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Business Law and the Regulation of Business Chapter 38: Secured Transactions and Suretyship By Richard A. Mann & Barry S. Roberts Topics Covered in this Chapter I. Secured Transactions In Personal Property A. Essentials of Secured Transactions B. Classification of Collateral
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Richard A. Mann
Barry S. Roberts
I. Secured Transactions In Personal Property
A. Essentials of Secured Transactions
B. Classification of Collateral
E. Priorities Among Competing Interests
A. Nature and Formation
B. Rights of Surety
C. Defenses of Surety and Principal Debtor
August 22, 1996
Daniel Debtor of 113 Hillsborough Street, City of Raleigh, County of Wake, State of North Carolina, hereinafter called the “Debtor,” does hereby grant to S.P. & Assoc., Inc., of Raleigh, North Carolina, hereinafter called “S.P.,” its successors and assigns, a security interest in the following described property, hereinafter called the “Collateral,” to-wit: One (1) Deluxe Personal Computer Serial number VDL16794321 Manufacturer: Apex Mechanical Equipment Co. Model 420Ato secure the payment of Debtor’s note or notes of even date herewith in the aggregate principal or aggregate face amount of Seven Thousand Five Hundred Dollars ($7,500.00), together with interest and any renewal or extension thereof, in whole or in part, and any and all other debts, obligations, and liabilities of any kind of Debtor to S.P., however created, arising, or evidenced, whether direct or indirect, joint or several, whether as maker, indorser, surety, guarantor or otherwise, whether now or hereafter existing, whether due or not due, and however acquired by S.P. (all hereinafter called the “Obligations”).
DEBTOR WARRANTS AND AGREES THAT:
1. Except for the security interest hereby granted, the Debtor will use the proceeds of advances made hereunder, which proceeds may be paid by the S.P. directly to the seller of the Collateral, to become the owner of marketable title to the Collateral free from any prior lien, security interest or encumbrance, and the Debtor will defend the Collateral against all claims and demands of all persons at any time claiming an interest therein.
2. The Collateral is and will be used primarily for personal, family, or household purposes, and the Debtor’s residence is that shown at the beginning of this Agreement.
3. The Collateral will be kept at the Debtor’s address shown at the beginning of this Agreement.
4. There are no financing statements covering any of the Collateral on file in any public office, and the Debtor has not executed in favor of other secured parties financing statements that could be placed on file prior to any of the S.P.’s financing statements
5. DEBTOR AGREES THAT:
A. He will pay to S.P. all amounts due on the note or notes mentioned above and the other Obligations secured hereby as and when same shall be due and payable, whether by maturity, acceleration, or otherwise, and will pay to S.P. reasonable attorney’s fees incurred by S.P. in collection of said Obligations or enforcement of this Security Agreement.
B. He will maintain all mechanical equipment and machinery hereby covered in sound and efficient operating condition, including the procurement and installation of such new parts, attachments, and replacements as may be necessary or desirable to maintain said Collateral in proper operating condition.
C. He will maintain such insurance upon all of the Collateral as S.P. may require, payable to Debtor and S.P. as their interest may appear, in an amount not less than the actual value of the Collateral.
D. He will pay all insurance premiums and taxes, licenses, or other charges assessed against the Collateral or required to be paid in connection with the use and ownership of the Collateral. If Debtor shall fail to pay such insurance premiums, taxes, licenses, or other charges when they are due, S.P., at its option, may pay the cost thereof, and the amounts so paid and advanced shall be added to the indebtedness secured hereby and shall bear interest at the maximum rate permitted by Law.
E. He will not (a) permit any liens or security interest to attach to any of the Collateral; (b) permit any of the Collateral to be levied upon under any legal process; (c) sell or dispose of any of the Collateral without prior written consent of S.P.; (d) permit anything to be done that may impair the value of the Collateral or the security intended to be afforded by this Agreement.
F. He will immediately notify S.P. in writing of any change of the Debtor’s place of residence, place or places of business, or the location of the Collateral.
