Chapter 38 - Chapter 38 Secured Transactions and Suretyship...

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Chapter 38: Secured Transactions and Suretyship Secured Transactions in Personal Property o An obligation or debt can exist without security if the creditor deems adequate the integrity, reputation, and net worth of the debtor o Often businesses cannot obtain credit even if borrower can obtain an unsecured loan o Can negotiate more favorable terms by giving security Essentials of Secured Transactions o Article 9 governs transaction in personal property where the debtor consents to provide a security interest in personal property to secure the payment of a debt Security interest cannot exist apart from debt it secures and discharging the debt terminates the security interest o Article 9 also applies to collateral (accounts, chattel paper, payment intangibles, and promissory notes) Does not apply to nonconsensual security interests that arise by operation of law A common type of consensual secured transaction occurs when a person wanting to buy goods has neither the cash nor sufficient credit standing to obtain goods on open credit Seller obtains a security interest in all or part of the goods The buyer may borrow from a third-party lender and pay the seller in cash and the lender take a security interest in the goods o Security interest : an interest in personal property or fixtures which secures payment or performance of an obligation o Security agreement: an agreement that creates or provides for a security interest o Collateral: property subject to a security interest or agricultural lien o Secured party : the person whose favor a security interest in the collateral is created or provided for under a security interest Includes lenders, credit sellers, consigners, purchasers of certain types of collateral, and other specified persons
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o Debtor : a person 1) having an interest in the collateral other than a security interest or lien 2) a seller of accounts, chattel paper, payment intangibles, or promissory notes 3) a consignee o Obligor : a person who, with respect to an obligation secured by a security interest in or an agricultural lien on the collateral 1) owes payment or other performance 2) has provided property other than the collateral to secure payment or performance 3) is otherwise accountable for payment or performance o Secondary obligor : usually a guarantor or surety of the debt o Purchase money security interest (PMSI) : created in goods when a seller retains a security interest in the goods sold on credit by a security agreement A third-party lender who advances funds to enable the debtor to purchase goods has a PMSI Classification of Collateral o Goods Goods: all things that are movable when a security interest attaches Includes fixtures, standing timer to be cut, the unborn young of animals, crops grown, growing, or to be grown, manufactured homes, computer software if the software becomes part of the goods Divisions of Goods: Consumer goods o Goods bought or used primarily for personal, family, or household purposes
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