Legal Memorandum: "Collateral" in Security Agreements

Issue: What are the guidelines for defining collateral in a security agreement according to the Uniform Commercial Code?

Article 9 of the Uniform Commercial Code defines “collateral” broadly as all of the property subject to a security interest, including “proceeds” to which a security interest attaches.  Minn. Stat. § 336.9-102(12) (2012).  “Proceeds” is defined to include whatever is collected on collateral, and rights arising out of collateral.  Id. § 336.9-102(64)(B), (C).  The current definition of “collateral” is intended to be broader than its predecessor, reflecting the broadened scope of Article 9.  Id., § 336.9-102, n. 3(a).  The revised definition of “proceeds” also expands that term beyond its former scope.  Id. at n. 13. 

A security agreement may create or provide for a security interest in after-acquired collateral.  Id. § 336.9-204(a).  No specific language is required; Article 9 requires only that a security agreement contain “a description of the collateral.”  World Wide Tracers v. Metropolitan Protection, Inc., 384 N.W.2d 442, 444 (Minn. 1986) (citing Minn. Stat. § 336.9-203).  In order to perfect a security interest, the description in both the security agreement and the financing statement must simply be “sufficient.”  Id. at 444.  A description is sufficient, whether or not it is specific, it if reasonably identifies what is described.  Id.  Courts have held, for instance, that a description of collateral in a security agreement as “all farm and other equipment” was adequate to perfect a security interest in the debtor’s after-acquired irrigation equipment.  Id. at 445 (citing United States v. First Nat’l Bank, 470 F.2d 944, 947 (8^th Cir. 1973)).  And a description of collateral as “the […]