2. Secured Transactions. All third and fourth year students should consider enrolling in this course. This subject is another bar exam favorite. Very often you will find a Secured Transactions question coupled (joined) with a Commercial Paper question.
So, let me tell you a little about the subject. Unfortunately, there are too many students who skip this course and have to learn it, for the first time, when sitting in a commercial bar prep course. That is a bad idea - even if you do not like or truly understand the importance of the subject. Yes, important. You should not run away or hide in the closet (this subject will eventually catch up with you, sooner rather than later).
A "secured transaction" is basically just a contract. It is usually considered a contract between two or more business people. A contract between business people where one person wants to borrow some thing or several things from another person for a small or long period of time.
You could actually call the contract a leasing agreement, but, that is not how all transactions are titled. In this contract between several people, one person, usually a person who owns some type of specialty business wants to either lease or purchase certain specialty items from someone else. Someone else who specializes in selling these items. For instance, if you are a person who is attempting to open a store as an ice cream parlor, you, Mr. or Ms. Owner, will need certain things. You will need, for example, ice cream bins, a register, chairs, tables, umbrellas (for the outdoors), lights, registers, ice-cream mixers, ice-cream machines, freezers, and lots of other items.
You will likely lease these items from a person who provides equipment for your business. It is a contract? Right? Yes, it is. However, what happens if your ice cream business does not make it. Suppose the business folds due to anything (your fault, not your fault, spoiled ice cream, inferior product, bad or no advertising, people in town disappeared, cow on strike, anything). Anything!
It doesn't matter. Still, suppose you fold. When a business folds, the owner may try to prevent this "folding" event from occurring by filing bankruptcy? Don't try to analyze what type of bankruptcy - - it is not important for secured transactions - - at least, not what I have to tell you right now. The person that leases the items to the ice cream owner, generally, will want his items back because the other party to the contract cannot meet his or her obligation. That person who owes money for the items she is leasing, cannot, for whatever reason, meet the demands under the lease agreement.
Even if the person can meet the terms under the agreement, the owner of the ice cream store was unable to pay some form of rent or mortgage. This means that the items that"fold" with the store, are the items that were under some lease or contract that the owner of the store can no longer pay for, as promised.
Therefore, the person that loaned the ice cream store owner the "leased" items, now wants those items back. The person wants those items back because the items are part of his or her inventory. Another reason the person that "loaned" the items wants those items back is because of the items are just for lease, and not for sale. That means that the owner can lease these items out to someone else. Also, if the property goes into foreclosure (if it was being purchased by the ice cream parlor owner), the items that the ice cream owner leased from the other business person can be lost. Forever. What does some of this depend upon . . . ?
Status.
Did the person that leased the items to the ice cream person file a financing statement with the land records of a particular county in a particular state? A financing statement serves as notice to everyone. It says that if a new business person decides to have a relationship with the ice cream owner (but, particularly the property where the store is located) that someone else has a prior claim on certain items found inside (or, outside) of the parlor. The financing statement may, by itself, be sufficient to give the business person first priority on the goods sold to the ice cream owner. This will depend on the type of good and how that good is categorized. There are certain instances where the owner of the leased items may have to file something other than a financing statement in the land records of a particular county to "secure" the transaction and to have priority over other, later persons that do business with the ice cream owner.
However, I think you get the picture. Think about it. The name of the course is "Secured Transactions." These are transactions where the person lending the items, seeks to secure his or her transaction with the other person and become a secured creditor (eg., financing statement, or certain other documents recorded in the land records). A secured creditor seeks to hold on to ownership and the monetary value associated with the item loaned to another person.
The secured transaction is unlike an unsecured creditor, who just loses his or her investment in a particular thing or set of things (eg., credit card debt is unsecured credit) immediately. An unsecured creditor, like a credit card company, does not file a financing statement on the item you buy at a particular store. Furthermore, the credit card company is not allowing you to purchase an item, it is providing you with a monetary source in which you purchase the item. This is another story for another day, but the bottom line is that a credit card company cannot secure something that it does not own. The consumer purchases the item with the "credit[card]" given to her, so the credit card company cannot secure a transaction on that item because the consumer, not the creditor, owns the item.
Trust me, if the credit card company could secure the debt by retrieving the item (especially if there was some value to it and that value outweighed the cost of selling the item), it would. I'm not here to get down on the credit card companies.
I'm just here to tell you that you need to "secure" a spot in the Spring 2011, course on Secured Transactions. There is a whole lot more to it than ice cream parlors.
