Secured Transactions Outline

Zinnecker
Secured
Fall 2010
 
 
Preface: 
·         Each chapter has Introduction, Preparation, Problems and Cases
Special Message on Article 1:
·         Governed by UCC
·         The substantive difference between the two versions of Article 1, they convey what is essentially the same information in sections which bear different numbers. 
Introduction:
·         The Unsecured Creditor:
o   If the creditor has extended itself in this way in exchange for the debtor’s promise of payment in the future but has done no more to enhance the probability of its being paid vy the debtor when  the time is right – unsecured creditor – the debtor has taken on  some measure of unsecured debt. 
o   The course will focus our attention on one ingenious way that the party extending the credit can try to increase its chances of being paid by the debtor when due. 
 
 
 
 
 
 
 
 
 
 
 
 
Part 1:  Introduction to Article 9 & Classification of Collateral
Chapter 1:  The Typical Secured Transaction
 
A.  Introduction:
·         Why do people keep promises:
o   Repercussions (legal)
o   Reputation
o   Moral reasons
·         The unsecured creditor has the legal right to payment, but all too often as a practical matter finds this a difficult right to enforce. 
Concept of Secured Credit
·         Secured Credit – the debtor put up something of value as collateral to back up the otherwise naked promise to pay
o   Collateral – pledge or pawn of chattel (property)
·         Security Devises –
o   Pledge of personal property
o   Mortgage
Necessity as the Mother of Invention
·         More security devices came about due to the industrial revolution – industrial machinery, stocks of raw material. 
·         Found they could not take their principle assets or how would they make money
o   So started to grant NONPOSSESSORY Security Interests
§  Chattel mortgage, factor’s lien, conditional sales agreement
Enter the UCC
·         Comprehensive statutory scheme covering all the major areas of commercial law. 
·         Article 9 – UCC part that deals with security interests
B.  Preparation
1-103 – Underlying Purpose –
1-201 – General Definitions
                Secured Interest – means an interest in personal property or fixtures which secures payment or performance of an obligation.  Does not include the special property interest of a buyer of goods on identification of those goods to a contract for sale under 2-401. 
                Signed – includes using any symbol executed or adopted with present intention to adopt or accept a writing
1-302 – Variation by Agreement
1-304 – Obligation of Good Faith
9-109 & Official comment 2 – Scope
 
9-102 – Definitions and Index of Definitions
                (a12) – Collateral
                28A – Debor
                59i – Obligor
                72A – Secured Party
                73 – Secured Agreement
                Comment 3b –
 
C.  Problems: 
 
1.1)  Ed borrows 20K from Alexandra to cover medical bills.  In exchange he leaves here with his pocket watch that he claims is worth over 20K. 
A.)  Is the transaction governed by article 9?
 
Yes, Under 9-109 a1 – it applies to a transaction, regardless of its form, that creates a security interest in personal property or fixtures by contract.   The obligation is secured by Article 9.
Debtor – ED
Creditor – Alexandra.
Does he have rights?  He said he had rights.  How do you prove, we assume.  Article 9 does not say how to address risk. 
Has value been given – Yes, 20,000
Agreement – under first or second option – 2nd option because he puts it in her possession. 
                The writing is an obligation but does not describe the collateral so not a secured interest that way.  So have a transaction. 
 
B.) What if it was a contract to give the watch over to her?  The answer would still be the same. Under the above UCC code it references fixtures by contract.   As well as the definition of Secured interest and reference to 2-401 (deliver time)….Can be oral or written – if written needs to be signed and includes a reasonable description of the property. 
·         Agreement – under 9-203 b – has description and has authenticated the writing ….look for a granting clause – does not say this in the article but is what experts would do. 
o   Acceptable description – assumer right but