Types of Collateral in a Secured Transaction

In every secured transaction the collateral carries a special importance for the different rules that apply. While most people think of collateral as some valuable piece of personal property, there are several different classifications that make a significant difference within a legal dispute. Hence, it is imperative to identify and categorize the collateral before any security interest can be analyzed. 

Security Agreement Mistake Problems

For purposes of the Uniform Commercial Code, all collateral can fit within only one of the meticulously defined types. Each category dictates how and when each security interest is perfected so that other creditors are aware of any encumbrances that may exist. If a mistake is made in the security agreement or the financing statement in the listing of collateral it could cause serious problems down the road for both the debtor and creditor.  

Collateral Category Can Change

However, the only way to understand the various types of classifications is to read the exact definitions that the drafters of the UCC have established. Although there are over 12 different categories with specific conditions for each one, there are a few principal subsets that encompass the others. For instance, the collateral may be defined as “goods” but within this category are 4 other definitions: consumer goods, farm products, inventory, and equipment. Each one these is a type of good, but they are all mutually exclusive of each other. Equipment cannot be inventory and inventory cannot be consumer goods, etc. Depending on whose hand the collateral is in, the category can change over time. Thus, there can only be one classification at a time but there could be multiple purposes so the primary purpose must be identified. 

On the other hand, the other subset of collateral does not have to be tangible. There are general intangibles and accounts both of which are not in physical form but can be used in a security interest. There is also quasi-intangible collateral which include documents, instruments, chattel paper, investment property, and deposit accounts. While there are a lot of similarities between these categories, each has its own precise definition that takes careful consideration. 

Every security interest is different and requires its own set of rules depending on the type of collateral. At Lanigan and Lanigan P.L., attorneys Eric or Roddy Lanigan will make sure your collateral is protected and that each security interest conforms to the rules of law. If you have any questions about asset protection, schedule an appointment with in Winter Park, Florida.