Secured Transactions
Assignment 1
Remedies of Unsecured Creditors
under State Law
1
Basic concepts: time and money
2
Basic concepts: time and money
3
Basic concepts: time and money
Civil procedure (time line)
4
Basic concepts: time and money
Civil procedure
Complaint
5
Basic concepts: time and money
Civil procedure
Service
Complaint
6
Basic concepts: time and money
Civil procedure
Service
Complaint Answer
7
Basic concepts: time and money
Civil procedure
Service
Motion for
summary
judgment . . .
Complaint Answer
8
Basic concepts: time and money
Civil procedure
Service
Complaint Answer
Motion for
summary
judgment . . .
or trial
9
Basic concepts: time and money
Civil procedure
Service
Complaint Answer
Motion for
summary
judgment . . .
Judgment
or trial
10
Basic concepts: time and money
Civil procedure
Service
Complaint Answer
Motion for
summary
judgment . . .
or trial
Judgment
Levy
11
Basic concepts: time and money
Civil procedure
Service
Complaint Answer
Motion for
summary
judgment . . .
or trial
Judgment
Levy
30 days (default) to one year
or more (with resistance)
12
Basic concepts: time and money
Civil procedure
Service
Complaint Answer
Motion for
summary
judgment . . .
or trial
30 days (default) to one year
or more (with resistance)
Judgment
Levy
10 day
minimum
13
Basic concepts: time and money
Summary procedure
(small claims courts)
Complaint
14
Basic concepts: time and money
Summary procedure
(small claims courts)
Service by mail
Complaint
15
Basic concepts: time and money
Summary procedure
(small claims courts)
Service by mail
Complaint
Hearing
16
Basic concepts: time and money
Summary procedure
(small claims courts)
Service by mail
Complaint
Judgment
Hearing
17
Basic concepts: time and money
Summary procedure
(small claims courts)
Service by mail
Complaint
Judgment
Hearing
60 days
18
Basic concepts: time and money
Summary procedure
(small claims courts)
Service by mail
Complaint
Judgment
Hearing
60 days
Levy
10 day
minimum
Post judgment proceedings are generally the same as Civil
Procedure
19
Basic concepts: time and money
Some rough estimates of the cost of legal services
“Commercial” (collection) lawyers (on
Contingency fees
debts as small as utility bills) for big clients
20
Basic concepts: time and money
Some rough estimates of the cost of legal services
Partner in a Wall Street firm
$600 - 1,000/hour
“Commercial” (collection) lawyers (on
Contingency fees
debts as small as utility bills) for big clients
21
Basic concepts: time and money
Some rough estimates of the cost of legal services
Partner in a Wall Street firm
$600 - 1,000/hour
Associate in a Wall Street firm
$250 - $600/hour
“Commercial” (collection) lawyers (on
Contingency fees
debts as small as utility bills) for big clients
22
Basic concepts: time and money
Some rough estimates of the cost of legal services
Partner in a Wall Street firm
$600 - 1,000/hour
Associate in a Wall Street firm
$250 - $600/hour
“Corporate” lawyers/litigator, small city
$170 - $600/hour
“Commercial” (collection) lawyers (on
Contingency fees
debts as small as utility bills) for big clients
23
Basic concepts: time and money
Some rough estimates of the cost of legal services
Partner in a Wall Street firm
$600 - 1,000/hour
Associate in a Wall Street firm
$250 - $600/hour
“Corporate” lawyers/litigator, small city
$170 - $600/hour
“Commercial” (collection) lawyers (on
Contingency fees
debts as small as utility bills) for big clients
24
Basic concepts: time and money
Some rough estimates of the cost of legal services
Partner in a Wall Street firm
$600 - 1,000/hour
Associate in a Wall Street firm
$250 - $600/hour
“Corporate” lawyers/litigator, small city
$170 - $600/hour
“Commercial” (collection) lawyers (on
Contingency fees
debts as small as utility bills) for big clients
Legal services and pro bono
Zero
25
Basic concepts: time and money
Some rough estimates of the cost of legal services
Partner in a Wall Street firm
$600 - 1,000/hour
Associate in a Wall Street firm
$250 - $600/hour
“Corporate” lawyers/litigator, small city
$170 - $600/hour
“Commercial” (collection) lawyers (on
Contingency fees
debts as small as utility bills) for big clients
Legal services and pro bono
Zero
For a bank to file complaint seeking foreclose on a $1 million
business loan?
