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Keyed to Lopucki & Warren, Secured Credit: A Systems Approach, 5th Ed. Fall 2006, STCL, Prof. Musselman
Assignment 1: Remedies of Unsecured Creditors Under State Law
Creditor: Anyone owed a legal obligation that can be reduced to a money judgment. Unless a creditor contracts with the debtor for secured status or is granted it by statute, the creditor will be unsecured. Methods of Compelling Payment I. Levy under writ of execution (see Vitale) II. Writ of garnishment on third party when third party is in possession of debtor’s property or owes money to debtor Limitations on Compelling Payment I. No self-help repossession a. A prohibited seizure of debtor’s property may constitute the tort of conversion II. No “fishing expeditions” by showing up at debtor’s place of business III. Exemption statutes may prevent creditors from reaching assets a. Property exemptions b. Homestead exemptions Problem Set 1 P1.1. A year ago, the local Fun Furniture Outlet was having a liquidation sale. Lisa Charney wanted to buy some redwood lawn furniture but didn’t have the cash. Her friend and neighbor, Jeffrey Reed, lent $1,000 to Lisa. Jeff and Lisa were good friends, and Lisa said she would pay him back in a couple of months. When she did not, Jeff’s reminders became increasingly acrimonious. Now Lisa and Jeff haven’t spoken for two months, and she still hasn’t paid anything. Jeff is a journeyman electrician whose union has legal insurance entitling Jeff to four hours of consultation a year with your firm. Jeff came in today, showed you Lisa’s signed IOU for the loan, and asked if he could just go over and take the lawn furniture Lisa had purchased with his money. The furniture is out in the backyard, and he says it looks really nice. Jeff is sure it is worth less than the amount Lisa owes him, but he says he’d be satisfied if he got it. What do you tell him? Jeff cannot use self-help remedies if he is an unsecured debtor. If you go out and use self-help you may be liable for conversion. What can Jeff do? He could sue on the debt, get a judgment. Then get a writ of execution, to see if you can find personal property that the debtor owns. If found, get the sheriff to take the personal property and sell it, giving the proceeds to the unsecured creditor. Perhaps, garnish someone’s wages. If the property is exempt property, you cannot take the property. Texas has no $ limit on homestead exemption. P1.2. The following debt collection story appeared in David Morgolick’s New York Times column, “At the Bar”: Lobster-Con. Stephen King punks guy for lobster. Probably going to get sued for conversion, prosecuted for criminal fraud.
P1.3. Karen Benning is a successful dentist Dentist who loaned money to day care center. 10K loan to owner payable under certain terms. The center has never missed a payment. With rumors that the day care center isn’t doing very well, Dentist wants to collect early or take over the business and put in the old manager. What to do? If she wants to take over, she needs a loan agreement which details these rights. She doesn’t have that in this situation. She’ll have to wait until he has missed payments and then begin the long run of an unsecured creditor through the writ etc. Banks will put in things like insecurity clauses, which allows the Bank to exercise in good faith the acceleration of payments or a de facto default. On this happens, she can go to court. Additional problems arise when you note that the loan was made to a person, but for the purposes of a business corporation which probably owns all the assets. Collection from the person is far more difficult than collection from the corporation. You can file a motion requiring the debtor to come down on the stand and give testimony about what he owns. P1.4. Six months have passed since the preceding problem. The day care center has folded P1.5. Assume now that Knopf is living in Wisconsin. During his deposition, Knopf testifies that he owns the following property, all free and clear of any liens or security interests: Must look to see what property is exempt in the state. Cars are exempt up to 1200, and if he wants to use his consumer goods exemption of 5000. Lesson from Assignment One: Don’t be an unsecured creditor. Class Notes: -Know the places in which there is conflict between the UCC and the Bankruptcy Code. -Focus on the application of the UCC to the problems Secured Transaction: personal property financing, debtor creditor relationship. Involves secured debt. Secured debt is when there is property to be used as collateral when secures the debt. Security interest: interest in property that you convey for a secured debt. Locate the Property Identify what property you’re trying to create an interest in
Assignment 2: Security and Foreclosure
§ 9-109(a)(1): [Article 9] applies to a transaction, regardless of its form, that creates a security interest in personal property… Comment 2 to § 9-109: When a security interest is created, this Article applies regardless of the form of the transaction or the name that the parties have given to it. Problem Set 2 P2.1. In a parallel universe, a. Karen Benning will be allowed to pursue the Toyota’s full value as payment for her debt. b. A homestead is real estate, but as a security agreement, the home-owner has waived their rights under exemption statute c. The equipment from the daycare, worth $10,000 would be fully available for foreclosure, because it would be a secured debt. d. $2,265.95 in the bank account, would be available for foreclosure. Note how having a security interest that covers the property gives the secured creditor much greater ability to recover their interest. P2.2. Bonnie Brezhnev §1-201(b)(35): Determines if the transaction gives rise to a security interest. §1-203: If there is a lease, determines whether the lease is a secured transaction. Under 1-201(37), we must determine whether or not the transaction creates a security interest. There is personal property, the car, which secures the performance of an obligation, to pay monthly for the use. However, 1-201(b)(35) instructs us to look to §1-203 in the event of a lease. Under 1-203, whether a lease creates a security interest is “determined by the facts of each case.” There are two requirements which a lease must meet before creating a security interest.  “(b) . . If the consideration the lessee pays the lessor for the right to possession and use of the goods is an obligation for the term of the lease, and is not subject to termination by the lessee,” AND  (one of 4 possibilities). Here the applicable possibility is under “(4) the lessee has an option to become the owner of the goods for no additional consideration or for nominal additional consideration upon compliance with the lease agreement.” Brezhnev’s intent would seem to be to create a substitute for a secured transaction, similar to Baisle v. Erhal. The lease requires monthly payments and is not subject to termination by the lessee, which meets the 1st requirement of 1-203. The $10 purchase price at the end of the lease would constitute nominal consideration. Therefore, Bonnie’s lease transaction would constitute a security transaction, and she would need to comply with the regulations of Article 9. §9-109(a)(1): Article 9 applies to a transaction, regardless of its form, that creates a security interest in personal property or fixtures by contract. Class Notes:
Assignment 3: Repossession of Collateral
A security interest in property allows a secured creditor to trespass. requires no breach of peace.2. and If you can get over the fence without damaging or leaving the property open. Salvatore wants to delay until he has time to get the collateral together.3. but generally the security agreement gives consent to the secured party on the debtor’s premises. Salvatore Ferragamo is the sole owner of Ferragamo Construction Company. (d) The debtor keeps the bulldozer in a locked. Be sure to bring another lock! (e) As CF’s regular counsel. A S/P may use self-help repossession: a. §9-201 security agreement is effective according to its terms between parties. There may be an issue of trespass. a S/P may take possession of the collateral or render it unusable if they proceed without breach of the peace. 1st he will have to tell the secured creditor that he does not agree and the repossession it not something to which . Just walk in and disable the bulldozer. A confrontation with the guard is a breach of the peace. (73). Faye Maretka (a) Sites where there is neither a guard nor a fence. §9-609. Now assume that Jeffrey produced a second paper at your meeting with him. P3. against purchasers or the collateral. i. If there’s no protest then there’s problem. then it will be ok. (c) Sites where there is a guard. §9-603 parties may agree to standards. P3. Look back at Problem 1. the S/P may still also choose to act within judicial process). § 9-609: After default. Ask the guard if you may disable the bulldozer.I. and against creditors. (b) Sites where there is a fence but no guard. disable the bulldozer. the secured party may take possession of the collateral without judicial proceedings so long as there is no breach of the peace (of course. He must do something to make sure that there is a breach of the peace. §9-602(6). where a debtor cannot waive the requirement of no breach of peace (under 9-609). cannot waive no breach of peace provision. making S/P liable for acts of independent contractors (think repo men) b. S/P’s use of law enforcement officer may be presumptive breach of the peace c. Duty to not breach the peace cannot be waived by the debtor (see § 9-602(6)) Problem Set 3 P3. Therefore under § 9-609 at default. If you can do it without a breach of the peace. If they can get on the property and walk away with nothing happen. you should also consider You can put provisions in the S/A authorizing the S/P to enter the debtor’s property after default for purposes of securing or repossessing the collateral.1. then everything will still be okay. The duty to refrain from breach of the peace is a non-delegable duty. Jeffery has created a security agreement and is a secured party.1. steel building on the debtor’s own property. and if not leave. But note 9-602. He explained that he had gone Under §9-102(a)(72).
