Definitions and index of definitions.
(a) In this article:
(1) "Accession" means goods that are physically united with other goods
in such a manner that the identity of the original goods is not lost.
(2) "Account", except as used in "account for", means a right to payment
of a monetary obligation, whether or not earned by performance, (i) for property
that has been or is to be sold, leased, licensed, assigned, or otherwise disposed
of, (ii) for services rendered or to be rendered, (iii) for a policy of insurance
issued or to be issued, (iv) for a secondary obligation incurred or to be
incurred, (v) for energy provided or to be provided, (vi) for the use or
hire of a vessel under a charter or other contract, (vii) arising out of the
use of a credit or charge card or information contained on or for use with
the card, or (viii) as winnings in a lottery or other game of chance operated
or sponsored by a state, governmental unit of a state, or person licensed
or authorized to operate the game by a state or governmental unit of a state.
The term includes health-care-insurance receivables. The term does not include
(i) rights to payment evidenced by chattel paper or an instrument, (ii) commercial
tort claims, (iii) deposit accounts, (iv) investment property, (v) letter-of-credit
rights or letters of credit, or (vi) rights to payment for money or funds
advanced or sold, other than rights arising out of the use of a credit or
charge card or information contained on or for use with the card.
(3) "Account debtor" means a person obligated on an account, chattel
paper, or general intangible. The term does not include persons obligated
to pay a negotiable instrument, even if the instrument constitutes part of
(4) "Accounting", except as used in "accounting for", means a record:
(A) authenticated by a secured party;
(B) indicating the aggregate unpaid secured obligations as of a date
not more than thirty-five days earlier or thirty-five days later than the
date of the record; and
(C) identifying the components of the obligations in reasonable detail.
(5) "Agricultural lien" means an interest in farm products:
(A) which secures payment or performance of an obligation for:
(i) goods or services furnished in connection with a debtor's farming
(ii) rent on real property leased by a debtor in connection with its
(B) which is created by statute in favor of a person that:
(i) in the ordinary course of its business furnished goods or services
to a debtor in connection with a debtor's farming operation; or
(ii) leased real property to a debtor in connection with the debtor's
farming operation; and
(C) whose effectiveness does not depend on the person's possession of
the personal property.
The term also includes every lien created under sections 52-202, 52-501,
52-701, 52-901, 52-1101, 52-1201, 54-201, and 54-208, Reissue Revised Statutes
of Nebraska, and Chapter 52, article 14, Reissue Revised Statutes of Nebraska.
(6) "As-extracted collateral" means:
(A) oil, gas, or other minerals that are subject to a security interest
(i) is created by a debtor having an interest in the minerals before
(ii) attaches to the minerals as extracted; or
(B) accounts arising out of the sale at the wellhead or minehead of
oil, gas, or other minerals in which the debtor had an interest before extraction.
(7) "Authenticate" means:
(A) to sign; or
(B) with present intent to adopt or accept a record,
to attach to or logically associate with the record an electronic sound, symbol,
(8) "Bank" means an organization that
is engaged in the business of banking. The term includes savings banks, savings
and loan associations, credit unions, and trust companies.
(9) "Cash proceeds" means proceeds that are money, checks, deposit accounts,
or the like.
(10) "Certificate of title" means a certificate of title with respect
to which a statute provides for the security interest in question to be indicated
on the certificate as a condition or result of the security interest's obtaining
priority over the rights of a lien creditor with respect to the collateral. The term includes another record maintained
as an alternative to a certificate of title by the governmental unit that
issues certificates of title if a statute permits the security interest in
question to be indicated on the record as a condition or result of the security
interest's obtaining priority over the rights of a lien creditor with respect
to the collateral.
(11) "Chattel paper" means a record or records that evidence both a
monetary obligation and a security interest in specific goods, a security
interest in specific goods and software used in the goods, a security interest
in specific goods and license of software used in the goods, a lease of specific
goods, or a lease of specific goods and license of software used in the goods.
In this subdivision, "monetary obligation" means a monetary obligation secured
by the goods or owed under a lease of the goods and includes a monetary obligation
with respect to software used in the goods. The term does not include (i)
charters or other contracts involving the use or hire of a vessel or (ii)
records that evidence a right to payment arising out of the use of a credit
or charge card or information contained on or for use with the card. If a
transaction is evidenced by records that include an instrument or series of
instruments, the group of records taken together constitutes chattel paper.
(12) "Collateral" means the property subject to a security interest
or agricultural lien. The term includes:
(A) proceeds to which a security interest attaches;
(B) accounts, chattel paper, payment intangibles, and promissory notes
that have been sold; and
(C) goods that are the subject of a consignment.
(13) "Commercial tort claim" means a claim arising in tort with respect
(A) the claimant is an organization; or
(B) the claimant is an individual and the claim:
(i) arose in the course of the claimant's business or profession; and
(ii) does not include damages arising out of personal injury to or the
death of an individual.
(14) "Commodity account" means an account maintained by a commodity
intermediary in which a commodity contract is carried for a commodity customer.
(15) "Commodity contract" means a commodity futures contract, an option
on a commodity futures contract, a commodity option, or another contract if
the contract or option is:
(A) traded on or subject to the rules of a board of trade that has been
designated as a contract market for such a contract pursuant to federal commodities
(B) traded on a foreign commodity board of trade, exchange, or market,
and is carried on the books of a commodity intermediary for a commodity customer.
(16) "Commodity customer" means a person for which a commodity intermediary
carries a commodity contract on its books.
(17) "Commodity intermediary" means a person that:
(A) is registered as a futures commission merchant under federal commodities
(B) in the ordinary course of its business provides clearance or settlement
services for a board of trade that has been designated as a contract market
pursuant to federal commodities law.
(18) "Communicate" means:
(A) to send a written or other tangible record;
(B) to transmit a record by any means agreed upon by the persons sending
and receiving the record; or
(C) in the case of transmission of a record to or by a filing office,
to transmit a record by any means prescribed by filing-office rule.
(19) "Consignee" means a merchant to which goods are delivered in a
(20) "Consignment" means a transaction, regardless of its form, in which
a person delivers goods to a merchant for the purpose of sale and:
(A) the merchant:
(i) deals in goods of that kind under a name other than the name of
the person making delivery;
(ii) is not an auctioneer; and
(iii) is not generally known by its creditors to be substantially engaged
in selling the goods of others;
(B) with respect to each delivery, the aggregate value of the goods
is one thousand dollars or more at the time of delivery;
(C) the goods are not consumer goods immediately before delivery; and
(D) the transaction does not create a security interest that secures
(21) "Consignor" means a person that delivers goods to a consignee in
(22) "Consumer debtor" means a debtor in a consumer transaction.
(23) "Consumer goods" means goods that are used or bought for use primarily
for personal, family, or household purposes.
(24) "Consumer-goods transaction" means a consumer transaction in which:
(A) an individual incurs an obligation primarily for personal, family,
or household purposes; and
(B) a security interest in consumer goods secures the obligation.
(25) "Consumer obligor" means an obligor who is an individual and who
incurred the obligation as part of a transaction entered into primarily for
personal, family, or household purposes.
(26) "Consumer transaction" means a transaction in which (i) an individual
incurs an obligation primarily for personal, family, or household purposes,
(ii) a security interest secures the obligation, and (iii) the collateral
is held or acquired primarily for personal, family, or household purposes.
The term includes consumer-goods transactions.
(27) "Continuation statement" means an amendment of a financing statement
(A) identifies, by its file number, the initial financing statement
to which it relates; and
(B) indicates that it is a continuation statement for, or that it is
filed to continue the effectiveness of, the identified financing statement.
(28) "Debtor" means:
(A) a person having an interest, other than a security interest or other
lien, in the collateral, whether or not the person is an obligor;
(B) a seller of accounts, chattel paper, payment intangibles, or promissory
(C) a consignee.
(29) "Deposit account" means a demand, time, savings, passbook, or similar
account maintained with a bank. The term does not include investment property
or accounts evidenced by an instrument.
(30) "Document" means a document of title or a receipt of the type described
in section 7-201(b).
(31) "Electronic chattel paper" means chattel paper evidenced by a record
or records consisting of information stored in an electronic medium.
(32) "Encumbrance" means a right, other than an ownership interest,
in real property. The term includes mortgages and other liens on real property.
(33) "Equipment" means goods other than inventory, farm products, or
(34) "Farm products" means goods, other than standing timber, with respect
to which the debtor is engaged in a farming operation and which are:
(A) crops grown, growing, or to be grown, including:
(i) crops produced on trees, vines, and bushes; and
(ii) aquatic goods produced in aquacultural operations;
(B) livestock, born or unborn, including aquatic goods produced in aquacultural
(C) supplies used or produced in a farming operation; or
(D) products of crops or livestock in their unmanufactured states.
