Secured Transactions – Fall 2007
v Chapter 1 – Creating A Security Interest
Ø Why Secured Credit
§ Secured Transactions = extensions of credit
· Creditor retains a property interest in the assets of the debtor/buyer so that if the debtor defaults the creditor has access to the collateral in satisfaction of the debt.
· Encumbrance on property = lien
¨ Types of Liens
Ø Judicial Lien:
§ If you recover a money judgment against a debtor who owns real property in the county where you recover the judgment you get a judgment lien
§ Writ of execution – orders sheriff to seize the goods; creditor gets an execution lien
Ø Statutory Lien:
§ Federal Tax Lien
· Arises not by judicial process but because a statute says so.
§ State Statutory Lien:
· Automobile artisans for their work on your car
Ø Consensual/Contractual Lien:
§ Mortgages
§ Article nine builds upon the RP mortgage lien
· Contracts between debtors and secured parties
· Secured party by contract obtains a security interest in the asset of the debtor
· Contract for purchase of new car = conditional sales contract
¨ Obligation to pay for car is by contract
¨ Contract is secured by security interest in the car
§ Rights of Unsecured Creditors
· Problem with not having secured credit – An unsecured creditor has no right in the property
¨ Can only bring action on the note
· If unsecured creditor, procedure for enforcing judgment:
1. After a money judgment against buyer, enter judgment in the county where buyer is doing business
2. Seller goes to Clerk of Court and swears out a writ of execution, commanding Sheriff to seize assets
3. Proceeds of execution sale go to pay judgment
· State law awards priority to the 1st party to establish an interest in the property
¨ 1st to judgment has priority
§ Rights of Secured Creditors
· UCC
¨ §9-102(a) – Definitional provision of Article 9
¨ §1-201 – Definitions of terms for all UCC Articles
· When a seller enters into a S.A. with a buyer it creates a property right in favor of the creditor
¨ Debtor is allowed to favor one creditor over another by contract
¨ §9-609(a) – Upon default, a SP can immediately take possession of collateral
¨ §9-201(a) – S.A. is effective against the debtor, purchasers of the collateral and creditors
Ø The SP has rights against 3rd parties unless otherwise provided by the UCC
· If an unsecured creditor goes through the process of becoming a judicial lien creditor before a SP perfects its S.I., the unperfected S.I. will be subordinated
· What are the rights of a SP against a Lien Creditor?
¨ §9-102(a)(52) – Definition of Lien Creditor
¨ §9-317(a)(2) – Unperfected S.A. is subordinated to Lien Creditor
Ø A Seller (SP) will lost to a creditor is he doesn’t perfect before the creditor levies
¨ Lien Creditor only defeats S.I.s unperfected on the date of levy
· S.I.s are perfected by some form of notice to the world
¨ Most typical way: Seller files financing statement
Ø Secretary of State’s office in jurisdiction where debtor is located
· Steps to go through for each Article 9 Problem
1. Attachment — §9-203 and S.A. (the contract that creates the S.I.)
2. Perfection – Filing F.S.
3. Priority
4. Bankruptcy Code
esting crop
¨ Buyer entitled to retain fee – Crops were without value without harvesting
· Duggan – Providing feed was necessary to keep cattle alive
2. Conduct of Secured Party
· Mere acquiescence is not enough to trigger restitution
· Unsecured creditor must show that benefit conferred directly protected value of collateral and secured creditor did something to encourage unsecured transaction
· **Secured Creditors beat Unsecured Creditors**
· **§1-103 – Equity may affect problem under Article 9**
· What could the D have done?
¨ §2-702(2) – If Buyer purchases goods on credit while insolvent, Seller can reclaim goods
Ø Usually must do so within 10 days (Make demand)
¨ §2-702(3) – Right of reclamation under 702(2) is subject to rights of a good faith purchaser for value
¨ §1-201(32) and (33) – Who is a Purchaser under Article 9?
Ø Purchaser is anyone who acquires in a consensual transaction acquires an interest in personal property
§ S.I. under S.A. is a purchaser – The P’s right is cut of by the D
Ø Introduction to Article 9
Ø Attachment
§ The Security Agreement
· §9-203(b) – A S.I. attaches (becomes enforceable against the debtor) when:
¨ The SP gives value,
¨ The debtor has rights in the collateral; and
¨ One of the conditions of §9-203(b)(3) is met