§9102(a)(2): account means the right to payment of a monetary obligation. The Assignee steps into the assignor’s shoes.  D keeps some of the payments. Using the accounts owed.  What if the transactions between D and the account debtor are unsecured transactions?. One of which is accounts payable or receivable. P3. P3. Why and how could Deare cheat: the debtor (deare). a S/P may repossess only after default. Solutions: Set up a lock-box: have the account debtors send all payments to a bank account with the Bank’s name on it. (b) Another account debtor. Wilson’s Farming Goods. This is more commonly referred to as accounts financing.  Fake receipts.  What if the equipment is bad and the account debtors have claims and valid defenses of Warranties. Get a Dog. Here there is some risk.6. (a) Horne’s Feed and Seed.  D sells goods to the customer and keep the money. Since default is not defined in Article 9. the customer (account debtor. one Yes. and is subject to all the claims. If the reason she’s missed payments are valid. A year after the preceding problem. §9-406(a): discharge of account debtor. Under 9-609. 9-404(a): Assignee’s rights subject to terms. P3. and defenses. that a business generates in the ordinary course of trade. or assignee could provide notification to the account debtor.7. contact customers. May have a guard. effect of notification §9-607(a): authorizes the secured creditor to notify and require the account debtor’s payments to be directed to the secured creditor. you must look to the S/A and state law to define when a party defaults. Firstbank may collect from account debtors who owe accounts to the debtor. or post office box controlled by lender). exceptions. Your firm represents Stanley Zabriskie and Zabriskie Autos. Assignor. she may not be in default. one may use this right to future income as collateral for securing credit. 9102(a)(3)). spot check invoice samples. claims. Brings the sheriff . One way to protect yourself is to have audit provisions in the contract. Assignment 5: Article 9 Sale and Deficiency . Deare Distributors sells farming equipment There are all types of property which may be used as collateral.he acquiesced.8. 9-609: Secured Party’s right to take possession after default. Do things to ensure that any attempt to repossess the equipment is a breach of the peace.5. P3.the case law would seem to automatically qualify the attempt as a breach of the peace. have customers pay directly to secured party (to hide payment receipt from customer have customer send payment to a bank account at lender bank. and pay off debts that come due.
000 in a commercially reasonable sale.$7k). Partial Satisfaction: debtor must consent after default in an authenticated record b. etc.000. § 9-610(b) elaborates: every aspect of the disposition must be commercially reasonable (time. Full Satisfaction: debtor must consent within 20 days to an unconditional proposal in an authenticated record made after default Redemption I. attorney’s fees. they can collect a deficiency judgment (see § 9615(d)(2)). because 626(b) says a court may pretty much make up the rules for a consumer transaction. A S/P may purchase the collateral i. Technically 626(a) may not apply. method. subject of widely distributed standard price quotation § 9-610(b): Sale must be commercially reasonable a. This here looks like a consumer transaction. As long as bank follows all the rules. The bank repossessed Maxwell’s silver Mercedes and sent him notification that the bank would sell it in a private sale “after ten days from this notice. Perishable goods ii. what is the proper amount for the court to award as a deficiency? UCC §§ 9-615(d) and 9-626(a)(3) and (b).1. the creditor must show that everything was commercially reasonable (§ 9626(a)(2)) . No notice required for: i. terms. At a private disposition only if 1. § 9-610(a): After default. 9-626(a) the debtor must complain to bring the issue of deficiency or surplus in issue. and expenses of sale is $10. Threatens to decline speedily in value iii. Section 9-626(b) applies to consumer transactions. a S/P may sell or otherwise dispose of the collateral in its present condition or following any commercially reasonable preparation. § 9-620: Allows the S/P to retain the goods in full or partial satisfaction of the debtor’s obligation a.) (see Chavers) § 9-611: Notice a. but it sells for $7. manner. III. (a) If the fair market value of the car is $8. a. the debtor has to complain (§ 9-626(a)(1)) Second. § 9-623: A debtor has the right to redeem the collateral by paying the outstanding obligation and reasonable expenses and attorney’s fees PROBLEM SET 5 P5.” The balance owing on the loan. It's $3k ($10k . Customarily sold on a recognized market II. including principal. Under 9-615(d) the surplus is paid to the debtor. interest.000. Exceptions (§ 9-611(d)).Sale I. place. Satisfaction I. At a public disposition ii. First. while the obligor remains liable for any deficiency. customarily sold on a recognized market or 2. A consumer transaction is defined in § 9-102(a)(26) = personal buying.
None of these exceptions .This is required.If the creditor can't show reasonableness then see § 9-626(a)(3).000.proceeds (B) Obligation . etc. (c) If Maxwell has enough money to redeem the car. the car sells for $7.136. process (2) Bank loan & interest. (1) $6250. to whom should you pay the money? Is the bank either required or permitted to pay Auto Parts Depot from the proceeds? In the event of a surplus. Private sale goes to commercial reasonability. process. which is greater than the cost of redeeming the car at $10k. taking. (b) if consignor . but there are certain exceptions in 9611(d). . (b) How much would Maxwell have to pay to redeem the car? UCC § 9-623. it was a commercially reasonable sale so he would still owe $3k. Your firm represents Wewoka State Bank. that’s the amount he owes. Under 602(7) a debtor can’t waive their right to notice. 9-615(a): Order of Distribution. East Bank does a steady business in the repossession of automobiles. the better recommendation is that he redeem the car. a friend of his offers $8. Including the deficiency. The bank refuses the offer because they follow a policy of selling all the cars they repossess through auto auctions. The friend can’t go to the auction. (3) Subordinate security interests if: (a) S/P receives notice before distribution. would you recommend that he do so or that he purchase another car just like it for $8. 9-627. Now how much should the deficiency be? UCC §§ 9-626. because it is only open to dealers. 60. goods that threaten to decline speedily in value. Even if the car is worth 8K. the act of purchasing the new car costs $8k + $3k = $11k. which limits deficiency judgment by the actual proceeds or what the proceeds would have been. (b) If the highest bid at the auction had been $75.886 (3) There would be a 20K deficiency.2. .000 for the car. P5. . and attorney’s fees in the agreement. Since $10k includes the total obligation and expenses and fees. P5.3. (A) Obligation .. The S/P must give notice to the debtor as described in 9-611. While the sale price itself is below market. Section 9-623 is the right of redemption. because the Auto parts store is an unsecured party they get nothing. it doesn’t mean it’s sold in a commercially unreasonable manner.(1) expenses of the sale. 9-627(b)(3) offers a safe harbor provision to potential dealers. which recently repossessed and sold the inventory and equipment of an auto parts store. (d) At Maxwell’s prompting. his old car will be sold and he’ll be stuck with the deficiency of $3k. So. It states that a person must fulfill the obligation and the reasonable expenses and attorney’s fees. Those are for perishable goods.what proceeds would have been (§ 9-626(a)(4)) creates presumption that proceeds would have been equal to obligation.000? Careful here! First.000. holding the collateral. or goods customarily sold on a recognized market. At the auction. (2) secured party who is foreclosing on their collateral. and the sale is for 7K. 9-203(b) (a) The highest bid at the auction was $47. it looks like $8k is less than $10k so you’d recommend that he purchase the new car. opinions. But if he purchases the new car.
In non-consumer transactions. and act in every respect in a commercially reasonable manner. If the bank doesn’t send proper notice. they would have to sue (b) Assume that Grizzly throws the hull away and the guarantors later prove that if Grizzly had spent $245. 9-620. P5. 9-602(7): debtor/ Obligor may not waive these rights: 9-610(b). 9-603(a): Parties may determine standards measuring fulfillment of the rights of a debtor. if the standards are not manifestly unreasonable. 9-626: when there’s a deficiency or surplus.really meets the facts of this problem. (4) phone # or mailing address from which additional info is available. Your client. 9-610 comment 4: secured creditor may be required to prepare the collateral to satisfy the commercially reasonable manner standard. notice of disposition may be waived by the debtor – but only by an agreement entered into and authenticated after default (see § 9-624(a)). liability is limited to amount: The Greater of  (Secured obligation +expenses.000 to install electronics in the hull it would have been able to sell the helicopter for $345. 9-624(a): Debtor or secondary obligor may waive right to notification of disposition of collateral under 9-611 only by agreement entered into and authenticated after default.4. 9-610 comment 9: recognized market = when the items sold are fungible and not subject to individual negotiation. 9-624. The bank wants to keep their deficiency judgment. (2) description of liability. The recognized markets exception doesn’t apply based on comment 9 to § 9-610 discussing a recognized market (fungible goods where prices not subject to individual negotiation). 9-612: Notification depends on reasonableness. is on a run of bad luck.000. and Comment 4 to § 9-610. attorney’s fees) – (Collateral sale price). 10 days is presumptively reasonable. Debt= 345K. Dealer auctions are not included under author intent of the comments. (3) phone # of secured creditor. and sue the 4 wealthy people. or  (Liabilities) – (Commercially reasonable Sales price). Proceeds = 0 . 9-626. Answer: Is it commercially reasonable to dispose of property by throwing it away? Almost always no. If not. A balancing test 9-102(64): 9-626(a)(3): when a secured party fails to prove that they complied with all Article 9 rules. Grizzly Bear Bank. 9-610(a): secured party may dispose of collateral in present condition or any commercially reasonable manner. However. 9-613. what is the Bank supposed to do with it? See UCC §§ 9-610(a). 9-620: Secured party may accept collateral in full or partial satisfaction of the obligation when:  debtor consents. 9-614. 9-611: Notification occurs when [earlier of] (1) a secured party sends notification to debtor and 2ndary obligor. 3 different situations in which a debtor may waive rights. 9-611. 9-613: What constitutes notification in non-consumer goods: 9-614: Notification must provide: (1) everything under 9-613(1).  secured party doesn’t receive notification to objection authenticated by (series of factors). (a) Grizzly would like to know if it is all right to throw the hull away. & duties of a secured creditor under 902. OR (2) debtor and 2nd waive right to notification.
