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Secured Transactions Assignment 12

Secured Transactions Assignment 12. The Legal Limits on What May Be Collateral. The Big Picture. Chapters 1and 2. Creditors’ Remedies Chapter 3. Creation of Security Interests Assignment 8: Formalities for Attachment Assignment 9: What Collateral and Obligations are Covered?

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Secured Transactions Assignment 12

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  1. Secured TransactionsAssignment 12 The Legal Limits on What May Be Collateral

  2. The Big Picture Chapters 1and 2. Creditors’ Remedies Chapter 3. Creation of Security Interests Assignment 8: Formalities for Attachment Assignment 9: What Collateral and Obligations are Covered? Assignment 10: Proceeds (State Law) Assignment 11: Proceeds (Bankruptcy) Assignment 12: The Limits on What May Be Collateral

  3. Basic Concepts • Other Law Restrictions (FTC and Bankruptcy Code) • UCC Restrictions “Property)

  4. Basic Concepts: §522(f) lien avoidance

  5. Basic Concepts: §522(f) lien avoidance Purchase money security interest (PMSI). §9-103(a) and (b). A security interest that secures: 1. Payment of the purchase price, or 2. An advance made to pay the purchase price if so used. Possessory security interest. The security interest of a secured party who is in possession of the collateral. Lien avoidance. A judicial process that voids a lien, rendering the obligation unsecured §522(f) lien avoidance. Debtor’s right to avoid (A) a judicial lien in any property or (B) a nonpurchase money nonpossessory security interest in certain consumer goods if the lien impairs an exemption.

  6. Basic Concepts: §522(f) lien avoidance Purchase money security interest (PMSI). §9-103(a) and (b). A security interest that secures: 1. Payment of the purchase price, or 2. An advance made to pay the purchase price if so used. Possessory security interest. The security interest of a secured party who is in possession of the collateral. Lien avoidance. A judicial process that voids a lien, rendering the obligation unsecured §522(f) lien avoidance. Debtor’s right to avoid (A) a judicial lien in any property or (B) a nonpurchase money nonpossessory security interest in certain consumer goods if the lien impairs an exemption.

  7. Basic Concepts: §522(f) lien avoidance Purchase money security interest (PMSI). §9-103(a) and (b). A security interest that secures: 1. Payment of the purchase price, or 2. An advance made to pay the purchase price if so used. Possessory security interest. The security interest of a secured party who is in possession of the collateral. Lien avoidance. A judicial process that voids a lien, rendering the obligation unsecured §522(f) lien avoidance. Debtor’s right to avoid (A) a judicial lien in any property or (B) a nonpurchase money nonpossessory security interest in certain consumer goods if the lien impairs an exemption.

  8. Basic Concepts: §522(f) lien avoidance Purchase money security interest (PMSI). §9-103(a) and (b). A security interest that secures: 1. Payment of the purchase price, or 2. An advance made to pay the purchase price if so used. Possessory security interest. The security interest of a secured party who is in possession of the collateral. Lien avoidance. A judicial process that voids a lien, rendering the obligation unsecured §522(f) lien avoidance. Debtor’s right to avoid (A) a judicial lien in any property or (B) a nonpurchase money nonpossessory security interest in certain consumer goods if the lien impairs an exemption.

  9. Basic Concepts: §522(f) lien avoidance Purchase money security interest (PMSI). §9-103(a) and (b). A security interest that secures: 1. Payment of the purchase price, or 2. An advance made to pay the purchase price if so used. Possessory security interest. The security interest of a secured party who is in possession of the collateral. Lien avoidance. A judicial process that voids a lien, rendering the obligation unsecured §522(f) lien avoidance. Debtor’s right to avoid (A) a judicial lien in any property or (B) a nonpurchase money nonpossessory security interest in certain consumer goods if the lien impairs an exemption.

  10. Basic Concepts: §522(f) lien avoidance Purchase money security interest (PMSI). §9-103(a) and (b). A security interest that secures: 1. Payment of the purchase price, or 2. An advance made to pay the purchase price if so used. Possessory security interest. The security interest of a secured party who is in possession of the collateral. Lien avoidance. A judicial process that voids a lien, rendering the obligation unsecured §522(f) lien avoidance. Debtor’s right to avoid (A) a judicial lien in any propertyor (B) a nonpurchase money nonpossessory security interest in certain consumer goods if the lien impairs an exemption.

  11. Basic Concepts: §522(f) lien avoidance Purchase money security interest (PMSI). §9-103(a) and (b). A security interest that secures: 1. Payment of the purchase price, or 2. An advance made to pay the purchase price if so used. Possessory security interest. The security interest of a secured party who is in possession of the collateral. Lien avoidance. A judicial process that voids a lien, rendering the obligation unsecured §522(f) lien avoidance. Debtor’s right to avoid (A) a judicial lien in any property or (B) a nonpurchase money, nonpossessory security interest in certain consumer goods if the lien impairs an exemption.

