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Secured TransactionsAssignment 40
Why Secured Credit?
2
The Puzzle of Secured Debt
3
The Puzzle of Secured DebtIs secured debt “efficient?” Do the gains from it’s existence
exceed the losses?
4
The Puzzle of Secured DebtIs secured debt “efficient?” Do the gains from it’s existence
exceed the losses?
1. Secured debt helps secured creditors collect more. Lowers interest rates.
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The Puzzle of Secured DebtIs secured debt “efficient?” Do the gains from it’s existence
exceed the losses?
1. Secured debt helps secured creditors collect more. Lowers interest rates.
2. But doesn’t that cause the unsecured creditors to collect less? Raises interest rates.
6
The Puzzle of Secured DebtIs secured debt “efficient?” Do the gains from it’s existence
exceed the losses?
1. Secured debt helps secured creditors collect more. Lowers interest rates.
2. But doesn’t that cause the unsecured creditors to collect less? Raises interest rates.
Does secured credit do something good that lowers total system costs?
7
The Puzzle of Secured DebtIs secured debt “efficient?” Do the gains from it’s existence
exceed the losses?
1. Secured debt helps secured creditors collect more. Lowers interest rates.
2. But doesn’t that cause the unsecured creditors to collect less? Raises interest rates.
Does secured credit do something good that lowers total system costs? (It must, or secureds and unsecureds wouldn’t agree to it.)
8
The Puzzle of Secured DebtIs secured debt “efficient?” Do the gains from it’s existence
exceed the losses?
1. Secured debt helps secured creditors collect more. Lowers interest rates.
2. But doesn’t that cause the unsecured creditors to collect less? Raises interest rates.
Does secured credit do something good that lowers total system costs? (It must, or secureds and unsecureds wouldn’t agree to it.)
Monitoring
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The Puzzle of Secured DebtIs secured debt “efficient?” Do the gains from it’s existence
exceed the losses?
1. Secured debt helps secured creditors collect more. Lowers interest rates.
2. But doesn’t that cause the unsecured creditors to collect less? Raises interest rates.
Does secured credit do something good that lowers total system costs? (It must, or secureds and unsecureds wouldn’t agree to it.)
Monitoring
Relieving secured party of need to monitor
10
The Puzzle of Secured DebtIs secured debt “efficient?” Do the gains from it’s existence
exceed the losses?
1. Secured debt helps secured creditors collect more. Lowers interest rates.
2. But doesn’t that cause the unsecured creditors to collect less? Raises interest rates.
Does secured credit do something good that lowers total system costs? (It must, or secureds and unsecureds wouldn’t agree to it.)
Monitoring
Relieving secured party of need to monitor
Does it do something bad that raises total system costs?
11
The Puzzle of Secured DebtIs secured debt “efficient?” Do the gains from it’s existence
exceed the losses?
1. Secured debt helps secured creditors collect more. Lowers interest rates.
2. But doesn’t that cause the unsecured creditors to collect less? Raises interest rates.
Does secured credit do something good that lowers total system costs? (It must, or secureds and unsecureds wouldn’t agree to it.)
Monitoring
Relieving secured party of need to monitor
Does it do something bad that raises total system costs?
Incentives to incur debt that will never be paid
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Judgment Proofing Strategy: Secured Debt
Allassets
ProtectiveSI
This is a judgment-proof structure.
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Judgment Proofing Strategy: Secured Debt
Allassets
ProtectiveSI
Lien
This is a judgment-proof structure. If someone obtains a lien . . . .
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Judgment Proofing Strategy: Secured Debt
Allassets
ProtectiveSI
This is a judgment-proof structure. If someone obtains a lien and forecloses it . . . .
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Judgment Proofing Strategy: Secured Debt
Allassets
ProtectiveSI
This is a judgment-proof structure. If someone obtains a lien and forecloses it, they don’t get anything.
22
Judgment Proofing Strategy: Secured Debt
Allassets
ProtectiveSI
This is a judgment-proof structure. If someone obtains a lien and forecloses it, they don’t get anything.
If the debtor is entitled to an exemption, the lien does not even attach and the creditor cannot force a sale.
Exemption
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Judgment Proofing Strategy: Secured Debt
Allassets
ProtectiveSI
LienUnsecured debts, judgments, and liens can be a nuisance.