(35) "Farming operation" means raising, cultivating, propagating, fattening,
grazing, or any other farming, livestock, or aquacultural operation.
(36) "File number" means the number assigned to an initial financing
statement pursuant to section 9-519(a).
(37) "Filing office" means an office designated in section 9-501 as
the place to file a financing statement.
(38) "Filing-office rule" means a rule adopted pursuant to section 9-526.
(39) "Financing statement" means a record or records composed of an
initial financing statement and any filed record relating to the initial financing
(40) "Fixture filing" means the filing of a financing statement covering
goods that are or are to become fixtures and satisfying section 9-502(a) and
(b). The term includes the filing of a financing statement covering goods
of a transmitting utility which are or are to become fixtures.
(41) "Fixtures" means goods that have become so related to particular
real property that an interest in them arises under real property law.
(42) "General intangible" means any personal property, including things
in action, other than accounts, chattel paper, commercial tort claims, deposit
accounts, documents, goods, instruments, investment property, letter-of-credit
rights, letters of credit, money, and oil, gas, or other minerals before extraction.
The term includes payment intangibles and software.
(43) "Good faith" means honesty in fact and the observance of reasonable
commercial standards of fair dealing.
(44) "Goods" means all things that are movable when a security interest
attaches. The term includes (i) fixtures, (ii) standing timber that is to
be cut and removed under a conveyance or contract for sale, (iii) the unborn
young of animals, (iv) crops grown, growing, or to be grown, even if the crops
are produced on trees, vines, or bushes, and (v) manufactured homes. The term
also includes a computer program embedded in goods and any supporting information
provided in connection with a transaction relating to the program if (i) the
program is associated with the goods in such a manner that it customarily
is considered part of the goods, or (ii) by becoming the owner of the goods,
a person acquires a right to use the program in connection with the goods.
The term does not include a computer program embedded in goods that consist
solely of the medium in which the program is embedded. The term also does
not include accounts, chattel paper, commercial tort claims, deposit accounts,
documents, general intangibles, instruments, investment property, letter-of-credit
rights, letters of credit, money, or oil, gas, or other minerals before extraction.
(45) "Governmental unit" means a subdivision, agency, department, county,
parish, municipality, or other unit of the government of the United States,
a state, or a foreign country. The term includes an organization having a
separate corporate existence if the organization is eligible to issue debt
on which interest is exempt from income taxation under the laws of the United
(46) "Health-care-insurance receivable" means an interest in or claim
under a policy of insurance which is a right to payment of a monetary obligation
for health-care goods or services provided or
to be provided.
(47) "Instrument" means a negotiable instrument or any other writing
that evidences a right to the payment of a monetary obligation, is not itself
a security agreement or lease, and is of a type that in ordinary course of
business is transferred by delivery with any necessary indorsement or assignment
including, but not limited to, a writing that would otherwise qualify as a
certificate of deposit (defined in section 3-104(j)) but for the fact that
the writing contains a limitation on transfer. The term does not include (i)
investment property, (ii) letters of credit, or (iii) writings that evidence
a right to payment arising out of the use of a credit or charge card or information
contained on or for use with the card.
(48) "Inventory" means goods, other than farm products, which:
(A) are leased by a person as lessor;
(B) are held by a person for sale or lease or to be furnished under
a contract of service;
(C) are furnished by a person under a contract of service; or
(D) consist of raw materials, work in process, or materials used or
consumed in a business.
(49) "Investment property" means a security, whether certificated or
uncertificated, security entitlement, securities account, commodity contract,
or commodity account.
(50) "Jurisdiction of organization", with respect to a registered organization,
means the jurisdiction under whose law the organization is formed or organized.
(51) "Letter-of-credit right" means a right to payment or performance
under a letter of credit, whether or not the beneficiary has demanded or is
at the time entitled to demand payment or performance. The term does not include
the right of a beneficiary to demand payment or performance under a letter
(52) "Lien creditor" means:
(A) a creditor that has acquired a lien on the property involved by
attachment, levy, or the like;
(B) an assignee for benefit of creditors from the time of assignment;
(C) a trustee in bankruptcy from the date of the filing of the petition;
(D) a receiver in equity from the time of appointment.
(53) "Manufactured home" means a structure, transportable in one or
more sections, which, in the traveling mode, is eight body feet or more in
width or forty body feet or more in length, or, when erected on site, is three
hundred twenty or more square feet, and which is built on a permanent chassis
and designed to be used as a dwelling with or without a permanent foundation
when connected to the required utilities, and includes the plumbing, heating,
air-conditioning, and electrical systems contained therein. The term includes
any structure that meets all of the requirements of this subdivision except
the size requirements and with respect to which the manufacturer voluntarily
files a certification required by the United States Secretary of Housing and
Urban Development and complies with the standards established under Title
42 of the United States Code.
(54) "Manufactured-home transaction" means a secured transaction:
(A) that creates a purchase-money security interest in a manufactured
home, other than a manufactured home held as inventory; or
(B) in which a manufactured home, other than a manufactured home held
as inventory, is the primary collateral.
(55) "Mortgage" means a consensual interest in real property, including
fixtures, which secures payment or performance of an obligation.
(56) "New debtor" means a person that becomes bound as debtor under
section 9-203(d) by a security agreement previously entered into by another
(57) "New value" means (i) money, (ii) money's worth in property, services,
or new credit, or (iii) release by a transferee of an interest in property
previously transferred to the transferee. The term does not include an obligation
substituted for another obligation.
(58) "Noncash proceeds" means proceeds other than cash proceeds.
(59) "Obligor" means a person that, with respect to an obligation secured
by a security interest in or an agricultural lien on the collateral, (i) owes
payment or other performance of the obligation, (ii) has provided property
other than the collateral to secure payment or other performance of the obligation,
or (iii) is otherwise accountable in whole or in part for payment or other
performance of the obligation. The term does not include issuers or nominated
persons under a letter of credit.
(60) "Original debtor", except as used in section 9-310(c), means a
person that, as debtor, entered into a security agreement to which a new debtor
has become bound under section 9-203(d).
(61) "Payment intangible" means a general intangible under which the
account debtor's principal obligation is a monetary obligation.
(62) "Person related to", with respect to an individual, means:
(A) the spouse of the individual;
(B) a brother, brother-in-law, sister, or sister-in-law of the individual;
(C) an ancestor or lineal descendant of the individual or the individual's
(D) any other relative, by blood or marriage, of the individual or the
individual's spouse who shares the same home with the individual.
(63) "Person related to", with respect to an organization, means:
(A) a person directly or indirectly controlling, controlled by, or under
common control with the organization;
(B) an officer or director of, or a person performing similar functions
with respect to, the organization;
(C) an officer or director of, or a person performing similar functions
with respect to, a person described in subdivision (A);
(D) the spouse of an individual described in subdivision (A), (B), or
(E) an individual who is related by blood or marriage to an individual
described in subdivision (A), (B), (C), or (D) and shares the same home with
(64) "Proceeds", except as used in section 9-609(b), means the following
(A) whatever is acquired upon the sale, lease, license, exchange, or
other disposition of collateral;
(B) whatever is collected on, or distributed on account of, collateral;
(C) rights arising out of collateral;
(D) to the extent of the value of collateral, claims arising out of
the loss, nonconformity, or interference with the use of, defects or infringement
of rights in, or damage to, the collateral; or
(E) to the extent of the value of collateral and to the extent payable
to the debtor or the secured party, insurance payable by reason of the loss
or nonconformity of, defects or infringement of rights in, or damage to, the
(65) "Promissory note" means an instrument that evidences a promise
to pay a monetary obligation, does not evidence an order to pay, and does
not contain an acknowledgment by a bank that the bank has received for deposit
a sum of money or funds.
(66) "Proposal" means a record authenticated by a secured party which
includes the terms on which the secured party is willing to accept collateral
in full or partial satisfaction of the obligation it secures pursuant to sections
9-620, 9-621, and 9-622.
(67) "Public-finance transaction" means a secured transaction in connection
(A) debt securities are issued;
(B) all or a portion of the securities issued have an initial stated
maturity of at least twenty years; and
(C) the debtor, obligor, secured party, account debtor or other person
obligated on collateral, assignor or assignee of a secured obligation, or
assignor or assignee of a security interest is a state or a governmental unit
of a state.
