Why Does the Type of Collateral Matter?
Courts have wrestled with the question of proper characterization of the assets in various contexts. Why does it matter? Most obviously, the method of perfecting a security interest, or its priority, may depend on the characterization of the collateral. Creation and Perfection. For Article 9 purposes, collateral can be described in various ways, by using the Article 9 categories or otherwise. If a security agreement describes collateral only as goods, for instance, it will be effective to create a security interest in collateral constituting goods, but not in collateral characterized as general intangibles. A security agreement can, of course, create a valid security interest in a particular item of collateral by using a detailed description, not the Article 9 category. A valid security interest can still be unperfected, however, if the secured party decides to use only an Article 9 category in the financing statement but chooses the wrong category. Buyers in Ordinary Course. If collat