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Judgment Proofing Strategy: Secured Debt
Before bankruptcy
Allassets
ProtectiveSI
Lien
A Chapter 11 bankruptcy wipes out the unsecured debt (without payment) . . . .
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Judgment Proofing Strategy: Secured Debt
After bankruptcyBefore bankruptcy
Allassets
ProtectiveSI
Lien
A Chapter 11 bankruptcy wipes out the unsecured debt (without payment) and leaves the secured portion of the secured debt in place.
26
Judgment Proofing Strategy: Secured Debt
After bankruptcyBefore bankruptcy
Allassets
ProtectiveSI
Lien
A Chapter 11 bankruptcy wipes out the unsecured debt (without payment) and leaves the secured portion of the secured debt in place. What about the shareholders/managers?
27
Judgment Proofing Strategy: Secured Debt
After bankruptcyBefore bankruptcy
Allassets
ProtectiveSI
Lien
A Chapter 11 bankruptcy wipes out the unsecured debt (without payment) and leaves the secured portion of the secured debt in place. What about the shareholders/managers?
The shareholders can “buy” the business from the bankruptcy court by contributing “new value” to the corporation.
Newvalue
28
Judgment Proofing Strategy: Secured Debt
After bankruptcyBefore bankruptcy
Allassets
ProtectiveSI
Lien
A Chapter 11 bankruptcy wipes out the unsecured debt (without payment) and leaves the secured portion of the secured debt in place. What about the shareholders/managers?
The shareholders can “buy” the business from the bankruptcy court by contributing “new value” to the corporation.
The business can continue to operate.
29
Judgment Proofing Strategy: Secured Debt
After bankruptcyBefore bankruptcy
Allassets
ProtectiveSI
Lien
A Chapter 11 bankruptcy wipes out the unsecured debt (without payment) and leaves the secured portion of the secured debt in place. What about the shareholders/managers?
The shareholders can “buy” the business from the bankruptcy court by contributing “new value” to the corporation.
The business can continue to operate. And do it again!
Lien
30
Problem 40.1, page 664The “partnership:”
V
31
Problem 40.1The “partnership:”
Steady Hand invests $4 million in return for (1) repayment with 15% interest and (2) half the profits
V
32
Problem 40.1The “partnership:”
Steady Hand invests $4 million in return for (1) repayment with 15% interest and (2) half the profits
Alvin invests three dangerous products.
V
33
Problem 40.1The “partnership:”
Steady Hand invests $4 million in return for (1) repayment with 15% interest and (2) half the profits
Alvin invests three dangerous products. Two will each make $1 billion, the third will generate $3 billion in liabilities.
V
34
Problem 40.1The “partnership:”
Steady Hand invests $4 million in return for (1) repayment with 15% interest and (2) half the profits
Alvin invests three dangerous products. Two will each make $1 billion, the third will generate $3 billion in liabilities.
What is the expected value of this business?
V
35
Problem 40.1The “partnership:”
Steady Hand invests $4 million in return for (1) repayment with 15% interest and (2) half the profits
Alvin invests three dangerous products. Two will each make $1 billion, the third will generate $3 billion in liabilities.
What is the expected value of this business? $1 billion loss
V
36
Problem 40.1The “partnership:”
Steady Hand invests $4 million in return for (1) repayment with 15% interest and (2) half the profits
Alvin invests three dangerous products. Two will each make $1 billion, the third will generate $3 billion in liabilities.
What is the expected value of this business? $1 billion loss
V
What do you recommend to Harley?
37
Problem 40.1The “partnership:”
Steady Hand invests $4 million in return for (1) repayment with 15% interest and (2) half the profits
Alvin invests three dangerous products. Two will each make $1 billion, the third will generate $3 billion in liabilities.
What is the expected value of this business? $1 billion loss
ProductOne Inc.
ProductThree Inc.
ProductTwo Inc.
SteadyHand
Alvin
SteadyLending
Investors
V
38
Problem 40.1The “partnership:”
Steady Hand invests $4 million in return for (1) repayment with 15% interest and (2) half the profits
Alvin invests three dangerous products. Two will each make $1 billion, the third will generate $3 billion in liabilities.
What is the expected value of this business? $1 billion loss
ProductOne Inc.
ProductThree Inc.
ProductTwo Inc.
SteadyHand
Alvin
SteadyLending
InvestorsNow what is the total expected value of business?