(68) "Public organic
record" means a record that is available to the public for inspection and
a record consisting of the record initially filed with or issued by a state
or the United States to form or organize an organization and any record filed
with or issued by the state or the United States which amends or restates
the initial record;
an organic record of a business trust consisting of the record initially filed
with a state and any record filed with the state which amends or restates
the initial record, if a statute of the state governing business trusts requires
that the record be filed with the state; or
(C) a record consisting of legislation enacted by
the legislature of a state or the Congress of the United States which forms
or organizes an organization, any record amending the legislation, and any
record filed with or issued by the state or United States which amends or
restates the name of the organization.
(69) "Pursuant to commitment", with respect
to an advance made or other value given by a secured party, means pursuant
to the secured party's obligation, whether or not a subsequent event of default
or other event not within the secured party's control has relieved or may
relieve the secured party from its obligation.
(70) "Record", except as used
in "for record", "of record", "record or legal title", and "record owner",
means information that is inscribed on a tangible medium or which is stored
in an electronic or other medium and is retrievable in perceivable form.
(71) "Registered organization"
means an organization formed
or organized solely under the law of a single state or the United
the filing of a public organic record with, the issuance of a public organic
record by, or the enactment of legislation by the state or the United States.
The term includes a business trust that is formed or organized under the law
of a single state if a statute of the state governing business trusts requires
that the business trust's organic record be filed with the state.
(72) "Secondary obligor" means
an obligor to the extent that:
(A) the obligor's obligation is secondary; or
(B) the obligor has a right of recourse with respect to an obligation
secured by collateral against the debtor, another obligor, or property of
(73) "Secured party" means:
(A) a person in whose favor a security interest is created or provided
for under a security agreement, whether or not any obligation to be secured
(B) a person that holds an agricultural lien;
(C) a consignor;
(D) a person to which accounts, chattel paper, payment intangibles,
or promissory notes have been sold;
(E) a trustee, indenture trustee, agent, collateral agent, or other
representative in whose favor a security interest or agricultural lien is
created or provided for; or
(F) a person that holds a security interest arising under section 2-401,
2-505, 2-711(3), 2A-508(5), 4-210, or 5-118.
(74) "Security agreement"
means an agreement that creates or provides for a security interest.
(75) "Send", in connection
with a record or notification, means:
(A) to deposit in the mail, deliver for transmission, or transmit by
any other usual means of communication, with postage or cost of transmission
provided for, addressed to any address reasonable under the circumstances;
(B) to cause the record or notification to be received within the time
that it would have been received if properly sent under subdivision (A).
(76) "Software" means a computer
program and any supporting information provided in connection with a transaction
relating to the program. The term does not include a computer program that
is included in the definition of goods.
(77) "State" means a state
of the United States, the District of Columbia, Puerto Rico, the United States
Virgin Islands, or any territory or insular possession subject to the jurisdiction
of the United States.
(78) "Supporting obligation"
means a letter-of-credit right or secondary obligation that supports the payment
or performance of an account, chattel paper, a document, a general intangible,
an instrument, or investment property.
(79) "Tangible chattel paper"
means chattel paper evidenced by a record or records consisting of information
that is inscribed on a tangible medium.
(80) "Termination statement"
means an amendment of a financing statement which:
(A) identifies, by its file number, the initial financing statement
to which it relates; and
(B) indicates either that it is a termination statement or that the
identified financing statement is no longer effective.
(81) "Transmitting utility"
means a person primarily engaged in the business of:
(A) operating a railroad, subway, street railway, or trolley bus;
(B) transmitting communications electrically, electromagnetically, or
(C) transmitting goods by pipeline or sewer; or
(D) transmitting or producing and transmitting electricity, steam, gas,
(b) "Control" as provided in section 7-106 and the following definitions
in other articles apply to this article:
|"Contract for sale".
|"Holder in due course".
|"Issuer" (with respect to
| a letter of credit or
| letter-of-credit right).
|"Issuer" (with respect to
| a security).
|"Issuer" (with respect to
| a document of title).
|"Lessee in ordinary course
| of business".
|"Lessor's residual interest".
|"Letter of credit".
|"Proceeds of a letter of credit".
(c) Article 1 contains general definitions and principles of construction
and interpretation applicable throughout this article.
Source:Laws 1999, LB 550, § 75; Laws 2000, LB 929, § 25; Laws 2001, LB 54, § 28; Laws 2005, LB 570, § 101; Laws 2011, LB90, § 2.
1. Source. All terms that are defined in article 9 and used in more than one section
are consolidated in this section. Note that the definition of "security interest"
is found in section 1-201, not in this article, and has been revised. See
appendix I. Many of the definitions in this section are new; many others derive
from those in former section 9-105. The following comments also indicate other
sections of former article 9 that defined (or explained) terms.
2. Parties to Secured Transactions.
a. "Debtor"; "Obligor"; "Secondary Obligor". Determining whether a person was a "debtor" under former section 9-105(1)(d)
required a close examination of the context in which the term was used. To
reduce the need for this examination, this article redefines "debtor" and
adds new defined terms, "secondary obligor" and "obligor". In the context
of part 6 (default and enforcement), these definitions distinguish among three
classes of persons: (i) Those persons who may have a stake in the proper enforcement
of a security interest by virtue of their nonlien property interest (typically,
an ownership interest) in the collateral; (ii) those persons who may have
a stake in the proper enforcement of the security interest because of their
obligation to pay the secured debt; and (iii) those persons who have an obligation
to pay the secured debt but have no stake in the proper enforcement of the
security interest. Persons in the first class are debtors. Persons in the
second class are secondary obligors if any portion of the obligation is secondary
or if the obligor has a right of recourse against the debtor or another obligor
with respect to an obligation secured by collateral. One must consult the
law of suretyship to determine whether an obligation is secondary. The Restatement
(3d), Suretyship and Guaranty section 1 (1996), contains a useful explanation
of the concept. Obligors in the third class are neither debtors nor secondary
obligors. With one exception (section 9-616, as it relates to a consumer obligor),
the rights and duties provided by part 6 affect nondebtor obligors only if
they are "secondary obligors".
By including in the definition of "debtor" all persons with a property
interest (other than a security interest in or other lien on collateral),
the definition includes transferees of collateral, whether or not the secured
party knows of the transfer or the transferee's identity. Exculpatory provisions
in part 6 protect the secured party in that circumstance. See sections 9-605
and 9-628. The definition renders unnecessary former section 9-112, which
governed situations in which collateral was not owned by the debtor. The definition
also includes a "consignee", as defined in this section, as well as a seller
of accounts, chattel paper, payment intangibles, or promissory notes.
Secured parties and other lienholders are excluded from the definition
of "debtor" because the interests of those parties normally derive from and
encumber a debtor's interest. However, if in a separate secured transaction
a secured party grants, as debtor, a security interest in its own interest
(i.e., its security interest and any obligation that it secures), the secured
party is a debtor in that transaction. This typically occurs when a secured
party with a security interest in specific goods assigns chattel paper.
Consider the following examples:
Example 1: Behnfeldt borrows money and grants a security interest in her Miata
to secure the debt. Behnfeldt is a debtor and an obligor.
Example 2: Behnfeldt borrows money and grants a security interest in her Miata
to secure the debt. Bruno cosigns a negotiable note as maker. As before, Behnfeldt
is the debtor and an obligor. As an accommodation party (see section 3-419),
Bruno is a secondary obligor. Bruno has this status even if the note states
that her obligation is a primary obligation and that she waives all suretyship
Example 3: Behnfeldt borrows money on an unsecured basis. Bruno cosigns the note
and grants a security interest in her Honda to secure her obligation. Inasmuch
as Behnfeldt does not have a property interest in the Honda, Behnfeldt is
not a debtor. Having granted the security interest, Bruno is the debtor. Because
Behnfeldt is a principal obligor, she is not a secondary obligor. Whatever
the outcome of enforcement of the security interest against the Honda or Bruno's
secondary obligation, Bruno will look to Behnfeldt for her losses. The enforcement
will not affect Behnfeldt's aggregate obligations.
When the principal obligor (borrower) and the secondary obligor (surety)
each has granted a security interest in different collateral, the status of
each is determined by the collateral involved.
Example 4: Behnfeldt borrows money and grants a security interest in her Miata
to secure the debt. Bruno cosigns the note and grants a security interest
in her Honda to secure her obligation. When the secured party enforces the
security interest in Behnfeldt's Miata, Behnfeldt is the debtor, and Bruno
is a secondary obligor. When the secured party enforces the security interest
in the Honda, Bruno is the "debtor". As in example 3, Behnfeldt is an obligor,
but not a secondary obligor.
b. "Secured Party". The secured party is the person in whose favor the security interest
has been created, as determined by reference to the security agreement. This
definition controls, among other things, which person has the duties and potential
liability that part 6 imposes upon a secured party. The definition of "secured
party" also includes a "consignor", a person to which accounts, chattel paper,
payment intangibles, or promissory notes have been sold, and the holder of
an agricultural lien.