Next Up: Wills & Estates.
Prof. Smith
So, let me tell you a little about the subject. Unfortunately, there are too many students who skip this course and have to learn it, for the first time, when sitting in a commercial bar prep course. That is a bad idea - even if you do not like or truly understand the importance of the subject. Yes, important. You should not run away or hide in the closet (this subject will eventually catch up with you, sooner rather than later).
A "secured transaction" is basically just a contract. It is usually considered a contract between two or more business people. A contract between business people where one person wants to borrow some thing or several things from another person for a small or long period of time.
You could actually call the contract a leasing agreement, but, that is not how all transactions are titled. In this contract between several people, one person, usually a person who owns some type of specialty business wants to either lease or purchase certain specialty items from someone else. Someone else who specializes in selling these items. For instance, if you are a person who is attempting to open a store as an ice cream parlor, you, Mr. or Ms. Owner, will need certain things. You will need, for example, ice cream bins, a register, chairs, tables, umbrellas (for the outdoors), lights, registers, ice-cream mixers, ice-cream machines, freezers, and lots of other items.
You will likely lease these items from a person who provides equipment for your business. It is a contract? Right? Yes, it is. However, what happens if your ice cream business does not make it. Suppose the business folds due to anything (your fault, not your fault, spoiled ice cream, inferior product, bad or no advertising, people in town disappeared, cow on strike, anything). Anything!
It doesn't matter. Still, suppose you fold. When a business folds, the owner may try to prevent this "folding" event from occurring by filing bankruptcy? Don't try to analyze what type of bankruptcy - - it is not important for secured transactions - - at least, not what I have to tell you right now. The person that leases the items to the ice cream owner, generally, will want his items back because the other party to the contract cannot meet his or her obligation. That person who owes money for the items she is leasing, cannot, for whatever reason, meet the demands under the lease agreement.
Even if the person can meet the terms under the agreement, the owner of the ice cream store was unable to pay some form of rent or mortgage. This means that the items that"fold" with the store, are the items that were under some lease or contract that the owner of the store can no longer pay for, as promised.
Therefore, the person that loaned the ice cream store owner the "leased" items, now wants those items back. The person wants those items back because the items are part of his or her inventory. Another reason the person that "loaned" the items wants those items back is because of the items are just for lease, and not for sale. That means that the owner can lease these items out to someone else. Also, if the property goes into foreclosure (if it was being purchased by the ice cream parlor owner), the items that the ice cream owner leased from the other business person can be lost. Forever. What does some of this depend upon . . . ?
Status.
Did the person that leased the items to the ice cream person file a financing statement with the land records of a particular county in a particular state? A financing statement serves as notice to everyone. It says that if a new business person decides to have a relationship with the ice cream owner (but, particularly the property where the store is located) that someone else has a prior claim on certain items found inside (or, outside) of the parlor. The financing statement may, by itself, be sufficient to give the business person first priority on the goods sold to the ice cream owner. This will depend on the type of good and how that good is categorized. There are certain instances where the owner of the leased items may have to file something other than a financing statement in the land records of a particular county to "secure" the transaction and to have priority over other, later persons that do business with the ice cream owner.
However, I think you get the picture. Think about it. The name of the course is "Secured Transactions." These are transactions where the person lending the items, seeks to secure his or her transaction with the other person and become a secured creditor (eg., financing statement, or certain other documents recorded in the land records). A secured creditor seeks to hold on to ownership and the monetary value associated with the item loaned to another person.
The secured transaction is unlike an unsecured creditor, who just loses his or her investment in a particular thing or set of things (eg., credit card debt is unsecured credit) immediately. An unsecured creditor, like a credit card company, does not file a financing statement on the item you buy at a particular store. Furthermore, the credit card company is not allowing you to purchase an item, it is providing you with a monetary source in which you purchase the item. This is another story for another day, but the bottom line is that a credit card company cannot secure something that it does not own. The consumer purchases the item with the "credit[card]" given to her, so the credit card company cannot secure a transaction on that item because the consumer, not the creditor, owns the item.
Trust me, if the credit card company could secure the debt by retrieving the item (especially if there was some value to it and that value outweighed the cost of selling the item), it would. I'm not here to get down on the credit card companies.
I'm just here to tell you that you need to "secure" a spot in the Spring 2011, course on Secured Transactions. There is a whole lot more to it than ice cream parlors.
Next Up: Wills & Estates.
Prof. Smith
No comments:
Post a Comment