 191 (Bankr.D.Colo.1994) (despite language of forfeiture in pawn agreement, pawn relationship created a secured transaction capable of being modified in a chapter 13 plan); Lynn v. Financial Solutions Corp. (In re Lynn), 173 B.R. 894, 900-01 (Bankr. M.D.Tenn.1994) (applying Tennessee law); Harkness v. EZ Pawn Alabama, Inc., 724 So.2d 32 (Ala.Civ.App.1998) (on referral from Alabama Supreme Court); Reeves v. Foutz & Tanner, Inc., 94 N.M. 760, 617 P.2d 149 (1980) (applying Article 9’s provisions regarding a surplus following disposition applied to pawn transactions); 4 James J. White & Robert S. Summers, Uniform Commercial Code § 30-1 (b), at 4 (5th ed. 2002) (“When a pawnshop takes possession of a debtor’s clarinet, the parties are entering into a perfected secured transaction.”); 8A Lawrence’s Anderson on the Uniform Commercial Code § 9-102:152 (3d ed. Lary Lawrence, ed. 2005) (“Pawn transactions are Article 9 secured transactions.”) [hereinafter “Anderson”].

2. Pioneer’s Transactions Are Not Traditional Pawn Transactions

Even if the court held that pawnbroking’s practices are impliedly exempt from Article 9, Pioneer would not prevail for the simple reason that the transactions at issue are not those of a traditional pawnbroker. Pawnbrokers are bailees of personal property held as collateral for loans. If the loan is not paid—or, in the argot of pawnbroking, if the pawn is not redeemed—then the pawnbroker sells the goods held, and keeps the proceeds; the debtor is not liable for any deficiency, and the pawnbroker is not accountable for any surplus. See Oeltjen, supra, at 996-97.

As a result, a true pawn requires a pledge, and a pledge requires delivery of the collateral to the pawnbroker. See, e.g., Pendleton v. American Title Brokers, Inc., 754 F.Supp. 860, 864 (S.D.Ala.1991); Lynn v. Financial Solutions Corp. (In re Lynn), 173 B.R. 894, 898 (Bankr.M.D.Tenn.1994); State ex rel McGraw v. Pawn Am., 205 W.Va. 431, 433-34, 518 S.E.2d 859, 861-62 (1998). Cf. 18 U.S.C. § 921(a)(12) (defining pawnbroker, for purpose of regulating sale of firearms, as “any person whose business or occupation includes the taking or receiving, by way of pledge or pawn, of any firearm or ammunition as security for the payment or repayment of money.”); Neb. Op. Atty. Gen. No. 98027, 1998 Westlaw 344508, at 1 (June 19, 1998) (“[W]e believe that a pawnbroker is required to have actual possession of the automobile in order for the lending arrangement to constitute a pawnbroking transaction under Nebraska law.”).

Here, of course, Pioneer did not possess the vehicles (although state law permitted it to do so); at best, it was a bailee of the certificates of title, for whatever good holding on to pieces of officially issued paper did it. As such, the issue as to the exempt status of traditional pawnbroking activities is not directly raised by this case.

*740 Pioneer argues that actual possession was not necessary. Since it had possession of the certificates of title, it has “constructive” possession of the vehicles, and that this constructive possession was sufficient to bring it under the protective reach of pawnbroking status. Nothing in the Nevada statutory scheme authorizes this view, and pre-UCC cases rejected it. See, e.g., Casey v. Cavaroc, 96 U.S. 467, 477, 24 L.Ed. 779 (1877); (noting that “possession may be considered as of the very essence of a pledge,” and that “constructive delivery cannot be effected without doing what amounts to a transfer of the property,” using keys to a warehouse and bills of lading as examples); Commercial Bank of Jacksonville v. Flowers, 116 Ga. 219, 42 S.E. 474 (1902) (constructive possession of goods not accomplished by possession of receipt from wharfinger who had actual possession of goods). See also Section III. C.1.b, infra. 11

C. Applicability of Article 9 to Pioneer’s Loans

As indicated above, Section 9-109 makes Pioneer’s transactions with Ms. Schwalb subject to Nevada’s version of Article 9. This was not unexpected. Pioneer’s form of pawnbroking ticket expressly states that Ms. Schwalb was “giving a security interest” in the two vehicles to Pioneer. Although more will be said about this language below, it is a clear indication that Pioneer was both aware of the term “security interest,” and wanted to use it in the two transactions. And if a “security interest” is involved, the default statute of applicability is Article 9 of the UCC.