The definition of "secured party" clarifies the status of various types
of representatives. Consider, for example, a multi-bank facility under which
Bank A, Bank B, and Bank C are lenders and Bank A serves as the collateral
agent. If the security interest is granted to the banks, then they are the
secured parties. If the security interest is granted to Bank A as collateral
agent, then Bank A is the secured party.
c. Other Parties. A "consumer obligor" is defined as the obligor in a consumer transaction.
Definitions of "new debtor" and "original debtor" are used in the special
rules found in sections 9-326 and 9-508.
3. Definitions Relating to Creation of a Security Interest.
a. "Collateral". As under former section 9-105, "collateral" is the property subject to a security interest and includes accounts and chattel paper that have been
sold. It has been expanded in this article. The term now explicitly includes
proceeds subject to a security interest. It also reflects the broadened scope
of the article. It includes property subject to an agricultural lien as well
as payment intangibles and promissory notes that have been sold.
b. "Security Agreement". The definition of "security agreement" is substantially the same as
under former section 9-105—an agreement that creates or provides for a security interest. However, the
term frequently was used colloquially in former article 9 to refer to the
document or writing that contained a debtor's security agreement. This article
eliminates that usage, reserving the term for the more precise meaning specified
in the definition.
Whether an agreement creates a security interest depends not on whether
the parties intend that the law characterize the transaction as a security
interest but rather on whether the transaction falls within the definition
of "security interest" in section 1-201. Thus, an agreement that the parties
characterize as a "lease" of goods may be a "security agreement", notwithstanding
the parties' stated intention that the law treat the transaction as a lease
and not as a secured transaction.
4. Goods—Related Definitions.
a. "Goods"; "Consumer Goods"; "Equipment"; "Farm Products"; "Farming
Operation"; "Inventory". The definition of "goods" is substantially the same
as the definition in former section 9-105. This article also retains the four
mutually-exclusive "types" of collateral that consist of goods: "Consumer goods"; "equipment"; "farm products"; and "inventory". The
revisions are primarily for clarification.
The classes of goods are mutually exclusive. For example, the same property
cannot simultaneously be both equipment and inventory. In borderline cases—a physician's car or a farmer's
truck that might be either consumer goods or equipment—the principal use to which the property is put is determinative. Goods can
fall into different classes at different times. For example, a radio may be
inventory in the hands of a dealer and consumer goods in the hands of a consumer.
As under former article 9, goods are "equipment" if they do not fall into
The definition of "consumer goods" follows former section 9-109. The
classification turns on whether the debtor uses or bought the goods for use
"primarily for personal, family, or household purposes".
Goods are inventory if they are leased by a lessor or held by a person
for sale or lease. The revised definition of "inventory" makes clear that
the term includes goods leased by the debtor to others as well as goods held
for lease. (The same result should have been obtained under the former definition.)
Goods to be furnished or furnished under a service contract, raw materials,
and work in process also are inventory. Implicit in the definition is the
criterion that the sales or leases are or will be in the ordinary course of
business. For example, machinery used in manufacturing is equipment, not inventory,
even though it is the policy of the debtor to sell machinery when it becomes
obsolete or worn. Inventory also includes goods that are consumed in a business
(e.g., fuel used in operations). In general, goods used in a business are
equipment if they are fixed assets or have, as identifiable units, a relatively
long period of use, but are inventory, even though not held for sale or lease,
if they are used up or consumed in a short period of time in producing a product
or providing a service.
Goods are "farm products" if the debtor is engaged in farming operations
with respect to the goods. Animals in a herd of livestock are covered whether
the debtor acquires them by purchase or as a result of natural increase. Products
of crops or livestock remain farm products as long as they have not been subjected
to a manufacturing process. The terms "crops" and "livestock" are not defined.
The new definition of "farming operations" is for clarification only.
Crops, livestock, and their products cease to be "farm products" when
the debtor ceases to be engaged in farming operations with respect to them.
If, for example, they come into the possession of a marketing agency for sale
or distribution or of a manufacturer or processor as raw materials, they become
inventory. Products of crops or livestock, even though they remain in the
possession of a person engaged in farming operations, lose their status as
farm products if they are subjected to a manufacturing process. What is and
what is not a manufacturing operation is not specified in this article. At
one end of the spectrum, some processes are so closely connected with farming—such as pasteurizing milk
or boiling sap to produce maple syrup or sugar—that they would not constitute manufacturing. On the other hand an extensive
canning operation would be manufacturing. Once farm products have been subjected
to a manufacturing operation, they normally become inventory.
The revised definition of "farm products" clarifies the distinction
between crops and standing timber and makes clear that aquatic goods produced
in aquacultural operations may be either crops or livestock. Although aquatic
goods that are vegetable in nature often would be crops and those that are
animal would be livestock, this article leaves the courts free to classify
the goods on a case-by-case basis. See section 9-324, comment 11.
The definitions of "goods" and "software" are also mutually exclusive.
Computer programs usually constitute "software", and, as such, are not "goods"
as this article uses the terms. However, under the circumstances specified
in the definition of "goods", computer programs embedded in goods are part
of the "goods" and are not "software".
b. "Accession"; "Manufactured Home"; "Manufactured-Home Transaction". Other specialized definitions of goods include "accession" (see the special
priority and enforcement rules in section 9-335), and "manufactured home"
(see section 9-515, permitting a financing statement in a "manufactured-home
transaction" to be effective for 30 years). The definition of "manufactured
home" borrows from the federal Manufactured Housing Act, 42 U.S.C. section
5401 et seq., and is intended to have the same meaning.
c. "As-Extracted Collateral". Under this article, oil, gas, and other minerals that have not been
extracted from the ground are treated as real property, to which this article
does not apply. Upon extraction, minerals become personal property (goods)
and eligible to be collateral under this article. See the definition of "goods",
which excludes "oil, gas, and other minerals before extraction". To take account
of financing practices reflecting the shift from real to personal property,
this article contains special rules for perfecting security interests in minerals
which attach upon extraction and in accounts resulting from the sale of minerals
at the wellhead or minehead. See, e.g., sections 9-301(4) (law governing perfection
and priority), 9-501 (place of filing), 9-502 (contents of financing statement),
and 9-519 (indexing of records). The new term, "as-extracted collateral",
refers to the minerals and related accounts to which the special rules apply.
The term "at the wellhead" encompasses arrangements based on a sale of the
produce at the moment that it issues from the ground and is measured, without
technical distinctions as to whether title passes at the "Christmas tree"
of a well, the far side of a gathering tank, or at some other point. The term
"at . . . the minehead" is comparable.
The following examples explain the operation of these provisions.
Example 5: Debtor owns an interest in oil that is to be extracted. To secure Debtor's
obligations to Lender, Debtor enters into an authenticated agreement granting
Lender an interest in the oil. Although Lender may acquire an interest in
the oil under real property law, Lender does not acquire a security interest
under this article until the oil becomes personal property, i.e., until it
is extracted and becomes "goods" to which this article applies. Because Debtor
had an interest in the oil before extraction and Lender's security interest
attached to the oil as extracted, the oil is "as-extracted collateral".
Example 6: Debtor owns an interest in oil that is to be extracted and contracts
to sell the oil to Buyer at the wellhead. In an authenticated agreement, Debtor
agrees to sell to Lender the right to payment from Buyer. This right to payment
is an account that constitutes "as-extracted collateral". If Lender then resells
the account to Financer, Financer acquires a security interest. However, inasmuch
as the debtor-seller in that transaction, Lender, had no interest in the oil
before extraction, Financer's collateral (the account it owns) is not "as-extracted
Example 7: Under the facts of example 6, before extraction, Buyer grants a security
interest in the oil to Bank. Although Bank's security interest attaches when
the oil is extracted, Bank's security interest is not in "as-extracted collateral",
inasmuch as its debtor, Buyer, did not have an interest in the oil before
5. Receivables—Related Definitions.
a. "Account"; "Health-Care-Insurance Receivable"; "As-Extracted Collateral". The definition of "account" has been expanded and reformulated. It is no longer
limited to rights to payment relating to goods or services. Many categories
of rights to payment that were classified as general intangibles under former
article 9 are accounts under this article. Thus, if they are sold, a financing
statement must be filed to perfect the buyer's interest in them. As used in the definition of "account," a right to payment "arising out of the use of a credit or charge card or information contained on or for use with the card" is the right of a card issuer to payment from its cardholder. A credit-card or charge-card transaction may give rise to other rights to payments; however, those other rights do not "arise out of the use" of the card or information contained on or for use with the card. Among the
types of property that are expressly excluded from the definition of account is "a right
to payment for money or funds advanced or sold". As defined in section 1-201,
"money" is limited essentially to currency. As used in the exclusion from
the definition of "account", however, "funds" is a broader concept (although
the term is not defined). For example, when a bank-lender credits a borrower's
deposit account for the amount of a loan, the bank's advance of funds is not
a transaction giving rise to an account.
