A couple of other items here.
Chattel paper, it's writings that evidence both a monetary obligation which says buy
equipment on credit, the loan agreement then becomes the collateral for another loan by
the previous creditor, and a security interest in specific goods.
It could be intangibles like in Account Receivable, any right to payment for goods or services,
or a negotiable instrument, warehouse receipts, bill of ladings, so it could be a tangible
collateral, it could be an intangible collateral, but the key point here is as follows: I loan
you money, or I give you credit to acquire this asset.
What happens is we then take the asset as collateral for the loan.
For example, I go to the store.
This is Sears, this is RP, I go to Sears and I go, "Hey, I like that TV, how much is it?"
They go $3,000, "Wow, I love this new "147 inch TV," right, they just keep getting bigger
and bigger, so I go in and I say, "Okay, let me go ahead and get that," so I give you my
credit card for example.
And I give you my credit card so I can get the TV.
I give you my credit card, you run it through, and basically what you're doing is you're
giving me the credit to buy the asset.
And let's say that's a TV, what is the asset to me, the TV, it is consumer goods.
You then don't physically, but legally you take the TV as collateral for the loan.
Which means that if I default and I stop paying, you're gonna come to my house and take back
my TV.
My kids ain't gonna like you, but you're gonna take back my TV.
Same thing with equipment, you loan me money, I buy a piece of equipment, legally you take
that piece of equipment, and if I don't pay, you'll legally come in and take that piece
of equipment.
So that is the concept that we're dealing with.
Now in order to do this, who were you trying to protect yourself, who was the creditor
trying to protect themselves from?
They're trying to protect themselves From DOTS, D-O-T-S.
They're trying to protect themselves from the debtor, from other creditors, from a trustee
in bankruptcy, B circle means bankruptcy for the next few sections, or finally, a subsequent
purchaser from debtor, all right?
Let me show you this example.
All right, so they want to protect themselves from the debtor which means that you gave
me the money or the credit to get the asset, you want to protect yourselves, if I don't
pay you, you want to take it back.
From other creditors, you loan me money to buy the TV, I no longer have the TV, but I
have other assets or I have other creditors, well let's back up.
You loan me money to buy the TV.
I then go to another store and I buy 100 pairs of Calvin Klein underwear, okay?
I don't pay for the underwear.
Do you think the store wants to come and take my underwear?
I don't think so, all right?
But they go, "Hey, nice TV, we'll take that."
Sears wants to go, "No no no no no, you can't take the TV, it's mine, other creditors.
Let's say I go bankrupt.
Trustee and bankruptcy comes in, wants to take all my assets.
Guess what, they say, "No no no no no, the TV's mine."
Or, if I take that TV and I want to sell it to another consumer, so I sold it to someone
else.
Now that person has it, Sears wants to go to their house and take
back
the TV.