Basic Uniform Commercial Code

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

      "Farm products" means goods, other than standing timber, with respect to which the debtor is engaged in a farming operation and which are:

      1. crops grown, growing, or to be grown, including:
        1. crops produced on trees, vines, and bushes; and
        2. aquatic goods produced in aquacultural operations;
      2. livestock, born or unborn, including aquatic goods produced in aquacultural operations;
      3. supplies used or produced in a farming operation; or
      4. products of crops or livestock in their unmanufactured states.

      If processed, farm products turn to inventory.

    2. Inventory

      "Inventory" means goods, other than farm products, which:

      1. are leased by a person as lessor;
      2. are held by a person for sale or lease or to be furnished under a contract of service;
      3. are furnished by a person under a contract of service; or
      4. consist of raw materials, work in process, or materials used or consumed in a business.
    3. Consumer Good

      "Consumer goods" means goods that are used or bought for use primarily for personal, family, or household purposes.

    4. Equipment

      "Equipment" means goods other than inventory, farm products, or consumer goods.

    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:

      1. Chattel Paper

        "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

        1. charters or other contracts involving the use or hire of a vessel or
        2. 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.

        Mortgages are not chattel papers. They're probably usually instruments.

        Chattel papers can theoretically be perfected by either filing or possession. UCC § 9-313.

      2. Instrument

        "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

        1. investment property,
        2. letters of credit, or
        3. 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.

        E.g., checks, CDs, etc.

      3. Document

        "Document" means a document of title or a receipt of the type described in [UCC § 7-201(2)].

    2. Pure Intangible

      Pure intangibles are rights that have no physical embodiment.

      Pure intangibles are either accounts or general intangibles:

      1. Account

        "Account", except as used in "account for", means a right to payment of a monetary obligation, whether or not earned by performance,

        1. for property that has been or is to be sold, leased, licensed, assigned, or otherwise disposed of,
        2. for services rendered or to be rendered,
        3. for a policy of insurance issued or to be issued,
        4. for a secondary obligation incurred or to be incurred,
        5. for energy provided or to be provided,
        6. for the use or hire of a vessel under a charter or other contract,
        7. arising out of the use of a credit or charge card or information contained on or for use with the card, or
        8. 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

        1. rights to payment evidenced by chattel paper or an instrument,
        2. commercial tort claims,
        3. deposit accounts,
        4. investment property,
        5. letter-of-credit rights or letters of credit, or
        6. 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.

        Bank accounts are sui generis deposit accounts, not pure intangible accounts.

      2. 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

        "Payment intangible" means a general intangible under which the account debtor's principal obligation is a monetary obligation.

        Such as a tax refund