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 economy.
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 fixtures.
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).