Then. liabilities.9-626: Presumption that the proceeds = amount of the debt. Such actions would likely make the court side with the secured creditor and hold the installation of 245K worth of parts to be commercially unreasonable. Your client. This places the burden on the creditor. The debtor should place the creditor’s Article 9 compliance in issue. note that 9-610 does not require the sale or other disposition of collateral. Therefore the courts would assume that the helicopter was worth 345K. Addressed under 9-610 comment 4 which instructs courts to take a pragmatic approach and determine what is in the best interests. Here. and creates a presumption that the collateral given is equal to the amount of the outstanding debt. Requirement #1 is that the debtor consent. 9-620 referred to strict foreclosure because there are requirements which must be met to keep such collateral. They would have to comply with 9-620. You represent Chavers. 9-621. 9-611. Pedro Perez-Ortiz. The alternative is 9-620. Under 9-601: the secured creditor has a right just to sue on the debt and elect to forget about their security interest. P5. which would invoke 9-626. who have repossessed another Lear jet similar to the one they previously repossessed from the Frazier group. If the company . P5. Then the Bank would have to prove the value of the helicopter. and then the creditor would have to prove that they acted in the most commercially reasonable manner. where the secured party may keep the collateral in full or partial satisfaction. Under 9-626: The debtor could put Article 9 compliance in issue. you’re not accepting anything as full or partial satisfaction. Here the debtor took all the parts out.6. and helped render the helicopter unusable. (a) What should they do? UCC §§ 9-610. which must be of record in the terms of acceptance after default. Note: some courts have held that under 9-610 a secured creditor may be required to prepare the collateral. if that doesn’t work submit a proposal. That section merely allows that the secured creditor “may” dispose of the property. A court would likely look upon the lack of attempt to sell the business as a commercially unreasonable manner. Danger is that a court would find the value of the business to be the value of the debt. 9-620. Then the creditor would have to prove that the value of the business is what they say it is. Notice that under 9-601(e) your judgment lien will relate back to the date of perfection of your security interest! Also read Comment 6 to § 9-601. and attorney’s fees. The alternative is under 9-620. Here the company wants to take the jet in full satisfaction. the secured creditor hasn’t complied with article 9. They could accept the jet as full satisfaction of the obligation.5. It looks like they’re trying to get partial satisfaction. Here’s a good answer: give the hull back to the debtor. file a claim and get a judgment against the debtor (see 9-601(a)(1) which lets you do this). Aren’t they obligated to sell the collateral? No. allowing the SP to trash the copter for below cost. under 9-610 the. where the S/P may accept the collateral in full or partial satisfaction of the obligation (read Comment 2 to 9-620: acceptance of the collateral in full or partial satisfaction is not a sale or other disposition under Section 9-610). 1 st: try to obtain the debtor’s consent. However. and claim that the creditor did not follow the commercially reasonable standard set forth in § 9-626. bought a retail store First. This way. but they didn’t get the debtors consent in an authenticated record.
Specifically. Consumer Transactions dealing with 9-620 (g): no retention of collateral in partial satisfaction. and then S/P sent out notices) Synopsis: What we’ve dealt with is the rights and remedies of a secured creditor. you must sell the collateral. or collect on any obligation of the debtor II. Here. costs. Under 9-625. to the bankruptcy code. a computer software Because “these guys” are in bankruptcy. The next couple of assignments are a deviation. and since the amount of the proceeds is equal to the FMV of the jet. enforce. A party may request relief from the automatic stay under BK § 362(d): i. attorney’s fees and even punitive damages for willful violations b. as long as the sale was in a commercially reasonable public or private disposition. Once a creditor has knowledge that the debtor has filed bankruptcy. the secured party must dispose of the collateral. You have been counsel to CompuSoft. Think almost paid off car. a creditor can do nothing. it’s probably commercially reasonable.1. when the company tries to encumber or sell the plane later. and objects. the debtor has no damages. then it is presumed that the debtor accepted. (b) What if the debtor objects 9-619: Under 9-619: transfer of record or legal title: [look this up] 9-622 Answer: If the debtor doesn’t consent. The automatic stay protects the . Assignment 6: Bankruptcy and the Automatic Stay Automatic Stay I. 9-617. Courts take violations of the automatic stay seriously so don’t do it! PROBLEM SET 6 P6. Relief from Automatic Stay a. -Once the debtor has paid so much money in a consumer transaction. BK § 362(a): Creates an automatic stay against almost all activity designed to create. § 362 creates an automatic stay against many actions. (c) What if the Chavers simply announce that they have sold the jet to themselves for $800.doesn’t receive a notification of objection by the debtor within 20 days. Note the consumer protections provided in § 9-620.000? UCC §§ 9-610(c). BK § 362(k) allows for damages. they are protected by the provisions of the bankruptcy code. If a debtor feels damaged he may file a suit against the creditor. This is fine. If the debtor has no equity in the property and the property is not necessary for an effective reorganization III. If you ignore it. For lack of adequate protection (see BK § 361) ii. so he wouldn’t really recover. Violations of the Automatic Stay a. Looks like a private disposition to themselves. they will be subject to suit. perfect. including the collection of claims against the debtor that arose before the commencement of the case (362(a)(6)).
the stay will operate against all property of the estate and continued until certain time requirements are met. Even if the debtor objects. Also note that §362(k) provides for damages for violation of the automatic stay – including punitive damages. The determination must be that the Party opposing termination of the stay has a reasonable likelihood of prevailing at the final hearing. While the loan officer recommends to foreclose as soon as possible. §362(a): Automatic Stay – against any proceedings or acts to recover a claim that arose before the commencement of the case (6). Court must lift the stay if (1) the debtor has no equity in the collateral that an unsecured creditor might realize. You have been working for Kansas Savings Going forward with the repo is probably a violation of BK § 362(a)(5) (“any act to … enforce against property of the debtor any lien to the extent that such lien secures a claim that arose before the commencement of the case”).11. Under § 502. The best option is to file a request to lift the stay and at the court hearing.12. time case dismissed. (2) stay under §362(a) continues until the earliest of: time case closed. Additionally. which invokes the automatic protections under §362(a). §362(c): (1) stay against acts to the property of the estate continues until no longer property of the estate. Section 362(a) sets up eight very broad prohibitions of actions against the debtor. and the court will determine whether the claim is allowed and the the amount of the claim. Court must always lift the stay if the debtor doesn’t provide adequate protection. And note that the sheriff is a governmental unit. while 362(b) sets up the exceptions (28 of them). P6. and the loan is secured by a particular restaurant. Prime Cuts has filed chapter 11. Answer: secured creditors right is to file for relief under §362(d): P6. They just don’t mess around with violating automatic stays.3. part of the description of “entity” in § 101(15). §362(e): 30 days after request by a secured party for terminating the automatic stay.2. Everything is protected. . or if a case under Chapter 7.bankruptcy estate and the debtor personally. After the filing. the court must hold a hearing with notice. You don’t want to do that (see § 362(k) to find out why).000 to Bank West. or it is automatically terminative. a commercial bank in northern California. and determine the stay is to be continued. Note also that now the grain-processing equipment is property of the debtor’s bankruptcy estate as defined in § 541(a)(1) (“all legal or equitable interests of the debtor”). You are the senior in-house counsel for BankWest. Instead. Prime cuts owes $250. these claims are allowed unless a party (usually the debtor) objects. CompuSoft can file a proof of claim under BkCd § 501(a). or 13 the time a discharge is granted. 2 reasons for retaining collateral: the debtor has an equity in it or that it is necessary to an effective reorganization. § 502(b) allows CompuSoft’s claim to be heard by the court. AND (2) the collateral is not necessary to an effective reorganization.
