Distinguish between two-party and three-party secured transactions, and provide some examples
What will be an ideal response?
Two-party secure transactions occur, for example, when a seller sells goods to a buyer on credit and retains a security interest in the goods.
Students' examples may vary.
Example: A farmer purchases equipment on credit from a farm equipment dealer. The dealer retains a security interest in the farm equipment that becomes collateral for the loan. This is a two-party secured transaction. The farmer is the buyer-debtor and the farm equipment dealer is the seller-lender-secured creditor.
A three-party secured transaction arises when a seller sells goods to a buyer who has obtained financing from a third-party lender (e.g., bank) and the third-party lender takes a security interest in the goods.
Example: A business purchases an airplane from an airplane manufacturer. The business obtains a loan to purchase the airplane from a bank, which obtains a security interest in the airplane. The airplane manufacturer is paid for the airplane out of the proceeds of the loan. This is a three-party secured transaction. The airplane manufacturer is the seller, the purchasing business is the buyer-debtor, and the bank is the lender-secured creditor.
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