The definition of "health-care-insurance receivable" is new. It is a subset of the definition of "account". However, the rules generally
applicable to account debtors on accounts do not apply to insurers obligated
on health-care-insurance receivables. See sections 9-404(e), 9-405(d), and
Note that certain accounts also are "as-extracted collateral". See comment
4(c), examples 6 and 7.
b. "Chattel Paper"; "Electronic Chattel Paper"; "Tangible Chattel Paper". "Chattel paper" consists of a monetary obligation together with a security
interest in or a lease of specific goods if the obligation and security interest
or lease are evidenced by "a record or records". The definition has been expanded
from that found in former article 9 to include records that evidence a monetary
obligation and a security interest in specific goods and software used in
the goods, a security interest in specific goods and license of software used
in the goods, or a lease of specific goods and license of software used in
the goods. The expanded definition covers transactions in which the debtor's
or lessee's monetary obligation includes amounts owed with respect to software
used in the goods. The monetary obligation with respect to the software need
not be owed under a license from the secured party or lessor, and the secured
party or lessor need not be a party to the license transaction itself. Among
the types of monetary obligations that are included in "chattel paper" are
amounts that have been advanced by the secured party or lessor to enable the
debtor or lessee to acquire or obtain financing for a license of the software
used in the goods. The definition also makes clear that rights to payment
arising out of credit card transactions are not chattel paper.
Charters of vessels are expressly excluded from the definition of chattel
paper; they are accounts. The term "charter" as used in this section includes
bareboat charters, time charters, successive voyage charters, contracts of
affreightment, contracts of carriage, and all other arrangements for the use
Under former section 9-105, only if the evidence of an obligation consisted
of "a writing or writings" could an obligation qualify as chattel paper. In
this article, traditional, written chattel paper is included in the definition
of "tangible chattel paper". "Electronic chattel paper" is chattel paper that
is stored in an electronic medium instead of in tangible form. The concept
of an electronic medium should be construed liberally to include electrical,
digital, magnetic, optical, electromagnetic, or any other current or similar
c. "Instrument"; "Promissory Note". The definition of "instrument" includes a negotiable instrument. As
under former section 9-105, it also includes any other right to payment of
a monetary obligation that is evidenced by a writing of a type that in ordinary
course of business is transferred by delivery (and, if necessary, an indorsement
or assignment). Except in the case of chattel paper, the fact that an instrument
is secured by a security interest or encumbrance on property does not change
the character of the instrument as such or convert the combination of the
instrument and collateral into a separate classification of personal property.
The definition makes clear that rights to payment arising out of credit card
transactions are not instruments. The definition of "promissory note" is new,
necessitated by the inclusion of sales of promissory notes within the scope
of article 9. It explicitly excludes obligations arising out of "orders" to
pay (e.g., checks) as opposed to "promises" to pay. See section 3-104.
d. "General Intangible"; "Payment Intangible". "General intangible" is the residual category of personal property,
including things in action, that is not included in the other defined types
of collateral. Examples are various categories of intellectual property and
the right to payment of a loan of funds that is not evidenced by chattel paper
or an instrument. As used in the definition of "general intangible", "things
in action" includes rights that arise under a license of intellectual property,
including the right to exploit the intellectual property without liability
for infringement. The definition has been revised to exclude commercial tort
claims, deposit accounts, and letter-of-credit rights. Each of the three is
a separate type of collateral. One important consequence of this exclusion
is that tortfeasors (commercial tort claims), banks (deposit accounts), and
persons obligated on letters of credit (letter-of-credit rights) are not "account
debtors" having the rights and obligations set forth in sections 9-404, 9-405,
and 9-406. In particular, tortfeasors, banks, and persons obligated on letters
of credit are not obligated to pay an assignee (secured party) upon receipt
of the notification described in section 9-404(a). See comment 5(h). Another
important consequence relates to the adequacy of the description in the security
agreement. See section 9-108.
"Payment intangible" is a subset of the definition of "general intangible".
The sale of a payment intangible is subject to this article. See section 9-109(a)(3).
Virtually any intangible right could give rise to a right to payment of money
once one hypothesizes, for example, that the account debtor is in breach of
its obligation. The term "payment intangible", however, embraces only those
general intangibles "under which the account debtor's principal obligation
is a monetary obligation". A debtor's right to payment from another person of amounts received by the other person on the debtor's behalf, including the right of a merchant in a credit-card, debit-card, prepaid-card, or other payment-card transaction to payment of amounts received by its bank from the card system in settlement of the transaction, is a "payment intangible." (In contrast, the right of a credit-card issuer to payment arising out of the use of a credit card is an "account.")
In classifying intangible collateral, a court should begin by identifying
the particular rights that have been assigned. The account debtor (promisor)
under a particular contract may owe several types of monetary obligations
as well as other, nonmonetary obligations. If the promisee's right to payment
of money is assigned separately, the right is an account or payment intangible,
depending on how the account debtor's obligation arose. When all the promisee's
rights are assigned together, an account, a payment intangible, and a general
intangible all may be involved, depending on the nature of the rights.
A right to the payment of money is frequently buttressed by ancillary
rights, such as rights arising from covenants in a purchase agreement, note, or mortgage requiring
insurance on the collateral or forbidding removal of the collateral, rights arising from covenants
to preserve the creditworthiness of the promisor, and the lessor's rights with respect to leased goods that arise upon the lessee's default (see section 2A-523). This article does not treat these ancillary rights
separately from the rights to payment to which they relate. For example, attachment
and perfection of an assignment of a right to payment of a monetary obligation,
whether it be an account or payment intangible, also carries these ancillary
rights. Thus, an assignment of the lessor's right to payment under a lease also transfers the lessor's rights with respect to the leased goods under section 2A-523. If, taken together, the lessor's rights to payment and with respect to the leased goods are evidenced by chattel paper, then, contrary to In re Commercial Money Center, Inc., 350 B.R. 465 (Bankr. App. 9th Cir. 2006), an assignment of the lessor's right to payment constitutes an assignment of the chattel paper. Although an agreement excluding the lessor's rights with respect to the leased goods from an assignment of the lessor's right to payment may be effective between the parties, the agreement does not affect the characterization of the collateral to the prejudice of creditors of, and purchasers from, the assignor.
Every "payment intangible" is also a "general intangible". Likewise, "software" is a "general intangible" for purposes of this
article. See comment 25. Accordingly, except as otherwise provided, statutory
provisions applicable to general intangibles apply to payment intangibles
e. "Letter-of-Credit Right". The term "letter-of-credit right" embraces the rights to payment and
performance under a letter of credit (defined in section 5-102). However,
it does not include a beneficiary's right to demand payment or performance.
Transfer of those rights to a transferee beneficiary is governed by article
5. See sections 9-107, comment 4, and 9-329, comments 3 and 4.
f. "Supporting Obligation". This new term covers the most common types of credit enhancements - suretyship obligations (including
guarantees) and letter-of-credit rights that support one of the types of collateral
specified in the definition. As explained in comment 2(a), suretyship law
determines whether an obligation is "secondary" for purposes of this definition.
Section 9-109 generally excludes from this article transfers of interests
in insurance policies. However, the regulation of a secondary obligation as
an insurance product does not necessarily mean that it is a "policy of insurance"
for purposes of the exclusion in section 9-109. Thus, this article may cover
a secondary obligation (as a supporting obligation), even if the obligation
is issued by a regulated insurance company and the obligation is subject to
regulation as an "insurance" product.
This article contains rules explicitly governing attachment, perfection,
and priority of security interests in supporting obligations. See sections
9-203, 9-308, 9-310, and 9-322. These provisions reflect the principle that
a supporting obligation is an incident of the collateral it supports.
Collections of or other distributions under a supporting obligation
are "proceeds" of the supported collateral as well as "proceeds" of the supporting
obligation itself. See section 9-102 (defining "proceeds") and comment 13(b).
As such, the collections and distributions are subject to the priority rules
applicable to proceeds generally. See section 9-322. However, under the special
rule governing security interests in a letter-of-credit right, a secured party's
failure to obtain control (section 9-107) of a letter-of-credit right supporting
collateral may leave its security interest exposed to a priming interest of
a party who does take control. See section 9-329 (security interest in a letter-of-credit
right perfected by control has priority over a conflicting security interest).
g. "Commercial Tort Claim". This term is new. A tort claim may serve as original collateral under
this article only if it is a "commercial tort claim". See section 9-109(d).
