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Secured Transactions
University of Toledo School of Law
Bruce, Kara J.

 
Secured Transactions – Spring 2014 – Professor Kara Bruce – Book: RUSCH & SEPINUCK, SECURED TRANSACTIONS IN PERSONAL PROPERTY (2d Ed. 2010).
 
I.        Collecting Debts
a.        Creating Debt
                                      i.            Debt – an “in personam” obligation – The term “debt” means any obligation or alleged obligation of a consumer to pay money arising out of a transaction in which the money, property, insurance, or services which are the subject of the transaction are primarily for personal, family, or household purposes, whether or not such obligation has been reduced to judgment. (15 USC 1692(a)(5))
1.        Obligor – the debtor (DR)
2.        Oligee – the creditor (CR)
                                     ii.            Regulation of Ks that Create Debt
1.        Variety of rules
a.        Substantive rules of Ks
b.       State and fed laws
2.        Operation 
a.        Prohibit or regulate certain contractual terms
b.       Require disclosure of information regarding a debt obligation
c.        Limit the permissible considerations in deciding whether to make a loan or to grant or deny credit
3.        Examples
a.        Uniform Consumer Credit Code
                                                                                 i.            Adopted in part by several states
                                                                                ii.            Limits the amount of finance charges a CR may charge
                                                                              iii.            Prohibits some types of collection practices in consumer (CS) transactions (TA)
b.       Usury laws
                                                                                 i.            Both state and fed level
                                                                                ii.            Limit interest rate CRs may charge for certain TAs for certain borrowers
c.         FTC regulations
                                                                                 i.            Prohibits CRs in CS TAs from using a variety of unfair contractual devices
1.        Confessions of judgment
2.        Waivers of exception
3.        Wage assignments
4.        Non-purchase-money, non possessory security interests in some household goods
                                                                                ii.            Requires buyers (B) given 3 days to rescind purchase Ks in certain door-to-door TAs
                                                                              iii.            Tip of iceberg
4.        Truth in Lending Act (TLA) – Requires disclosure about cost of borrowing
a.        Interest rates
b.       Costs and fees
c.        Payment schedules
d.       Prepayment rates
5.        Consumer Leasing Act (CLA) – Similar to TLA but for CR leasing TAs
6.        Equal Credit Opportunity Act (ECOA) – Prohibits CR from discriminating against potential debtors
b.       Collecting Debts Nonjudicially
                                      i.            Basic Limits on Collection
1.        CR (store) cannot send EEs to retrieve goods not paid for
a.        Legally DR becomes owner  (USC § 2-401)
b.       Theft, larceny, trespass
c.        Likely different result if CR owned the goods
                                                                                 i.            Borrowed good
                                                                                ii.            Deemed to have license to access
                                     ii.            Collecting Debt Through Informal Methods
1.        Request payment (As process becomes more persistent = “dunning”)
a.        In person
b.       Phone
c.        Email
d.       Bill via postal service
2.        Threaten to report to credit agency
3.        Threaten to sue
4.        Sever ongoing relationship
5.        Setoff – Two people owe each other money
a.        Debts must both be:
                                                                                 i.            Mature – Due and owing
                                                                                ii.            Mutual – Owed in the same capacity
b.       CR has $2000 at Bank and owes Bank $10000 – offsets to $8000
c.        Sometimes additional statutory req may apply
                                   iii.            Fair Debt Collection
1.        Fair Debt Collection Practices Act (Mostly b/c of collection agencies)
a.        No more harassment
b.       No more scare tactics
c.        No using false names
2.        Civil liability for violations
a.        Actual damages
b.       Statutory punitive damages
c.        Costs
d.       Attorney’s fees
                                   iv.            Fair Credit Reporting
1.        Fair Credit Reporting Act (FCRA)
a.        Gives CSs access to their reports and scores
b.       Limits info included, prohibit disclosure in most bankruptcy filings more than 10 yrs old & judgments or delinquent accounts more than 7 yrs old
c.        Provides CSs w/ process to dispute & correct info
d.       Requires provided to take responsibility for accuracy
e.        Limits dissemination of reports, mostly to current & prospective CRs & ERs of CS
2.        Credit Reports Used for:
a.        Lending
b.       Jobs
c.        Leases
d.       Debt Collection
                                     v.            Tort Law
1.        CR or agent:
a.        Negligent
b.       Defamation
c.        Abuse of process
d.       Malicious prosecution
e.        Several other intentional torts – invasion of privacy, IED
c.        Collecting Debts Judicially
                                      i.            Obtaining and Enforcing Judgments
1.        Judgment = Piece of paper stating DR owes CR specified amount of $$$
a.        Quick & Easy = Bring suit, serve, ∆ never responds, default judgment after 20-30 days waiting
                                                                                 i.            Acceleration Clause – In K, says if payment missed then full amount due & can bring suit
b.       Long & Expensive = ∆ hard to locate or serve, or ∆ raises defenses & litigates
2.        Confessions of Judgment
a.        Clause in K w/ DR
b.       Obtains judgment w/o notice or hearing
c.        Some CS protection laws prohibit or highly regulate
3.        Process After Entry of Judgment
a.        Except for rare instances, no contempt for nonpayment
b.       Executing judgment (Varies from state to state)
                                                                                 i.            Finding DR’s assets (Deposition or even Private Investigator)
1.        Real prop
2.        Tangible personal prop (boats, cars, jewelry)
3.        Intangible rights (bank account, payment from employment
                                                                                ii.            Judgment Liens and Execution Process
1.        Obtain a lien
a.        Lien
                                                                                                                            i.            Type of prop right that makes prop liable for a debt
                                                                                                                           ii.            Adds “in rem” liability of the prop to the in personam liability of DR
b.       Some states CR files Notice of Judgment to obtain lien
c.        Most states CR must obtain “writ of execution,” then sheriff must levy prop (seize for sale)
2.        Foreclose – Sell the prop and extract value
a.        CR can buy at auction sale on credit of debt owed, then sell in usual market
b.       Can keep seizing prop until full debt satisfied
3.        Writ of Garnishment – For wages and other intangible rights
                                                                              iii.            Time Limits on Execution
1.        CL – A year and a day, then “dormant” & must bring action to “revive” judgment
2.        Many states now regulate by statute (SoL), ie 3 years after entry of judgment
a.        After SoL, unenforceable unless new action brought before end of SoL
                                                                              iv.            Post-Sale Redemption
1.        Up until moment of sale, DR has CL right to “redeem” prop by paying full amount
2.        Some states have statutory post-sale rights where DR pays sale price w/in certain time after sale
                                                                                v.            Enforcement Across State Lines
1.        Two methods for “transferring” prop:
a.        Start action in 2nd state from 1st state
                                                                                                                            i.            Full faith and credit clause in US Constitution
                                                                                                                           ii.            Must give full faith and credit to valid judgment
                                                                                                                         iii.            Use 2nd state’s process for executing
b.       Use the Uniform Enforcement of Foreign Judgments Acts (46 states, DC, PR, VI)
                                                                                                                            i.            Summary process for registering judgment
                                                                                                                           ii.            Use 2nd state’s process for executing
4.        Fraudulent Transfers – DR transfers prop to family member, etc, to avoid collection
a.        Fraudulent Conveyance in CL
b.       Uniform Fraudulent Transfer Act  (UFTA) – 41 states, DC & 3 states w/ predecessor Act
                                                                                 i.            Cannot give gifts of their assets either while insolvent (college student w/ loans at xmas)
                                     ii.            Pre-Judgment Remedies
1.        Two types:
a.        Attachment
                                                                                 i.            Clerk issues writ of attachment
                                                                                ii.            Sheriff levy, but not immediately sold
b.       Garnishment – Works same as post, but payment goes to court
2.        Many states CR must demo some sort of exigency to obtain
                                   iii.            Exemptions
1.        Public Policy (provides incentive to continue being contributing members of society)
a.        Clothes for work and tools of the trade
b.       Future wages (retirement funds and disability payments)
2.        Items of Nominal Value (used clothes, household items, photographs)
3.        Item

