Basic Uniform Commercial Code

Secure

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

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

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.
  
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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.
  
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  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.
  
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  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.