V
39
Judgment Proofing Strategy: Parent Subsidiary
40
Assets Sub stock 0 Plant lease 0Total
Liabilities None 0Equity Total
Corporation
Judgment Proofing Strategy: Parent Subsidiary
41
Assets Sub stock 0 Plant lease 0Total 0
Liabilities None 0Equity 0Total 0
Assets Plant 60 Accounts 40Total 100
Liabilities Bank 100Equity 0Total 100
Parent Corporation
Judgment Proofing Strategy: Parent Subsidiary
Subsidiary Corporation
42
Assets Sub stock 0 Plant lease 0Total 0
Liabilities None 0Equity 0Total 0
Assets Plant 60 Accounts 40Total 100
Liabilities Bank 100Equity 0Total 100
Parent Corporation
Judgment Proofing Strategy: Parent Subsidiary
Subsidiary Corporation
Sub owns all group assets
43
Assets Sub stock 0 Plant lease 0Total 0
Liabilities None 0Equity 0Total 0
Assets Plant 60 Accounts 40Total 100
Liabilities Bank 100Equity 0Total 100
Parent Corporation
Judgment Proofing Strategy: Parent Subsidiary
Owning Corporation
Sub owns all group assets
44
Assets Sub stock 0 Plant lease 0Total 0
Liabilities None 0Equity 0 Total 0
Assets Plant 60 Accounts 40Total 100
Liabilities Bank 100Equity 0Total 100
Parent Corporation
Judgment Proofing Strategy: Parent Subsidiary
Owning Corporation
Sub owns all group assets
Sub owes preferred debts
45
Assets Sub stock 0 Plant lease 0Total 0
Liabilities None 0Equity 0Total 0
Assets Plant 60 Accounts 40Total 100
Liabilities Bank 100Equity 0Total 100
Parent Corporation
Judgment Proofing Strategy: Parent Subsidiary
Owning Corporation
Sub owns all group assets
Sub owes preferred debts
Parent leases plant, conducts all business, employs all employees, incurs all liabilities
46
Assets Sub stock 0 Plant lease 0Total 0
Liabilities None 0Equity 0Total 0
Assets Plant 60 Accounts 40Total 100
Liabilities Bank 100Equity 0Total 100
Operating Corporation
Judgment Proofing Strategy: Parent Subsidiary
Owning Corporation
Sub owns all group assets
Sub owes preferred debts
Parent leases plant, conducts all business, employs all employees, incurs all liabilities
47
Assets Sub stock 0 Plant lease 0Total 0
Liabilities None 0Equity 0Total 0
Assets Plant 60 Accounts 40Total 100
Liabilities Bank 100Equity 0Total 100
Operating Corporation
Judgment Proofing Strategy: Parent Subsidiary
Owning Corporation
Sub owns all group assets
Sub owes preferred debts
Parent leases plant, conducts all business, employs all employees, incurs all liabilities
Tort creditor of Parent obtains judgment
48
Assets Sub stock 0 Plant lease 0Total 0
Liabilities Tort Cred 80Equity -80Total 0
Assets Plant 60 Accounts 40Total 100
Liabilities Bank 100Equity 0Total 100
Operating Corporation
Judgment Proofing Strategy: Parent Subsidiary
Owning Corporation
Sub owns all group assets
Sub owes preferred debts
Parent leases plant, conducts all business, employs all employees, incurs all liabilities
Tort creditor of Parent obtains judgment
49
Assets Sub stock 0 Plant lease 0Total 0
Liabilities Tort Cred 80Equity -80Total 0
Assets Plant 60 Accounts 40Total 100
Liabilities Bank 100Equity 0Total 100
Operating Corporation
Judgment Proofing Strategy: Parent Subsidiary
Owning Corporation
Sub owns all group assets
Sub owes preferred debts
Parent leases plant, conducts all business, employs all employees, incurs all liabilities
Tort creditor of Parent obtains judgment
Forecloses on stock
50
Assets Sub stock 0 Plant lease 0Total 0
Liabilities Tort Cred 80Equity -80Total 0
Assets Plant 60 Accounts 40Total 100
Liabilities Bank 100Equity 0Total 100
Operating Corporation
Judgment Proofing Strategy: Parent Subsidiary
Owning Corporation
Sub owns all group assets
Sub owes preferred debts
Parent leases plant, conducts all business, employs all employees, incurs all liabilities
Tort creditor of Parent obtains judgment
Forecloses on stock
51
Assets Plant 60 Accounts 40Total 100
Liabilities Bank 100Tort EquityTotal 100
Judgment Proofing Strategy: Parent Subsidiary
Owning Corporation
Sub owns all group assets
Sub owes preferred debts
Parent leases plant, conducts all business, employs all employees, incurs all liabilities
Tort creditor of Parent obtains judgment
Forecloses on stock
52
Assets Plant 60 Accounts 40Total 100
Liabilities Bank 100Tort EquityTotal 100
Judgment Proofing Strategy: Parent Subsidiary
Owning Corporation
Sub owns all group assets
Sub owes preferred debts
Parent leases plant, conducts all business, employs all employees, incurs all liabilities
Tort creditor of Parent obtains judgment
Forecloses on stock
Liquidates Subsidiary Corp.
