Secured+Credit+ CHARTS

Secured+Credit+ CHARTS - Secured Credit Outline Background...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Secured Credit Outline Background and Macro Policy Considerations I. Raison d’etre of SC a. SC evolved as a way of hedging creditor’s exposure to risk by requiring any debtor to grant a security interest in some collateral with a value substantial enough to allow the creditor to feel adequately hedged in the case of default. b. SC is especially necessary in developing, primitive States where extending credit without security is an excellent way to lose one’s capital. The more complex the financial arena, the less necessary SC becomes. c. So-called secret liens were a central focus for writing Article 9. Being in possession of property secretly belonging to another creditor leaves other future creditors out in the cold both in terms of information on which they might judge their risks, and also ultimately on the capital they extend to the debtor. *The duke who lives on a grand estate in a castle may appear to be solvent, but a future creditor may find out subsequent to lending on the façade of wealth, that the castle is mortgaged, and the duke is insolvent, and that he is leveraged to the eyeballs.* Coverage, Scope, Collateral of Article 9 I. Overview a. For Article 9 to Apply: i. Parties must intend to create a security interest in personal property or fixtures. ii. Collateral must be covered by Art.9 iii. The transaction must be explicitly covered by Art.9 II. Terms: Debtor v. Obligor a. A debtor is the owner of the goods being used as collateral. An obligor is the person who owes the debt for which the collateral is applied. A person who uses his parent’s yacht as collateral becomes the obligor, the parent’s become the debtor, and the bank is the secured party. III. Collateral Eligible for Art.9 Coverage a. Tangible collateral is classified by its usage by the debtor. Quasi-tangible and intangible collateral is determined by its nature. Thus, a piano can be consumer goods, equipment, or inventory, but a promissory note will always be an instrument. b. Tangible (§9-102(a)(44), §9-102 Comment 4a) i. Goods 1. Consumer Goods (§9-102(a)(23)) a. Goods are consumer goods if they are used for personal, family, or household purposes. 2. Inventory (§9-102(a)(48)) a. Held for sale or lease to others in the ordinary course of business. 3. Farm Products (§9-102 Comment 4a) a. Must be used or produced for farming purposes: i. Crops ii. Livestock iii. Unmanufactured Products of i. or ii. (like manure). If they are manufactured after “production” they become 1
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
inventory – like bagging up the manure and selling it. Manure would then become inventory. 4. Equipment (§9-102, Comment 4a) a. Catchall Category for “other goods” c. Quasi-Tangible i. Legal rights usually represented by pieces of paper 1. Instruments a. Negotiable and Nonnegotiable instruments like checks, promissory notes, drafts, certificates of deposit, under Art. 3. (§3-104(a)(2)).
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 04/17/2008 for the course LAW ? taught by Professor Harmon during the Spring '08 term at Touro NY.

Page1 / 20

Secured+Credit+ CHARTS - Secured Credit Outline Background...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online