Commercial contracts are mutual agreements between two or
more institutions, usually in written form, that the law can enforce if the
agreement is breached. The law provides remedies if a promise is breached or
recognizes the performance of a promise as a duty.
Contracts arise when a duty does or may come into
existence because of a promise made by one of the parties. To be legally binding as
a contract, a promise must be exchanged for adequate consideration. Adequate
consideration is a benefit or detriment which a party receives which reasonably and
fairly induces them to make the promise/contract.
For example, promises that are purely gifts are not
considered enforceable because the personal satisfaction the grantor of the promise
may receive from the act of giving is normally not considered adequate
consideration. Certain promises that are not considered contracts may, in limited
circumstances, be enforced if one party has relied to his detriment on the
assurances of the other party.
Secured transactions in the United States are an
important part of the law and economy of the country. By allowing lenders to take a
security interest in a debtor’s asset, secured transactions provide lenders with
greater confidence that they will be repaid. This increased assurance, in turn,
allows lenders to lend capital to businesses at interest rates that are lower than
the rates those businesses would otherwise be able to obtain. In short, secured
transactions help to lower the cost of capital, and so encourage the growth of the
In law, secured transactions are an integral part of the
Uniform Commercial Code (UCC). Article 9 of that Code governs secured transactions
in all fifty American states. The provisions of Article 9 supply a predictable way
of creating and enforcing security interests in movable property and
Because of the importance of secured transactions, many
lawyers have a great familiarity with the provisions of Article 9. Security
interests are particularly valuable in bankruptcy because those creditors who have
security interests in a bankrupt debtor’s estate have priority i.e., will get paid
before creditors who lack such interests (“unsecured” creditors).