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The Uniform Commercial Code (UCC) is a uniform rule that was created with the intention of bringing order back to the legal framework governing commerce. The primary intent behind its drafting was to promote uniformity, i.e., to develop a set of guidelines that would fairly and practically address issues that frequently arise in business transactions. (Mallor, Barnes, Bowers, & Langvardt, 2013). The UCC is a collection of several suggestions that ensures commercial transactions are safe and secure and that both the buyer and the vendor operate in harmony, even though it is not a law in and of itself. The UCC contains nine articles, all of which govern distinct types of commercial transactions or commercial law.
The Article 9 of the Uniform Commercial Code is one of the most important articles in relation securing transactions, mostly between creditors a debtor. Most importantly, the law governs aids the regulation of rights the debtor and creditor in the instant that personal property is used as collateral for the credit extended (Mallor, Barnes, Bowers, & Langvardt, 2013). When a transaction is used in the extension of a credit, it is defined as a secured transaction, and the security that the creditor holds is called the security interest. In our business case, the collateral can be in the form of valuable goods, or goods owned by the borrower, that we can collect in event that he/she fails to pay, therefore recover our money. For a secured transaction, we take orders from the consumer, look for the seller, (holding the property) and deliver the goods to the client holding the property as a security interest.
Another key term is the attachment, which is an agreement between the clients and the company. Both the sellers and the buyers are to sign a contract, or an agreement in a chattel paper (a written document that evidence to pay money and security interest in the property sold). Moreover, we have goods held for sale by the seller to the buyer (Mallor, Barnes, Bowers, & Langvardt, 2013). This is the inventory. Moreover, the company may decide to give the client a period of time after which an additional cash or value can be added to the goods; this is the future advances. It entails that after the elapse of a certain period, the printer sold on credit for $100 will be worth $105. The $5 is the future advance.
At times, the borrower may not have personal property to be used as collateral. However, they may have some property that they may acquire in the foreseeable future. The company can attach the property as collateral and will have the right to collect the property once the defaulting debtor acquires it: This is called the After-acquired property. A buyer may not own the office at the moment but in the process of acquiring it. If the company sells computers, they can use the after-acquired property –office- as collateral.
Lastly, a security interest is the interest in personal property of the lender that can be obtained by a creditor in case the debtor fails to honor their loan (Mallor, Barnes, Bowers, & Langvardt, 2013). When selling papers and clips, we may take the printer as collateral, and in the case of default, we will have the right to possess or sell it.
Before offering goods on credit, the company can enter into an agreement with the buyers that they should provide collateral (Mallor, Barnes, Bowers, & Langvardt, 2013). This is the Security Interest. It means that in case the buyer does not pay on the agreed time, the company can collect the collateral in the recovery of their money, e.g., office equipment, collected can be customized and resold.
With the understanding of the UCC, the company will avoid any inconveniences that may arise in the transaction process.
When selling good on credit, our company will want to enter into a contract with the buyer that, in the case of they fail to honor the contract and pay for the goods under the agreed period, the company has the right to collect collateral. If the buyer (on credit) agrees that the company can take collateral owned by them; this is the security interest. The company can perfect a security interest to ensure that they get a better right to the collateral than any other creditors that may have the property as collateral (Mallor, Barnes, Bowers, & Langvardt, 2013). By perfecting the security interest, "the company gets protection against other creditors of the collateral". This can be done by either of three ways: Filing a public notice of the security interest, taking control/possessing the collateral, or attaching the security interest on the property.
Our company can sell computers on credit to another company. As a collateral, the company may offer a car as collateral (Mallor, Barnes, Bowers, & Langvardt, 2013). To perfect the security interest, the company can file a financial statement in the office of the lender. This will serve as a notice that the property belongs to our company as a debtor. The statement will include our company as debtors, the name of the secured party, and the car as collateral.
Secondly, our company may decide to request for the possession power or control power of the collateral (Mallor, Barnes, Bowers, & Langvardt, 2013). With this, our company will own the property meanwhile until the debt is cleared. Even though they may continue using the car, the problem will not have the possessing power or control over it; when they default on the loan and other companies loans, the other companies may not claim this loan.
Lastly, since our company sells goods to the consumers and other businesses, they interest is perfected by the virtue of its attachment to the borrower. The company may sell the goods on the time-payment basis, and thus may not need to file its purchase money security interest, as the security interest will have been automatically perfected.
Business Vs Consumer Good
Under the article 9 of the UCC, for a buyer purchasing goods on credit for a business, the business can take a security interest in the inventory or product and perfect it by filing. In case the buyer defaults (Mallor, Barnes, Bowers, & Langvardt, 2013). This is different in the consumer goods since the creditor gets automatic perfection of the security interest by virtue of PMSI. Thus, before selling, the company has to be sure whether the property is sold to a company or a business.
Our company may lend office equipment on credit to another company in need of our services. After signing the agreement and agreeing on collateral, the business may later on default on their promise. Since it is default is clearly not stipulated in the UCC, our company and the purchaser may discuss the ground that will qualify as the default of the debt. For example, our company may include in the contract that the purchaser has to pay a certain amount of money monthly for the next five months and clear the debt in that manner. In addition, we can agree that if the creditor fails to pay for a certain month, and does not comply or reply to our offices to explain the reasons, then, that will qualify as a default. In addition, we can decide to include that, if the company fails to pay for two consecutive months, the business will have the right to collect collateral. With such an agreement, it is easy to see the point of default, and the action expected from the company in case of default.
Since the conditions for default would have been stated, failure to comply with the rules will give the company the right to collect collateral from defaulter. It will have the right to possess the collateral, and if the defaulter refuses to do so in peace, then the company can go to court and prove the breach of contract.
Our company may decide to possess or sell the collateral. However, it is obligated to ensure that all parties benefit from the sale (Mallor, Barnes, Bowers, & Langvardt, 2013). In case the company decides to sell, it must give the debtor the notice of the private sale. This includes the date, time, place, and the actual mode of sale e.g. auctioning. If the company decides to possess the property, then the debtor is given notice, so that they can determine if the action is commercially reasonable. If they deem it as not reasonable, they can go to court and challenge the action.
Mallor, J., Barnes, A., Bowers, T., & Langvardt A., (2013). Business Law: The Ethical, Global, and E-Commerce Environment (15th ed., pp. 92-120). New York, NY: McGraw-Hill/Irwin.
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