however it would appear the outstanding value of the building would guarantee adequate security for the secured party.which details things that would suffice for adequate protection. Paradise has defaulted on the loan.5. The same afternoon Paradise Boat leasing. Even at a sheriff’s sale you are confident that there would be bidding in excess of your outstanding mortgage. Another of the BankWest files you received is that of Sprouts Up. He was upset that Hill Farms is now six months behind on the loan with no plans to make any payments until it gets a plan confirmed. They too have filed under Chapter 11. additionally the estate has a equity interest in the building as it may be used to pay off unsecured creditors. because Paradise has no insurance. and it is appraised at about $600. BankWest has begun foreclosure proceedings on the mortgage it holds on the building where the corporate headquarters are located.4. Yacht loan is in good shape. The loan officer anticipates an “agonizingly long reorganization while the corporate officers fight among themselves. Paradise has filed for bankruptcy and as such is protected by an automatic stay. and cannot adequately provide security for the boat. Here the secured party may file a right to lift the stay under §362(d). P6. §362(a): Automatic Stay. Adequate protection for property under §362(d) is a constitutionally protected property right. P6. If they file a motion under 362(e) for relief. Here the secured creditor can prove that the debtor has no equity in the property. (2) granting an extra lien to secured the diminution in value of the original lien. But Paradise seems to be in trouble. Code §§ 362(a). then go under 362(d)(2).6. What is your advice? See Bankr. a food processing §361: adequate protections may be provided by (1) requiring trustee to make a cash payment or periodic cash payment that lien decreases in value. The stay against any act to recover the collateral is automatically stayed when the corporation files Bankruptcy. 11 USC §362)a). If you can’t get insurance is there something this company could offer to offset the risk? Look to §361.Answer: They can’t foreclose. The building is in a good area. a company from which Hill Farms borrowed $126.” She wants the bank to get out as quickly as possible so the bank can loan this money elsewhere.000 and has missed four payments.000 fair market value.000 unsecured. P6. the court will consider this to be adequate protection. and you are working on Hill Farms Industries. Here the property isn’t necessary for a reorganization because it’s a weak location and was voluntarily closed before filing bankruptcy. So long as there is substantial equity cushion. Value of the yacht is 350K. and the property is not necessary to an effective organization. Sprouts Up owes $210. a Riverside chain of fast-food health-food stores. The yacht was bought with funds financed from BankWest. the loan is valued at 175K. . The secured creditors can file for relief under §362(d). (3) §362(a) §362(c) §362(e) (a) The first caller was the attorney for Watson Investment. rents a yacht.the debt has to be greater than collateral= no equity. Your firm does some debtor’s work as well. (d).
b.000. and interest accrues until the date of filing (6 months later).000 debt Hill Farms owes Macklin. Secured claims i. The value of their claim was 50K at the time of filing bankruptcy.000 as of the commencement of the case. (b) The second call was from the attorney for Macklin Mortgage. You are still counsel to CompuSoft (see Problem 6. Claims a. She is upset because she just received an appraisal showing the equipment. which is $30. They would still have a claim under §362(d) (1) for the failure to provide adequate protection.700.The unsecured creditor must talk to the hand. They will argue that they need to be compensated for the decline in value. BK § 502: A claim is allowed up to the amount claimed i. BK § 501(a): A creditor may file a proof of claim. Claim is secured up to the value of the collateral iii. and work with them as much as possible.000 = $2. Unsecured creditor’s are not entitled to relief under § 362(d). [Majority Rule] Assignment 7: The Treatment of Secured Creditors in Bankruptcy Bankruptcy I.5% interest per month) on $30.1). Secured creditor may receive interest on claim (called pendancy interest) iv. and the lowest form of life. As a representative of the debtor you must argue that the debtor will need the equipment for an effective reorganization. Secured creditor may receive any reasonable costs and attorney’s fees provided by agreement d. Exceptions: no un-matured interest (BK § 502(b)(2)) c. At 18% (1. An equity security holder may file a proof of interest. is now worth only about $40. Macklin has a security interest in Hill Farms sterilization equipment to secure a $50. Unsecured creditors share proceeds of the estate with each other pro rata Problem Set 7 P7. They are the amoeba of the Bankruptcy court. Next. you must start with the date of filing for Bankruptcy. Here. Constitutionally they are required to get the value of their claim as of the time of filing of a motion for relief. . which was appraised at $50. because they do not have an interest in property. Then we must find the actual value of the debt at the time of filing. this triggers a claim of no adequate protection. you must add the interest accrued up to the date of filing. the date is September 15.000. BK § 541(a)(1): The bankruptcy estate is comprised of all legal or equitable interests of the debtor as of the commencement of the case II. you want to be nice to this attorney. In fact.1. Bankruptcy Estate a. The value of the collateral is falling. BK § 506: Bifurcates secured and unsecured portions of a claim ii. The contract provides for interest from the date of billing. Unsecured claims i. First.
but it doesn’t use the contract rate. costs. P7. (c) How much should CI expect 1 more year pendency interest. (a) Describe CI’s claim now. CI’s claim.) She has learned that the debtor estimates that there will be sufficient assets to pay the unsecured creditors about 10 percent of their outstanding claims. The interest rate that it uses is determined by the court.3. At the time of bankruptcy (p. 506. Code § 502. We have 2 .2.500 = 5%. However. Several months after the meeting in Problem 7. $59. She wants to know what that means for CompuSoft. Unsecured creditors NEVER get pendency interest.exceeds the value of the claim.000. Your secured claim can never grow more valuable than the collateral.4k. is treated as a secured creditor.500) X (30K)= they’re going to get 5% Anybody with a lien at the time of bankruptcy filing. you only get pendency interest to the point that you are over secured. The amount available to each unsecured creditor is the percentage of assets to liabilities. §506(b). Do they get interest here? No. 360. So of the $32.interest applied as the effective date of the plan continues. (b) If the court also used a 12 percent 360. Section 506(a)(1) states that an interest is only secured up to the value of collateral and unsecured for rest of the amount. OR charges provided for under he agreement.400 + [pendency interest]. 118) 340k*(.400) = 360.635. Wu is back in your office about a week later. 506. Another of your firm’s most active clients is Commercial Investors. P7. which totals up to be 414.1. There is 10.192. We’re undersecured so no pendency interest. Total = 371. (59.340K + (interest-20. you only get post bank interest to the extent….12*6/12) = 360. Pendency Interest only applies if you are over-secured.812.How about interest that accrues after the filing date? Only secured creditors may get post-filing interest (pendency interest) under § 506(b). Elkins called you to say that she just received the trustee’s Final Report and Account showing that after payment of the expenses of administration and the other priority debt.460.4.757 divided by 1.575 available for distribution to general unsecured creditors in the Chapter 7 case.700 claim from P7.general unsecured creditors get paid pro rata according to their claim in total to all unsecured claims. and it seems that the fair market value is more like $325. the pendency interest is applied to the amount of the claim. Code § 502. She had the property reappraised. (The earlier appraisal was wrong.575 / $1. Bankr.400. (a) Assuming that the collateral value holds up in bankruptcy court. there will be $59. (In class answer: The claim as of the filing date was 360400 in last prob.allows creditors with a security interest that is over-secured to collect any reasonable fees. how much is CI’s claim? Bankr. § 726. Here. Unsecured claims (including CompuSoft’s) total $1.812 in pendency interest.191. under 506b. P7.500.191. the claimant will get $1.400x3month/interest= 10.212 §1129(b)(2)(A)(i)(II).1.
