This Article sets out a comprehensive scheme for the regulation of security interests in personal property and fixtures. It supersedes existing legislation dealing with such security devices as chattel mortgages, conditional sales, trust receipts, factor's liens and assignments of accounts receivable (see Note to Section 9-102).

Consumer installment sales and consumer loans present special problems of a nature which makes special regulation of them inappropriate in a general commercial codification. Many states now regulate such loans and sales under small loan acts, retail instalment selling acts and the like. While this Article applies generally to security interests in consumer goods, it is not designed to supersede such regulatory legislation (see Notes to Sections 9-102 and 9-203). Nor is this Article designed as a substitute for small loan acts or retail instalment selling acts in any state which does not presently have such legislation.

Existing law recognizes a wide variety of security devices, which came into use at various times to make possible different types of secured financing. Differences between one device and another persist, in formal requisites, in the secured party's rights against the debtor and third parties, in the debtor's rights against the secured party, and in filing requirements, despite the fact that today many of those differences no longer serve any useful function. Thus an unfiled chattel mortgage is by the law of many states "void" against creditors generally; a conditional sale, often available as a substitute for the chattel mortgage, is in some states valid against all creditors without filing, and in states where filing is required is, if unfiled, void only against lien creditors. The recognition of so many separate security devices has the result that half a dozen filing systems covering chattel security devices may be maintained within a state, some on a county basis, others on a statewide basis, each of which must be separately checked to determine a debtor's status.

Nevertheless, despite the great number of security devices there remain gaps in the structure. In many states, for example, a security interest cannot be taken in inventory or a stock in trade although there is a real need for such financing. It is often baffling to try to maintain a technically valid security interest when financing a manufacturing process, where the collateral starts out as raw materials, becomes work in process and ends as finished goods. Furthermore, it is by no means clear, even to specialists, how under present law a security interest may be taken in many kinds of intangible property - such as television or motion picture rights - which have come to be an important source of commercial collateral.

While the chattel mortgage is adaptable for use in almost any situation where goods are collateral, there are limitations, sometimes highly technical, on the use of other devices, such as the conditional sale and particularly the trust receipt. The cases are many in which a security transaction described by the parties as a conditional sale or a trust receipt has been later determined by a court to be something else, usually a chattel mortgage. The consequence of such a determination is typically to void the security interest against creditors because the security agreement was not filed as a chattel mortgage (even though it may have been filed as a conditional sale or a trust receipt). In recent years our security law has grown in complexity at an alarming rate. The already mentioned difficulty of financing on the security of inventory has been got around to some extent by the device known as "field warehousing" as well as by the use of the trust receipt. Since 1940 a number of states have generally authorized inventory financing by enacting statutes, similar although not uniform, known as "factor's lien" acts. Also in the period since 1940 the increasingly important business of lending against accounts receivable has inspired new statutes in that field in more than thirty states.

The growing complexity of financing transactions forces us to keep piling new statutory provisions on top of our inadequate and already sufficiently complicated nineteenth-century structure of security law. The results of this continuing development are, and will be, increasing costs to both parties and increasing uncertainty as to their rights and the rights of third parties dealing with them.

The aim of this Article is to provide a simple and unified structure within which the immense variety of present-day secured financing transactions can go forward with less cost and with greater certainty.

Under this Article the traditional distinctions among security devices, based largely on form, are not retained; the Article applies to all transactions intended to create security interests in personal property and fixtures, and the single term "security interest" substitutes for the variety of descriptive terms which has grown up at common law and under a hundred-year accretion of statutes. This does not mean that the old forms may not be used, and Section 9-102(2) makes it clear that they may be.

This Article does not determine whether "title" to collateral is in the secured party or in the debtor and adopts neither a "title theory" nor a "lien theory" of security interests. Rights, obligations and remedies under the Article do not depend on the location of title (Section 9-202). The location of title may become important for other purposes - as, for example, in determining the incidence of taxation - and in such a case the parties are left free to contract as they will. In this connection the use of a form which has traditionally been regarded as determinative of title (e.g., the conditional sale) could reasonably be regarded as evidencing the parties' intention with respect to title to the collateral.

Under the Article distinctions based on form (except as between pledge and non-possessory interests) are no longer controlling. For some purposes there are distinctions based on the type of property which constitutes the collateral - industrial and commercial equipment, business inventory, farm products, consumer goods, accounts receivable, documents of title and other intangibles - and, where appropriate, the Article states special rules applicable to financing transactions involving a particular type of property. Despite the statutory simplification a greater degree of flexibility in the financing transaction is allowed than is possible under existing law.

The scheme of the Article is to make distinctions, where distinctions are necessary, along functional rather than formal lines. This has made possible a radical simplification in the formal requisites for creation of a security interest.

A more rational filing system replaces the present system of different files for each security device which is subject to filing requirements. Thus not only is the information contained in the files made more accessible but the cost of procuring credit information, and, incidentally, of maintaining the files, is greatly reduced.

The Article's flexibility and simplified formalities should make it possible for new forms of secured financing, as they develop, to fit comfortably under its provisions, thus avoiding the necessity, so apparent in recent years, of year by year passing new statutes and tinkering with the old ones to allow legitimate business transactions to go forward.

The rules set out in this Article are principally concerned with the limits of the secured party's protection against purchasers from and creditors of the debtor. Except for procedure on default, freedom of contract prevails between the immediate parties to the security transaction.