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Collateral
Collateral law is intended to facilitate commerce by standardizing transactions and fostering predictability and simplicity in them. More specifically, secured transactions are intended to structure the dealings of debtor and creditor so as to preserve the rights of some creditors against the rights of others. Standardization is intended to assure familiarity and thus encourage commercial transactions.
The ability to use security interests in movable property to support the extension of credit is essential for a market economy. Commerce and industry need inexpensive capital to thrive, and lending that is secured by a pledge represents one of the most economical means of procuring financing because it significantly reduces the creditor’s risk. Secured lending goes beyond the borrower’s contractual agreement to repay since it provides a second source of payment. In fact, a legal system that assures the lender that it can maintain a secured interest is just as essential as a system of contract law.
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