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Secured Transactions

Common Forms Of Collateral

Any property accepted as security by a creditor can serve as collateral, but generally collateral falls into one of five categories: consumer goods, equipment, farm products, inventory, and property on paper. Consumer goods are items used primarily for personal, family, or household purposes. Equipment consists of items of value used in business or governmental operations. Farm products are items such as crops, livestock, or supplies used or produced in a farming operation. Under the revised Article 9, agricultural liens can also be considered collateral. Inventory consists of goods held for sale or lease or furnished under contracts of service, raw materials, works in process, materials used or consumed in a business, and goods held for sale or lease or furnished under contracts of service.

Paper collateral consists of a writing that serves as evidence of a debtor's rights in PERSONAL PROPERTY. Stocks and bonds are examples of paper collateral. Another common form of paper collateral is chattel paper. Chattel paper is a writing that indicates that the holder is owed money and has a security interest in valuable goods associated with the debt. For example, assume that a car dealership has sold a car on financing to a buyer and has retained the title as security. The dealership may then use the security agreement with the buyer as collateral for a loan of its own from the bank. The revised Article 9 also recognizes "electronic chattel paper." This allows for the validity of so-called electronic signatures, which Article 9 refers to as "authenticated records." The electronic screens in some retail stores that allow customers to sign with a special stylus are thus just as valid as a signature in ink on a paper document.

Among the new areas governed by the revised Article 9 are commercial deposit accounts, promissory notes, and commercial TORT claims. HEALTHCARE insurance receivables are also covered, which allows doctors and hospitals to include claims against insurance companies for services to their patients as part of the collateral they offer to healthcare lenders.

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Law Library - American Law and Legal InformationFree Legal Encyclopedia: Secretary to SHAsSecured Transactions - Common Forms Of Secured Transactions, Common Forms Of Collateral, The Formalities, Satisfaction Of The Secured Debt