Welcome, welcome, let's talk about a fun and exciting area called secure transactions.
Many of the topics that we're gonna deal with deal with both the creditor and the debtor.
So let's say for example I loan money to you, right?
I loan money to you, I'm gonna protect my interest, there's three different ways we're
gonna look at in the next several chapters on how to protect myself, how to get my money
back.
So I loan you money, one way is I take an asset as collateral; I secure the transaction.
That's what this chapter talks about.
Another way is I say I'll loan you money, but go get a co-signer guarantor, a surety
called suretyship.
The third way, least desirable, is I'm gonna force you into bankruptcy and hopefully get
paid as either a perfected secured creditor or a general unsecured creditor.
So again, I loan you money, three ways to protect myself.
The creditor's objective is to get that money back, collect the money.
How do I do it?
One way is to secure the transaction by getting collateral, that way you don't pay me, I take
your house, I take your car, I take your kids, I take your dog, and I eat it.
Another way is get a co-signer guarantor, a surety.
Third way, least desirable, force you into bankruptcy, chapter seven, 11, 13, which we'll
talk about in another section.
This section starts out with secure transactions, this is covered by UCC Article 9.
So this is called secure transactions, UCC Article 9.
So what we're doing is basically the following: here is the creditor, the creditor is going
to either loan you money or extend you credit to the debtor.
What we're gonna do is I loan you money and in return I'm gonna get a security interest
in your property that we call collateral.
Collateral damage, right?
So I loan you money and I say here's $100,000, what can you give me as collateral?
I could take your car, I could take your jewelry, I could take a note, and I could take all
these different things.
Now what we're looking at is maybe I loan you money to buy inventory.
Maybe I loan you money to buy equipment.
Maybe I loan you money to buy consumer goods.
So we're all, we're trying to see what it is you're gonna give me as collateral.
So again, I loan you money, three different ways to protect myself.
I take something as collateral, I secure the transactions, but this section only deals
with what?
Personal property, tangible personal property.
Remember back in land and property we talked about a mortgage?
A mortgage is when the bank loans you money and they take your house, your real property
as collateral that was a mortgage.
We're not talking about real property, we're talking about personal property, tangible
personal property, that's what this section is gonna be dealing with.
The other thing, I loan you money, I get someone to co-sign, if you don't pay, I'll take it
from them, called a suretyship, a little later, you don't pay, force you into bankruptcy.
So that's what we're looking at in this section it says UCC Article 9, property, it covers
personal property or fixtures, not real property, now let's talk about the types of collateral.
What is it you're given as collateral?
It could be inventory, what is inventory?
Inventory, this would be something that is inventory in the hands of the seller.
So let's say, for example, I loan you money, you're gonna use the money to buy something,
or whatever you're giving me as collateral is inventory, so that would be inventory in
the hands of the seller.
So a TV, a store would sell.
So if it's a store, then I loan them money and they give me the TV as collateral that
might be their inventory.
Another thing is called equipment.
Equipment is something they would use in their business, so you loan me money, I give you
my machine that makes pens as collateral.
Now I don't physically give it to you, but I give you the legal right to it which says
that if I don't pay you, you have the right to come to my business and take back the equipment.
Another thing I might give you is consumer goods.
I go, "Oh, you're gonna loan me money, and I'm gonna go buy a TV to use at my home,"
that would be a consumer good.
Now this is kind of like remember when we did property for tax purposes?
We had ordinary assets, 1231 assets, and we had capital assets, same thing.
You loan me money, let's say, for example, that this is a TV that Sears would sell, so
you loan Sears money so Sears can go out and buy inventory and you're taking the inventory
as collateral, the TV might be inventory.
A second thing is let's say it's for the gym.
All right, there's an exercise and on the exercise they want to watch the TV on the
wall, so I loan you money to buy a TV, that's TV you put on the wall, that would be a piece
of equipment.
You loan me money so I can go to the store and buy a TV so I can sit in my living room
and watch TV that would be a consumer good.
So notice the TV could be different things to different people, just like we said, what
is a TV, what is a computer to Dell or Microsoft, it would be inventory.
What is a computer to Deloitte & Touche?
Equipment, what is a computer to you?
A personal asset, so it all depends what it is, its different things to different people.