Although security interests in commercial tort claims are within its scope,
this article does not override other applicable law restricting the assignability
of a tort claim. See section 9-401. A security interest in a tort claim also
may exist under this article if the claim is proceeds of other collateral.
h. "Account Debtor". An "account debtor" is a person obligated on an account, chattel paper,
or general intangible. The account debtor's obligation often is a monetary
obligation; however, this is not always the case. For example, if a franchisee
uses its rights under a franchise agreement (a general intangible) as collateral,
then the franchisor is an "account debtor". As a general matter, article 3,
and not article 9, governs obligations on negotiable instruments. Accordingly,
the definition of "account debtor" excludes obligors on negotiable instruments
constituting part of chattel paper. The principal effect of this change from
the definition in former article 9 is that the rules in sections 9-403, 9-404,
9-405, and 9-406, dealing with the rights of an assignee and duties of an
account debtor, do not apply to an assignment of chattel paper in which the
obligation to pay is evidenced by a negotiable instrument. (Section 9-406(d),
however, does apply to promissory notes, including negotiable promissory notes.)
Rather, the assignee's rights are governed by article 3. Similarly, the duties
of an obligor on a nonnegotiable instrument are governed by nonarticle 9 law
unless the nonnegotiable instrument is a part of chattel paper, in which case
the obligor is an account debtor.
i. Receivables Under Government Entitlement Programs. This article does not contain a defined term that encompasses specifically
rights to payment or performance under the many and varied government entitlement
programs. Depending on the nature of a right under a program, it could be
an account, a payment intangible, a general intangible other than a payment
intangible, or another type of collateral. The right also might be proceeds
of collateral (e.g., crops).
6. Investment-Property—Related Definitions: "Commodity Account"; "Commodity Contract"; "Commodity
Customer"; "Commodity Intermediary"; "Investment Property". These definitions
are substantially the same as the corresponding definitions in former section
9-115. "Investment property" includes securities, both certificated and uncertificated,
securities accounts, security entitlements, commodity accounts, and commodity
contracts. The term investment property includes a "securities account" in
order to facilitate transactions in which a debtor wishes to create a security
interest in all of the investment positions held through a particular account
rather than in particular positions carried in the account. Former section
9-115 was added in conjunction with revised article 8 and contained a variety
of rules applicable to security interests in investment property. These rules
have been relocated to the appropriate sections of article 9. See, e.g., sections
9-203 (attachment), 9-314 (perfection by control), and 9-328 (priority).
The terms "security", "security entitlement", and related terms are
defined in section 8-102, and the term "securities account" is defined in
section 8-501. The terms "commodity account", "commodity contract", "commodity
customer", and "commodity intermediary" are defined in this section. Commodity
contracts are not "securities" or "financial assets" under article 8. See
section 8-103(f). Thus, the relationship between commodity intermediaries
and commodity customers is not governed by the indirect-holding-system rules
of part 5 of article 8. For securities, article 9 contains rules on security
interests, and article 8 contains rules on the rights of transferees, including
secured parties, on such matters as the rights of a transferee if the transfer
was itself wrongful and gives rise to an adverse claim. For commodity contracts,
article 9 establishes rules on security interests, but questions of the sort
dealt with in article 8 for securities are left to other law.
The indirect-holding-system rules of article 8 are sufficiently flexible
to be applied to new developments in the securities and financial markets,
where that is appropriate. Accordingly, the definition of "commodity contract"
is narrowly drafted to ensure that it does not operate as an obstacle to the
application of the article 8 indirect-holding-system rules to new products.
The term "commodity contract" covers those contracts that are traded on or
subject to the rules of a designated contract market and foreign commodity
contracts that are carried on the books of American commodity intermediaries.
The effect of this definition is that the category of commodity contracts
that is excluded from article 8 but governed by article 9 is essentially the
same as the category of contracts that falls within the exclusive regulatory
jurisdiction of the federal Commodity Futures Trading Commission.
Commodity contracts are different from securities or other financial
assets. A person who enters into a commodity futures contract is not buying
an asset having a certain value and holding it in anticipation of increase
in value. Rather the person is entering into a contract to buy or sell a commodity
at set price for delivery at a future time. That contract may become advantageous
or disadvantageous as the price of the commodity fluctuates during the term
of the contract. The rules of the commodity exchanges require that the contracts
be marked to market on a daily basis; that is, the customer pays or receives
any increment attributable to that day's price change. Because commodity customers
may incur obligations on their contracts, they are required to provide collateral
at the outset, known as "original margin", and may be required to provide
additional amounts, known as "variation margin", during the term of the contract.
The most likely setting in which a person would want to take a security
interest in a commodity contract is where a lender who is advancing funds
to finance an inventory of a physical commodity requires the borrower to enter
into a commodity contract as a hedge against the risk of decline in the value
of the commodity. The lender will want to take a security interest in both
the commodity itself and the hedging commodity contract. Typically, such arrangements
are structured as security interests in the entire commodity account in which
the borrower carries the hedging contracts, rather than in individual contracts.
One important effect of including commodity contracts and commodity
accounts in article 9 is to provide a clearer legal structure for the analysis
of the rights of commodity clearing organizations against their participants
and futures commission merchants against their customers. The rules and agreements
of commodity clearing organizations generally provide that the clearing organization
has the right to liquidate any participant's positions in order to satisfy
obligations of the participant to the clearing corporation. Similarly, agreements
between futures commission merchants and their customers generally provide
that the futures commission merchant has the right to liquidate a customer's
positions in order to satisfy obligations of the customer to the futures commission
The main property that a commodity intermediary holds as collateral
for the obligations that the commodity customer may incur under its commodity
contracts is not other commodity contracts carried by the customer but the
other property that the customer has posted as margin. Typically, this property
will be securities. The commodity intermediary's security interest in such
securities is governed by the rules of this article on security interests
in securities, not the rules on security interests in commodity contracts
or commodity accounts.
Although there are significant analytic and regulatory differences between
commodities and securities, the development of commodity contracts on financial
products in the past few decades has resulted in a system in which the commodity
markets and securities markets are closely linked. The rules on security interests
in commodity contracts and commodity accounts provide a structure that may
be essential in times of stress in the financial markets. Suppose, for example
that a firm has a position in a securities market that is hedged by a position
in a commodity market, so that payments that the firm is obligated to make
with respect to the securities position will be covered by the receipt of
funds from the commodity position. Depending upon the settlement cycles of
the different markets, it is possible that the firm could find itself in a
position where it is obligated to make the payment with respect to the securities
position before it receives the matching funds from the commodity position.
If cross-margining arrangements have not been developed between the two markets,
the firm may need to borrow funds temporarily to make the earlier payment.
The rules on security interests in investment property would facilitate the
use of positions in one market as collateral for loans needed to cover obligations
in the other market.
7. Consumer—Related Definitions: "Consumer Debtor"; "Consumer Goods"; "Consumer-goods
transaction"; "Consumer Obligor"; "Consumer Transaction". The definition
of "consumer goods" (discussed above) is substantially the same as the definition
in former section 9-109. The definitions of "consumer debtor", "consumer obligor",
"consumer-goods transaction", and "consumer transaction" have been added in
connection with various new (and old) consumer-related provisions and to designate
certain provisions that are inapplicable in consumer transactions.
"Consumer-goods transaction" is a subset of "consumer transaction".
Under each definition, both the obligation secured and the collateral must
have a personal, family, or household purpose. However, "mixed" business and
personal transactions also may be characterized as a consumer-goods transaction
or consumer transaction. Subparagraph (A) of the definition of consumer-goods
transactions and clause (i) of the definition of consumer transaction are
primary purposes tests. Under these tests, it is necessary to determine the
primary purpose of the obligation or obligations secured. Subparagraph (B)
and clause (iii) of these definitions are satisfied if any of the collateral
is consumer goods, in the case of a consumer-goods transaction, or "is held
or acquired primarily for personal, family, or household purposes", in the
case of a consumer transaction. The fact that some of the obligations secured
or some of the collateral for the obligation does not satisfy the tests (e.g.,
some of the collateral is acquired for a business purpose) does not prevent
a transaction from being a "consumer transaction" or "consumer-goods transaction".
