Questions & Answers Series

Secured Transactions Topics: (Definitions; Scope)

Definitions

Question:

All of the following are "goods" except

(A) grain growing in a field.

(B) a microwave oven that is a "fixture" under local real estate law.

(C) a stock certificate, in registered form, evidencing ownership of 100 shares of a publicly-traded company.

(D) an unborn calf.

Answer:
Answer (C) is the correct answer. The definition of "goods" is found in section 9-102(a)(44), and includes "crops grown, growing, or to be grown" (making Answer (A) an incorrect answer), "fixtures" (making Answer (B) an incorrect answer), and "the unborn young of animals" (making Answer (D) an incorrect answer). But the term "does not include ... investment property ...." A stock certificate, in registered form, is an example of a "certificated security" under section 8-102(a)(4). And a certificated security is an example of "investment property" under section 9-102(a)(49). As investment property is excluded from the definition of "goods," Answer (C) is the correct answer.

Scope

Question:

Article 9 applies to all of the following, except

(A) commercial, purchase-money, real estate mortgages.

(B) consignments of jet engines to a seller of used aircraft parts.

(C) sales of chattel paper.

(D) sales of credit card receivables.

Answer:
Answer (A) is correct. Section 9-109 is the scope provision of Article 9. A consignment of the type described in the problem falls within the definition of "consignment" in section 9-102(a)(20) and, therefore, is covered by subsection (a)(4), making Answer (B) an incorrect answer. Sales of chattel paper and credit card receivables (which are "accounts" under section 9-102(a)(2)(vii)) are covered by subsection (a)(3), making Answers (C) and (D) incorrect answers. Perhaps of most importance, Article 9 covers "a transaction ... that creates a security interest in personal property or fixtures by contract." Section 9-109(a)(1). The emphasized language reveals that Article 9 does not apply to the transfer of realty interests. That suggestion is borne out by section 9-104(d)(11), which states that - subject to very limited exceptions - Article 9 does not cover "the creation or transfer of an interest in or lien on real property." Because Answer (A) describes a real estate transaction, the exclusion applies, making Answer (A) the best answer.