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Secured Transactions Assignment 12 The Legal Limits on What May Be Collateral.

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Presentation on theme: "Secured Transactions Assignment 12 The Legal Limits on What May Be Collateral."— Presentation transcript:

1 Secured Transactions Assignment 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 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. Debtors 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. Basic Concepts: §522(f) lien avoidance

6 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. Debtors 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. Basic Concepts: §522(f) lien avoidance

7 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. Debtors 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. Basic Concepts: §522(f) lien avoidance

8 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. Debtors 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. Basic Concepts: §522(f) lien avoidance

9 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. Debtors 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. Basic Concepts: §522(f) lien avoidance

10 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. Debtors 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. Basic Concepts: §522(f) lien avoidance

11 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. Debtors 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. Basic Concepts: §522(f) lien avoidance

12 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. Debtors 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. Basic Concepts: §522(f) lien avoidance

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

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

15 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: Basic Concepts: §522(f) lien avoidance

16 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: 1.The debtor owes $70K on a first mortgage Mortgage Basic Concepts: §522(f) lien avoidance

17 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: 1.The debtor owes $70K on a first mortgage 2.State law gives debtor a $25K homestead exemption Mortgage Exemption Basic Concepts: §522(f) lien avoidance

18 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: 1.The debtor owes $70K on a first mortgage 2.State law gives debtor a $25K homestead exemption 3.Unsecured creditor levies on a $50K judgment Mortgage Exemption Judicial lien Basic Concepts: §522(f) lien avoidance

19 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: 1.The debtor owes $70K on a first mortgage 2.State law gives debtor a $25K homestead exemption 3.Unsecured creditor levies on a $50K judgment The $50K lien impairs an exemption to the extent of $45K. Mortgage Exemption Judicial lien Basic Concepts: §522(f) lien avoidance

20 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: 1.The debtor owes $70K on a first mortgage 2.State law gives debtor a $25K homestead exemption 3.Unsecured creditor levies on a $50K judgment The $50K lien impairs an exemption to the extent of $45K. Mortgage Exemption Judicial lien Basic Concepts: §522(f) lien avoidance 50

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

22 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 Debtors paycheck and pay it to Credit Union against the loan. Basic Concepts

23 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 Debtors paycheck and pay it to Credit Union against the loan. Against public policy in most states. Void in bankruptcy in all states. Basic Concepts

24 UCC (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 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 (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. Basic Concepts: But Only property can be collateral

26 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). Security interests in Non-property Secured party Debtor SI in inventory

27 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). Security interests in Non-property Secured party DebtorSeller SI in inventory

28 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). Security interests in Non-property Secured party DebtorSeller SI in inventory

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

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

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

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

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. Debtors 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. Debtors 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. Debtors electronic equipment. b.Peacock logo. Yes. Debtors 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. Debtors electronic equipment. b.Peacock logo. Yes. Debtors trademarks and artwork. c.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. Debtors electronic equipment. b.Peacock logo. Yes. Debtors trademarks and artwork. c.Broadcast license. Maybe. Debtors 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. Debtors electronic equipment. b.Peacock logo. Yes. Debtors trademarks and artwork. c.Broadcast license. Maybe. Debtors broadcast license or general intangibles may give Bank right to proceeds of sale. d.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. Debtors electronic equipment. b.Peacock logo. Yes. Debtors trademarks and artwork. c.Broadcast license. Maybe. Debtors broadcast license or general intangibles may give Bank right to proceeds of sale. d.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. Debtors electronic equipment. b.Peacock logo. Yes. Debtors trademarks and artwork. c.Broadcast license. Maybe. Debtors broadcast license or general intangibles may give Bank right to proceeds of sale. d.Reputation for accurate news reporting. No. Not property. e.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. Debtors electronic equipment. b.Peacock logo. Yes. Debtors trademarks and artwork. c.Broadcast license. Maybe. Debtors broadcast license or general intangibles may give Bank right to proceeds of sale. d.Reputation for accurate news reporting. No. Not property. e.Action for slander of that reputation. Yes. Debtors 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. Debtors electronic equipment. b.Peacock logo. Yes. Debtors trademarks and artwork. c.Broadcast license. Maybe. Debtors broadcast license or general intangibles may give Bank right to proceeds of sale. d.Reputation for accurate news reporting. No. Not property. e.Action for slander of that reputation. Yes. Debtors cause of action against [employees] for slander. (Not commercial tort claim.) §9-108(e)(1). f.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. Debtors electronic equipment. b.Peacock logo. Yes. Debtors trademarks and artwork. c.Broadcast license. Maybe. Debtors broadcast license or general intangibles may give Bank right to proceeds of sale. d.Reputation for accurate news reporting. No. Not property. e.Action for slander of that reputation. Yes. Debtors cause of action against [employees] for slander. (Not commercial tort claim.) §9-108(e)(1). f.Future advertising revenues. Yes. Debtors 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.