So you have 2 claims.3 b. The unsecured will be the same amount as every other unsecured creditor so 10% of 35400 = 3540 1%/month * 360400 * 3 months = 360400 * 10812 = 371212 [1129(b)(2)(A)(i)(II)] (c) Does it matter to CI whether the plan is confirmed today or a year from today? Yes. deferred cash payment at least equal Paid out over plan of 325k + interest as discussed in till case. you (a) If you are able to sell Start by figuring out the amount of the secured party’s (($85k*10%/12)*6months) = $89. have to pay 6% interest + 7k. Another week passes and Wu is back again. but trustee has authority for cost [506(c)].750.claims in this type of sit. (b) What should CI expect to be paid under a plan of reorganization? See b. Code §§ 502.040). she had been searching her records for a copy of the security agreement. P7. At your request.750 . (a) Now what is the nature of CI’s claim? See Bankr. Looks like they’ll be limited to the 10% of their claim ($36.06 = $3.$1. what happens. As a member of the US Panel of Trustees. limited to the value of collateral but claim in excess is unsecured so unsecured claim is 35400 which equals 360400. $85k + Interest can eat up the extra money.000 – $100k*0. (b) If the 10 percent payout for unsecured creditors persists.6. because they’re not receiving pendancy interest on their debt. Really losing money while waiting for plan to be confirmed. Don’t know where he got 4250 from—maybe pendency interest? 554 allows trustee to abandon property that’s of no value to the estate Assignment 8: Formalities for Attachment . The trustee will try to sell property and issue trying to raise is what about the selling expenses? Debt is 85k (principal and interest) so this is the claim.250.5. what should CI expect under a plan of reorganization? See Bankr. When sell.250 = $10. $100k – $89. She has finally come to the conclusion that no security agreement was ever signed. (c) Can First Capital prevent you from trying to sell If inconsequential to the estate 554(b). 506c has provision about expenses of disposing or preserving property. 1 secure and 1 unsecure. The secured creditor gets 89250 and trustee gets what’s leftover. P7. Becomes unsecured creditor since can pass test to show have a security interest in the collateral so will only get that 10% pay out. Code § 726(a). of problem 7. Secured creditors get paid first and since oversecured. So if can sell in 6 mo. (b) claim. get pendency interst. 506(a) doesn’t say anything about signing a security agreement. Under 506a. If can sale for 100k: 7k comes out upfront at closing so all we get is 93 and that’s how much money trustee has to distribute. 506. and interest not covered by any value in excess of debt in collateral.
describing the collateral and evidencing an intent to grant a security interest in the collateral II. Authenticated security agreement describing the collateral (§ 9-203(b)(3) (A)) ii. Value (§ 1-204) i. Security Agreement i. Plus. it even says there is another doc that is the security agreement. Therefore. and language that leads to the logical conclusion that it was the intention of the parties that a security interest be created. Letter: it isn’t signed by debtor. Rights in the Collateral i. a security agreement exists. others say as long as one is signed by debtor or reference each other. You either have to own. signed by the debtor. Composite Document Doctrine 1. and create an intent. the debtor has rights in the collateral. Attachment I. The note is signed by debtor but doesn’t have a collateral description. A financing statement is not required for attachment Problem Set 8 P8. Financing statement describes the collateral but the Ace case told us a financing statement alone isn’t enough to create a security agreement. The S/P must give value to the debtor 1. If they don’t all happen at the . or…partial interest?). then there’s nothing to secure anyway). and a security agreement exists. Possession or control of collateral pursuant to a security agreement (allows oral agreements) (§ 9-203(b)(3)(B). describing the collateral. but you retain title. Perfecting a security interest: file a financing statement under ucc 1 w/ secretary of state. § 9-203(b): Requires three elements before a security interest will attach to collateral a. Composite Document Doctrine: documents that are inadequate standing alone. 1-20144: If it’s a security agreement b/c it creates one even though not called one. P8. power to convey. A security interest is enforceable when §9-203(b)(3)(A): debtor has given value. So the docs read together could probably create an interest. 3 basic requirements: value has been given: secured creditors gives value to the debtor (if this doesn’t happen. Look to the transaction as a whole to determine if there are writings. Debtor has to have rights in collateral (again a no brainer.Assignment 8 Attachment of a security interest just means it is now enforceable. You are working as a law clerk Each document standing alone would not be enough. The purpose of a security agreement is completely different tan a financing statement. A financing statement doesn’t even have to be done to be enforceable against the debtor. Does each doc have to be signed by debtor for purposes of composite doctrine rule? Some courts say yes.(C). (presently intended to create an interest).(D)) iii. might suffice when read as a whole. that alone doesn’t suffice. Signed by debtor. Value may be for pre-existing debt b.1. The debtor must have rights in the collateral c. If you sale property to someone on credit. still one. You recently joined the legal department at First National Security interest attaches to collateral when it becomes enforceable. Authenticated security agreement that provides description of the collateral.2. Describe collateral. Its point is to just give notice to the world—they have constructive notice—that you have this interest. signed by debtor.
Debtor had rights in the collateral. When Stella delivered a bill of sale for the restaurant property. Class Answer: When all three requirements are met then you have an attached and enforceable security interest. P8. When you arrived at the Pablo Escobar closing. So overall. but now that all documents are together it is attached. because the “debtor has authenticated a security agreement that provides a description of the collateral. You may argue that under the composite document doctrine there may be other documents which reference each other internally and therefore may be read together and bring in the description of the restaurant equipment. In putting a description in later. This assumes that a court will use the Composite Document Rule. Mussleman believes that the best reading of the CODE implies that when all 3 things happen. or entering into a K to loan money unconditionally. the debtor must authenticate a security agreement that provides a description of the collateral. (2) as security for.3.(any 1 of these 4 there will show value has been given) a person gives value for rights if the person acquires them (1) in return for a binding commitment to extend credit or for the extension of immediately available credit. and therefore the creditor is not obligated to pay the money.he signed a security agreement. therefore there is no transfer of value. or (4) in return for any consideration sufficient to support a simple K The First National Bank’s security interest attached to the Fisherman’s Pier restaurant when Pablo signed the promissory note for 60K and the preprinted security agreement. and agrees with courts in Blundell and Allen. all the requirements of § 203(b) are met. The timing delayed the attachment of the security agreement. Under §9-203(b)(3)(A). (b) Two weeks later.same time.the promissory is not for value because only the debtor has signed the note. .839).” [COURTS ARE SPLIT]. [Basically a binding agreement to loan money. (K law wouldn’t allow this but ok here) (3) by accepting delivery under a preexisting contract for purchase. have a security interest enforceable against Pablo? The bank did not at that exact moment have a valid security interest because the security agreement lacked a description. you pulled from your file Signing the Security agreement without the description of the collateral. the security interest attaches.839. a preexisting claim. Yes. whether or not drawn upon and whether or not a charge back is provided for in the event of difficulties in collection. they won’t have attachment until all 3 are satisfied and the last thing happens. or in total or partial satisfaction of. 2-501(1): Insurable Interest in Goods. the agreement is unenforceable. This is the attorney from the debtor who is sending the list. So he disagrees with GA.When Pablo has his restaurant subject to the 60K lien security agreement exists.value is 1st given when the Bank delivered the check to the seller’s creditor ($39. at that moment. Value given. Manner of Identification of Goods §1-204: Value. or grant a line of credit]. probably when the check to the bank was given for $39. WRONG. (a) Did the bank.
. The thing to notice is when the security interest attached. they construe it against the drafter and admit parol evidence. (b). Assignment 9: What Collateral and Obligations Are Covered? Description of Collateral After-Acquired Property Problem Set 9 P9.2. they used the term “crops” to describe the collateral.(c) Would it have made any difference No. He’s no longer your client. If the terms are unambiguous.5. 2 years after the fact would not seem to matter. P8. 9-203(b)(3)(A). Assume that in the previous problem Note that Mestre did not lie. The Gillams are also raising sheep Under 9-108. Other option is to fill in the blank on the security agreement. The financing agreement is there ONLY to provide NOTICE. If the terms are ambiguous. this would be considered an act to create. Financing can never be a security agreement. 9-204.1. Future Advances P9. Robert and Mary Gillam (a) Who is right on the point of law? The answer will be however the courts interpret the contract language.After-Acquired Property. first look to the language of the contract. §9-108(a): Sufficiency of description§9-203(B)(3)(A) §9-204. (d) What if she discovered If she discovered it after Pablo filed for bankruptcy. Send a bunch of documents over to the trustee and make an argument under the composite document doctrine. Under 102(a)(35) describing farm products “crops” could be stretched to mean the sheep. and you do not have an obligation to tell anyone the truth of when the description was filled in. In interpreting what the parties meant in the security agreement.4. use the plain meaning rule. (b) What should the Gillams do? UCC §§ 9-108(a). Here. or enforce any lien against the property of the estate. perfect. you can describe collateral by type. Early in your second year of solo practice. and is barred by the automatic stay under § 362. P8. Here the K language.
