2750achapter11notes - Chapter 11: Priority of Creditors...

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Chapter 11: Priority of Creditors Methods of Securing Debts: When the creditor is successful in ensuring her priority over other creditors, she is said to be a secured creditor Personal property: o Real property includes land, building attached to the land and fixtures that is items attached to the land or to fixtures attacked to the land o Mortgages the most common method of using real property as security o Personal property can be divided into chattels , which are tangible, movable things, and chosen in action , which are intangible rights that are legally enforceable claims ( pledge ) o Under modern legislation, the creditor usually does not actually assume ownership of the goods, but the effect is the same Tradition Approach: o First, possession of the goods is given to the buyer. The seller, who is also the creditor, retains the title as security. Second, after the final payment is made, title to the goods is conveyed to the buyer o A chattel mortgage differs from a conditional sale is that the creditor is not the seller of the goods o Chattel mortgage involves transfer of title to goods to secure loan o Throughout the duration of the loan transaction, chattel mortgages, like conditional sales, involve the creditor’s having title to the goods as security, while the debtor has possession of the goods o Accounts receivable can be used as security for a loan o Leases are also a common method of creating a secured relationship between a creditor and debtor. The most common type of lease is an operating lease , in which goods are simply rented to the lessee to use during the lease period, after which the goods are returned to the lessor. Lease to purchase is being used more frequently, a lease to purchase involves, essentially a credit to purchase Personal Property Security Act: o It creates a unified approach toward the use of personal property as security o A secured transaction is still created by contract in the traditional forms of conditional sales, chattel mortgages, and assignments of accounts receivable, but other forms, such as leases, can be used, depending on the property used as security o The right to take possession of the goods used as security even when they get into the hands of an innocent purchaser is the essential nature of the secured transaction o To protect and innocent third party who might be misled by the debtor having possession of the goods, the secured creditor was required to register his secured claim against the goods at the designated government agency. A would be purchaser, or a potential creditor wanting to use the goods as security, could search the title to the goods and would be forewarned of the prior claim of the secured creditor www.timetocram.com
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Creating a Secured Relationship: o First, the parties must enter into the contractual agreement o Second, the secured interest must be attached to the collateral that has been identified to provide the security o Third, the secured interest must be perfected
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This note was uploaded on 11/09/2010 for the course BUSINESS 2257 taught by Professor Iandunn during the Fall '10 term at UWO.

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2750achapter11notes - Chapter 11: Priority of Creditors...

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