51 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. What can we do?

52 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. What can we do? Get the trustee to sell the business as a whole and argue over proceeds attributable to license.

53 Problem 12.3, page 215 Bank of Friend wants to take a security interest in Harrys Bar. State law says a liquor license is not property, cant be sold.

54 Problem 12.3, page 215 Bank of Friend wants to take a security interest in Harrys Bar. State law says a liquor license is not property, cant be sold. a.What should Bank take as security?

55 Problem 12.3, page 215 Bank of Friend wants to take a security interest in Harrys Bar. State law says a liquor license is not property, cant be sold. a.What should Bank take as security? Furniture, trademarks, tradenames, inventory, fixtures, leasehold, general intangibles, and liquor license.

56 Problem 12.3, page 215 Bank of Friend wants to take a security interest in Harrys Bar. State law says a liquor license is not property, cant be sold. a.What should Bank take as security? Furniture, trademarks, tradenames, inventory, fixtures, leasehold, general intangibles, and liquor license. b.What can Bank do if the debtor does not repay?

57 Problem 12.3, page 215 Bank of Friend wants to take a security interest in Harrys Bar. State law say`s a liquor license is not property, cant be sold. a.What should Bank take as security? Furniture, trademarks, tradenames, inventory, fixtures, leasehold, general intangibles, and liquor license. b.What can Bank do if the debtor does not repay? Foreclose on the collateral, buy in at the sale, and apply for a liquor license. (State will probably deny application.)

58 Problem 12.3, page 215 Bank of Friend wants to take a security interest in Harrys Bar. State law says a liquor license is not property, cant be sold. a.What should Bank take as security? Furniture, trademarks, tradenames, inventory, fixtures, leasehold, general intangibles, and liquor license. b.What can Bank do if the debtor does not repay? Foreclose on the collateral, buy in at the sale, and apply for a liquor license. (State will probably deny application.) Bankruptcy?

59 Problem 12.3, page 215 Bank of Friend wants to take a security interest in Harrys Bar. State law says a liquor license is not property, cant be sold. a.What should Bank take as security? Furniture, trademarks, tradenames, inventory, fixtures, leasehold, general intangibles, and liquor license. b.What can Bank do if the debtor does not repay? Foreclose on the collateral, buy in at the sale, and apply for a liquor license. (State will probably deny application.) Bankruptcy? c.Any advantage in requiring Harrys bar to incorporate?

60 Problem 2.5 Bank Loan Mortgage Mashimotos new idea: We also take a security interest in the stock, foreclose against that. Security interest in the stock 100% ownership (stock) Corporate borrower Share- holder

61 Problem 12.3, page 215 Bank of Friend wants to take a security interest in Harrys Bar. State law says a liquor license is not property, cant be sold. a.What should Bank take as security? Furniture, trademarks, tradenames, inventory, fixtures, leasehold, general intangibles, and liquor license. b.What can Bank do if the debtor does not repay? Foreclose on the collateral, buy in at the sale, and apply for a liquor license. (State will probably deny application.) Bankruptcy? c.Any advantage in requiring Harrys bar to incorporate? Bank can foreclose on the stock and apply to substitute new management on the license/change of control.

62 Problem 12.3, page 215 Bank of Friend wants to take a security interest in Harrys Bar. State law says a liquor license is not property, cant be sold. a.What should Bank take as security? Furniture, fixtures, leasehold, general intangibles, and liquor license. b.What can Bank do if the debtor does not repay? Foreclose on the collateral, buy in at the sale, and apply for a liquor license. (State will probably deny application.) Bankruptcy? c.Any advantage in requiring Harrys bar to incorporate? Bank can foreclose on the stock and apply to substitute new management on the license. State will probably grant application because there has been no sale of the license, just a change of management/control.