53
Assets Plant 60 Accounts 40Total 100
Liabilities Bank 100Tort Equity Total 100
Judgment Proofing Strategy: Parent Subsidiary
Owning Corporation
Sub owns all group assets
Sub owes preferred debts
Parent leases plant, conducts all business, employs all employees, incurs all liabilities
Tort creditor of Parent obtains judgment
Forecloses on stock
Liquidates Subsidiary Corp.
Recovers zero
54
Assets Plant 60 Accounts 40Total 100
Liabilities Bank 100Tort Equity Total 100
Judgment Proofing Strategy: Parent Subsidiary
Owning Corporation
Sub owns all group assets
Sub owes preferred debts
Parent leases plant, conducts all business, employs all employees, incurs all liabilities
Tort creditor of Parent obtains judgment
Forecloses on stock
Liquidates Subsidiary Corp.
Recovers zero
Owning Corporation accomplishes the same thing as a security interest in favor of the bank – but cheaper.
55
Problem 40.1The “partnership:”
V
56
Problem 40.1The “partnership:”
Steady Hand invests $4 million in return for (1) repayment with 15% interest and (2) half the profits
V
57
Problem 40.1The “partnership:”
Steady Hand invests $4 million in return for (1) repayment with 15% interest and (2) half the profits
Alvin invests IP for three dangerous products.
V
58
Problem 40.1The “partnership:”
Steady Hand invests $4 million in return for (1) repayment with 15% interest and (2) half the profits
Alvin invests IP for three dangerous products. Two will each make $1 billion, the third will generate $3 billion in liabilities.
V
59
Problem 40.1The “partnership:”
Steady Hand invests $4 million in return for (1) repayment with 15% interest and (2) half the profits
Alvin invests IP for three dangerous products. Two will each make $1 billion, the third will generate $3 billion in liabilities.
What is the expected value of this business?
V
60
Problem 40.1The “partnership:”
Steady Hand invests $4 million in return for (1) repayment with 15% interest and (2) half the profits
Alvin invests IP for three dangerous products. Two will each make $1 billion, the third will generate $3 billion in liabilities.
What is the expected value of this business? $1 billion loss
V
61
Problem 40.1The “partnership:”
Steady Hand invests $4 million in return for (1) repayment with 15% interest and (2) half the profits
Alvin invests IP for three dangerous products. Two will each make $1 billion, the third will generate $3 billion in liabilities.
What is the expected value of this business? $1 billion loss
V
What do you recommend to Harley?
62
Problem 40.1The “partnership:”
Steady Hand invests $4 million in return for (1) repayment with 15% interest and (2) half the profits
Alvin invests IP for three dangerous products. Two will each make $1 billion, the third will generate $3 billion in liabilities.
What is the expected value of this business? $1 billion loss
ProductOne Inc.
ProductThree Inc.
ProductTwo Inc.
SteadyHand
Alvin
SteadyLending
Investors
V
63
Problem 40.1The “partnership:”
Steady Hand invests $4 million in return for (1) repayment with 15% interest and (2) half the profits
Alvin invests IP for three dangerous products. Two will each make $1 billion, the third will generate $3 billion in liabilities.
What is the expected value of this business? $1 billion loss
ProductOne Inc.
ProductThree Inc.
ProductTwo Inc.
SteadyHand
Alvin
SteadyLending
InvestorsNow what is the total expected value of business?
