Collateral

Question 1

Tangible collateral: goods

Answer 1

A good is anything movable at the time a security interest attaches:

(1) Consumer goods are those acquired primarily for personal, family, or household purposes;
(2) Farm products include crops, livestock, and supplies used or produced in farming;
(3) Inventory includes:
(a) Goods other than farm products that are held for sale or lease or furnished under a service contract;
(b) Goods consisting of raw materials, works in progress, or materials used or consumed in a business;
(4) Equipment is a catchall for goods that are not consumer goods, farm products, or inventory.

Question 2

Intangible collateral

Answer 2

There are nine classes of intangible collateral, of which the most tested are:

(1) Accounts—e.g., rights to payment for:
(a) Goods sold, property licensed, or services rendered;
(b) The issuance of an insurance policy, the use of a credit or charge card, or winning the lottery.
(2) Deposit accounts—e.g., savings, passbook, time, or demand accounts maintained with a bank.

Question 3

Eligible transactions

Answer 3

(1) Transactions that create by agreement a security interest in personal property or a fixture;
(2) Leases that are in economic reality or substance a secured transaction.

Question 4

After-acquired collateral

Answer 4

A security interest can extend to collateral that the debtor acquires in the future, e.g., “all inventory now owned or hereafter acquired.”

An after-acquired collateral clause is not effective for consumer goods unless the debtor acquires the goods within ten days after the secured party gives value.

Question 5

Proceeds from collateral

Answer 5

A security interest in collateral automatically attaches to identifiable proceeds from the sale, exchange, or other disposition of the collateral.

Question 6

Accessions

Answer 6

Accessions are goods that are physically united with other goods in such a manner that the identity of the original goods is not lost, e.g., memory installed in a computer, or tires installed on a car.

A security interest that is created in collateral that becomes an accession is not lost due to the collateral becoming an accession.

Question 7

Sales

Answer 7

Although UCC Art. 9 generally does not apply to a sale, there is an exception for the sale of rights to payment, such as accounts, chattel paper, payment intangibles, and promissory notes.

The sale is treated as creating a security interest in the rights to payment with the purchaser of the rights being the secured party.

An account includes the right to payment for property sold, leased, licensed, or for services rendered (such as a company’s accounts receivable).

Question 8

Sales: rights in accounts

Answer 8

Since UCC Art. 9 treats a sale of accounts as creating a security interest in the purchaser, the seller (debtor) is deemed to retain rights in the accounts for attachment purposes until the purchaser perfects its security interest.

Question 9

Lease

Answer 9

A transaction in the form of a lease is treated as a security interest if:

(1) the lessee must pay consideration to the lessor for the right to possess and use the goods for the term of the lease;
(2) the payment obligation cannot be terminated by the lessee; and
(3) the lessee has an option to become the owner of the goods upon completion of the lease agreement.

Question 10

Chattel paper

Answer 10

Chattel paper is one or more records that evidence both:

(1) A monetary obligation—e.g., a negotiable note; and
(2) Either:
(a) A security interest in specific goods; or
(b) A lease of specific goods.