Basic Uniform Commercial Code

Credit

Credit is giving money, goods, or services in exchange for receiving something back later.

Credit can be either secured or unsecured.

Secure

Secured credit is when credit is given, but a security interest is given in return via a security agreement.

Security Interest

A security interest is an interest in collateral, allowing them to be repossessed if the borrower defaults.

Collateral

Collateral is property in which an interest is taken by the lender in a secured transaction or by an agricultural lien.

Collateral is divided into specialty sui generis property and the two basic other categories:

Sui Generis
Sui generis (of its own kind) property are special types that do not fit into the categories of goods and intangibles.
There are eight types of sui generis property:
- Commercial Tort Claim
- Deposit Account
- Investment Property
- Letter-of-Credit Right
- Money
- Oil, Gas, or Other Minerals
- Fixtures
- Proceeds
Good
UCC § 9-102(a) recognizes four different types of goods:
1. Farm Product
  
  UCC § 9-102(a)(34)
  
  "Farm products" means goods, other than standing timber, with respect to which the debtor is engaged in a farming operation and which are:
  
  crops grown, growing, or to be grown, including:
  
  crops produced on trees, vines, and bushes; and
  
  aquatic goods produced in aquacultural operations;
  
  livestock, born or unborn, including aquatic goods produced in aquacultural operations;
  
  supplies used or produced in a farming operation; or
  
  products of crops or livestock in their unmanufactured states.
  
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  If processed, farm products turn to inventory.
2. Inventory
  
  UCC § 9-102(a)(48)
  
  "Inventory" means goods, other than farm products, which:
  
  are leased by a person as lessor;
  
  are held by a person for sale or lease or to be furnished under a contract of service;
  
  are furnished by a person under a contract of service; or
  
  consist of raw materials, work in process, or materials used or consumed in a business.
  
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3. Consumer Good
  
  UCC § 9-102(a)(23)
  
  "Consumer goods" means goods that are used or bought for use primarily for personal, family, or household purposes.
  
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4. Equipment
  
  UCC § 9-102(a)(33)
  
  "Equipment" means goods other than inventory, farm products, or consumer goods.
  
  Copyright, The American Law Institute
Something must fall into one of these categories to be a good.
In borderline cases, when a good is used for both business and personal reasons, it is classified according to its principal use.
- If split exactly 50/50, it is not a consumer good, as that requires "primarily" consumer use. 50% is not primarily.
Generally, changes in use after taking the secured interest, cannot unperfect the secured creditor's right.
Intangible
Intangibles can be either semi-intangibles or pure intangibles.
1. Semi-Intangible
  Semi-intangibles are physical, tangible papers that evidence or embody an intangible right. Semi-intangible is not a formal legal category, but encompasses three types of collateral:
  
  Chattel Paper
  Chattel papers are papers that give a right to payment coupled with a security interest.
  
  UCC § 9-102(a)(11)
  
  "Chattel paper" means a record or records that evidence both a monetary obligation and a security interest in specific goods, a security interest in specific goods and software used in the goods, a security interest in specific goods and license of software used in the goods, a lease of specific goods, or a lease of specific goods and license of software used in the goods. In this paragraph, "monetary obligation" means a monetary obligation secured by the goods or owed under a lease of the goods and includes a monetary obligation with respect to software used in the goods. The term does not include
  
  charters or other contracts involving the use or hire of a vessel or
  
  records that evidence a right to payment arising out of the use of a credit or charge card or information contained on or for use with the card. If a transaction is evidenced by records that include an instrument or series of instruments, the group of records taken together constitutes chattel paper.
  
  Copyright, The American Law Institute
  
  Mortgages are not chattel papers. They're probably usually instruments.
  
  Chattel papers can theoretically be perfected by either filing or possession. UCC § 9-313.
  
  Instrument
  
  UCC § 9-102(a)(47)
  
  "Instrument" means a negotiable instrument or any other writing that evidences a right to the payment of a monetary obligation, is not itself a security agreement or lease, and is of a type that in ordinary course of business is transferred by delivery with any necessary indorsement or assignment. The term does not include
  
  investment property,
  
  letters of credit, or
  
  writings that evidence a right to payment arising out of the use of a credit or charge card or information contained on or for use with the card.
  