V
64
Problem 40.1The “partnership:”
Steady Hand invests $4 million in return for (1) repayment with 15% interest and (2) half the profits
Alvin invests IP for three dangerous products. Two will each make $1 billion, the third will generate $3 billion in liabilities.
What is the expected value of this business? $1 billion loss
ProductOne Inc.
ProductThree Inc.
ProductTwo Inc.
SteadyHand
Alvin
SteadyLending
InvestorsNow what is the total expected value of business?
$2 billion less up to
1/3 of $4 million
V
65
Problem 40.1
ProductOne
Mfg Inc.
SteadyHand
Alvin
SteadyLending
Investors
ProductOne
Mkt Inc.
ProductTwo
Mkt Inc.
ProductTwo
Mfg Inc.
ProductThree
Mkt Inc.
ProductThree
Mfg Inc.
V
66
Problem 40.1
ProductOne
Mfg Inc.
SteadyHand
Alvin
SteadyLending
Investors
ProductOne
Mkt Inc.
ProductTwo
Mkt Inc.
ProductTwo
Mfg Inc.
ProductThree
Mkt Inc.
ProductThree
Mfg Inc.
V
Now what is the total expected value of business?
67
Problem 40.1
ProductOne
Mfg Inc.
SteadyHand
Alvin
SteadyLending
Investors
ProductOne
Mkt Inc.
ProductTwo
Mkt Inc.
ProductTwo
Mfg Inc.
ProductThree
Mkt Inc.
ProductThree
Mfg Inc.
V
Now what is the total expected value of business?
$2.5 billion, less up to 1/6 of $4 million
68
Problem 40.1
ProductOne
Mfg Inc.
SteadyHand
Alvin
SteadyLending
Investors
ProductOne
Mkt Inc.
ProductTwo
Mkt Inc.
ProductTwo
Mfg Inc.
ProductThree
Mkt Inc.
ProductThree
Mfg Inc.
V
We can make these companies public companies without changing Alvin’s or Steady’s return
69
Problem 40.1
ProductOne
Mfg Inc.
Investors Alvin
SteadyLending
Investors
ProductOne
Mkt Inc.
ProductTwo
Mkt Inc.
ProductTwo
Mfg Inc.
ProductThree
Mfg Inc.
Contint’lMagna-tech, Inc
SteadyUnderwriters
V
We can make these companies public companies without changing Alvin’s or Steady’s return
70
Problem 40.1
ProductOne
Mfg Inc.
Investors Alvin
SteadyLending
Investors
ProductOne
Mkt Inc.
ProductTwo
Mkt Inc.
ProductTwo
Mfg Inc.
ProductThree
Mfg Inc.
Contint’lMagna-tech, Inc
SteadyUnderwriters
V
We can make these companies public companies without changing Alvin’s or Steady’s return
Now veil piercing is impossible.
71
Problem 40.2
ProductOne
Mfg Inc.
Investors Alvin
SteadyLending
Investors
ProductOne
Mkt Inc.
ProductTwo
Mkt Inc.
ProductTwo
Mfg Inc.
ProductThree
Mfg Inc.
Contint’lMagna-tech, Inc
SteadyUnderwriters
Cash PlantIP rights
Steady Lending (SI)Trade creditorsPerson injury claims
Continental Magnatech
V
72
Problem 40.2
ProductOne
Mfg Inc.
Investors Alvin
SteadyLending
Investors
ProductOne
Mkt Inc.
ProductTwo
Mkt Inc.
ProductTwo
Mfg Inc.
ProductThree
Mfg Inc.
Contint’lMagna-tech, Inc
SteadyUnderwriters
Cash PlantIP rights
Steady Lending (SI)Trade creditorsPerson injury claims
Continental Magnatech
V
You represent Alicia Card, tort victim. What do you do?
Alicia
73
Problem 40.3Our law firm is an unsecured creditor of Sigment, $40K
74
Problem 40.3Our law firm is an unsecured creditor of Sigment, $40K
Portage State Bank files a financing statement against Sigmet covering “equipment, inventory, accounts receivable”
75
Problem 40.3Our law firm is an unsecured creditor of Sigment, $40K
Portage State Bank files a financing statement against Sigmet covering “equipment, inventory, accounts receivable”
Where do we stand?
76
Problem 40.3Our law firm is an unsecured creditor of Sigment, $40K
Portage State Bank files a financing statement against Sigmet covering “equipment, inventory, accounts receivable”
Where do we stand?
