The Uniform Commercial Code (UCC) is a comprehensive set of laws governing all commercial transactions in the United States. It is not a federal law, but a uniformly adopted state law. The UCC provides a legal and contractual framework for dealing with the sale of goods and other commercial transactions. One of the key concepts within the UCC is that of "inventory," which is defined in Article 9 of the UCC, dealing with secured transactions.

Under the UCC, inventory is defined as goods that are held by a person for sale or lease or to be furnished under contracts of service, or if they are raw materials, work in process, or materials used or consumed in a business. This definition is crucial because it affects how inventory is treated under the UCC, particularly in the context of secured transactions where inventory can be used as collateral.

The UCC distinguishes inventory from other types of goods, such as equipment or consumer goods, based on the use to which the goods are put. For example, a car held by a dealership for sale would be considered inventory, whereas the same car used by the dealership for delivering parts would be considered equipment.

The classification of goods as inventory has significant implications for both the seller and the buyer, as well as for creditors. For instance, if a business goes bankrupt, the treatment of inventory in the bankruptcy proceedings will differ from that of other types of assets. Additionally, the priority of creditors' claims against inventory can be affected by whether the inventory is classified as such under the UCC.

Understanding the UCC's definition of inventory is essential for businesses, as it influences how they manage their assets, secure financing, and handle transactions. It also affects legal disputes and the enforcement of contracts, making it a critical area of knowledge for anyone involved in commercial law or business operations.