nt, but Sections 9-315 and 9-322 apply with respect to proceeds and priorities in proceeds
c.        (9) an assignment of a right represented by a judgment, other than a judgment taken on a right to payment that was collateral
d.       (12) an assignment of a claim arising in tort, other than a commercial tort claim, but Sections 9-315 and 9-322 apply with respect to proceeds and priorities in proceeds
e.        (13) an assignment of a deposit account in a consumer transaction, but Sections 9-315 and 9-322 apply with respect to proceeds and priorities in proceeds.
4.        Art 9 tells how to create SI; process called “attachment” (§ 9-203)
a.        Once a SI attaches to collateral, the CR may enforce the SI against the collateral
b.       Enforcement processes to collect
c.        Rules governing perfection and priority of a SI
                                                                                 i.            Perfection refers to step CR must take to give public notice of its SI
                                                                                ii.            Art 9 creates recording systems for PP
1.        Financial statement filed with appropriate state office
a.        Document identifying DR, CR, and collateral
d.       Attachment is the time when the SI becomes enforceable against the DR; Perfection is the time when it becomes enforceable against most of the rest of the world, & it requires attachment plus, in most cases, some form of notice of the secured party’s interest (§ 9-308)
                                     ii.            Three Requirements for Attachment of a SI (§ 9-203(b))
1.        Must be a security agreement that meets certain criteria
2.        Value must be given
3.        DR must have rights in the collateral OR the power to transfer such rights to the secured party
                                   iii.            Security Agreement (SA) (§ 9-203(b)(3))
1.        (A) SoF
a.        DR has authenticated a SA; and
                                                                                 i.            Agreement must be either in writing, inscribed on some other tangible medium, or stored in a n electronic format but nevertheless retrievable in a perceivable form (§ 9-102)(a)(7) – defining “authenticate”)
                                                                                ii.            Is a contract and subject to contract pdoctrines (fraud, duress, capacity)
b.       SA describes the collateral
                                                                                 i.            Collateral Classifications (Collateral = indication of prop that serves as security for the obligation owed to the secured party)
1.        Tangible – has mass; constitutes as a “good”
a.        Mutually Exclusive Categories
                                                                                                                            i.            Consumer Goods (§ 9-102(a)(23)) – goods that are used or bought for use primarily for personal, family, or household purposes.
                                                                                                                           ii.            Equipment (§ 9-102(a)(33) – goods other than inventory, farm products, or consumer goods.
                                                                                                                         iii.            Farm Products (§ 9-102(a)(34) – goods, other than standing timber, with respect to which the debtor is engaged in a farming operation and which are:
(A) crops grown, growing, or to be grown, including:
(i) crops produced on trees, vines, and bushes; and
(ii) aquatic goods produced in aquacultural operations;
(B) livestock, born or unborn, including aquatic goods produced in aquacultural operations;
(C) supplies used or produced in a farming operation; or
(D) products of crops or livestock in their unmanufactured states.
                                                                                                                         iv.            Inventory (§ 9-102(a)(48) – goods, other than farm products, which:
(A) are leased by a person as lessor;
(B) are held by a person for sale or lease or to be furnished under a contract of service;
(C) are furnished by a person under a contract of service; or
(D) consist of raw materials, work in process, or materials used or consumed in a business.