Bài giảng Business Law - Chapter 28: Introduction to Credit and Secured Transactions

Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin6Introduction to Credit and Secured TransactionsSecurity Interests in Personal PropertyBankruptcyCreditPARTIntroduction to Credit and Secured TransactionsPAETRHC28Creditors have better memories than debtors.Benjamin FranklinPoor Richard’s Almanac(1758)Learning ObjectivesExplain the difference between secured and unsecured creditDifferentiate suretyship from guarantyDescribe the various types of liens on real and personal propertyCompare methods for holding a security interest in real propertyMost transactions are unsecured: a service was rendered or good sold and the consumer-debtor promises to pay for the service or good upon receiving a billMaximum risk of loss to the creditorTo minimize risk, a creditor may require the debtor to convey to the creditor a lien (security interest) on the debtor’s propertySecured vs. Unsecured CreditIn unsecured credit transactions, a creditor has recourse against a debtor’s default by sending notices to pay and eventually filing suit against the debtor for paymentResult: collection effort begins In a secured credit transaction, creditor can go against the security (repossess) to collect debtor’s outstanding obligationIf Consumer Fails to PayA surety is a person who is liable for the payment of another person’s debt or for the performance of another person’s dutyThe surety joins with the person primarily liable in promising to make the payment or to perform the dutyThe classic “co-sign” situationGenerally on the same signature pageSuretyA guaranty contract is like a suretyship, but a guarantor does not join the principal debtor in making a promise, but makes a separate promise to be liable only after principle debtor defaults and cannot payA surety is primarily liable on the debt, but the guarantor is secondarily liableTypically, a separate guaranty document that must be in writing to satisfy the statute of fraudsGuarantyCreditor must disclose any material facts about the risk involved to the suretyFailure to do so relieves the surety of liabilitySee New Jersey Economic Development Authority v. Pavonia Restaurant, Inc.Court rejected claim by sureties that creditors violated their duty to the sureties since the creditors did not have any superior knowledge of material facts about riskCreditor’s Duties to SuretyIf surety performs or pays obligation of principal, then surety acquires all rights creditor had against the principal and: Right of subrogationRight to reimbursementRight to contributionRight to exonerationSurety may use defenses to creditor’s demand that principle debtor would haveSurety’s Rights and DefensesA lien is a security interest in personal property available to businesses and individuals by statute and common lawStatutes often provide a procedure for foreclosing the lien (foreclosure)Two essential elements of possessory lien (e.g., artisan, innkeeper, common carrier): possession by improver/provider of services a debt created by the improvement to goods or provision of services concerning the goodsLiens on Personal PropertyThree basic contract devices for using real estate as security for an obligation: (1) the real estate mortgage, (2) the deed of trust, and (3) the land contract.Also, state statutes give mechanics and materialmen a right to a lien on real property into which their labor or materials have been incorporatedSecurity for Real PropertyA mortgage is a security interest in (or deed to) real property given by the owner (mortgagor) as security for a debt owed to the creditor (mortgagee)A lien on land rather than conveyance of title Must be executed with the formality of a deedThe MortgageForeclosure: rights of the mortgagor or current property owner are cut offRegulated by state statutes using three methods: strict foreclosure, action and sale, power of saleA mortgagor or an assignee of mortgagor has an equity of redemption in the real estate within a specified redemption period and by full discharge of the mortgage debtTitle to property restored free and clear Foreclosing The MortgageA deed of trust is another mechanism for a security interest in real propertyGenerally, treated like a mortgageThree parties to a deed of trust: property owner who borrows money (debtor), trustee who holds legal title to property put up as security, and lender and the beneficiary of the trust Deed of Trust Two statutory systems permit one who furnishes labor or materials to improve real estate to claim a lien until they are paidSimple sale of goods does not entitle seller to a lien on real property A general contractor contracts with owner to build, remodel, or improve real propertyA subcontractor contracts with general contractor to perform a particular jobMechanic’s & Materialman’s Liens Thought QuestionsWhat are the advantages and disadvantages of credit?How does credit affect your life?Do you have any secured credit?