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Secured Transactions
University of North Carolina School of Law
Jacoby, Melissa B.

1 – Introduction
 
1)      Creditor = anyone owed a legal obligation that can be reduced to a money judgment
a)      Voluntary (loan) or involuntary (tort) or § (workers comp)
b)      Unsecured creditor (unSC): obligation to pay is not secured in K by interest in specific property
i)        Ex = lender gives loan, borrower promises to pay.
ii)      Why be unSC (policy):
(1)   higher return
(2)   don’t know of status (tort victim)
(3)   lack of bargaining power (empt) or sophistication
(4)   business custom
c)      Secured creditor (SC): obligation to pay debt is secured by interest in specific property
i)        Ex = Lender gives loan, borrower promises to pay + gives interest in collateral
ii)      Communicate priority by: public records; rules of priority; bankruptcy lien avoidance
iii)    Why secured better:
(1)   Have more remedies
(a)    Judicial foreclosure (*only option for unSC)
(b)   Remedies agreed to by K
(c)    Self help repo
(d)   Art. 9 disposition
(2)   Priority over unSC and later-in-time SC
(3)   § exemptions don’t apply
d)      Judgment creditor (JC): court judgment grants creditor status
2)      Debtor
a)      Obligor is person who promises to pay the money 9-102(a)(59)
b)      Debtor is the one who has the right to give SI in property; seller of accounts, chattel paper, payment intangibles, promissory notes 9-102(a)(28)
3)      Informal ways to compel payment (unSC + SC)
a)      Repeated requests/notices that payment is due
i)        Seek preference payment: D can voluntarily pay creditors in order he wants if not fraudulent or during bankruptcy stay
b)      Withhold needed goods or services
c)      Renegotiate loan (unSC try to K for SC status)
d)      Issues w/ informal methods
i)        Is modification enforceable as matter of K law?
ii)      Anger borrower OR encourage them to hide or sell assets to keep them from creditor
iii)    Assets may be sold, moved, not valuable
iv)    Time (economies of scale)
e)      *importance of monitoring assets
4)      Picking a remedy
a)      relationship
b)      C assessment of likelihood D will resist
c)      C opinion of strength of D’s defenses
d)      Manner in which sufficiency of defenses will be determined in remedial procedure
e)      Aggressiveness required
f)       Lender liability concern – will this cause D to fold?
 
 
 
 
2 – Unsecured Creditor Remedies under State Law
 
5)      UnSC methods to compel payment
a)      In the absence of default, unSC is essentially watching D w/o legal claim.
i)        Try informal remedies (BUT issues)
b)      Formal = become JC & levy thru sheriff
c)      Limits:
i)        Formal & informal can be costly & ineffective
ii)      NO self help repo
(1)   Conversion, larceny, wrongful collection practices liability
iii)    Discovery: need info regarding available assets, and D can be uncooperative
iv)    Some assets not reachable
(1)   § exemptions limit seizures of categories/amounts
(2)   sold to bona fide purchaser
(3)   Wage protections (fed 75%, some ST higher)
6)      Judgment Creditor Process
a)      **timeliness is important. Move fast to avoid preference payments or losing track of assets that could satisfy debt
b)      Who is the debtor: § might limit JC process to individual or both indy + biz entity
c)      Maybe pre-judgment “provisional remedy” to keep D from disposing of property.
i)        Sharply limited by due process
d)      Get judgment: establish by civil suit that D liable for $x (file complaint; D response time; adjudicate terms of loan)
e)      Execute the judgment (ST §)
i)        JC status permits SEARCH for property not exempted by § or claimed by SC
(1)   Discovery (ask Q)
(a)    Debts owed to D (A/R) – tax refund, inheritance, judgment in legal matter
(b)   Sources of income
(2)   Search public records for RE/Art.9 personal property
(3)   Private investigator
(4)   Credit reports for fee
ii)      Obtain writ of execution from clerk of court
iii)    Get sheriff to LEVY property (= seizure by possession or notice)
iv)    Sale of asset by sheriff
v)      Court confirmation of sale
vi)    Maybe additional § waiting period
7)      Exemptions by §
a)      Statutes protect certain classes of property or limit by value
i)        May require affirmative action by D to claim it
ii)      Ex = homestead exemption that prevents seizure of property owned by D, used as principal residence, of certain amount.
iii)    Ex2: depository account in aggregate value of 1k are exempt (so D keeps 1st 1k)
b)      Must meet requirements of § to claim exemption
i)        Watch out to see if § is for individuals OR business entities! Joint creditors??
ii)      Location of judgment
iii)    Other § interp (used in biz of D, but biz closed now)
c)      Wage garnishment (fed 75%, other states higher protection)
d)      Policy = don’t want to “take everything” from D and leave him unable to conduct life/biz
 