26
Basic concepts: time and money
Some rough estimates of the cost of legal services
Partner in a Wall Street firm
$600 - 1,000/hour
Associate in a Wall Street firm
$250 - $600/hour
“Corporate” lawyers/litigator, small city
$170 - $600/hour
“Commercial” (collection) lawyers (on
Contingency fees
debts as small as utility bills) for big clients
Legal services and pro bono
Zero
For a bank to file complaint seeking foreclose on a $1 million
business loan? 12 hours at $450/hour = $5,400.
27
Basic concepts: time and money
Some rough estimates of the cost of legal services
Partner in a Wall Street firm
$600 - 1,000/hour
Associate in a Wall Street firm
$250 - $600/hour
“Corporate” lawyers/litigator, small city
$170 - $600/hour
“Commercial” (collection) lawyers (on
Contingency fees
debts as small as utility bills) for big clients
Legal services and pro bono
Zero
For a bank to file complaint seeking foreclose on a $1 million
business loan? 12 hours at $450/hour = $5,400.
For your memorandum in Legal Research & Writing?
28
Basic concepts: remedies
Money judgment: “Defendant owes plaintiff $5,000, for all of
which let execution issue.”
Issued at “end” of the case
Does not order Defendant to pay
Plaintiff enforces by other procedures
Execution: Sheriff seizes and sells the debtor’s property to
satisfy the judgment (five steps)
1. Clerk of court issues the writ
2. Sheriff levies on the debtor’s property (no self help)
3. Sheriff sells the property
4. Sheriff applies proceeds to pay down the debt
5. Sheriff files a “return,” which reduces the judgment
29
Basic concepts: remedies
Levy: Seizure of property pursuant to execution
Sheriff must take physical possession (majority rule)
Sheriff follows creditors’ “instructions for levy”
Sheriff has liability for amercement / conversion
Sheriff requires creditor to indemnify sheriff
Exemptions (from execution): Property the sheriff cannot
seize on a writ of execution
“Necessities” specified by state statute
Often limited by use or dollar amount
Usually claimed at levy
30
Basic concepts: remedies
Prejudgment attachment
Sheriff seizes property, as on execution
Creditor must prove “extraordinary circumstances”
Rare -- few creditors entitled
California: Available after hearing on a business debt
Self-help repossession: Creditor takes physical possession of
debtor’s property
Unsecured creditors are not entitled to self-help
Conversion: “The wrongful exercise of dominion or control over
the property of another.”
Self-help is conversion. Wrongful execution is conversion.
31
Remedy: Money judgment for market value. “You bought it.”
Basic concepts: remedies
Setoff: If –
A
$100
$100
B
32
Basic concepts: remedies
Setoff: If –
A
$100
$100
B
either can “setoff” the debt it owes against the debt owing to it
33
Basic concepts: remedies
Setoff: If –
A
No debt
B
either can “setoff” the debt it owes against the debt owing to it
34
Basic concepts: remedies
Setoff: If the amounts owing are not equal –
A
$100
$36
B
35
Basic concepts: remedies
Setoff: If the amounts owing are not equal –
A
$100
$36
B
a portion of the larger debt will survive
36
Basic concepts: remedies
Setoff: If the amounts owing are not equal –
A
$64
B
a portion of the larger debt will survive
37
Basic concepts: remedies
Setoff example: Debtor owes Bank for $30,000 loan
Debtor has $1,637 in an account at Bank
Debtor
Loan
$30,000
Bank
$1,637
Bank account
38
Basic concepts: remedies
Setoff example: Debtor owes Bank for $30,000 loan
Debtor has $1,637 in an account at Bank
Debtor
Loan
$30,000
Bank
$1,637
Bank account
On default, Bank can “set off” the bank account by changing
the account balance to zero, then sending notice to debtor.
39
Basic concepts: remedies
Setoff example: Debtor owes Bank for $30,000 loan
Debtor has $1,637 in an account at Bank
Debtor
Loan
$28,363
Bank
0
Bank account
On default, Bank can “set off” the bank account by changing
the account balance to zero, then sending notice to debtor.
40
Basic concepts: remedies
Fraudulent Transfers:
§4(a)(1). A transfer . . . is fraudulent . . . if the debtor made the
transfer . . . with actual intent to hinder, delay, or defraud
any creditor . . . .
§8(a) A transfer is not avoidable under Section 4(a)(a)
against a person who took in good faith and for a
reasonably equivalent value . . . .
Example: George sells his property to Alice for $1, so that his
creditors can’t take it.
Fraudulent transfer (4)(a), Alice has no defense (8)(a).
Alice has a defense if she paid reasonably equivalent value.
