Collateral Flashcards
Why is classifying collateral important?
Because many provisions of Article 9 make legal distinctions based on the type of collateral.
Types of collateral
Tangible
Intangible
Semi-Intangible
Tangible Collateral
“Goods” include all things which are movable at the time the security interest attaches. Can also include fixtures. There are four types.
How do you categorize tangible collateral?
Depends on how the debtor is using the collateral.
Four types of tangible collateral
- Consumer Goods
- Equipment
- Farm Products
- Inventory
Consumer Goods
Goods used or bought primarily for personal, family, or household purposes
Equipment
Goods that are used or bought for use in business.
This is the default category for goods. So, if you know a collteral is a good but it doesn’t fit in the other categories, classify it as equipment.
Farm Products
Crops or livestock or supplies used or produced in farming operations or products of crops or livestock in their unmanufactured states if they are in the possession of a debtor engaged in farming operations
Inventory
Goods:
(1) held for sale or lease;
(2) goods that are to be furnished under service contracts; and
(3) materials used or consumed in a business in a short period of time.
Intangible or Semi-Intangible Goods
Classified depending on the nature of the collateral (and not their use)
Eight types:
1. instruments
2. documents
3. chattel paper
4. investment property
5. accounts
6. deposit accounts
7. commercial tort claims
8. general intangibles
instruments
pieces of paper representing the right to be paid money (promissory notes; drafts; and certificates of deposit)
documents
a document that represents the right to recieve goods (bill of lading; warehouse receipt)
chattel paper
a record or records which evidence both (1) a monetary obligation; and (2) a security interest in or a lease of specific goods
a ‘record’ is information that is stored in either a tangible medium or an intangible medium. Chattel paper that is stored in an electronic medium = electronic chattel paper
investment property
includes all items such as stocks, bonds, mutual funds, and brokerage accounts containing such items
accounts
includes a right to payment (not evidenced by an instrument or chattel paper) for property sold or services rendered
Note: a contractual obligation arising from a loan of money is NOT an account - it is a general intangible
deposit accounts
an account maintained with a bank
Note: in general, article 9 only applies to security interests in non-consumer deposit accounts and account monies that are claimed as proceeds of other collateral.
commercial tort claims
a tort claim where (1) the claimaint is an organization; or (2) the claimant is an individual, the claim arose out of the claimant’s business/profession; and the claim does not include damages for personal injury or death of an individual
general intangibles
any personal property not coming within the scope of other definitions (patent/trademark rights, copyrights, goodwill)
A general intangible under which the account debtor’s principal obligation is a monetary obligation is a payment intangible.
scope of article 9
Article 9 applies to the following transactions:
* a transaction that creates a security interest in personal property or fixtures by contract
* a seller’s retention of title
* argicultural liens (nonpossessory liens on farm products created by statute in favor of persons providing goods, services, or rental land to farmers) (*note: only the perfection and priority of agricultural liens are governed by Article 9; creation and enforcement of liens are governed by state statute)
* sales of accounts, chattel paper, payment intangibles, and promissory notes
* commercial consignment of goods worth a total or more of $1k to persons who (1) deal in goods of that kind under a name other than the consignor’s; (2) are not auctioneers; and (3) are not generally known by their creditors to be substantially engaged in selling the goods of others
* a secured sale disguised as a lease (leases that are intended to serve as security arrangements; and a lease where the rental obligation is not terminable by the lessee and either (1) the lease term is equal to or greather than the remaining economic life of the goods; (2) the lessee is bound to purchase the goods at the lease’s end or renew the lease for the remaining economic life of the goods; or (3) at the end of the lease, the lessee has an option to purchase the goods or renew the lease for the remaining economic life of the goods for no or nominal consideration