3 – Secured Creditor Remedies
 
1)      Definitions
a)      Secured party defined in 9-102(a)(74)
i)        A person in whose factor a SI is created or provided for under SA…
ii)      person to which accounts, chattel paper, payment intangibles, or promissory notes have been sold
b)      Security agreement defined in 9-102(a)(73)
i)        An agreement that creates or provides for a security interest
c)      Liens are collection rights: charge against property or interest in property that secures obligation
i)        SI in secured lending arrangement are most common liens: mortgage; deeds of trust, art 9
ii)      SI = right to property contingent on nonpayment of a debt/default
(1)   Lender gets loan amount + interest + costs
(2)   Only has effect upon debtor default
d)      Security Interest defined in 1-201(b)(35)
i)        Interest in personal property/fixtures which secures payment or performance of an obligation.
ii)      Any interest of a buyer of accounts, chattel paper, payment intangible, or promissory note in transaction subject to Art. 9
e)      Default is not defined in the Code. Look to SA
i)        Insecurity of SC – must deal w/ D in good faith (Rev. 1-304)
2)      Art. 9 “intended as security doctrine” channels agmts back to Art. 9
a)      UCC may apply when neither party expects it to – look beyond terms to effect of agmt
b)      9-109(a) & cmt.2: Art. 9 applies to a transaction, regardless of its form, that creates SI in personal property or fixtures by K
i)        Apply definition of SI, SC
ii)      Do lease v. sale comparison below for personal property. Basile is RE.
iii)    Apply SC remedies upon default.
c)      Basile real property same rule: deed conveying real property will be considered a mortgage when instrument is executed as security for a debt
d)      Lease
i)        Lease generally transfers right to possession and use of goods, while sale pa

wants it: losses irreparable; hasn’t had day in court
c)      C wants b/c D no incentive to maintain property (destroy); let prospective buyers have access to it
d)      DNE transfer of ownership à SC right to take property from borrower for other objectives
2)      BUT repo can be difficult (hard to find collateral)
3)      Personal property
a)      RULE: 9-609 gives SC right to possess immediately on default as long as no breach of the peace
b)      Analysis
i)        Is there enforceable SA?
ii)      Is there enforceable SI WRT this collateral?
iii)    Has D defaulted?
iv)    Default triggers remedies (list them).
v)      Regarding possession, 9-609 is the main provision. There are essentially 2 options:
(1)   9-609 (possession upon default; will need later sale)
(a)    9-609(a)(1) says SC may take possession;
(b)   9-609(a)(2) says SC may render equipment unusable on D’s premises.
(c)    9-609(c) says parties can agree that D assemble & make collateral available at designated location that is convenient to both
(2)   See within 9-609, that parties can agree that SC takes possession on default
(a)    Whether court enforces depends on circs
(3)   If debtor resists possession, SP can get a court order (replevin). Sheriff takes possession from D and gives it to SC pending outcome of case (or commercially reasonable time)
(a)    9-609(b): SP may proceed pursuant to judicial process, which courts agree = replevin
(b)   Del’s Big Saver DP requires hearing OR pre-seizure procedural safeguards + prompt post-deprivation hearing.
vi)    Breach of peace analysis
(1)   9-609(b)(2) gives duty not to breach peace, but not defined.
(a)    Is NON-delegable protection for society, not individual
(2)   Can’t consent to breach of peace by K 9-602(6), but can establish right to enter
(a)    9-201 security agmt effective according to its terms b/w parties
(b)   But must be reasonable WRT entering. see 9-603(b)
(3)   Look to controlling jurisdiction for law
(a)    Factors:
(i)     potential for immediate violence (day v. night)
(ii)   nature of premises intruded upon (home more protection than biz)
(iii)Rd Torts “reasonableness” i.e., consent to enter by K
(iv)Notice to party whose property was entered
(v)   Whether LE officer used. See 9-609 cmt. 3 (not authorized)
(4)   Unresolved issues
(a)    Entering 3d party’s property – less offensive to D, but trespass?
(i)     Consent in K to enter may not extend to 3d parties
(b)   Specifics of property protections like fence, lock, guard
(5)   Actual confrontation – recommend leave. Can always come back.
(a)    Doesn’t matter who confronts (agent)
(b)   But repo CL indicates OK if confrontation after establish dominion
Liabilities for wrongful repo