G. He will not remove the Collateral from the State of North Carolina without prior written consent by S.P.
6. IT IS FURTHER AGREED THAT THE DEBTOR SHALL BE IN DEFAULT UNDER THIS AGREEMENT:A. If the Debtor uses any of the Collateral in violation of any statute or ordinance or the Debtor is found to have a record or reputation for violating the laws of the United States or any State relating to liquor or narcotics; or
B. If the Debtor shall fail to perform any covenant or Agreement made by him herein; or
C. If the Debtor shall fail to make due and punctual payment of any of the Obligations secured hereby when and as any part or all of such Obligation becomes due and payable; or
D. If any warranty, representation, or statement made or furnished to S.P. by or on behalf of the Debtor in connection with this Agreement proves to have been false in any material respect when made or furnished; or
E. If the Collateral suffers material damage or destruction; or
F. If any bankruptcy or insolvency proceedings are commenced by or against the Debtor or any guarantor or surety for the Debtor; or
G. If the Debtor dies, becomes incompetent, is dissolved, or the Debtor’s existence otherwise terminates. Upon the happening of any of the above events of default or in the event that S.P., in good faith, deems itself insecure, S.P. may, at its option, declare all Obligations secured hereby due and payable immediately and have, in addition to other rights and remedies, the rights and remedies of a secured party upon default under the North Carolina Uniform Commercial Code. The waiver of any particular default of the Debtor hereunder shall not be a waiver of any other or subsequent default of the Debtor. Any requirement of the North Carolina Uniform Commercial Code of reasonable notification of time and place of public sale, or the time on or after which private sale may be held, may be met by sending written notice by registered or certified mail to the above address of the Debtor at least five (5) days prior to public sale or the date after which private sale may be made. The Debtor shall be and remain liable for any deficiency remaining after applying the proceeds of disposition of the Collateral first to the reasonable expenses of re-taking, holding, preparing for sale, selling, and the like, including the reasonable attorney’s fees, incurred by S.P. in connection therewith, and then to satisfaction of the Obligations secured hereby.
This Agreement and all rights, remedies, and duties hereunder, including matters of construction, shall be governed by the laws of North Carolina. This Agreement shall apply to, inure to the benefit of, and be binding upon the heirs, administrators, executors, and assigns of S.P. and the Debtor. This is the entire agreement of the parties, and no amendment, alteration, deletion, or addition hereto shall be effective and binding unless it is in writing and signed by the parties. Debtor acknowledges that this Agreement is and shall be effective upon execution by the Debtor and delivery hereof to S.P., and it shall not be necessary for S.P. to execute or otherwise signify its acceptance hereof. Signed and delivered on the day first above written.
_________________________(SEAL) Daniel Debtor S.P. & Assoc., Inc. (Secured Party) By: __________________________
Files a financing statement, or
in writing (unless SP has
SP takes possession, or
providing a security interest,
in described collateral,
signed by debtor,
Value given by secured party, and
Debtor has rights in collateral.Requirements for Enforceability of Security Interests
C vs. PD:C’s rights under contractCollateral
S vs. PD:ExonerationReimbursementSubrogation
C vs. S:C’s rights under contractCollateral
(1) To redeem collateral by payment of debt
(2) To possess general rights of ownership as limited by security agreement
(1) To recover amount of debt
(2) To have collateral applied to payment of the debt on default
security interest in collateral
PD’s incapacity PD’s discharge in bankruptcy PD’s setoff against C
Forgery of PD’s signatureC’s fraud or duress on PDFraudulent and material alteration of contract
Absence of mutual assent or consideration for PD’s contract
C’s nonperformance of PD’s contract
Illegality or impossibility of PD’s contract
Payment or performance of PD’s obligationC’s release of PD unless C reserves his rights against S
C’s refusal of tender
Statute of frauds
Absence of mutual assent or consideration for S’s contract
C’s fraud or duress on S
Cosurety’s failure to sign contract
S’s setoff against C
Modification of contract between PD and C
Extension of time unless C reserves rights against S
Release of security
Release of cosurety unless C reserves his rights against S