Securedtransactions

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The following text introduces concepts and terminology related to the area of the law

referred to as 'secured transactions'. These offer a measure of security for anyone lending

something of value [usually money].

1 Read the text, then choose the correct word to complete each of these

definitions. You may need to consult the glossary.

1 A loan / pledge / lien is an arrangement in which a lender gives money to a

borrower, who agrees to repay the money, usually with interest, at some time

in the future.

2 A loan / mortgage / pledge is a debt instrument by which the borrower gives

the lender a lien on real property as security for a loan.

3 The depositing of personal property by a debtor with a creditor as security

for a debt is referred to as a loan / mortgage / pledge.

4 A claim which a creditor has on the property of the debtor to ensure

payment (often for goods for which payment is outstanding) is known as a

loan / pledge / lien.

1 (US) security interest in specific assets (also chattel mortgage prior to the Uniform Commercial Code)

2 (US) usually referred to as a floating lien and not often used, though possible, under the Uniform

Commercial Code

All the security interes mentioned above are consensual,since they are created through a

security agreem torgrants to the creditoran interest in debtor property

(collateral)in nce of the debtor's obligations to the creditor. There

also exist noterests, such as those created by operation of law, e.g.

unpaid seller as a lien over goods in his possession for which he has not

received payment. In order to invoke consensual security interests against third parties,

perfectionof the security interest must take place. Perfection is the action which gives the

creditor priorityover certain other creditors in the enforcement of the security interest. Perfection

can take place in three ways: by registration of the security agreement, by possession of the

collateral, and by attachmentof the security interest. The underlying purpose of perfection is to

put third-party creditors' on notice of the security interestand so avoid any hidden interests in

property. Attachme e at which the creditor's interest fastens to the property

offered as $ecurity, itor a ve§ted interest. In certain cases, attachment also

constitutes perfe upon attachment is sanctioned by statute, generally for

purposes of comme onvenience and availability of other methods of protecting creditors.

s: 119

.

1119 11

2 Complete the comparisons of key concepts below using the verbs in the box.

attaches (x2)

seize sell

crystallises defaults has make owns

Security / quasi-security:Security gives a creditor the legal right in property

owned by the debtor, i.e. the right to 1) and 2)the

debtor's property if the debtor 3)in repayment. However, in the case

of quasi-security,the creditor typically 4)'"'''''''''''''' the property in question,

while the debtor only 5)possession of it.

Fixed charge / floating charge:While a fixed charge 6).. to the

property in question as soon as the charge is created, a floating charge

7). only when it 8), for example as a result of a failure to

9) a payment at the proper time.

3 Underline the words and expressions in the paragraphs in Exercise 2 which are

typically used to compare and contrast ideas.

4 Match the nouns in the box with the verbs (1-4) with which they can collocate.

collateral credit

a security interest

indebtedness a loan payment performance

1 to attach

2 to perfect

3 to pledge

4 to secure

5 to provide

6 to enforce

Unit 13 Secured transactions

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A security agreement is a legal instrument signed by a debtor. It grants a security interest

to a lender in personal property which is pledged as collateral to secure the loan. Lawyers

assist clients in drawing up and filing these instruments. as well as in handling disputes

arising from matters connected with them.

5 Read the excerpts from a security agreement below and answer these questions.

1 Which kinds of property are pledged as collateral for the loan?

2 What happens upon default of the agreement?

SECURITY AGREEMENT

This SECURITY AGREEMENT is made on this 11th day of May, 2005, between

Appleby Designs Ltd ("Debtor"), and Richard J. Cross ("Secured Party").

1 SEGURITYJN'I'EREST. Debtor grants to Secured Party a security interest in

all inventory, equipment, appliaIlces,furnishings and fixtures now or

hereafterplaced llPon tlle premises located at 99 Appleby Road, Baltimore,

MD (the "Premises") or used in connection therewith and in which Debtor

now.has or hereafter acquires any right and the proceeds therefrom. As

additiollal collateral, Debtor assigns to Secured Party a security interest in all

oUts right, title alld illterest to any trademarks, trade names and contract

rights which Debtor now has or hereafter acquires. The Security Interest

sllall secure tllepayment and performance of Debtor's promissory note of

even date herewith in. the principal amount of twenty thousand ($20,000)

Dollars alld the payment and performance of all other liabilities and

obligations of Debtor to Secured Party of every kind and description, direct

or indirect, absolute or contingent, due or to become due, now existing or

hereafter arising.

3 default under this Agreement upon the

(a) any misrepresentation in connection

part of the Debtor; (b) any non-compliance with

or non-per10rmance the Debtor's obligations under the Note or this

Agreement; (c) is involved in any financial difficulty as evidenced

by (i) an assignment for the benefit of creditors, or (ii) an attachment or

receivership of assets not dissolved within thirty (30) days, or (iii) the

institution of bankruptcy proceedings, whether voluntary or involuntary,

which is not dismissed within thirty (30) days from the date on which it is

filed. Upon default and at any time thereafter, Secured Party may declare all

obligations secured hereby immediately due and payable and shall have the

remedies of a Secured Party under the Uniform Commercial Code.

6 Read the text again and answer these questions.

1 Where is the inventory located in which the Secured Party has an interest?

2 According to the agreement, what would constitute evidence of financial

difficulty on the part of the Debtor?

3 Which remedies are available to the Secured Party in the case of default?

7 Match these words and phrases from the text (1-5) with their definitions (a-e).

1 of even date

2 misrepresentation

3 contingent

a failure or refusal to fulfil contractually agreed upon terms or actions

b depending on something else in the future in order to happen

c The situation in which, during bankruptcy proceedings of an insolvent

corporation or person, the court appoints a person to take charge of

all assets in order to preserve them for creditors.

d a false statement, often in order to obtain an advantage

e written on the same date

4 non-performance

5 receivership

. ~

1" ICI

ingenc

ng

When legal agreements like the one on page 178 are drawn up, the drafter

will strive to anticipate possible events which may arise and plan

contingencies, i.e. to deal in advance with events that mayor may not occur.

This is done by wording the text in such a way that these possible events are

mentioned and thUs covered by the agreement. Often opposing pairs of words

are used in order to cover the full range of possibilities.

Look at this example from the security agreement:

As additional collateral, Debtor assigns to Secured Party, a security interest in

all of its right, title, and interest to any trademarks, trade names, and contract

rights which Debtor now has or hereafter acquires.

The word pair now or hereafter is used to refer to both currently existing

assets as well as assets which may become the property of the debtor in

the future.

8 Explain in your own words what is meant by each of the four word pairs in

italics in this sentence from the security agreement on page 178.

The Security Interest shall secure the payment and performance of

Debtor's promissory note of even date herewith in the principal

amount of twenty thousand ($20,000) Dollars and the payment and

performance of all other liabilities and obligations of Debtor to

Secured Party of every kind and description, direct or indirect, absolute

or contingent, due or to become due, now existing or hereafter arising.

9 Look for other word pairs of this kind in the security agreement. Explain them

to a partner.

Unit 13 Secured transactions E

d in n on

Whenlegislationis revised,it is importantfor lawyersto find out what changeswill take

placeand it is thereforecommonfor them to attend intensiveseminarsfocusingdirectly

onthe revisedlegislationand its practicalimplications.

Thefollowing advertisementis for an upcomingseminarconcerningthe Uniform

CommercialCode[UCC),which is a codeof lawsregulating legal aspectsof businessand

financial transactionsin the UnitedStates.

1.0Look at the advertisement and answer these questions.

1 Where might you expect to see the advertisement?

2 What is the subject of the seminar?

Date: 2015-12-11; view: 1334