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Secured Transactions
South Texas College of Law Houston
Musselman, James L.

Secured Transactions

Random recitation
UCC—primarily article 9; Federal bankruptcy code
Exam—open book, open notes (all multiple choice)

Beginning of course—easy
Middle of course—moderately difficult

End of the course—hard!
Horn book—White and Summer/ Examples and Explanations, Lexis/Nexis questions and answers ST**

1-19-05

Introduction

UCC: uniform law drafted by committees; sponsored by the ALI; adopted by all 50 states in some form. Texas has adopted 99% of article 9 with minor modifications.
Federal bankruptcy code:
This is a statutory course (main focus on state statutes).

What is a Secured transaction? —Personal property financing; involves mostly how businesses finance their operations. Banks want collateral; they create security interests in case you default.

Defaulting on personal property more difficult for the lender in terms of protecting his rights; personal property can be taken anywhere (lender must locate their interest). This is even more difficult with intellectual property.

Assignment 1—Creditor’s remedies under state law

Problems (18):

1.1—creditor wants to exercise self-help. He lent money to the debtor who used it to purchase lawn furniture and he wants to reclaim the debt by taking her furniture.

When you loan money without a security interest then you don’t have an interest in the property. He could have had her sign a security agreement so that if she were to default he could repossess the furniture and sell to reclaim the money. Because he didn’t obtain security, he will be charged with theft. She could also sue him for the tort of conversion and get the value of the furniture. He would have to counter sue for the original debt. She can delay creditor by filing bankruptcy or hiding her non-exempt assets.
Unsecured creditors don’t have an interest in any property. The proper action is to sue to reclaim the debt.

1.2—Creditor wants $30k from local seafood wholesaler; couldn’t get the debt repaid, so he hired someone to make a story about stealing lobster. This deceived the debtor into getting $19k for lobster and he tried to apply that to the $30k debt. That is not allowed.

Creditor was convicted of lobster theft and was ordered to repay the $19k—can’t use self- help.

1.3-Karen loans Ted $10k

This all depends on what is in the agreement. If the agreement focuses only on timely payment, she has no basis because there has been no default. If the agreement places restrictions on Ted that prohibits these actions, she may declare Ted in breach. Karen should have established a contract whereby Ted cannot relocate, replace employees, or sell assets. She should also take a security interest in Ted’s assets to increase her leverage.
Most of the time assuming a lawyer drafted a loan agreementà there are usually provisions for a “default” which needs to be defined somewhere in a loan agreement. If she could declare it in default there will most likely be an acceleration clause. She will have to file a suit to obtain a judgment as an unsecured creditor.

1.4—Like the Vitale case, Karen needs to assure that the sheriff will collect and if the sheriff fails, Karen will have to take legal action against the sheriff to regain her debt owed. First you need to know if Knopf has the assets to pay the judgment. If not then there needs to be a seizure and sale of certain assets to obtain the money owed. To obtain the information needed, you would have to go through discovery in the. She also must establish the judgment in the state before invoking the enforcement procedures of that state (a money judgment can be enforced only in the state where rendered). The sheriff may not be able to seize certain property if it is exempt business property (seen in the WI statute (b)).

Don’t want to jump right out and send the sheriff to levy on the equipment—he might not even own it, what if it is rented. The loan transaction needs to be documented so you know how the daycare is being run. If they’re not exempt then you can levy on them.
You have to do discovery to see exactly what the debtor owns.

1.5-state laws let debtor retain some assets free of claims of unsecured creditorsà (15) humane purpose of preserving to debtors and their dependents the means of obtaining a livelihood, the enjoyment of property necessary to sustain life and the opportunity to avoid becoming public charges.

(a) Toyota worth $6kà §815.18(3)(g): debtor may exempt up to $1200 of equity in car + any unused consumer goods exemption up to $5k.

if debtor didn’t claim any other household goods as exempt, debtor could claim car as entirely exempt (creditor can’t levy on it).
If deb

apply all the way through the UCC
§ §9-109(a)(1)—Scope: a transaction, regardless of its form, that creates a security interest in personal property or fixtures by K. (Substance over form).
§ Comment 2—regardless of the form of the transaction or the name the parties have given it.
§ Retention of title is a retention of a security interest.
§ Article 1 sends you to §1-203à transaction purporting to be a lease
· If the transaction falls within (b) then it’s not really a lease, it is a sale.
· Bonnie is suggesting the situation in §1-203(b)(4).
o Assignment 3—Repossession of Collateral
o PROBLEMS (56)
§ 3.1—now he could repossess the property and sell it to regain the money owed to him because he is a secured creditor.
· UCC 9-102 (a)(72) & (73)
· UCC 9-609—he must do so without breach of peace
· He has an interest in the lawn furniture so has rights under article 9 (§9-609)à after default a secured party may take possession of the collateral with or without judicial process as long as it is done without a breach of peace.

§ Collateral—property in which the secured creditor has the secured interest §9-102(a)(12).
§ 3.2— Self-help repossession general guidelines to assist the repossession people; collateral is a bulldozer:
· Debtor has agreed that if they are in default the creditor can go on the debtor’s property—they bargain for that in their agreement.
· If the creditor breaches the peace he will be sued for wrongful repossession; the creditor takes a risk, and they must not violate article 9. If you can get the property off of the property without running into anyone you can repossess with no problem.
· If the debtor challenges you or threatens you, or the person on the property is not the debtor. If there is a reasonable possibility that violence will ensue then there has been a breach of the peace (standard: is there a reasonable likelihood that a breach of the peace would occur).
· If there is a chance of physical resistance the person repossessing should withdraw.
Trespass—you ca