63 Problem 12.4, page 215 You represent Desmond seeking settlement with Takki.

64 Problem 12.4, page 215 You represent Desmond seeking settlement with Takki. Your old law school classmate, Martin Short, represents Takki

65 Problem 12.4, page 215 You represent Desmond seeking settlement with Takki. Your old law school classmate, Martin Short, represents Takki Short offers to accept a SI in Desmonds ERISA pension rights.

66 Problem 12.4, page 215 You represent Desmond seeking settlement with Takki. Your old law school classmate, Martin Short, represents Takki Short offers to accept a SI in Desmonds ERISA pension rights. a.If we make the deal, what is the effect?

67 Problem 12.4, page 215 You represent Desmond seeking settlement with Takki. Your old law school classmate, Martin Short, represents Takki Short offers to accept a SI in Desmonds ERISA pension rights. a.If we make the deal, what is the effect? The SI is invalid. Takki cant reach the pension funds.

68 Problem 12.4, page 215 You represent Desmond seeking settlement with Takki. Your old law school classmate, Martin Short, represents Takki Short offers to accept a SI in Desmonds ERISA pension rights. a.If we make the deal, what is the effect? The SI is invalid. Takki cant reach the pension funds. b.Ethical problem?

69 Problem 12.4, page 215 You represent Desmond seeking settlement with Takki. Your old law school classmate, Martin Short, represents Takki Short offers to accept a SI in Desmonds ERISA pension rights. a.If we make the deal, what is the effect? The SI is invalid. Takki cant reach the pension funds. b.Ethical problem? Rule 8.4. It is professional misconduct for a lawyer to... engage in conduct involving dishonesty, fraud, deceit or misrepresentation.

70 Problem 12.4, page 215 You represent Desmond seeking settlement with Takki. Your old law school classmate, Martin Short, represents Takki Short offers to accept a SI in Desmonds ERISA pension rights. a.If we make the deal, what is the effect? The SI is invalid. Takki cant reach the pension funds. b.Ethical problem? Rule 8.4. It is professional misconduct for a lawyer to... engage in conduct involving dishonesty, fraud, deceit or misrepresentation. But Takki is deceiving itself.

71 Problem 12.4, page 215 You represent Desmond seeking settlement with Takki. Your old law school classmate, Martin Short, represents Takki Short offers to accept a SI in Desmonds ERISA pension rights. a.If we make the deal, what is the effect? The SI is invalid. Takki cant reach the pension funds. b.Ethical problem? Rule 8.4. It is professional misconduct for a lawyer to... engage in conduct involving dishonesty, fraud, deceit or misrepresentation. But Takki is deceiving itself. Rule 1.4(b). A lawyer shall explain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation.

72 Rule 1.6: Confidentiality of Information (a) A lawyer shall not reveal information relating to the representation... unless the client gives informed consent, the disclosure is impliedly authorized in order to carry out the representation or the disclosure is permitted by paragraph (b). (b) A lawyer may reveal [such] information... to the extent the lawyer reasonably believes necessary: (1) to prevent reasonably certain death or substantial bodily harm; (2) to prevent the client from committing a crime or fraud that is reasonably certain to result in substantial injury to the financial interests... of another and in furtherance of which the client has used or is using the lawyer's services; (3) to prevent, mitigate or rectify [such an injury]... (6) to comply with other law or a court order.

73 Problem 12.4, page 215 What should you do?

74 Problem 12.4, page 215 What should you do? 1. Withdraw?

75 Problem 12.4, page 215 What should you do? 1. Withdraw? Might tip short, hurt Desmond.

76 Problem 12.4, page 215 What should you do? 1. Withdraw? Might tip short, hurt Desmond. 2. Send Short the offer?

77 Problem 12.4, page 215 What should you do? 1. Withdraw? Might tip short, hurt Desmond. 2. Send Short the offer? (What about lack of consideration? Mistake? Interpretation that agreement binding only SI is effective?

78 Problem 12.4, page 215 What should you do? 1. Withdraw? Might tip short, hurt Desmond. 2. Send Short the offer? (What about lack of consideration? Mistake? Interpretation that agreement binding only SI is effective? Add Assumption of risk. If any element of this settlement is ineffective, the remainder of the settlement shall remain enforceable.

79 Problem 12.4, page 215 What should you do? 1. Withdraw? Might tip short, hurt Desmond. 2. Send Short the offer? (What about lack of consideration? Mistake? Interpretation that agreement binding only SI is effective? Add Assumption of risk. If any element of this settlement is ineffective, the remainder of the settlement shall remain enforceable. 3. Take Short to the end of the fishing pier and tell him what is going on.