  12. Basic Concepts: §522(f) lien avoidance Purchase money security interest (PMSI). §9-103(a) and (b). A security interest that secures: 1. Payment of the purchase price, or 2. An advance made to pay the purchase price if so used. Possessory security interest. The security interest of a secured party who is in possession of the collateral. Lien avoidance. A judicial process that voids a lien, rendering the obligation unsecured §522(f) lien avoidance. Debtor’s right to avoid (A) a judicial lien in any property or (B) a nonpurchase money, nonpossessory security interest in certain consumer goods if the lien impairs an exemption.

  13. Basic Concepts: §522(f) lien avoidance When does a lien “impair an exemption?”

  14. Basic Concepts: §522(f) lien avoidance When does a lien “impair an exemption?” “To the extent that the sum of the lien, all other liens on the property, and the amount of the exemption . . . exceeds the value of the property.” §522(f)(2)(A).

  15. Basic Concepts: §522(f) lien avoidance When does a lien “impair an exemption?” “To the extent that the sum of the lien, all other liens on the property, and the amount of the exemption . . . exceeds the value of the property.” §522(f)(2)(A). Illustration:

  16. Basic Concepts: §522(f) lien avoidance When does a lien “impair an exemption?” “To the extent that the sum of the lien, all other liens on the property, and the amount of the exemption . . . exceeds the value of the property.” §522(f)(2)(A). • Illustration: • The debtor owes $70K on a first mortgage 100 70 Mortgage

  17. Basic Concepts: §522(f) lien avoidance When does a lien “impair an exemption?” “To the extent that the sum of the lien, all other liens on the property, and the amount of the exemption . . . exceeds the value of the property.” §522(f)(2)(A). • Illustration: • The debtor owes $70K on a first mortgage • State law gives debtor a $25K “homestead” exemption 100 25 Exemption 70 Mortgage

  18. Basic Concepts: §522(f) lien avoidance When does a lien “impair an exemption?” “To the extent that the sum of the lien, all other liens on the property, and the amount of the exemption . . . exceeds the value of the property.” §522(f)(2)(A). • Illustration: • The debtor owes $70K on a first mortgage • State law gives debtor a $25K “homestead” exemption • Unsecured creditor levies on a $50K judgment 50 Judicial lien 100 25 Exemption 70 Mortgage

  19. Basic Concepts: §522(f) lien avoidance When does a lien “impair an exemption?” “To the extent that the sum of the lien, all other liens on the property, and the amount of the exemption [$145K] exceeds the value of the property [$100K].” §522(f)(2)(A). • Illustration: • The debtor owes $70K on a first mortgage • State law gives debtor a $25K “homestead” exemption • Unsecured creditor levies on a $50K judgment • The $50K lien impairs an exemption to the extent of $45K. 50 Judicial lien 100 25 Exemption 70 Mortgage

  20. Basic Concepts: §522(f) lien avoidance When does a lien “impair an exemption?” “To the extent that the sum of the lien, all other liens on the property, and the amount of the exemption [$145K] exceeds the value of the property [$100K].” §522(f)(2)(A). • Illustration: • The debtor owes $70K on a first mortgage • State law gives debtor a $25K “homestead” exemption • Unsecured creditor levies on a $50K judgment • The $50K lien impairs an exemption to the extent of $45K. 50 Judicial lien 100 25 Exemption 70 Mortgage

  21. Basic Concepts Assignment of wages. The grant of a security interest in future personal earnings.

  22. Basic Concepts Assignment of wages. The grant of a security interest in future personal earnings. Example: Credit Union lends Debtor $20k to buy a car. Debtor signs an “irrevocable” instruction to Employer to deduct $400 a month from Debtor’s paycheck and pay it to Credit Union against the loan.

  23. Basic Concepts Assignment of wages. The grant of a security interest in future personal earnings. Example: Credit Union lends Debtor $20k to buy a car. Debtor signs an “irrevocable” instruction to Employer to deduct $400 a month from Debtor’s paycheck and pay it to Credit Union against the loan. Against public policy in most states. Void in bankruptcy in all states.

  24. Basic Concepts UCC 9-408 • (a) [A] term in [certain contracts and licenses] which prohibits, restricts or requires the consent . . . to the assignment. . . is ineffective [to the extent of preventing a security interest in it.] • (c) A rule of law, statute or regulation that prohibits, restricts or requires the consent [of the government] to the creation of a security interest in [contracts and licenses] is ineffective [to prevent a security interest].