8. Filing—Related Definitions: "Continuation Statement"; "File Number"; "Filing Office";
"Filing-Office Rule"; "Financing Statement"; "Fixture Filing"; "Manufactured-Home
Transaction"; "New Debtor"; "Original Debtor"; "Public-Finance Transaction";
"Termination Statement"; "Transmitting Utility". These definitions are used
exclusively or primarily in the filing-related provisions in part 5. Most
are self-explanatory and are discussed in the comments to part 5. A financing
statement filed in a manufactured-home transaction or a public-finance transaction
may remain effective for 30 years instead of the 5 years applicable to other
financing statements. See section 9-515(b). The definitions relating to medium
neutrality also are significant for the filing provisions. See comment 9.
The definition of "transmitting utility" has been revised to embrace
the business of transmitting communications generally to take account of new
and future types of communications technology. The term designates a special
class of debtors for whom separate filing rules are provided in part 5, thereby
obviating the many local fixture filings that would be necessary under the
rules of section 9-501 for a far-flung public-utility debtor. A transmitting
utility will not necessarily be regulated by or operating as such in a jurisdiction
where fixtures are located. For example, a utility might own transmission
lines in a jurisdiction, although the utility generates no power and has no
customers in the jurisdiction.
9. Definitions Relating to Medium Neutrality.
a. "Record". In many, but not all, instances, the term "record" replaces the term
"writing" and "written". A "record" includes information that is in intangible
form (e.g., electronically stored) as well as tangible form (e.g., written
on paper). Given the rapid development and commercial adoption of modern communication
and storage technologies, requirements that documents or communications be
"written", "in writing", or otherwise in tangible form do not necessarily
reflect or aid commercial practices.
A "record" need not be permanent or indestructible, but the term does
not include any oral or other communication that is not stored or preserved
by any means. The information must be stored on paper or in some other medium.
Information that has not been retained other than through human memory does
not qualify as a record. Examples of current technologies commercially used
to communicate or store information include, but are not limited to, magnetic
media, optical discs, digital voice messaging systems, electronic mail, audio
tapes, and photographic media, as well as paper. "Record" is an inclusive
term that includes all of these methods of storing or communicating information.
Any "writing" is a record. A record may be authenticated. See comment 9(b).
A record may be created without the knowledge or intent of a particular person.
Like the terms "written" or "in writing", the term "record" does not
establish the purposes, permitted uses, or legal effect that a record may
have under any particular provision of law. Whatever is filed in the article
9 filing system, including financing statements, continuation statements,
and termination statements, whether transmitted in tangible or intangible
form, would fall within the definition. However, in some instances, statutes
or filing-office rules may require that a paper record be filed. In such cases,
even if this article permits the filing of an electronic record, compliance
with those statutes or rules is necessary. Similarly, a filer must comply
with a statute or rule that requires a particular type of encoding or formatting
for an electronic record.
This article sometimes uses the terms "for record", "of record", "record
or legal title", and "record owner". Some of these are terms traditionally
used in real property law. The definition of "record" in this article now
explicitly excepts these usages from the defined term. Also, this article
refers to a record that is filed or recorded in real property recording systems
to record a mortgage as a "record of a mortgage". This usage recognizes that
the defined term "mortgage" means an interest in real property; it does not
mean the record that evidences, or is filed or recorded with respect to, the
b. "Authenticate"; "Communicate"; "Send". The terms "authenticate" and "authenticated" generally replace "sign"
and "signed". "Authenticated" replaces and broadens the definition of "signed",
in section 1-201, to encompass authentication of all records, not just writings.
(References to authentication of, e.g., an agreement, demand, or notification
mean, of course, authentication of a record containing an agreement, demand,
or notification.) The terms "communicate" and "send" also contemplate the
possibility of communication by nonwritten media. These definitions include
the act of transmitting both tangible and intangible records. The definition
of "send" replaces, for purposes of this article, the corresponding term in
section 1-201. The reference to "usual means of communication" in that definition
contemplates an inquiry into the appropriateness of the method of transmission
used in the particular circumstances involved.
10. Scope—Related Definitions.
a. Expanded Scope of Article: "Agricultural Lien"; "Consignment"; "Payment
Intangible"; "Promissory Note". These new definitions reflect the expanded
scope of article 9, as provided in section 9-109(a).
b. Reduced Scope of Exclusions: "Governmental Unit"; "Health-Care-Insurance Receivable"; "Commercial
Tort Claims". These new definitions reflect the reduced scope of the exclusions,
provided in section 9-109(c) and (d), of transfers by governmental debtors
and assignments of interests in insurance policies and commercial tort claims.
11. Choice-of-Law—Related Definitions: "Certificate of Title"; "Governmental Unit"; "Jurisdiction
of Organization"; "Registered Organization"; "State". These new definitions
reflect the changes in the law governing perfection and priority of security
interests and agricultural liens provided in part 3, subpart 1.
Statutes often require applicants for a certificate of title to identify all security interests on the application and require the issuing agency to indicate the identified security interests on the certificate. Some of these statutes provide that priority over the rights of a lien creditor (i.e., perfection of a security interest) in goods covered by the certificate occurs upon indication of the security interest on the certificate; that is, they provide for the indication of the security interest on the certificate as a "condition" of perfection. Other statutes contemplate that perfection is achieved upon the occurrence of another act, e.g., delivery of the application to the issuing agency, that "results" in the indication of the security interest on the certificate. A certificate governed by either type of statute can qualify as a "certificate of title" under this article. The statute providing for the indication of a security interest need not expressly state the connection between the indication and perfection. For example, a certificate issued pursuant to a statute that requires applicants to identify security interests, requires the issuing agency to indicate the identified security interests on the certificate, but is silent concerning the legal consequences of the indication would be a "certificate of title" if, under a judicial interpretation of the statute, perfection of a security interest is a legal consequence of the indication. Likewise, a certificate would be a "certificate of title" if another statute provides, expressly or as interpreted, the requisite connection between the indication and perfection.
The first sentence of the definition of "certificate of title" includes certificates consisting of tangible records, of electronic records, and of combinations of tangible and electronic records.
In many states, a certificate of title covering goods that are encumbered by a security interest is delivered to the secured party by the issuing authority. To eliminate the need for the issuance of a paper certificate under these circumstances, several states have revised their certificate-of-title statutes to permit or require a state agency to maintain an electronic record that evidences ownership of the goods and in which a security interest in the goods may be noted. The second sentence of the definition provides that such a record is a "certificate of title" if it is in fact maintained as an alternative to the issuance of a paper certificate of title, regardless of whether the certificate-of-title statute provides that the record is a certificate of title and even if the statute does not expressly state that the record is maintained instead of issuing a paper certificate.
Not every organization that may provide information about itself in
the public records is a "registered organization". For example, a general
partnership is not a "registered organization", even if it files a statement
of partnership authority under section 303 of the Uniform Partnership Act
(1994) or an assumed name ("dba") certificate. This is because such a partnership is not formed or organized by the filing of a record with, or the issuance of a record by, a state or the United States. In contrast, corporations,
limited liability companies, and limited partnerships ordinarily are "registered organizations".
Not every record concerning a registered organization that is filed with, or issued by, a state or the United States is a "public organic record." For example, a certificate of good standing issued with respect to a corporation or a published index of domestic corporations would not be a "public organic record" because its issuance or publication does not form or organize the corporations named.
When collateral is held in a trust, one must look to non-UCC law to determine whether the trust is a "registered organization." Non-UCC law typically distinguishes between statutory trusts and common-law trusts. A statutory trust is formed by the filing of a record, commonly referred to as a certificate of trust, in a public office pursuant to a statute. See, e.g., Uniform Statutory Trust Entity Act § 201 (2009); Delaware Statutory Trust Act, Del. Code Ann. tit. 12, § 3801 et seq. A statutory trust is a juridical entity, separate from its trustee and beneficial owners, that may sue and be sued, own property, and transact business in its own name. Inasmuch as a statutory trust is a "legal or commercial entity," it qualifies as a "person other than an individual," and therefore as an "organization," under section 1-201. A statutory trust that is formed by the filing of a record in a public office is a "registered organization," and the filed record is a "public organic record" of the statutory trust, if the filed record is available to the public for inspection. (The requirement that a record be "available to the public for inspection" is satisfied if a copy of the relevant record is available for public inspection.)
Unlike a statutory trust, a common-law trust—whether its purpose is donative or commercial—arises from private action without the filing of a record in a public office. See Uniform Trust Code § 401 (2000); Restatement (Third) of Trusts § 10 (2003). Moreover, under traditional law, a common-law trust is not itself a juridical entity and therefore must sue and be sued, own property, and transact business in the name of the trustee acting in the capacity of trustee. A common-law trust that is a "business trust," i.e., that has a business or commercial purpose, is an "organization" under section 1-201. However, such a trust would not be a "registered organization" if, as is typically the case, the filing of a public record is not needed to form it.