41
Basic concepts: remedies
§5(a). A transfer . . . is fraudulent . . . if the debtor made the
transfer . . . without receiving a reasonably equivalent value
in exchange . . . and the debtor was insolvent . . . or became
insolvent as a result of the transfer.
Example: George is desperate for cash. He sells assets worth
$1 million to Alice for $500,000 (best price he can get now).
The transfer is fraudulent, reversible, regardless of intent.
Debtors can’t make bad deals. Even with strangers!
BP Deepwater Horizon spill. Difficulty selling assets.
§3(a). Value is given for a transfer . . . if, in exchange for the
transfer . . . an antecedent debt is . . . satisfied . . . .
Example: Bernie Madoff uses his last billion to pay the
management fees owing to his sons’ brokerage.
42
Problem constraints
Legal strategy is subject to constraints – chess board
1. Law (delivered). What officials will actually do.
2. Procedural rules
3. Costs
4. Client goals
5. Attitudes and personalities of people involved
6. Media pressures
“Basic concepts” – how the chess pieces move
43
Problem 1.1, page19
Benning lends $50,000 to Knopf, payable in quarterly
installments, with interest at prime plus five points.
Loan is not currently in default
Conditions now are worse than at time of the loan, Knopf is
behind on rent and utility payments
What do you advise?
44
Problem 1.2, page 20
$12,000
Judgment
Service
Complaint
Default
45
Problem 1.2, page 20
$12,000
Judgment
Service
Complaint
Default
What happens now? What do we need to know? How do
we collect?
46
Problem 1.2, page 20
$12,000
Judgment
Service
Complaint
Default
What happens now? What do we need to know? How do
we collect?
Should we send the sheriff to levy on the day care equipment
now?
47
Problem 1.3, page 20
Jeff
$1K
Loan
Lisa
Jeff plans to take the lawn furniture. Can he do that?
If Jeff can’t take the furniture, what can he do?
48
Problem 1.4, page 20
Kostandin owes Look $30,000
Look
Kostandin
$30,000
49
Problem 1.4, page 20
Kostandin owes Look $30,000
Look
Kostandin
$30,000
So Look defrauds Kostandin of $30,000 in lobsters
50
Problem 1.4, page 20
Kostandin owes Look $30,000
Look
$30,000
Kostandin
$30,000
So Look defrauds Kostandin of $30,000 in lobsters
51
Problem 1.4, page 20
Kostandin owes Look $30,000
Look
0
Kostandin
0
So Look defrauds Kostandin of $30,000 in lobsters, thinking
he will set off
52
Problem 1.4, page 20
Kostandin owes Look $30,000
$19,000
Look
$19,000
Kostandin
$30,000
So Look defrauds Kostandin of $30,000 in lobsters, thinking
he will set off
But the lobsters bring only $19,000.
53
Problem 1.4, page 20
Kostandin owes Look $30,000
$19,000
Look
0
Kostandin
$11,000
So Look defrauds Kostandin of $30,000 in lobsters, thinking
he will set off
But the lobsters bring only $19,000.
Setoff
54
Problem 1.4, page 20
Kostandin owes Look $30,000
$19,000
Look
0
Kostandin
$11,000
So Look defrauds Kostandin of $30,000 in lobsters, thinking
he will set off
But the lobsters bring only $19,000. What now?
55
Problem 1.4, page 20
Kostandin owes Look $30,000
$19,000
Look
0
Kostandin
$11,000
So Look defrauds Kostandin of $30,000 in lobsters, thinking
he will set off
But the lobsters bring only $19,000. What now? Convicted!
56
Problem 1.4, page 20
Kostandin owes Look $30,000
$19,000
-19,000
-15,000
-15,000
Look
0
Kostandin
$30,000
So Look defrauds Kostandin of $30,000 in lobsters, thinking
he will set off
But the lobsters bring only $19,000. What now? Convicted!
Court fines Look $15,000 and orders payback of $19,000.
57
Problem 1.5, page 21
58
Problem 1.5, page 21
Knopf owns the following property. What is exempt?
1.
Toyota automobile worth $15,000
§815.18(3)(g), (d), exempt
2.
Inherited house worth $35,000
§815.20, exempt
3.
Day care equipment worth $10,000
§815.18(3)(b), may be exempt
4.
Bank account, balance $2,265.92
§815.18(3)(k), partially exempt
Is there any hurry? Can we move fast enough?
59
Problem 1.5, page 21
Knopf owns the following property. What is exempt?
1.
Toyota automobile worth $15,000
§815.18(3)(g), (d), exempt
2.
Inherited house worth $35,000
§815.20, exempt
3.
