SUMMARY OF THE UNIFORM COMMERCIAL CODE
The Uniform Commercial Code (UCC) is a body of law comprised primarily of eleven articles designed to govern commercial transactions. The objective of the code is to simplify and make uniform the law governing commercial transactions. In doing so, the UCC promotes the continued expansion of commercial practice. Each article is distinctly different from the other.
Virtually all extensions of credit involve a contingent right, upon default, to take possession of the debtor's property if the debtor should fail to pay. Additionally, a host of state collection laws are concerned with how a creditor goes about the process of reducing its claim to judgment and then "executing" (or "levying") on property to satisfy the judgment.
Your advantage of having a secured transaction is that the contingent right referred to above is an absolute one under Article 9 of the UCC. In case of payment default, you have the right to repossess your property. Additionally, in a bankruptcy, you have first priority to the collateral. Finally, in the event of liquidation, you have first priority to the proceeds from the sale of the collateral. Simply stated, - You, as the secured party can greatly enhance your chances of payment or the return of your product.
As a secured creditor, you have two additional rights: (1) a right to take specific property of a debtor without needing to go to court; and (2) a right to enjoy this property interest in the face of competing claims. Respectively, these are known as property and priority rights. In bankruptcy, these rights may mean the difference between payment to you as a secured creditor, or taking a loss as an unsecured creditor.
The best understanding of what a secured transaction can do for your company is by way of illustration:
Bicycle Supplier Y sells inventory to The ABC Bicycle Store but does not take a security interest. Your company sells $10,000.00 of inventory to The ABC Store and takes a purchase money security interest in the inventory. The ABC Store files bankruptcy due to poor sales, high debt and bad management. Your company will get its unsold inventory back as it is secured and enjoys a priority right to payment. Bicycle Supplier Y will only be able to collect after all of the secured creditors are paid off and then, generally, only for a few cents on the dollar or, most likely, not at all.
In business today, secured creditors enjoy a competitive edge over unsecured creditors. Cleland Homsi & Associates, Inc utilizes it legal affiliate, O’Cieran & Middlebrook, to put this competitive edge to work for you