Beyond that, however, as the courts and commentators cited above have found, each transaction here fits within the text of Section 9-109 — that it be a “transaction ... that creates a security interest in personal property or fixtures by contract.” Nev. Rev. Stat. § 104.9109.1(a). This can be seen from an analysis of the components of Section 9-109.

The component most obviously present is a contract — a provision that requires that transaction to be consensual. “Contract,” as defined in the UCC is “the total legal obligation that results from the parties’ agreement ...” Nev. Rev. Stat. § 104.1201.2(l). 12 The UCC defines the term “agreement” as “the bargain of the parties in fact, as found in their language or inferred from other circumstances ....” Id. § 104.1201.2(c).

Here, Ms. Schwalb and Pioneer had an “agreement” — Pioneer would lend money to her on the security of her two vehicles. That was their bargain in fact. This agreement gave rise to legal obligations— that is, rights that courts would vindicate — some supplied by Nevada’s common law of contracts, and others by Nevada’s version of Article 9. This consensual agreement combined with the attendant legal consequences form the necessary contract; or, put another way, the transaction was consensual, and breach of it implied various legal consequences.

Was it a contract to create or provide for a security interest? “Security interest” is defined in Article 1 as “an interest in personal property ... which secures payment or performance of an obligation.” *741 Nev. Rev. Stat. § 104.1201.2(ii). 13 Here, Ms. Schwalb gave Pioneer an interest in her vehicles as a condition of obtaining the two loans, and Pioneer held onto the title to ensure repayment. When Ms. Schwalb did not repay the loans within the 120-day redemption period, Pioneer’s position is that exclusive ownership of the vehicles passed to it. This type of arrangement— in which rights to possession of personal property arise upon failure to repay debt or honor some other obligation — is a classic security interest and fits the definition of “an interest in personal property [that] secure[d] payment ... of an obligation.” Nev. Rev. Stat. § 104.9201.2(ii).

As a result, the transactions here were covered by Article 9 of the UCC. 14 This conclusion has serious repercussions for the parties.

1. Attachment Generally

The initial consequence of Article 9’s applicability is that the creation and status of Pioneer’s interest is governed by a combination of the common law of contract law and the statutory provisions of Article 9. For an Article 9 security interest to be enforceable, it must “attach.” Nev. Rev. Stat. § 104.9203.

Attachment, in turn, has three requirements: (1) value has to have been given; (2) the debtor must have rights in the collateral; and (3) either (a) the debtor has authenticated a security agreement that provides a description of the collateral, or (b) the secured party possesses the collateral pursuant to a security agreement. Nev. Rev. Stat. § 104.9203.2(a)-(c).

Value is present in the form of the loans extended by Pioneer to Ms. Schwalb. Nev. Rev.Stat. § 104.1204. Similarly, there is no doubt that, at the time of each transaction, Ms. Schwalb’s ownership rights in the vehicles were sufficient “rights in the collateral” for a security interest to attach. Foothill Capital Corp. v. Clare’s Food Market, Inc. (In re Coupon Clearing Service, Inc.), 113 F.3d 1091, 1103 (9th Cir. 1997) (“Where a debtor has rights to collateral beyond naked possession, a security interest may attach to such rights.”), citing Morton Booth Co. v. Tiara Furniture, Inc., 564 P.2d 210, 214 (Okla.1977).