Day care equipment worth $10,000
§815.18(3)(b), may be exempt
4.
Bank account, balance $2,265.92
§815.18(3)(k), partially exempt
Is there any hurry? Can we move fast enough?
60
Problem 1.5, page 21
Knopf owns the following property. What is exempt?
1.
Toyota automobile worth $15,000
§815.18(3)(g), (d), exempt
2.
Inherited house worth $35,000
§815.20, exempt
3.
Day care equipment worth $10,000
§815.18(3)(b), may be exempt
4.
Bank account, balance $2,265.92
§815.18(3)(k), partially exempt
Is there any hurry? Can we move fast enough?
61
Problem 1.5, page 21
Knopf owns the following property. What is exempt?
1.
Toyota automobile worth $15,000
§815.18(3)(g), (d), exempt
2.
Inherited house worth $275,000, subject to
$225,000 mortgage
§815.20, exempt
3.
Day care equipment worth $10,000
§815.18(3)(b), may be exempt
4.
Bank account, balance $2,265.92
§815.18(3)(k), partially exempt
Is there any hurry? Can we move fast enough?
62
Problem 1.5, page 21
Knopf owns the following property. What is exempt?
1.
Toyota automobile worth $15,000
§815.18(3)(g), (d), exempt
2.
Inherited house worth $275,000, subject to
$225,000 mortgage
§815.20, exempt if he lives in it
3.
Day care equipment worth $10,000
§815.18(3)(b), may be exempt
4.
Bank account, balance $2,265.92
§815.18(3)(k), partially exempt
Is there any hurry? Can we move fast enough?
63
Problem 1.5, page 21
Knopf owns the following property. What is exempt?
1.
Toyota automobile worth $15,000
§815.18(3)(g), (d), exempt
2.
Inherited house worth $275,000, subject to
$225,000 mortgage
§815.20, exempt if he lives in it
3.
Day care equipment worth $25,000
§815.18(3)(b), may be exempt
4.
Bank account, balance $2,265.92
§815.18(3)(k), partially exempt
Is there any hurry? Can we move fast enough?
64
Problem 1.5, page 21
Knopf owns the following property. What is exempt?
1.
Toyota automobile worth $15,000
§815.18(3)(g), (d), exempt
2.
Inherited house worth $275,000, subject to
$225,000 mortgage
§815.20, exempt if he lives in it
3.
Day care equipment worth $25,000
§815.18(3)(b), may be partially exempt ($15,000)
4.
Bank account, balance $2,265.92
§815.18(3)(k), partially exempt
Is there any hurry? Can we move fast enough?
65
Problem 1.5, page 21
Knopf owns the following property. What is exempt?
1.
Toyota automobile worth $15,000
§815.18(3)(g), (d), exempt
2.
Inherited house worth $275,000, subject to
$225,000 mortgage
§815.20, exempt if he lives in it
3.
Day care equipment worth $25,000
§815.18(3)(b), may be partially exempt ($15,000)
4.
Bank account, balance $2,265.92
§815.18(3)(k), partially exempt
Is there any hurry? Can we move fast enough?
66
Problem 1.5, page 21
Knopf owns the following property. What is exempt?
1.
Toyota automobile worth $15,000
§815.18(3)(g), (d), exempt
2.
Inherited house worth $275,000, subject to
$225,000 mortgage
§815.20, exempt if he lives in it
3.
Day care equipment worth $25,000
§815.18(3)(b), may be partially exempt ($15,000)
4.
Bank account, balance $2,265.92
§815.18(3)(k), partially exempt
Is there any hurry? Can we move fast enough?
67
Problem 1.5, page 21
Knopf owns the following property. What is exempt?
1.
Toyota automobile worth $15,000
§815.18(3)(g), (d), exempt
2.
Inherited house worth $275,000, subject to
$225,000 mortgage
§815.20, exempt if he lives in it
3.
Day care equipment worth $25,000
§815.18(3)(b), may be partially exempt ($15,000)
4.
Bank account, balance $2,265.92
§815.18(3)(k), partially exempt
Is there any hurry? Can we move fast enough?
68
Problem 1.5, page 21
Knopf owns the following property. What is exempt?
1.
Toyota automobile worth $15,000
§815.18(3)(g), (d), exempt
2.
Inherited house worth $275,000, subject to
$225,000 mortgage
§815.20, exempt if he lives in it
3.
Day care equipment worth $25,000
§815.18(3)(b), may be partially exempt ($15,000)
4.
Bank account, balance $2,265.92
§815.18(3)(k), partially exempt
Is there any hurry? Can we move fast enough?
69