What should we do?
77
Problem 40.3Our law firm is an unsecured creditor of Sigment, $40K
Portage State Bank files a financing statement against Sigmet covering “equipment, inventory, accounts receivable”
Where do we stand?
What should we do?
Should we be doing UCC searches to monitor all of our clients?
78
Problem 40.4National Secured Credit Review Commission asks what
should be done about Article 9 security interests.
a. Keep Article 9 as is.
b. Nationalize Article 9. Give tort creditors and small wage claims priority over secured creditors
c. Nationalize Article 9. “Carve-out” 20% of the collateral for unsecured creditors
d. Adopt b. through uniform state law
e. Adopt c. through uniform state law
79
Problem 40.4National Secured Credit Review Commission asks what
should be done about Article 9 security interests.
a. Keep Article 9 as is.
b. Nationalize Article 9. Give tort creditors and small wage claims priority over secured creditors
c. Nationalize Article 9. “Carve-out” 20% of the collateral for unsecured creditors
d. Adopt b. through uniform state law
e. Adopt c. through uniform state law
80
Problem 40.4National Secured Credit Review Commission asks what
should be done about Article 9 security interests.
a. Keep Article 9 as is.
b. Nationalize Article 9. Give tort creditors and small wage claims priority over secured creditors
c. Nationalize Article 9. “Carve-out” 20% of the collateral for unsecured creditors
d. Adopt b. through uniform state law
e. Adopt c. through uniform state law
81
Problem 40.4National Secured Credit Review Commission asks what
should be done about Article 9 security interests.
a. Keep Article 9 as is.
b. Nationalize Article 9. Give tort creditors and small wage claims priority over secured creditors
c. Nationalize Article 9. “Carve-out” 20% of the collateral for unsecured creditors
d. Adopt b. through uniform state law
e. Adopt c. through uniform state law
82
Problem 40.4National Secured Credit Review Commission asks what
should be done about Article 9 security interests.
a. Keep Article 9 as is.
b. Nationalize Article 9. Give tort creditors and small wage claims priority over secured creditors
c. Nationalize Article 9. “Carve-out” 20% of the collateral for unsecured creditors
d. Adopt b. through uniform state law
e. Adopt c. through uniform state law
83
Problem 40.4National Secured Credit Review Commission asks what
should be done about Article 9 security interests.
a. Keep Article 9 as is.
b. Nationalize Article 9. Give tort creditors and small wage claims priority over secured creditors
c. Nationalize Article 9. “Carve-out” 20% of the collateral for unsecured creditors
d. Adopt b. through uniform state law
e. Adopt c. through uniform state law
84
LoPucki on Secured Credit
85
LoPucki on Secured CreditSystem gives secured parties certainty by making others
uncertain
86
LoPucki on Secured CreditSystem gives secured parties certainty by making others
uncertain
1. Unsecureds don’t know what they can collect. (Carol Dearing problems).
87
LoPucki on Secured CreditSystem gives secured parties certainty by making others
uncertain
1. Unsecureds don’t know what they can collect. (Carol Dearing problems).
2. Even at the Mall, buyers are not safe. (Alica Card problems.)
88
LoPucki on Secured CreditFavors the powerful/knowledgeable over the weak/ignorant
89
LoPucki on Secured CreditFavors the powerful/knowledgeable over the weak/ignorant
1. Security makes the secured party and debtor better off, at the expense of unsecured party, buyer, or seller
“An agreement between A and B that C get nothing”
90
LoPucki on Secured CreditFavors the powerful/knowledgeable over the weak/ignorant
1. Security makes the secured party and debtor better off, at the expense of unsecured party, buyer, or seller
“An agreement between A and B that C get nothing”
2. System rewards security agreements, filing, and searching
91
LoPucki on Secured CreditFavors the powerful/knowledgeable over the weak/ignorant
1. Security makes the secured party and debtor better off, at the expense of unsecured party, buyer, or seller
“An agreement between A and B that C get nothing”
2. System rewards security agreements, filing, and searching
Most Americans don’t know these things exist.
92
LoPucki on Secured CreditFavors the powerful/knowledgeable over the weak/ignorant
1. Security makes the secured party and debtor better off, at the expense of unsecured party, buyer, or seller
“An agreement between A and B that C get nothing”
2. System rewards security agreements, filing, and searching
Most Americans don’t know these things exist.