80 Problem 12.5, page 216 § It is an unfair act or practice... for a lender... to take... a nonpossessory security interest in household goods other than a purchase money security interest.

81 Problem 12.5, page 216 § It is an unfair act or practice... for a lender... to take... a nonpossessory security interest in household goods other than a purchase money security interest. (i) Household goods. Clothing, furniture, appliances... and personal effects... provided that the following are not included (1) works of art, (2) electronic entertainment equipment, (3) items acquired as antiques, and (4) jewelry.

82 Problem 12.5, page 216 § It is an unfair act or practice... for a lender... to take... a nonpossessory security interest in household goods other than a purchase money security interest. (i) Household goods. Clothing, furniture, appliances... and personal effects... provided that the following are not included (1) works of art, (2) electronic entertainment equipment, (3) items acquired as antiques, and (4) jewelry. a. Can IFF legally take a security interest in these items? 1.Video game set, replacement cost $500.

83 Problem 12.5, page 216 § It is an unfair act or practice... for a lender... to take... a nonpossessory security interest in household goods other than a purchase money security interest. (i) Household goods. Clothing, furniture, appliances... and personal effects... provided that the following are not included (1) works of art, (2) electronic entertainment equipment, (3) items acquired as antiques, and (4) jewelry. a. Can IFF legally take a security interest in these items? 1.Video game set, replacement cost $500. Yes.

84 Problem 12.5, page 216 § It is an unfair act or practice... for a lender... to take... a nonpossessory security interest in household goods other than a purchase money security interest. (i) Household goods. Clothing, furniture, appliances... and personal effects... provided that the following are not included (1) works of art, (2) electronic entertainment equipment, (3) items acquired as antiques, and (4) jewelry. a. Can IFF legally take a security interest in these items? 1.Video game set, replacement cost $500. Yes. 2.Collection of pictures drawn by her children.

85 Problem 12.5, page 216 § It is an unfair act or practice... for a lender... to take... a nonpossessory security interest in household goods other than a purchase money security interest. (i) Household goods. Clothing, furniture, appliances... and personal effects... provided that the following are not included (1) works of art, (2) electronic entertainment equipment, (3) items acquired as antiques, and (4) jewelry. a. Can IFF legally take a security interest in these items? 1.Video game set, replacement cost $500. Yes. 2.Collection of pictures drawn by her children. Maybe art.

86 Problem 12.5, page 216 § It is an unfair act or practice... for a lender... to take... a nonpossessory security interest in household goods other than a purchase money security interest. (i) Household goods. Clothing, furniture, appliances... and personal effects... provided that the following are not included (1) works of art, (2) electronic entertainment equipment, (3) items acquired as antiques, and (4) jewelry. a. Can IFF legally take a security interest in these items? 1.Video game set, replacement cost $500. Yes. 2.Collection of pictures drawn by her children. Maybe art. 3.Old family photos dating back to the civil war.

87 Problem 12.5, page 216 § It is an unfair act or practice... for a lender... to take... a nonpossessory security interest in household goods other than a purchase money security interest. (i) Household goods. Clothing, furniture, appliances... and personal effects... provided that the following are not included (1) works of art, (2) electronic entertainment equipment, (3) items acquired as antiques, and (4) jewelry. a. Can IFF legally take a security interest in these items? 1.Video game set, replacement cost $500. Yes. 2.Collection of pictures drawn by her children. Maybe art. 3.Old family photos dating back to the civil war. Yes.

88 Problem 12.5, page 216 § It is an unfair act or practice... for a lender... to take... a nonpossessory security interest in household goods other than a purchase money security interest. (i) Household goods. Clothing, furniture, appliances... and personal effects... provided that the following are not included (1) works of art, (2) electronic entertainment equipment, (3) items acquired as antiques, and (4) jewelry. a. Can IFF legally take a security interest in these items? 1.Video game set, replacement cost $500. Yes. 2.Collection of pictures drawn by her children. Maybe art. 3.Old family photos dating back to the civil war. Yes. 4.Jewelry, replacement cost $500.