  25. Basic Concepts: But Only“property” can be collateral Collateral means the property subject to a security interest. §9-102(a)(12). Security interest. An interest in personal property or fixtures which secures payment or performance of an obligation. §1-201(37). §9-109(a). [T]his article applies to a transaction . . . That creates a security interest in personal property or fixtures . . . 9-102(a)(42). “General intangible” means any property . . . Personal property. Property that is not real property. Property. The right to exclude others. A right of ownership. Whatever the law says is “property.”

  26. Security interests in Non-property Secured party Debtor grants a security interest in “inventory.” Debtor has no inventory, so the security interest does not attach. Seller sells an item of inventory to debtor. The security interest attaches. The security interest cannot attach after bankruptcy. §552(a). SI in “inventory” Debtor

  27. Security interests in Non-property Secured party Debtor grants a security interest in “inventory.” Debtor has no inventory, so the security interest does not attach. Seller sells an item of inventory to debtor. The debtor has “rights in the collateral” and the security interest attaches. The security interest cannot attach after bankruptcy. §552(a). SI in “inventory” Seller Debtor inventory

  28. Security interests in Non-property Secured party Debtor grants a security interest in “inventory.” Debtor has no inventory, so the security interest does not attach. Seller sells an item of inventory to debtor. The debtor has “rights in the collateral” and the security interest attaches. The security interest cannot attach after bankruptcy. §552(a). SI in “inventory” Seller Debtor inventory

  29. Security interests in Non-property Secured party Debtor grants a security interest in (non-property) “license.”The security interest does not attach to the license. It does attach to the debtor’s right to proceeds from future sale. Debtor sells the license to buyer. The “bounty” received is proceeds of the debtor’s right to proceeds. §552(b). SI in non-property license Seller Debtor non-property license

  30. Security interests in Non-property Secured party Debtor grants a security interest in (non-property) “license.” The security interest does not attach to the license.It does attach to the debtor’s right to proceeds from future sale. Debtor sells the license to buyer. The “bounty” received is proceeds of the debtor’s right to proceeds. §552(b). SI in non-property license Seller Debtor non-property license

  31. Security interests in Non-property Secured party Debtor grants a security interest in (non-property) “license.” The security interest does not attach to the license. It does attach to the debtor’s right to proceeds from future sale. Debtor sells the license to buyer. The “bounty” received is proceeds of the debtor’s right to proceeds. §552(b). SI in non-property license Seller Debtor non-property license

  32. Security interests in Non-property Secured party Debtor grants a security interest in (non-property) “license.” The security interest does not attach to the license. It does attach to the debtor’s right to proceeds from future sale. Debtor sells the license to buyer. The “bounty” received is proceeds of the debtor’s right to proceeds. §552(b). SI in non-property license “bounty” Seller Debtor Debtor non-property license non-property license

  33. Problem 12.1, page 215 Can Bank get a security interest in this collateral? How should the security agreement describe it?

  34. Problem 12.1, page 215 • Can Bank get a security interest in this collateral? How should the security agreement describe it? • a. Electronic equipment used in broadcasting.

  35. Problem 12.1, page 215 • Can Bank get a security interest in this collateral? How should the security agreement describe it? • a. Electronic equipment used in broadcasting. Yes. “Debtor’s electronic equipment.”

  36. Problem 12.1, page 215 Can Bank get a security interest in this collateral? How should the security agreement describe it? a. Electronic equipment used in broadcasting. Yes. “Debtor’s electronic equipment.” b. “Peacock” logo.

  37. Problem 12.1, page 215 • Can Bank get a security interest in this collateral? How should the security agreement describe it? • a. Electronic equipment used in broadcasting. Yes. “Debtor’s electronic equipment.” • b. “Peacock” logo. Yes. “Debtor’s trademarks and artwork.”

  38. Problem 12.1, page 215 • Can Bank get a security interest in this collateral? How should the security agreement describe it? • a. Electronic equipment used in broadcasting. Yes. “Debtor’s electronic equipment.” • b. “Peacock” logo. Yes. “Debtor’s trademarks and artwork.” • Broadcast license.

  39. Problem 12.1, page 215 • Can Bank get a security interest in this collateral? How should the security agreement describe it? • a. Electronic equipment used in broadcasting. Yes. “Debtor’s electronic equipment.” • b. “Peacock” logo. Yes. “Debtor’s trademarks and artwork.” • Broadcast license. Maybe. “Debtor’s broadcast license” or “general intangibles” may give Bank right to proceeds of sale.

  40. Problem 12.1, page 215 • Can Bank get a security interest in this collateral? How should the security agreement describe it? • a. Electronic equipment used in broadcasting. Yes. “Debtor’s electronic equipment.” • b. “Peacock” logo. Yes. “Debtor’s trademarks and artwork.” • Broadcast license. Maybe. “Debtor’s broadcast license” or “general intangibles” may give Bank right to proceeds of sale. • Reputation for accurate news reporting.