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  E.g., checks, CDs, etc.
  
  Document
  
  UCC § 9-102(a)(30)
  
  "Document" means a document of title or a receipt of the type described in [UCC § 7-201(2)].
  
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2. Pure Intangible
  Pure intangibles are rights that have no physical embodiment.
  
  Pure intangibles are either accounts or general intangibles:
  
  Account
  
  UCC § 9-102(a)(2)
  
  "Account", except as used in "account for", means a right to payment of a monetary obligation, whether or not earned by performance,
  
  for property that has been or is to be sold, leased, licensed, assigned, or otherwise disposed of,
  
  for services rendered or to be rendered,
  
  for a policy of insurance issued or to be issued,
  
  for a secondary obligation incurred or to be incurred,
  
  for energy provided or to be provided,
  
  for the use or hire of a vessel under a charter or other contract,
  
  arising out of the use of a credit or charge card or information contained on or for use with the card, or
  
  as winnings in a lottery or other game of chance operated or sponsored by a State, governmental unit of a State, or person licensed or authorized to operate the game by a State or governmental unit of a State.
  
  The term includes health-care-insurance receivables. The term does not include
  
  rights to payment evidenced by chattel paper or an instrument,
  
  commercial tort claims,
  
  deposit accounts,
  
  investment property,
  
  letter-of-credit rights or letters of credit, or
  
  rights to payment for money or funds advanced or sold, other than rights arising out of the use of a credit or charge card or information contained on or for use with the card.
  
  Copyright, The American Law Institute
  
  Bank accounts are sui generis deposit accounts, not pure intangible accounts.
  
  General Intangible
  A general intangible is anything that is not another type of property. UCC § 9-102(a)(42).
  
  E.g., payment intangibles, non-embedded software, etc.
  
  Payment Intangible
  
  UCC § 9-102(a)(61)
  
  "Payment intangible" means a general intangible under which the account debtor's principal obligation is a monetary obligation.
  
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  Such as a tax refund

A security interest will remain attached to the collateral through anything unless something specially removes it. UCC § 9-201(a).

It will even remain perfected.
- Unless the new debtor is in a new state. Then it will only remain perfected for one year. UCC § 9-316(a)(3).
If a security interest is removed, it is removed for good. Future holders are also sheltered from the security interest.
- Although if someone attached buys it back, it will still reattach.

UCC § 9-320

Except as otherwise provided in subsection (e), a buyer in ordinary course of business, . . . takes free of a security interest created by the buyer's seller, even if the security interest is perfected and the buyer knows of its existence.

Except as otherwise provided in subsection (e), a buyer of goods from a person who used or bought the goods for use primarily for personal, family, or household purposes takes free of a security interest, even if perfected, if the buyer buys:

without knowledge of the security interest;

for value;

primarily for the buyer's personal, family, or household purposes; and

before the filing of a financing statement covering the goods.

Buyer in Ordinary Course of Business

UCC § 1-201(b)(9)

"Buyer in ordinary course of business" means a person that buys goods in good faith, without knowledge that the sale violates the rights of another person in the goods, and in the ordinary course from a person, other than a pawnbroker, in the business of selling goods of that kind. A person buys goods in the ordinary course if the sale to the person comports with the usual or customary practices in the kind of business in which the seller is engaged or with the seller's own usual or customary practices.

Financing Statement

A financing statement is a record that is publicly filed to put other people on notice of a security interest in the collateral.

A financing statement does not have to be very specific.

A financing statement does not have to be signed.

Security Interest Analyzing Framework

A retained interest creates a security interest. UCC § 2-401.

It attaches when value is given, the debtor has rights to the collateral, and something from UCC § 9-203(b)(3) occurs. UCC § 9-203.

Secured parties can collect the collateral via self-help or via sheriff.