The issue thus boils down to whether the “debtor authenticated a security agreement that provides a description of the collateral,” or whether the collateral was “in the possession of the secured party under NRS 104.9313 pursuant to the debt- or’s security agreement.” Id. § 104.9203.2(c)(l)-(2).

a. Authenticated Agreement

Ms. Schwalb contends that the pawn ticket is legally insufficient as a security agreement. At trial, she testified that she did not know what she was signing 15 at the time she received each of the two loans. Each pawn ticket used, however, contained the following preprinted language just before a description of the auto *742 mobile involved as well as its VIN: “You are giving a security interest in the following property:”

Under Article 9, a “security agreement” is “an agreement that creates or provides for a security interest.” Nev. Rev. Stat. § 104.9102.1(ttt). The pawn ticket was clearly an “agreement” as the UCC uses that term. It contained “the bargain of the parties in fact,” as expressed in “their language or [as could be] inferred from other circumstances ...” Id. § 104.1201.2(c). The bargain was simple and standard: Ms. Schwalb borrowed money at interest, and agreed to repay it within 120 days.

Thus, the only question is whether the agreement also included collateral as security for repayment of the loan. Each pawn ticket definitively described the vehicle at issue, by make, model and VIN. The issue is thus whether the words “[y]ou are giving” adequately “create[ ] or provide[ ]” for a security interest in the vehicles. The safest and traditional words to accomplish this task are words of grant or assignment, such as “I hereby grant a security interest in X to secure repayment of my debt to you” or “I assign this property to you to secure what I owe you.” 16

In these phrases, the operative verbs— grant, assign, etc. — are in the present tense and indicate a present act. But the word used by the pawn ticket — “giving”— is not in the present tense but instead is the present participle of the verb “to give.” Ms. Schwalb contends that use of the participle “giving” can only be read to refer to Pioneer’s description of what Pioneer thought Ms. Schwalb had done or was doing — not as Ms. Schwalb’s acknowledgment that she was engaging in a legally significant act. The analogy would be to something like noting that the statement “You are falling” describes an action taken by another rather than separately constituting the act of falling.

But this is a quibble. While a description may not be the act it describes, by signing the pawn ticket Ms. Schwalb acknowledged and adopted the act it described — giving a security interest. Moreover, the statutory verbs are “creates” or “provides.” Even if the language did not “create” the security interest as Ms. Schwalb contends, it certainly did provide for “giving” one.

The insistence on formal words of grant or transfer is inconsistent with the structure and intent of Article 9. As the Idaho Supreme Court noted with respect to the original version of Article 9:

Courts have often repeated that no magic words are necessary to create a security interest and that the agreement itself need not even contain the term ‘security interest.’ This is in keeping with the policy of the code that form should not prevail over substance and that, whenever possible, effect should be given to the parties’ intent.

*743 Simplot v. Owens, 119 Idaho 243, 245-46, 805 P.2d 449, 451-52 (1990), quoting Idaho Bank and Trust Co. v. Cargill, 105 Idaho 83, 87, 665 P.2d 1093, 1097 (Ct.App.1988). See also Nolden v. Plant Reclamation (In re Amex-Protein Dev. Corp.), 504 F.2d 1056, 1059-60 (9th Cir.1974) (“There is no support in legislative history or grammatical logic for the substitution of the word ‘grant’ for the phrase ‘creates or provides for.’ ”). 17

The proper policy considerations are well stated by a leading commentator on Article 9: “There is no requirement for words of grant. In fact, such a requirement smacks of the antiquated formalism the drafters were trying to avoid.” 1 Clark & Clark, supra, at ¶ 2.02[1][c], at p. 2-16. 18 See also 4 White & Summers, supra, at § 31-3 (“the drafters did not intend that specific ‘words of grant’ be required.”).

Ms. Schwalb’s further argument that she did not understand the import of the words she subscribed to is also unavailing. Even though they appear in tiny five-point type, the words are discern-able as an integral part of the pawn ticket. It has long been the common law rule that signing a document authenticates and adopts the words it contains, even if there was a lack of subjective understanding of the words or their legal effect. In essence, people are presumed to be bound by what they sign. Campanelli v