Securities & Types of Collateral

Question 1

Security interest

Answer 1

A security interest (SI) arises when a debtor uses property as collateral to secure repayment of funds to a secured party (SP)

Question 2

UCC Article applies to

Answer 2

o any transaction that creates a SI in PERSONAL PROPERTY or FIXTURES by contract;
o leases that are for the entire economic life of the item; and
o sales of account receivable, chattel paper, and negotiable instrument

Question 3

Types of collateral

Answer 3

(1) goods
(2) tangible intangibles
(3) intangible intangibles
(4) investment property
(5) proceeds

Question 4

Goods definition and types

Answer 4

Anything movable at the time the SI attaches

Four types:
(1) consumer goods
(2) inventory
(3) farm products
(4) equipment

Question 5

Consumer goods

Answer 5

Goods used or bought primarily for personal, family, or household purposes

Question 6

Inventory

Answer 6

Goods (except farm products) held for sale or lease, or furnished under a contract for service (e.g., raw materials, work in progress, or business materials)

Question 7

Farm products

Answer 7

Goods, other than standing timber, used in a farming operation

Question 8

Equipment

Answer 8

Goods other than consumer goods, inventory, or farm products (catchall category)

Question 9

Tangible intangibles

Answer 9

Certain intangibles reduced to writing that can be transferred by the writing (e.g., contractual obligations)

Question 10

Kinds of tangible intangibles

Answer 10

(1) instruments
(2) documents of title
(3) chattel paper

Question 11

Instruments

Answer 11

Negotiable instruments (e.g., drafts or notes) that evidence a right to payment of money

The writing must be of the type used in the ordinary course of business with the necessary endorsement or assignment

Question 12

Documents of title

Answer 12

Any document used in the regular course of business or financing that evidences the person in possession is entitled to the goods covered by the document (e.g., delivery orders)

Question 13

Chattel paper

Answer 13

A record evidencing both a monetary obligation and an SI in, or a lease of, specific goods

Question 14

Intangible intangibles (2 types)

Answer 14

General Intangibles = Intangible collateral that doesn’t fit in any other category

Accounts = Right of payment of a monetary obligation

Question 15

Investment property

Answer 15

Certificated and uncertificated securities, securities accounts, and entitlements, as defined in UCC Art. 8

Question 16

Proceeds

Answer 16

Collateral in the form of proceeds obtained from the disposition of other collateral

Proceeds are either cash or non-cash (e.g., account receivable)