89 Problem 12.5, page 216 § It is an unfair act or practice... for a lender... to take... a nonpossessory security interest in household goods other than a purchase money security interest. (i) Household goods. Clothing, furniture, appliances... and personal effects... provided that the following are not included (1) works of art, (2) electronic entertainment equipment, (3) items acquired as antiques, and (4) jewelry. a. Can IFF legally take a security interest in these items? 1.Video game set, replacement cost $500. Yes. 2.Collection of pictures drawn by her children. Maybe art. 3.Old family photos dating back to the civil war. Yes. 4.Jewelry, replacement cost $500. Yes.

90 Problem 12.5, page 216 § It is an unfair act or practice... for a lender... to take... a nonpossessory security interest in household goods other than a purchase money security interest. (i) Household goods. Clothing, furniture, appliances... and personal effects... provided that the following are not included (1) works of art, (2) electronic entertainment equipment, (3) items acquired as antiques, and (4) jewelry. a. Can IFF legally take a security interest in these items? 1.Video game set, replacement cost $500. Yes. 2.Collection of pictures drawn by her children. Maybe art. 3.Old family photos dating back to the civil war. Yes. 4.Jewelry, replacement cost $500. Yes. 5.Toyota automobile, market value $2000.

91 Problem 12.5, page 216 § It is an unfair act or practice... for a lender... to take... a nonpossessory security interest in household goods other than a purchase money security interest. (i) Household goods. Clothing, furniture, appliances... and personal effects... provided that the following are not included (1) works of art, (2) electronic entertainment equipment, (3) items acquired as antiques, and (4) jewelry. a. Can IFF legally take a security interest in these items? 1.Video game set, replacement cost $500. Yes. 2.Collection of pictures drawn by her children. Maybe art. 3.Old family photos dating back to the civil war. Yes. 4.Jewelry, replacement cost $500. Yes. 5.Toyota automobile, market value $2000. Yes.

92 Problem 12.5, page 216 § It is an unfair act or practice... for a lender... to take... a nonpossessory security interest in household goods other than a purchase money security interest. (i) Household goods. Clothing, furniture, appliances... and personal effects... provided that the following are not included (1) works of art, (2) electronic entertainment equipment, (3) items acquired as antiques, and (4) jewelry. a. Can IFF legally take a security interest in these items? 1.Video game set, replacement cost $500. Yes. 2.Collection of pictures drawn by her children. Maybe art. 3.Old family photos dating back to the civil war. Yes. 4.Jewelry, replacement cost $500. Yes. 5.Toyota automobile, market value $2000. Yes. 6.Portable computer, market value $500.

93 Problem 12.5, page 216 § It is an unfair act or practice... for a lender... to take... a nonpossessory security interest in household goods other than a purchase money security interest. (i) Household goods. Clothing, furniture, appliances... and personal effects... provided that the following are not included (1) works of art, (2) electronic entertainment equipment, (3) items acquired as antiques, and (4) jewelry. a. Can IFF legally take a security interest in these items? 1.Video game set, replacement cost $500. Yes. 2.Collection of pictures drawn by her children. Maybe art. 3.Old family photos dating back to the civil war. Yes. 4.Jewelry, replacement cost $500. Yes. 5.Toyota automobile, market value $2000. Yes. 6.Portable computer, market value $500. Maybe.

94 Problem 12.5, page 216 b. Zelda granted a valid security interest in the video game set and any replacements.

95 Problem 12.5, page 216 b. Zelda granted a valid security interest in the video game set and any replacements. Later, the set broke and she replaced it.

96 Problem 12.5, page 216 b. Zelda granted a valid security interest in the video game set and any replacements. Later, the set broke and she replaced it. Does IFF have a security interest in the replacement video game set?

97 Problem 12.5, page 216 b. Zelda granted a valid security interest in the video game set and any replacements. Later, the set broke and she replaced it. Does IFF have a security interest in the replacement video game set? §9-204(b). A security agreement does not attach under a term constituting an after-acquired property clause to: (1) consumer goods... unless the debtor acquires rights in them within 10 days after the secured party gives value....

98 Problem 12.5, page 216 b. Zelda granted a valid security interest in the video game set and any replacements. Later, the set broke and she replaced it. Does IFF have a security interest in the replacement video game set? §9-204(b). A security agreement does not attach under a term constituting an after-acquired property clause to: (1) consumer goods... unless the debtor acquires rights in them within 10 days after the secured party gives value.... Answer: IFF does not have a valid security interest.

99 Problem 12.5, page 216 c. Will bankruptcy help Zelda keep the disputed items? (Can she avoid IFFs security interest and claim the items exempt?)