Self-Help

A secured creditor has a right to go take property from his debtor as long as his doing so would not breach the peace. UCC § 9-609.

Bringing a police officer along does not make it not a breach of the peace. It is actually evidence that you did expect it to be a breach of the peace, and the uniform probably makes it a breach of the peace. To use the police, repossess it by judicial process, not self-help.
If someone tells you to leave, you have to leave. To do otherwise would be to breach the peace.
Lying and trickery is fine.

A creditor has a limited license to enter his debtor's property to enter property and retrieve the collateral, even cutting chains to do so. You cannot enter someone's dwelling house and probably not their fenced backyard however.

Courts are mainly concerned about preventing violence.

Secured transactions are much easier to collect upon as it does not require a lawsuit to collect.

Secured parties get higher priority than unsecured parties.

Unsecure

Unsecured credit is when credit is given without requiring a security interest.

To collect on a defaulted unsecured credit (or technically if secured too), the creditor must sue, obtain a judgment, and get a writ of execution issued to the sheriff, who would then take sufficient nonexempt personal property from the debtor. (Or real property if personal is insufficient)

This is expensive and time-consuming and therefore often not worth it.
- (This can be used to negotiate lesser payments. Often under 20¢ per dollar.)

Unfair Credit Practice

16 CFR § 444.2

... [I]t is an unfair act or practice ... for a lender or retail installment seller directly or indirectly to take or receive from a consumer an obligation that:

Constitutes or contains a cognovit or confession of judgment (for purposes other than executory process in the State of Louisiana), warrant of attorney, or other waiver of the right to notice and the opportunity to be heard in the event of suit or process thereon.

Constitutes or contains an executory waiver or a limitation of exemption from attachment, execution, or other process on real or personal property held, owned by, or due to the consumer, unless the waiver applies solely to property subject to a security interest executed in connection with the obligation.

Constitutes or contains an assignment of wages or other earnings unless:

The assignment by its terms is revocable at the will of the debtor, or

The assignment is a payroll deduction plan or preauthorized payment plan, commencing at the time of the transaction, in which the consumer authorizes a series of wage deductions as a method of making each payment, or

The assignment applies only to wages or other earnings already earned at the time of the assignment.

Constitutes or contains a nonpossessory security interest in household goods other than a purchase money security interest.

Household Good

16 CFR § 444.1(i)

Clothing, furniture, appliances, one radio and one television, linens, china, crockery, kitchenware, and personal effects (including wedding rings) of the consumer and his or her dependents, provided that the following are not included within the scope of the term household goods:

Works of art;

Electronic entertainment equipment (except one television and one radio);

Items acquired as antiques; and

Jewelry (except wedding rings).

Purchase-Money Security Interest

UCC § 9-103(b)

A security interest in goods is a purchase-money security interest:

to the extent that the goods are purchase-money collateral with respect to that security interest;

if the security interest is in inventory that is or was purchase-money collateral, also to the extent that the security interest secures a purchase- money obligation incurred with respect to other inventory in which the secured party holds or held a purchase-money security interest; and

also to the extent that the security interest secures a purchase-money obligation incurred with respect to software in which the secured party holds or held a purchase-money security interest.

Purchase-Money Collateral

UCC § 9-103(a)(1)

"purchase-money collateral" means goods or software that secures a purchase-money obligation incurred with respect to that collateral; and

Purchase-Money Obligation

UCC § 9-103(a)(2)

"purchase-money obligation" means an obligation of an obligor incurred as all or part of the price of the collateral or for value given to enable the debtor to acquire rights in or the use of the collateral if the value is in fact so used.

You have to have an obligation to use the money in that way.

TL;DR: Someone gave you money to buy something, and you used the money to buy it.

Purchase-money security interests in goods other than inventory or livestock take over previously-filed security interests as long as the PMSI perfects within 20 days of the purchaser taking possession. UCC § 9-324(a).

PMSIs only take over other security interests in inventory acquired after perfection. UCC § 9-324(b).

Sellers with PMSIs prevail over lenders with PMSIs.