and Other ValueTracing Concepts . Is this description broad enough to include after acquired property? No. except for the exceptions under 9-108(e) (protecting consumer goods). Products. The S/P should know better and must use unambiguous language for after-acquired property (i. asked Sandra Bernhard. You can make this security interest. 9-108: Sufficiency of Description. the partner Under 9-204 specifically authorizes that a security agreement may create or provide for a security interest in after-acquired collateral.5. “Additions”: does this mean additional equipment bought after the security agreement was entered into .4. The term “additions” used in the security agreement probably does not include or identify the newly acquired equipment. since the description is limited to exclude certain items it’s arguably not super-generic. This broad description deprived notice to any 3rd party. Assignment 10: Proceeds. P9. use a collateral description reasonable enough to describe the property to be used as collateral). 9-102(a)(23) 9-203(b)(3)(A) 9-108(e)Shirel. . the use of all is too broad. cars. Question: When a creditor executes the security agreement vis-a-vi a receipt. appliances” P9.? this is an ambiguity. Describe it more specifically: “grant a security interest in refrigerators.P9. Here the terms are fairly ambiguous. When the terms are ambiguous it should be construed against the drafter.the CC application had a provision for security interest in ‘all merchandise’ the debtor purchased on the cc. The court said that this language does not appear to include after acquired property. You are practicing with a small firm in Oklahoma that does all the legal work for Walter’s Department Store (Walter’s). This morning you met with Sharon Hammacher. Richard Cohen. That section says you can’t use super-generic descriptions.e. as the word was listed along with replacement parts and what not which would indicate that the agreement was for property already acquired and fixed. tv’s. This will probably be successful as a work-around for 108(c).3. if the debtor has already used the collateral in a previous security agreement what happens. But here. and determine the intent of the parties. bring in the parol evidence. a client of your firm. The solution is to include a security agreement on the receipt. general counsel for the Sun Bank chain. Note that courts are more willing to imply an after-acquired property clause in Inventory and other cyclically disposed and replenished property (such as accounts). and you must make a determination as to what the terms mean. . which would contain a description.
to separate what would be collateral and what would not. 9-201(a). who is doing business as Polly’s Plumbing. Account does not include a bank account. 9-315(a) (a) The money now in Polly’s bank account. however. for example sold the collateral for a check. (d) A Myna bird that Polly took from Pets are consumer goods. and accounts” of Polly Arthur. But the court will not imply an after acquired property agreement to equipment. The contract makes no mention of proceeds. constitutes proceeds. and the security agreement includes equipment. or replacements You can make the argument 9-102(a)(64)(c) . 9-203(f).e. the check is deposited into the account. and replacements: make a tracing argument that this property was acquired from the proceeds of collateral in the security interest. but if she sold the computer and you can show she used the money. Maybe make an argument that the after acquired property agreement is implied. This would be a tracing problem. See 102(a)(64)(B).that they arise out of the collateral. The bank account would not be included under bank account. in the additions to the inventory and accounts. 9-102(a)(2) excludes deposit accounts from the term account. offspring. The problem now becomes whether the equipment is proceeds? Was the computer traded in. We would have to trace money into the account. collected on for collateral. inventory. Proceeds is defined under §9-102(a)(64).is defined to include bank accounts as a deposit account. (a)(29) . The parrot would have to be an account under 9-102(a)(2) and then would automatically become proceeds. or replacements. additions. What if there is other money. This fits under the category of equipment 9-102(a)(33). substitutions. You would have to make an argument that it was proceeds. additions. For substitutions. and you can’t imply an after acquired property agreement in . To have a security interest in proceeds. Products Offspring Substitutions Additions. 9-204(a). the security agreement doesn’t include consumer goods. i. co-mingled. (64). under 9-203(f) proceeds are automatically included in any security agreement. products. In this case. (b) A parrot that Polly took in payment of an overdue account.Proceeds Problem Set 10 P10. (c) A new computer that Polly bought to replace the computer she owned at the time she granted the security interest to Firstbank. P10. Firstbank has a perfected security interest in all of the “equipment. things taken for payment. which is original collateral. Section 9-102(a)(2). as long as there is attachment under 9-315.1. Which of the following are collateral of 9-102(a)(2). the bank account becomes collateral to the extent that the money is part of the bank account.2. Are they included? UCC §§ 9-102(a)(64).
64(a)(c) appears to be incredibly broad. when insurance company paid ELP. The purse would not be collateral under previous provisions. FirstBank's inventory collateral probably covers the proceeds of inventory. This probably wouldn’t apply.4.distributed on account of supporting obligations: distributed on account of = investment property. c. Yes. As an attorney for The problem is that oil floats on water. An account presupposes a credit transaction. P10. The bank account. it will need to be traced. In taking 32K out. A simultaneous or near simultaneous action would not create an account. However. the right to collect the insurance constitutes proceeds. but under the new code revisions it would seem to be included as collateral. this is payment for an account.showed same pile of grain to bankers . A few months ago.consumer goods. and used most of the proceeds to pay the IRS. Joey Teigh contracted Yes. (a) ELP consults a. Equipment Leasing Partners 9-102(a)(64) 102(64)(c) proceeds arising out of the collateral. unless that party conspired to defraud the creditor. the 6K is proceeds.a transferee of funds takes the funds free of the security interest in the account. Comment 12a on pg 697. After writing a 2K check. he took out all the non-proceeds.5. The court that dealt with it thought it was very broad.3. and most dense liquid in a vat of liquid. that there will be an outstanding credit obligation. and is clearly collateral. Use the lowest intermediate balance rule. d. Wiersma case on 163 discusses this case. Billy Saul Estes.1. P10. At this exact point in time. Under 9-332(b). 9-315(b)(2): in order to make a claim for proceeds the proceeds must be identifiable. it could all possibly be attached under the doctrine of proceeds of proceeds of proceeds. b. or equipment would be encumbered by FirstBank's security interest. Assignment 15: The Prototypical Secured Transaction Problem Set 15 P15. The terminology of “profits and products” = in the language of the K. fixtures. is now proceeds of collateral. to the extent that the money can be traced. With the co-mingling problem. 38K left. Think of proceeds as the heaviest. Issue becomes whether an account came into existence during this one day period? P10. which flow into the accounts receivable account (§ 9-102(a)(64)(A)). An the bird is a collection for the account. would imply the purse won at the track as a profit. Any proceeds used from the disposition inventory to purchase furniture. Because the money was co-mingled. and then ELP transferred the 35K to the bank account.
9-317(a) (2).1. and 9-311(b). The law firm you work for is outside counsel to Personal Guarantees. Does she have a judicial lien on the car? No. the secured agreement is effective against the world at the time of execution. Calling the Cars in to be checked Check the mileage.P15. Random Floor Checks Obtained loans for forged sales documents P15. should you? UCC § 9-401. the first title is issued when the car is bought. . Leonard Drapkowski’s only valuable possession is his §9-102(a)(52): defines the term lien creditor. she is still an unsecured creditor and has not gotten a writ of execution to levy on the car [judicial liens are created and perfected at the time of levying]. levy.any time you are taking a security interest in Fraudulent Statements to Banks/ Checkers Train the checker to stay until all cars are in. however.2. Double Collateralized vehiclesFloor plan financing fraudEach time there is a new car they can search the UCC to see if anyone else has a security interest in these cars. (b) Can you go ahead with execution levy? If you can. they won’t have any titles any way. §9-317(a)(2) 9-311(b) §9-201: unless otherwise indicated in this code. UCC §§ 9-102(a)(52). What could the bank lenders . the less the personal guarantor has to lose. Note that her judgment lien was created after Bernie perfected his interest by notation on the certificate of title. Carscertificate of title If the cars are new. or the like.3. this is big leverage to get them to help you. What’s the point of getting guarantees on closely held corporations? The guarantees are usually unsecured. A creditor who has acquired a lien on the property by attachment. 9-311(a)(2): 9-311(d). Assignment 16: The Personal Property Filing Systems Problem Set 16 P16. The more the corporation pays back.How to protect yourself against being defrauded. (a) Now where does Felicia stand? UMVCTA § 20(b).
