Commercial Law – Secured Transactions
Meyer – Fall 2003
SECURED V. UNSECURED CREDITORS
2 Types of Debtors
Business (commercial) debtor
Voluntary Credit Transactions
Credit Sale – purchase but no payment (i.e., credit card)
When you use a credit card the debtor/creditor relationship is btwn the credit card issuer (bank) and the customer, not the customer and the merchant you purchase from using the credit card.
***Art. 9 only deals with creditors and debtors personal property not real property.
Secured Creditor: a creditor, lender or seller, who obtains a SI in their debtor’s assets. Sellers taking a SI in the goods they sell or lenders taking a SI in their borrowers’ assets. The claim is controlled by the value of the property that is part of the SI.
Rev. §1-201(35) & Pre-Rev. §1-201(37) Security Interest: means an interest in personal property or fixtures which secures payment or performance of an obligation.
Unsecured Creditor: those w/ rights against the debtor not supported by a lien or SI.
KSA §60-2304: exempt from seizure and sale upon any attachment, execution or other process issued from any court in this state:
(a): furnishings, equip., supplies, etc.
(b): jewelry, ornaments, not to exceed $1K in value.
(c):primary vehicle, not to exceed $20K in value
This exemption would not apply when the transaction gives a consensual SA like in §60-2301.
KSA §60-2301: Homestead Exemption: provisions of this exemption shall not apply to any process of law obtained by virtue of a lien given by the consent of both husband and wife.
Secured Creditors can repossess or seize property w/o the effect of the exemption statues. Unsecured creditors can attempt to repossess only to the extent the property isn’t protected by the exemption statutes.
Alternatives to becoming Secured Creditor (still no priority over SecCr)
Require payment in cash
Charge a premium cost to absorb & spread risk
Charge a higher interest rate
ARTICLE 9 OF THE UCC
Traditional Types of Security Interests
Chattel Mortgage: statutory allowance of a mortgage in chattels in the possession of the mortgagor, valid against creditors and purchasers so long as the chattel mortgagee filed the mortgage as a public record.
Conditional Sale: a seller could sell a c
bankruptcy and claims of creditors.
Maximize the assets available for payment to general unsecured creditors.
Avoiding Powers of Tib:sometimes the duties require the Tib to recover property of the debtor that was transferred before bankruptcy in transactions that are avoidable in bankruptcy b/c they violate some bankruptcy policy.
§ 9-203(a)-(b) Attachment: (a) Attachment: a SI attaches to collateral when it becomes enforceable against the debtor w/ respect to the collateral . . . (b) Enforceability: a SI is enforceable against the debtor and 3rd parties only if: (1) value [§1-204] has been given, (2) debtor has rights in the collateral or rights to transfer it; and (3) one of the following is met: (A) debtor has authenticated a SA that provides a description of the collateral (when debtor has possession of collateral), or (B-D) the creditor has possession of the collateral pursuant to a debtor’s SA.