  41. Problem 12.1, page 215 • Can Bank get a security interest in this collateral? How should the security agreement describe it? • a. Electronic equipment used in broadcasting. Yes. “Debtor’s electronic equipment.” • b. “Peacock” logo. Yes. “Debtor’s trademarks and artwork.” • Broadcast license. Maybe. “Debtor’s broadcast license” or “general intangibles” may give Bank right to proceeds of sale. • Reputation for accurate news reporting. No. Not “property.”

  42. Problem 12.1, page 215 • Can Bank get a security interest in this collateral? How should the security agreement describe it? • a. Electronic equipment used in broadcasting. Yes. “Debtor’s electronic equipment.” • b. “Peacock” logo. Yes. “Debtor’s trademarks and artwork.” • Broadcast license. Maybe. “Debtor’s broadcast license” or “general intangibles” may give Bank right to proceeds of sale. • Reputation for accurate news reporting. No. Not “property.” • Action for slander of that reputation.

  43. Problem 12.1, page 215 • Can Bank get a security interest in this collateral? How should the security agreement describe it? • a. Electronic equipment used in broadcasting. Yes. “Debtor’s electronic equipment.” • b. “Peacock” logo. Yes. “Debtor’s trademarks and artwork.” • Broadcast license. Maybe. “Debtor’s broadcast license” or “general intangibles” may give Bank right to proceeds of sale. • Reputation for accurate news reporting. No. Not “property.” • Action for slander of that reputation. Yes. “Debtor’s cause of action against [employees] for slander.” (Not “commercial tort claim.”) §9-108(e)(1).

  44. Problem 12.1, page 215 • Can Bank get a security interest in this collateral? How should the security agreement describe it? • a. Electronic equipment used in broadcasting. Yes. “Debtor’s electronic equipment.” • b. “Peacock” logo. Yes. “Debtor’s trademarks and artwork.” • Broadcast license. Maybe. “Debtor’s broadcast license” or “general intangibles” may give Bank right to proceeds of sale. • Reputation for accurate news reporting. No. Not “property.” • Action for slander of that reputation. Yes. “Debtor’s cause of action against [employees] for slander.” (Not “commercial tort claim.”) §9-108(e)(1). • Future advertising revenues.

  45. Problem 12.1, page 215 • Can Bank get a security interest in this collateral? How should the security agreement describe it? • a. Electronic equipment used in broadcasting. Yes. “Debtor’s electronic equipment.” • b. “Peacock” logo. Yes. “Debtor’s trademarks and artwork.” • Broadcast license. Maybe. “Debtor’s broadcast license” or “general intangibles” may give Bank right to proceeds of sale. • Reputation for accurate news reporting. No. Not “property.” • Action for slander of that reputation. Yes. “Debtor’s cause of action against [employees] for slander.” (Not “commercial tort claim.”) §9-108(e)(1). • Future advertising revenues. Yes. “Debtor’s accounts; payment intangibles and deposit accounts”.”

  46. Problem 12.2, page 215 • How does Bank realize on this collateral in a Chapter 7 case? • a. Electronic equipment. • b. Trademarks and artwork. • c. Broadcast license and general intangibles. • d. Cause of action against [employees] for slander. • e. Accounts.

  47. Problem 12.2, page 215 • How does Bank realize on this collateral in a Chapter 7 case? • a. Electronic equipment. • b. Trademarks and artwork. • c. Broadcast license and general intangibles. • d. Cause of action against [employees] for slander. • e. Accounts. • What happens if we lift the stay and foreclose?

  48. Problem 12.2, page 215 • How does Bank realize on this collateral in a Chapter 7 case? • a. Electronic equipment. • b. Trademarks and artwork. • c. Broadcast license and general intangibles. • d. Cause of action against [employees] for slander. • e. Accounts. • What happens if we lift the stay and foreclose? • Business may close. FCC license is revoked.

  49. Problem 12.2, page 215 • How does Bank realize on this collateral in a Chapter 7 case? • a. Electronic equipment. • b. Trademarks and artwork. • c. Broadcast license and general intangibles. • d. Cause of action against [employees] for slander. • e. Accounts. • What happens if we lift the stay and foreclose? • Business may close. FCC license is revoked. • Can we move to lift stay on license?

  50. Problem 12.2, page 215 • How does Bank realize on this collateral in a Chapter 7 case? • a. Electronic equipment. • b. Trademarks and artwork. • c. Broadcast license and general intangibles. • d. Cause of action against [employees] for slander. • e. Accounts. • What happens if we lift the stay and foreclose? • Business may close. FCC license is revoked. • Can we move to lift stay on license? § 362(d)(1) and (d)(2) specifically contemplate the subject of the motion will be “property.”

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