3. Byzantine filing system favors repeat users
93
LoPucki on Secured CreditFavors the powerful/knowledgeable over the weak/ignorant
1. Security makes the secured party and debtor better off, at the expense of unsecured party, buyer, or seller
“An agreement between A and B that C get nothing”
2. System rewards security agreements, filing, and searching
Most Americans don’t know these things exist.
3. Byzantine filing system favors repeat users
Thousands of offices
94
LoPucki on Secured CreditFavors the powerful/knowledgeable over the weak/ignorant
1. Security makes the secured party and debtor better off, at the expense of unsecured party, buyer, or seller
“An agreement between A and B that C get nothing”
2. System rewards security agreements, filing, and searching
Most Americans don’t know these things exist.
3. Byzantine filing system favors repeat users
Thousands of offices
Refined legal distinctions control place of filing
95
LoPucki on Secured CreditFavors the powerful/knowledgeable over the weak/ignorant
1. Security makes the secured party and debtor better off, at the expense of unsecured party, buyer, or seller
“An agreement between A and B that C get nothing”
2. System rewards security agreements, filing, and searching
Most Americans don’t know these things exist.
3. Byzantine filing system favors repeat users
Thousands of offices
Refined legal distinctions control place of filing
Information costs money – on Web most people won’t pay
96
LoPucki on Secured CreditFavors the powerful/knowledgeable over the weak/ignorant
1. Security makes the secured party and debtor better off, at the expense of unsecured party, buyer, or seller
“An agreement between A and B that C get nothing”
2. System rewards security agreements, filing, and searching
Most Americans don’t know these things exist.
3. Byzantine filing system favors repeat users
Thousands of offices
Refined legal distinctions control place of filing
Information costs money – on Web most people won’t pay
Technical rules that invalidate 13% to 30% of all filings.
97
LoPucki on Secured CreditFavors the powerful/knowledgeable over the weak/ignorant
98
LoPucki on Secured CreditFavors the powerful/knowledgeable over the weak/ignorant
4. Threatens to destroy the liability system
99
LoPucki on Secured CreditFavors the powerful/knowledgeable over the weak/ignorant
4. Threatens to destroy the liability system
Respondeat superior: liability reaches those in control
Corporation(Assets)
Employee Tort victim
Control
Tort
Respondeat superior
100
Control
LoPucki on Secured CreditFavors the powerful/knowledgeable over the weak/ignorant
4. Threatens to destroy the liability system
Respondeat superior: liability reaches those in control
Security: Puts the value beyond reach of creditors
Corporation(Assets)
Employee Tort victimTort
Secured party(Value)
No respondeat superior
101
Control
LoPucki on Secured CreditFavors the powerful/knowledgeable over the weak/ignorant
4. Threatens to destroy the liability system
Respondeat superior: liability reaches those in control
Security: Puts the value beyond reach of creditors
Corporation(Assets)
Employee Tort victimTort
Secured party(Value)
No respondeat superior
Moral of the story:
1. Be secured
102
Control
LoPucki on Secured CreditFavors the powerful/knowledgeable over the weak/ignorant
4. Threatens to destroy the liability system
Respondeat superior: liability reaches those in control
Security: Puts the value beyond reach of creditors
Corporation(Assets)
Employee Tort victimTort
Secured party(Value)
No respondeat superior
Moral of the story:
1. Be secured
2. Don’t take a second
McCall on Secured Credit
It's Just Secured Credit: A Natural Law Case in Support of Some Forms of Secured Credit, 43 Indiana Law Review 7 (2010)
103
McCall on Secured Credit
It's Just Secured Credit: A Natural Law Case in Support of Some Forms of Secured Credit, 43 Indiana Law Review 7 (2010)
Lopucki’s criticisms are accurate but
104
McCall on Secured Credit
It's Just Secured Credit: A Natural Law Case in Support of Some Forms of Secured Credit, 43 Indiana Law Review 7 (2010)
Lopucki’s criticisms are accurate but
Harris and Mooney’s argumetn about property rights is irrefutable.
105
McCall on Secured Credit
It's Just Secured Credit: A Natural Law Case in Support of Some Forms of Secured Credit, 43 Indiana Law Review 7 (2010)
• The problem is not with secured credit but with consumer credit combined with secured credit and with the type of obligations secured in business finance. In short, the problem is with our theory of credit generally.
106
