Security interest
Response 1
A secured party is a creditor that has a security interest in some form of collateral of the Debtor, and the security interest is the collateral that secures the payment to the obligator (Miller, 2016). The collateral that a creditor use may not be solely used for a single creditor. Creditors know that this could be the case and have priority measures in place to decipher potential confusion of who would be entitled to the collateral if insolvent or default. The rights and remedies are found in The Uniform Commercial Code (UCC) 9-601(a) and (b) are cumulative [UCC9-601(c)] that stipulate remedies to pursue enforcement.
Creditors have remedies to regain possession. Remedy one is repossession of the collateral if the debtor defaults. The self-help provision that of Article 9 and is a “peaceful possession” when taking possession is legal when trespassing on land, assault, and battery or breaking and entering (Miller, 2016). Once repossessed the item can be resold are applied to the difference owed. Remedy two is the judicial alternative that is a judgment through the courts. When a debtor defaults and more than one creditor ties into the collateral it is solved by priority rules. The UCC standards establish that the party who is perfected security interest has priority. If neither security is perfected the one who established collateral first has priority. The UCC stipulates, (1) The perfected secured credit has priority over unsecured creditors and interest.. (2) Those with a conflicting perfected security interests priority goes to the first to perfect. (3) Conflicting unperfected security when both are unperfected, priority goes to the first to attach. The debtor has specific collateral on more than one loan, and defaults, the company that has been perfected has a gain over the unperfected if both are perfected the company who was first to perfect has the gain.
Reference
Miller, R.L., & Jentz, G.A. (2016). Fundamentals of Business Law today: Summarized Cases (10th Ed.). Mason, OH: Thomson-West Publishing. ISBN: 9781305075443
Response 2
A purchase money security interest (PMSI) as it pertains to the Uniform Commercial Code (UCC) Article 9, it is a security interest on property that allows a lender or Creditor who provides financing for the acquisition of goods or equipment to obtain priority ranking ahead of other secured creditors (law.cornell.edu). The PMSI is automatically perfected and therefore, takes priority over a written security agreement. If an individual purchases and establishes credit for a dishwasher, stove and refrigerator from an appliance store but a couple of months later decides to file bankruptcy. No other creditor can take possession of the appliances to meet their said obligation.
PMSI in inventory is handled differently, the UCC § 9-324 states it has priority over a conflicting security interest in the same inventory or chattel paper, and any identifiable cash proceeds received before the delivery of the inventory. The PMSI is perfected if the debtor receives possession of inventory; if the secured party sends a notice to the holder of the conflicting security interest; the holder receives the notification within five years before the debtor receives possession of inventory. The person sending the notice expects to acquire the PMSI in inventory of the debtor. (abfjournal.com). If the holder fail to send file a continuation before the deadline, then the security interest is unperfected and defaults. Once in default of not refiling a cross-collateralization situation can occur. In that case, the any is applied against the deficiency and if any equity is left-over it is applied to other balances (lexology.com).
Reference
https://www.law.cornell.edu/
Miller, R.L., & Jentz, G.A. (2016). Fundamentals of Business Law today: Summarized Cases (10th Ed.). Mason, OH: Thomson-West Publishing. ISBN: 9781305075443
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