Can she still execute the levy? If you have the writ of execution and levy the car, this would make her a lien creditor. §9-102(a)(54). How do you decide between Bernie and Ex-Wife?? Got to 9-317(a)(2): applies to conflicts between secured parties and lien holders “A security interest is subordinate to a lien creditor” if the secured party can  perfect interest, or  filing a financial statement, before the person becomes a lien creditor. Here Bernie has perfected his security interest and gotten a security agreement/ and financial statement. 9-311(a)(2): provides that the filing of a financial statement requirement is ineffective, if the property is governed by any certificate of title statue Cars that are inventory To perfect a security interest in the car, you need to have it on the certificate of title. The other problem is . . .Is that 12,000 a real debt? Or is it more likely that this secured transaction was an attempt to defraud creditors of collecting. P16.2. Three Rivers Legal Services referred Sergio Morales to you. Sergio is a Salvadoran immigrant who has been §1-103(b)- you can go outside the UCC and use various cause of action described. §1-304: Obligation of Good faith: every K implies an obligation of good faith. §9-314(a)(1): Perfection by Control §9-201(a) §9-315(a)(1)- secured interest continues in collateral notwithstanding sale, lease, license, exchange, or other disposition unless authorized by the secured party. 9-317(b)- a buyer of goods, other than a secured party, takes free of a security interest if the buyer gives value and take possession of the property, without knowledge of the security interest, if the security interest has not been perfected. Peerless Packing- virtually fraudulent conduct ???? WTF. (a) What do you plan to tell him? See UCC § 1-103 (Rev. § 1-103(b)), 1-203 (Rev. § 1304), 9-201(a), 9-315(a)(1), and the footnote to the Peerless Packing case. No, under the UCC, Sergio is F-ed. (b) If you discovered that GFC repossessed three vending carts in the past 12 months, each time from a defrauded buyer, would that help your case? Under 1-103, Sergio can make an argument that there is some common law breach perpetrated by GFC. P16.3. As the most junior attorney in a firm that represents 9-109, 9-310: , 9-501 (a) Keith Pipes, an auto mechanic This is the creation of a security interest, and would therefore fall under the scope of art. 9 §9-109. The tools would seem to fall outside the range of property which does not require a financing statement, and would therefore need a financing statement. Search under the name of the debtor, in the state, etc. The tools may become a fixture by becoming a part of the real property, i.e. a sale of such real property is considered to include the fixture. Musselman:
 Classification of Collateral. Look to 9-102 4 types- consumer goods (a) (23), equipment (a)(33), farm products (a)(34), inventory (a)(48). (b) Bernie Wolfson, an inventor who lives in San Diego §9-311(a)(1), 9-109(c)(1). Under §9-109(c)(1): article 9 does not apply to the extent that a statute, regulation, or treaty of the US preempts this article. §9-311(a)(1)Where a system of filing has been established under federal law, Perfection can only occur through compliance with that system. Mussel/Man- Patents are filed in the state system In re Pasteurized Eggs. A patent would likely be a general intangible (c) Your client is a New York bank that plans Search the UCC state filing offices in New York. United States Copyright Office. With regard to copyrights or receivables generated by copyrights, the US Copyright Office preempts Art. 9, therefore one must file in the Copyright office to perfect. -Copyright requires that you must file a financing statement for each copyright, here it would be 119 separate filings. (d) Your client is an Indiana bank planning to 9-311(b): (1) Dealer’s inventory: must get the status of the cars. Cars are pre-empted by the car title system, you must comply with that certificate of title statute. You must perfect on each certificate of title. Unless they are a dealer – then this doesn’t apply 9311(d). (2) Automobiles not for sale- here you need to get the certificates of (3) accounts receivable from the sale of automobiles- this would be an account under 9-102(a)(2). (4) Federal filing neither required or permitted for trademarks. How to know which cars are covered by financing statement and which ones are not? Look at the car titles for each car, and CarsNew car inventory- have a manufacturer’s certificate of origin. Used Cars- has seller sign power of attorney to transfer the title. P16.4. The lawyer who assigned the Indiana bank case to 9-502(d): allows for pre-filing. You can file a financing before you have the security agreement. This gives you an earlier filing date, and time to search. 9-516(a): Once you’ve taken it down there, and gotten it filed, it is effective, even though it won’t appear on the index. HOW TO GET AROUND PROBLEMS WITH FILING  FILE THE STATEMENT,  ASK WHAT THE BACKLOG IS, WAIT A COUPLE OF DAYS AFTER THE BACKLOG DATE PASSES, AND GET A SEARCH.
Assignment 17: Article 9 Financing Statements: The Debtor’s Name
Debtor’s Name I. § 9-503: A financing statement sufficiently provides the name of the debtor: a. Exact legal name of registered organization i. See definition of registered organization in § 9-102(a)(70): essentially, a corporation b. Legal name of individual or organization i. An individual’s legal name is the name by which he is generally known, for non-fraudulent purposes, in the community ii. Trade names are insufficient
Problem Set 17 P17.1. Your client, Center Bank and Trust (CBT), plans §9-503- if the debtor is a registered organization, the name of the debtor indicated on the public record of the debtor’s jurisdiction of organization which shows the debtor to have been organized. 9-102(a)(70)- registered organization defined. MUST BE EXACTLY THE SAME as the corporate name. If not a registered organization go to 9-503(a)(4) 1 You will need to find out whether or not this is a registered organization? 2 When Corp get a list of assets, and make sure that the corporation owns the collateral. Hire an accounting firm, that demonstrate title to accounts, inventory, see who the buyers were 2 b. If not a corporation, “trade name”- under 9-503(c) the trade name is insufficient to give notice to the world. Instead, use the exact legal name of the debtor, 9-503(a) (4)(A). The problem is what is the exact legal name? Your actual legal name is what you are known by generally in the community for non-fraudulent purposes. Safe harbor might be §9-506: Minor Errors and Omissions. If you can determine the correct name of the debtor, then run a search, if the financing statement turns up, it is not seriously misleading. Hypo: Say we find out his correct exact legal name is actually Robert Joseph McErny. Should we search under variations? HELL NO, we did everything right, every other financing statement filed would be seriously misleading. We’re focusing on the name of the debtor, which is the most important, because it’s how you index records. The most common way of perfecting a security interest is to file a financing statement. So it’s important that a financing state comports with all requirements. 17.2How are you going to do these searches? Under 9-502 you can search under the legal names. Here, because you have a hard copy, (1) Susan AlexanderIf you have the exact legal name that you submit – and nothing comes up, then you are free and clear. Here we have a hard copy, what’s the standard? Look to every Alexander? With a hard copy you can see everyone’s name. How far do you have to go to conduct a “reasonably diligent search”??? Compare the address you have to the
If the financing statement meets § 502(a) then it is effective even if it does not meet § 516(b) II. 1st. then the financing statement is under 9-506(c). (3) Tessie’s Tire City. If the financing statement is received on Wednesday. corporation. Musselman would say. (2) John Phillip (“Jack”) Smith. in this case Friday. Gen Part. Wrongly Rejected Filings (§ 516(d)) a.names containing Alexander.You need to decide whether this is a trade name. “3 business days before the search request is made”. Request a search. as long as they have exercised reasonable diligence. under 9-519(h) must file by 2 business days after receiving the statement.te filing office can specify an effective date earlier than they are actually conducting the search.5TIME REQUIREMENTS. closing set for 16 days from today.filing office is supposed to comply with. One weeke aga a. because §9-506(c) says that every single one of those filings is effective notice to you as a potential secured creditor. How long to get results back? 1st you have to wait 2 weeks to search. You file a request on Thursday. and withhold funding.file the financing statement.there will be a ton of hits. 2ndb.3Let’s assume John Phillip Smith is the exact legal name of the debtor. 17. therefore need to get their legal name. To make the financing statement searchable. They can specify a retro-active date. 17. 17. or if just a sole proprietor. Wrongly Accepted Filings a. LLC. Assignment 18: Article 9 Financing Statements: Other Information Filing Office Errors I. How can you be sure you don’t ask for a search before your financing statement appears? Under 9-523(c). The rule is WAIT 3 BUSINESS DAYS AFTER YOU FILE A FINANCING STATEMENT TO REQUEST A SEARCH. they have 2 business days under §9-523(e). And however long it takes for them to get it back to you. trade names are insufficient. Incorrect information is insufficient reason for rejection . Filer Errors in Accepted Filings a. File the statement. etc. What happens if the filing office doesn’t comply with the 519 rule? NOTHING. The financing statement is effective III. they have until Monday of week 2 to get the search back.look for partnership agreement and see what the name of the partnership is. hey let’s go ahead and close. If the court implies a duty of reasonable diligence.6 Isabelle Sterling. until the search clears.? Corp look in SOS public records. You would probably need to search all 112 filings. They have 2 business days to get the search back to you after request. but the filing office has the option to make the search effective on Monday of Week 1.