In some states, however, the trustee of a common-law trust that has a commercial or business purpose is required by statute to file a record in a public office following the trust's formation. See, e.g., Mass. Gen. Laws Ch. 182, § 2; Fla. Stat. Ann. § 609.02. A business trust that is required to file its organic record in a public office is a "registered organization" under the second sentence of the definition if the filed record is available to the public for inspection. Any organic record required to be filed, and filed, with respect to a common-law business trust after the trust is formed is a "public organic record" of the trust. Some statutes require a trust or other organization to file, after formation or organization, a record other than an organic record. See, e.g., N.Y. Gen Assn's Law § 18 (requiring associations doing business within New York to file a certificate designating the secretary of state as an agent upon whom process may be served). This requirement does not render the organization a "registered organization" under the second sentence of the definition, and the record is not a "public organic record."
12. Deposit-Account—Related Definitions: "Deposit Account"; "Bank". The revised definition of
"deposit account" incorporates the definition of "bank", which is new. The
definition derives from the definitions of "bank" in sections 4-105(1) and
4A-105(a)(2), which focus on whether the organization is "engaged in the business
Deposit accounts evidenced by article 9 "instruments" are excluded from
the term "deposit account". In contrast, former section 9-105 excluded from
the former definition "an account evidenced by a certificate of deposit".
The revised definition clarifies the proper treatment of nonnegotiable or
uncertificated certificates of deposit. Under the definition, an uncertificated
certificate of deposit would be a deposit account (assuming there is no writing
evidencing the bank's obligation to pay) whereas a nonnegotiable certificate
of deposit would be a deposit account only if it is not an "instrument" as
defined in this section (a question that turns on whether the nonnegotiable
certificate of deposit is "of a type that in ordinary course of business is
transferred by delivery with any necessary indorsement or assignment").
A deposit account evidenced by an instrument is subject to the rules
applicable to instruments generally. As a consequence, a security interest
in such an instrument cannot be perfected by "control" (see section 9-104),
and the special priority rules applicable to deposit accounts (see sections
9-327 and 9-340) do not apply.
The term "deposit account" does not include "investment property", such
as securities and security entitlements. Thus, the term also does not include
shares in a money-market mutual fund, even if the shares are redeemable by
13. Proceeds—Related Definitions: "Cash Proceeds"; "Noncash Proceeds"; "Proceeds". The
revised definition of "proceeds" expands the definition beyond that contained
in former section 9-306 and resolves ambiguities in the former section.
a. Distributions on Account of Collateral. The phrase "whatever is collected on, or distributed on account of,
collateral", in subparagraph (B), is broad enough to cover cash or stock dividends
distributed on account of securities or other investment property that is
original collateral. Compare former section 9-306 ("Any payments or distributions
made with respect to investment property collateral are proceeds".). This
section rejects the holding of Hastie v. FDIC, 2 F.3d 1042 (10th Cir. 1993)
(postpetition cash dividends on stock subject to a prepetition pledge are
not "proceeds" under Bankruptcy Code section 552(b)), to the extent the holding
relies on the article 9 definition of "proceeds".
on Account of Supporting Obligations. Under subparagraph (B), collections on and distributions on account
of collateral consisting of various credit-support arrangements ("supporting
obligations", as defined in section 9-102) also are proceeds. Consequently,
they are afforded treatment identical to proceeds collected from or distributed
by the obligor on the underlying (supported) right to payment or other collateral.
Proceeds of supporting obligations also are proceeds of the underlying rights
to payment or other collateral.
c. Proceeds of Proceeds. The definition of "proceeds" no longer provides that proceeds of proceeds
are themselves proceeds. That idea is expressed in the revised definition
of "collateral" in section 9-102. No change in meaning is intended.
d. Proceeds Received by Person Who Did Not Create Security Interest.
When collateral is sold subject to a security interest and the buyer then
resells the collateral, a question arose under former article 9 concerning
whether the "debtor" had "received" what the buyer received on resale and,
therefor, whether those receipts were "proceeds" under former section 9-306(2).
This article contains no requirement that property be "received" by the debtor
for the property to qualify as proceeds. It is necessary only that the property
be traceable, directly or indirectly, to the original collateral.
e. Cash Proceeds and Noncash Proceeds. The definition of "cash proceeds" is substantially the same as the corresponding
definition in former section 9-306. The phrase "and the like" covers property
that is functionally equivalent to "money, checks, or deposit accounts", such
as some money market accounts that are securities or part of securities entitlements.
Proceeds other than cash proceeds are noncash proceeds.
14. Consignment—Related Definitions: "Consignee"; "Consignment"; "Consignor". The definition
of "consignment" excludes, in subparagraphs (B) and (C), transactions for
which filing would be inappropriate or of insufficient benefit to justify
the costs. A consignment excluded from the application of this article by
one of those subparagraphs may still be a true consignment; however, it is
governed by nonarticle 9 law. The definition also excludes, in subparagraph
(D), what have been called "consignments intended for security". These "consignments"
are not bailments but secured transactions. Accordingly, all of article 9
applies to them. See sections 1-201(b)(35) and 9-109(a)(1). The "consignor"
is the person who delivers goods to the "consignee" in a consignment.
The definition of "consignment" requires that the goods be delivered
"to a merchant for the purpose of sale". If the goods are delivered for another
purpose as well, such as milling or processing, the transaction is a consignment
nonetheless because a purpose of the delivery is "sale". On the other hand,
if a merchant-processor-bailee will not be selling the goods itself but will
be delivering to buyers to which the owner-bailor agreed to sell the goods,
the transaction would not be a consignment.
15. "Accounting". This definition describes the record and information that a debtor is
entitled to request under section 9-210.
16. "Document". The definition of "document" incorporates both tangible and electronic
documents of title. See section 1-201(b)(16) and comment 16.
17. "Encumbrance"; "Mortgage". The definitions of "encumbrance" and "mortgage" are unchanged in substance
from the corresponding definitions in former section 9-105. They are used
primarily in the special real-property-related priority and other provisions
relating to crops, fixtures, and accessions.
18. "Fixtures". This definition is unchanged in substance from the corresponding definition
in former section 9-313. See section 9-334 (priority of security interests
in fixtures and crops).
19. "Good Faith". This article expands the definition of "good faith" to include "the
observance of reasonable commercial standards of fair dealing". The definition
in this section applies when the term is used in this article, and the same
concept applies in the context of this article for purposes of the obligation
of good faith imposed by section 1-203. See subsection (c).
20. "Lien Creditor". This definition is unchanged in substance from the corresponding definition
in former section 9-301.
21. "New Value". This article deletes former section 9-108. Its broad formulation of
new value, which embraced the taking of after-acquired collateral for a pre-existing
claim, was unnecessary, counterintuitive, and ineffective for its original
purpose of sheltering after-acquired collateral from attack as a voidable
preference in bankruptcy. The new definition derives from Bankruptcy Code
section 547(a). The term is used with respect to temporary perfection of security
interests in instruments, certificated securities, or negotiable documents
under section 9-312(e) and with respect to chattel paper priority in section
22. "Person Related To". Section 9-615 provides a special method for calculating a deficiency
or surplus when "the secured party, a person related to the secured party,
or a secondary obligor" acquires the collateral at a foreclosure disposition.
Separate definitions of the term are provided with respect to an individual
secured party and with respect to a secured party that is an organization.
The definitions are patterned on the corresponding definition in section 1.301(32)
of the Uniform Consumer Credit Code (1974).
23. "Proposal". This definition describes a record that is sufficient to propose to
retain collateral in full or partial satisfaction of a secured obligation.
See sections 9-620, 9-621, and 9-622.
24. "Pursuant to Commitment". This definition is unchanged in substance from the corresponding definition
in former section 9-105. It is used in connection with special priority rules
applicable to future advances. See section 9-323.
25. "Software". The definition of "software" is used in connection with the priority
rules applicable to purchase-money security interests. See sections 9-103
and 9-324. Software, like a payment intangible, is a type of general intangible
for purposes of this article. See comment 4(a), above, regarding the distinction
between "goods" and "software".
26. Terminology: "Assignment" and "Transfer". In numerous provisions, this article refers to the "assignment" or the
"transfer" of property interests. These terms and their derivatives are not
defined. This article generally follows common usage by using the terms "assignment"
and "assign" to refer to transfers of rights to payment, claims, and liens
and other security interests. It generally uses the term "transfer" to refer
to other transfers of interests in property. Except when used in connection
with a letter-of-credit transaction (see section 9-107, comment 4), no significance
should be placed on the use of one term or the other. Depending on the context,
each term may refer to the assignment or transfer of an outright ownership
interest or to the assignment or transfer of a limited interest, such as a