100 Problem 12.5, page 216 c. Will bankruptcy help Zelda keep the disputed items? (Can she avoid IFFs security interest and claim the items exempt?) §522(f)(1). The debtor may avoid the fixing of a lien... to the extent that such lien impairs an exemption... if such lien is (B) a nonpossessory, nonpurchase money security interest in any [listed goods]. Statutory Supplement, pages

101 Problem 12.5, page 216 c. Will bankruptcy help Zelda keep the disputed items? (Can she avoid IFFs security interest and claim the items exempt?) §522(f)(1). The debtor may avoid the fixing of a lien... to the extent that such lien impairs an exemption... if such lien is (B) a nonpossessory, nonpurchase money security interest in any [listed goods]. Statutory Supplement, pages Video game set, replacement cost $500.

102 Problem 12.5, page 216 c. Will bankruptcy help Zelda keep the disputed items? (Can she avoid IFFs security interest and claim the items exempt?) §522(f)(1). The debtor may avoid the fixing of a lien... to the extent that such lien impairs an exemption... if such lien is (B) a nonpossessory, nonpurchase money security interest in any [listed goods]. Statutory Supplement, pages Video game set, replacement cost $500. Keep. §522(f)(4)(B)(ii)

103 Problem 12.5, page 216 c. Will bankruptcy help Zelda keep the disputed items? (Can she avoid IFFs security interest and claim the items exempt?) §522(f)(1). The debtor may avoid the fixing of a lien... to the extent that such lien impairs an exemption... if such lien is (B) a nonpossessory, nonpurchase money security interest in any [listed goods]. Statutory Supplement, pages Video game set, replacement cost $500. Keep. §522(f)(4)(B)(ii) Collection of pictures drawn by her children.

104 Problem 12.5, page 216 c. Will bankruptcy help Zelda keep the disputed items? (Can she avoid IFFs security interest and claim the items exempt?) §522(f)(1). The debtor may avoid the fixing of a lien... to the extent that such lien impairs an exemption... if such lien is (B) a nonpossessory, nonpurchase money security interest in any [listed goods]. Statutory Supplement, pages Video game set, replacement cost $500. Keep. §522(f)(4)(B)(ii) Collection of pictures drawn by her children. Keep. (f)(4)(B)(i)

105 Problem 12.5, page 216 c. Will bankruptcy help Zelda keep the disputed items? (Can she avoid IFFs security interest and claim the items exempt?) §522(f)(1). The debtor may avoid the fixing of a lien... to the extent that such lien impairs an exemption... if such lien is (B) a nonpossessory, nonpurchase money security interest in any [listed goods]. Statutory Supplement, pages Video game set, replacement cost $500. Keep. §522(f)(4)(B)(ii) Collection of pictures drawn by her children. Keep. (f)(4)(B)(i) Old family photos dating back to the civil war.

106 Problem 12.5, page 216 c. Will bankruptcy help Zelda keep the disputed items? (Can she avoid IFFs security interest and claim the items exempt?) §522(f)(1). The debtor may avoid the fixing of a lien... to the extent that such lien impairs an exemption... if such lien is (B) a nonpossessory, nonpurchase money security interest in any [listed goods]. Statutory Supplement, pages Video game set, replacement cost $500. Keep. §522(f)(4)(B)(ii) Collection of pictures drawn by her children. Keep. (f)(4)(B)(i) Old family photos dating back to the civil war. Keep. (f)(4)(B)(iii)

107 Problem 12.5, page 216 c. Will bankruptcy help Zelda keep the disputed items? (Can she avoid IFFs security interest and claim the items exempt?) §522(f)(1). The debtor may avoid the fixing of a lien... to the extent that such lien impairs an exemption... if such lien is (B) a nonpossessory, nonpurchase money security interest in any [listed goods]. Statutory Supplement, pages Video game set, replacement cost $500. Keep. §522(f)(4)(B)(ii) Collection of pictures drawn by her children. Keep. (f)(4)(B)(i) Old family photos dating back to the civil war. Keep. (f)(4)(B)(iii) Jewelry, replacement cost $500.

