Problem.Drafting a security agreement

     You represent Sarah Longsuff in a proceeding for the dissolution of her marriage. In negotiations for the division of property, Sarah's husband, a contractor and carpenter, has agreed to purchase Sarah's interest in his tools and pick-up truck for $15,000, payable, with interest, over 5 years. You think it wise to secure the obligation with a lien on the tools and pick-up truck.   If the obligation is not secured it might be difficult to collect if Sarah's husband falls on hard times and might be discharged entirely if Sarah's husband later files a Chapter 7 bankruptcy (under 11 U.S.C. 523(a)(15)). If the obligation is secured, a discharge of the debt in bankruptcy will not affect the lien so created.

     You must draft a security agreement, to be incorporated in an overall property settlement agreement to be presented to the court with jurisdiction over the dissolution. The agreement may be incorporated into the court's decree of dissolution such that the obligation and the security will be imposed by court order.

     Under 9-203(b)(3)(A) you could get away with a once sentence, signed composition:  "I grant Sarah Longsuff a security interest in [describe collateral]."  You could even tell your client to have her soon to be ex spouse simply e-mail her that sentence and type his name at the bottom.  But you think that a little more of your effort would serve your client better.  How should the security agreement describe the collateral?   Would your description need to be different if the obligation was also secured with the husband's post separation inheritance of some stock that he holds through an account with the investment firm of Provident Investments?  See U.C.C. 9-108. 

     What are some of the things you would like the security agreement to provide? For example, are you worried that the tools and pick-up truck might be moved, stolen, or damaged by fire? Are you worried about loan of the tools and pick-up truck to others? Should the pick-up truck be serviced?  Would you allow the husband to sell some of the tools or the pick-up truck? If you require in the security agreement that the husband do certain things (e.g. insure the property), what happens if the husband fails to perform?

     Pick a few of your concerns and draft clauses for a security agreement that would protect your client. After having done so, look at our sample security agreement.   Is there language in the sample security agreement that you prefer to the language that you have drafted? Does the sample security agreement address concerns that didn't occur to you? Are there provisions in the sample security agreement that you don't think you need?