Okay, continuing on with secured transactions.
We're going to secure the transaction.
Now as we just said, what do we need to do?
Attach and perfect.
In order to protect yourself again just me, the debtor, attach.
In order to protect against the other people, attach and perfect.
What we need to do is learn what attachment is, what perfection is.
Let's put that up here on the board and see what it means.
Starting out, here's attachment versus perfection.
Perfection, all right, now attachment says that once all three of these things happen
then we have attached all three.
With perfection, you need any one of three.
Okay, so starting out.
In order to attach, you'll see this in your notes.
The property has to be owned by the debtor.
The property is owned by the debtor, property owned by debtor.
Basically what it means is they have rights to whatever it is.
Whatever they're giving you is collateral, they have to have rights to it.
Do they own it and so forth.
It says here this may involve ownership of the collateral or other claims such as a royalty
right but basically whatever they're pledging is collateral for the loan, they've got to
have rights to it.
The second thing is we have to create an interest.
An interest is creative.
Now, there's two ways to create an interest either you actually go through and you actually
take possession of the goods.
You either take possession of the goods which happens but not often take possession because
taking possession would be for example like if you're going somewhere and you put around
lay away.
They hold it, they have possession of it.
You go to a pawnshop, you give it to them.
They take it, they have possession of it.
The other thing now that gets a lot more testing is you get a signed security agreement, signed
security agreement.
Now notice this is that signed security agreement.
Now what's a signed security agreement?
It would be an agreement that includes a description of the asset and it's signed by the debtor,
the person giving up their rights.
It's signed by the debtor and it has a reasonable description of the collateral.
Have you ever seen one of these?
Probably not lately but this is an old credit card receipt that I have from Nordstrom's.
Okay, so I went out and I bought some clothes at Nordstrom's.
Maybe I'll just worry about my underwear, way back when, but have you ever read one
of these?
Probably not and in today's day and age, most of us we go, we sign it.
Hey is everything in the bag?
Uh-huh.
Can I return it if I don't like it?
Yeah, and then you wear it to the wedding and then you return it the next day.
Sounds like familiar but let me read what it says, you ready?
Man, it's getting harder and harder to read.
Let me hold it really far away like your parents.
It says, this purchase is to be charged to my account and I agree to pay the total amount
shown on this document in accordance with my credit card agreement.
If I charge these goods to my whatever, Nordstrom's credit card, I grant Nordstrom's will retain
a purchase money security interest, PMSI, in the goods under the uniform commercial
code, UCC until the unpaid balance of the goods is fully paid.
I understand that in the event of default, the company will be entitled to possession
of the goods in the manner into the extent permitted by applicable law.
The terms and conditions of my credit card agreement, security agreement previously agreed
to by me are incorporated in and should be part of this security agreement signed by
me.
Now, you ever gone like shopping around the holidays and they go "Hey, would you like
to get 20% off your purchases?
Go ahead and sign up for a credit card," and you go "Okay."
They give you this thing and they go, "Initial each page and sign the last one."
You go RP, RP, RP, RP.
What is all that stuff saying?
What it says is when you agree to get one of these credit cards that you're going to
pay for it.
You promised to pay for it.
If you buy anything with the credit card, you're giving them a purchase money security
interest in the asset and that they're attaching to it and it's a signed agreement basically
saying anything you buy with this credit card, we have the right to come and repossess it
if you don't pay for it.
That's what they're saying, so that's why you know in a lot of times when you're signing
it, it just says, I agree to the terms and conditions of my credit card because when
you filled it out to get that 20% off at point of checkout.
Those are all the things that you're agreeing to.
This is basically a signed security agreement.
Just like if you grab a piece of paper, you could just write it up.
If you wrote it up, what would it have to have?
A description and signed by the debtor or take possession.
The third requirement is you have to actually give value to the debtor.
They have to actually give you some value.
A promise isn't good enough.
They have to actually give you something or be out something.
A line of credit is value when given authority but not when the money is distributed.
In other words a line of credit is valid value.
When they talk about value, we're talking about money, goods, services, credit, line
of credit, all of those are considered.