108 Problem 12.5, page 216 c. Will bankruptcy help Zelda keep the disputed items? (Can she avoid IFFs security interest and claim the items exempt?) §522(f)(1). The debtor may avoid the fixing of a lien... to the extent that such lien impairs an exemption... if such lien is (B) a nonpossessory, nonpurchase money security interest in any [listed goods]. Statutory Supplement, pages Video game set, replacement cost $500. Keep. §522(f)(4)(B)(ii) Collection of pictures drawn by her children. Keep. (f)(4)(B)(i) Old family photos dating back to the civil war. Keep. (f)(4)(B)(iii) Jewelry, replacement cost $500. Keep. (f)(4)(B)(iv)

109 Problem 12.5, page 216 c. Will bankruptcy help Zelda keep the disputed items? (Can she avoid IFFs security interest and claim the items exempt?) §522(f)(1). The debtor may avoid the fixing of a lien... to the extent that such lien impairs an exemption... if such lien is (B) a nonpossessory, nonpurchase money security interest in any [listed goods]. Statutory Supplement, pages Video game set, replacement cost $500. Keep. §522(f)(4)(B)(ii) Collection of pictures drawn by her children. Keep. (f)(4)(B)(i) Old family photos dating back to the civil war. Keep. (f)(4)(B)(iii) Jewelry, replacement cost $500. Keep. (f)(4)(B)(iv) Toyota automobile, market value $2000.

110 Problem 12.5, page 216 c. Will bankruptcy help Zelda keep the disputed items? (Can she avoid IFFs security interest and claim the items exempt?) §522(f)(1). The debtor may avoid the fixing of a lien... to the extent that such lien impairs an exemption... if such lien is (B) a nonpossessory, nonpurchase money security interest in any [listed goods]. Statutory Supplement, pages Video game set, replacement cost $500. Keep. §522(f)(4)(B)(ii) Collection of pictures drawn by her children. Keep. (f)(4)(B)(i) Old family photos dating back to the civil war. Keep. (f)(4)(B)(iii) Jewelry, replacement cost $500. Keep. (f)(4)(B)(iv) Toyota automobile, market value $2000. Lose. (f)(4)(B)(v)

111 Problem 12.5, page 216 c. Will bankruptcy help Zelda keep the disputed items? (Can she avoid IFFs security interest and claim the items exempt?) §522(f)(1). The debtor may avoid the fixing of a lien... to the extent that such lien impairs an exemption... if such lien is (B) a nonpossessory, nonpurchase money security interest in any [listed goods]. Statutory Supplement, pages Video game set, replacement cost $500. Keep. §522(f)(4)(B)(ii) Collection of pictures drawn by her children. Keep. (f)(4)(B)(i) Old family photos dating back to the civil war. Keep. (f)(4)(B)(iii) Jewelry, replacement cost $500. Keep. (f)(4)(B)(iv) Toyota automobile, market value $2000. Lose. (f)(4)(B)(v) Portable computer, market value $500.

112 Problem 12.5, page 216 c. Will bankruptcy help Zelda keep the disputed items? (Can she avoid IFFs security interest and claim the items exempt?) §522(f)(1). The debtor may avoid the fixing of a lien... to the extent that such lien impairs an exemption... if such lien is (B) a nonpossessory, nonpurchase money security interest in any [listed goods]. Statutory Supplement, pages Video game set, replacement cost $500. Keep. §522(f)(4)(B)(ii) Collection of pictures drawn by her children. Keep. (f)(4)(B)(i) Old family photos dating back to the civil war. Keep. (f)(4)(B)(iii) Jewelry, replacement cost $500. Keep. (f)(4)(B)(iv) Toyota automobile, market value $2000. Lose. (f)(4)(B)(v) Portable computer, market value $500. Keep. §522(f)(4)(A)(xv)

113 Problem 12.5, page 216 c. Will bankruptcy help Zelda keep the disputed items? (Can she avoid IFFs security interest and claim the items exempt?) §522(f)(1). The debtor may avoid the fixing of a lien... to the extent that such lien impairs an exemption... if such lien is (B) a nonpossessory, nonpurchase money security interest in any [listed goods]. Statutory Supplement, pages Video game set, replacement cost $500. Keep. §522(f)(4)(B)(ii) Collection of pictures drawn by her children. Keep. (f)(4)(B)(i) Old family photos dating back to the civil war. Keep. (f)(4)(B)(iii) Jewelry, replacement cost $500. Keep. (f)(4)(B)(iv) Toyota automobile, market value $2000. Lose. (f)(4)(B)(v) Portable computer, market value $500. Keep. §522(f)(4)(A)(xv) Why is the law making all these petty distinctions?


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