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Personal Property

The UCC divides personal property or goods into  different classes:  consumer goods, equipment, inventory, general intangibles, farm products and fixtures.

As far as tangible personal property is concerned, the goods are classified by the debtor’s intended use.  For example, a television set in the hands of a manufacturer or a retailer would be classified as inventory.  However, if it were in a person’s hands who intended to use it at home, it would be a consumer good.

Goods are consumer goods if they are used or bought primarily for personal, family, or household use.  An example would be the family’s television set.

Goods are classified as equipment if they are used or bought primarily for use in a business.  For example, the computers at an office would be equipment.

Goods are classified as inventory if they are held by the debtor primarily for sale or lease to others.  An example would be a television set bought by someone who sells televisions and appliances for a living.   Also, raw materials used in manufacturing such as steel used to manufacture cars would be classified as inventory.  Materials consumed in a business such as typing paper would be inventory.

General intangibles would be something like a promissory note which you held as collateral with regard to money you lent to another person.

Goods are farm products if they are crops or livestock or supplies used in farming operations.

fixture is personal property that has become so attached or adapted to real estate that it has lost its character as personal property and is deemed to be part of the real estate (e.g., a central air conditioning unit within a commercial building).

A debtor may grant a security interest to secure future loans.  This involves granting a security interest in property a debtor may acquire later.  The security interest attaches when the future credit is given or when a debtor gets the property. Inventory of a dealer changes rapidly, and therefore any bank or finance company is going to expressly provide that the security interest will bind after acquired property.  In other words, the security agreement will provide that the goods acquired after the initial loan will also be covered by the security interest.  This is called a floating lien.

A secured transaction automatically covers proceeds from the collateral unless this is expressly excluded in the agreement.  Proceeds include cash, checks, and accounts receivable arising from the sale of collateral.  It would also include insurance proceeds in case the collateral was damaged such as in a fire.  In such a situation, the financing company holding the security interest would have rights to the insurance proceeds.

Inside Personal Property