This is a wrongly accepted filing. the new secured creditor will jump you in line. Purchaser is defined to include secured party. and 9-502. and therefore the incorrect mailing address would likely be a seriously misleading error.Problem Set 18 18. They have to accept it if all requirements of 9-516(b) are met. just that these items appear on a financing statement. because the filing office is nor required nor encouraged to ensure that the substantive information is correct. 9-516(b)(5) §9-516 comment 3 If you don’t know the ID number for an organization. irregularity = incorrect mailing address for the debtor – Under 9-516(b)(5). What if they don’t accept.1 a.  a trustee is a lien creditor. This is a perfectly good financing statement good against the trustee. the secured party’s address is required. However. 18. which is not covered under 9-338. Here this is a b(4) requirement and the information is missing. absence of local address for national company.  he doesn’t search the finance statements. this is a trustee in bankruptcy. Under 9-520(a). We don’t use 9-338 it only applies to 9-516(b)(5) requirement.define purchaser. 9-520(c): filed financing statement is effective even if the office is required to reject it. In the case of a organizational ID number. just put in your license plate number. b. c. and under 9-516(b)(4). they would gain priority over the prior secured creditor. before you can resubmit a financing statement which is accepted. under §9-516(d) except as to purchasers of value who gives value in reasonable reliance on the absence of the record from the files.2 a. if someone reasonably relied upon the information to their detriment in executing a secured interest. a court would likely hold it to be unreasonable to rely upon a wrong # as the only evidence relied upon when so much other information suggests notice. therefore he isn’t reasonably relying upon the incorrect information. 9-520(a): Filing office has to reject acceptance for reasons set forth in 9-516(b). The mailing address is a distinct identifier of persons with similar names.1-201(29 & 30). not the debtor. any incorrect information prohibit the perfection of the security agreement. The effect is to make the financing statement effective.filing office shall refuse to accept any record for reasons set forth in 9-516(b). Now its on the record. Therefore if a secured party relies upon the absence of your rejected financing statement. under §9-520. 9-338 requires a purchaser (someone who gets their property voluntarily from the debtor). even though it has all the requirements? You are still perfected. Here the address is for the secured party. and received delivery (if required) then he takes the property free of the security interest. However. . Under 9520(c) sends us to 9-338. a mailing address of the debtor is required. 9-520: the filing is effective as a wrongly accepted filing statement. and they do in fact accept it. Under §9-338: if a purchaser gives value in reasonable reliance upon the incorrect information. b. 9-338: only applies to information that is incorrect that is required by 9-516(b)(5). and does contain incorrect information. Accepted the financing statement with incorrect information does not perfect the security agreement. ***Notes.
e. Bank filed financing statement per §9-521. only required to refuse for elements listed under 9-516(b). however. In inquiring upon the name of the debtor. This thing could go either way. an error of this kind may give rise to an estoppel in favor of a particular holder of a conflicting claim to the collateral.§9-506 comment 2: error in the name of the secured party or its representative will not be seriously misleading. (b). However. Here the secured party has screwed up their own name. Pablo didn’t sign the financing statement.when the address doesn’t exist. 9-5 Look to Comment 2. **If this was a security agreement. if it is too specific it could lead to reasonable reliance on the part of the 3rd party secured creditor. §9-506: in an appropriate case. Teal case. and will provide notice to the world of a security interest. If a 3rd Party found this financing statement. where description of collateral is nowhere to be found. . the 3rd party creditor has a duty to inquire further. (c). Secured creditor’s name is completely wrong. Purpose of the financing statement is to give notice. one could conclude that only Pickle Logging: the requirement for collateral in the description on the financing statement doesn’t have to be as good as the security interest. §9-502 requires the secured creditor’s name to appear on the financing statement. §9-503(a). argument being that the mailing address is still present. Under 9-520.6 Pablo applies to borrow money against his restaurant. use of the secured creditors trade name. Purpose of the financing statement is different than the security agreement. Knowing who is the secured party is less important. correct addresses of the creditor and debtor. secured party’s will search under the correct legal name of the debtor. 9-108. they could reasonably conclude that the security agreement only applied to everything at the address listed. Description of the collateral contains the wrong address of where the collateral is §9-504. and probably not give a security interest at all. is dumb and dangerous. d. complete absence of description of the collateral.requires the debtor’s name. and a reasonable person may be Rare is the instance that a error in the name of the secured party or its representative will not be seriously misleading. f. which should put you on reasonable inquiry notice that the name of the secured creditor is wrong. Search conducted on March 1st. § 9-502 requires the secured party’s name. the name of the secured party will come up as non-existent. this would probably be harsher on the creditor.c. 18. but it will be ineffective. Under 9-502: this would make the financing statement completely ineffective. and a misspelling or trade name is a “minor error or omission” under 9-506.In writing the wrong name entirely. Crappy Collateral description = using the location. Because the address is wrong. This doesn’t put the world on notice of anything. 9-108: 9-504: reasonable. so the filing office will accept. super-generic description of collateral in financing statements is OK. and create a duty to inquire.
b. a purchaser of the instrument has priority over a security interest perfected by a method other than possession (must give value and . §9-510(a)a filed record is effective only to the extent is was filed by a person that may file it under 9-509. is not itself a security agreement or lease. Moneyinterest may only be perfected by possession.. Pablo signed security agreement.what’s the record to authenticate financing statement? §9-502(d): financing statement may be filed before a security agreement.authenticate a record that it holds possession for the Secured party’s benefit.debtor’s signature of a security agreement is authorization of a financing statement.by taking possession of the collateral. Here we have options as to what type of perfection the secured creditor may undertake. 2nd bank Financing statement was filed march 10. Cash into debtor’s register each day . or investment property may be perfected by filing.1st bank should require the debtor to sign his authorization of a filing statement. Pablo’s oral agreement was insufficient . . Possible solution is to hire the people working the cash registers or getting them to authenticate a record that it holds possession for the Secured party’s benefit. §9-102(47): instrument means a negotiable instrument or any other writing that evidences a right to the payment of a monetary obligation. In the case of a instrument. instruments.How should 1st bank change its procedures. .[comment 3] b. What are the permissible ways to perfect in each of these items of collateral? Be prepared to describe the physical processes. .he must make an authenticated agreement.instruments .§9-312(b)(3): a security interest in money may be perfected only by the secured party’s taking possession under §9-313. a. then hold the money after the signature of a security agreement and condition it upon a search. At closing. “Agency principle clause”. §9-509(a) & (b).. and is of a type that in ordinary course of business is transferred by delivery with any necessary indorsement or assignment.1. Negotiable promissory note.Gave money on March 15. here they weren’t authorized to file the agreement until Pablo signed the security agreement. a. 2 methods of possession §9-313(c): collateral in possession of person other than debtor. [3 exceptions]. §9-313(a): Perfection by possession or delivery: a secured party may perfect a security interest in . Assignment 19: Exceptions to the Article 9 Filing Requirement Possession Control PMSI in Consumer Goods Problem Set 19 P19. negotiable documents. §9-312(a): a security interest in chattel paper.
[Secured party can become the bank’s “customer. Control of a certified security is controlled by §8-106. §9-330(d). e. §9-104: Control of a deposit account. §9-314(a) and (b): Perfection by Control. for which certificate has been issued. . §9-102(a)(29): Deposit account defined. Instrument + security agreement = chattel paper.2. §9-312(a).take possession in good faith). security interest in chattel paper may be perfected by filing §9-313(a). §8-102(a)(4): certificate security means a security that is represented by a certificate. The question becomes. Here the monetary obligation is represented by the note that secures the cars.record that evidences both a monetary obligation and a security interest in specific goods. [Debtor secured party and the bank can authenticate a record] 3. Obligations are evidenced by promissory notes and security interests in the cars purchased. Clearly. Most likely this money is in a deposit account.Bank is lending money using the contractual right to payments as collateral a. [Filing] §9-312(a). [Secured Party can be the bank] 2.] d. 1.Where to find the sections that define control for certain property. has priority over any other method. obligations of customer in used car lot to pay for the cars they purchased. The preferred method of perfection in regards to chattel paper is to have possession.interest in investment property may be perfected by filing. which are excluded as deposit accounts. Shares of stock in GM.a secured party may perfect a security interest in certificated securities by taking delivery under §8-301. account in SP’s name. §9-330(a) & (b). Why isn’t the promissory note an instrument? Look to §9-102(a)(11): . c. [Possession] §9-313(a). §9-312(b)(1): the only method of perfecting a security interest in a deposit account as original collateral is by control. and (b) define the time of perfection by control. How to Perfect? .security interest in chattel paper may be perfected by possession.if a transaction is evidenced by records that include an instrument or a series of instruments the group of records taken together constitutes chattel paper. §9-102(a)(11) Chattel paper. §9102(a)(49). . Possession is the superior method of perfecting when dealing with an instrument.certified security is investment property. are the cars goods? Goods are any tangible personal property and clearly these cars are goods. [Control] §8-106(b): Purchaser has control of a certified security if delivered AND [(a) indorsed to the purchaser/ left blank. Money debtor keeps in bank account. Are any of these ways preferable 9-328 (1) a security interest held by secured party having control of investment property under §9-106. however it may be an investment or negotiable instrument (if it’s a CD or something). or (b) registered in name of the purchaser] §9106(a). 19.
Let’s go to accounts. Here. Accounts means a right to payment of a monetary obligation . . Not an instrument. This is an account.instrument61. 2. for property has been sold . . Maybe an instrument? This could be a writing that evidences a right to the payment of a monetary obligation. §9-102(a)(2)-account. This contract would likely be held to be an Account. b. a.3 .right to payment of a monetary obligation . What if document gives security interest in the franchise. general intangibles. This can’t be chattel paper. it is not in the ordinary course of business that would allow a contract to be transferred with merely an indorsement. for property that” BINGO. Chattel Paper §9-310. Classification:  Look to see if its anything else. because while the contract for payment references a monetary obligation. §9-310(b). except as otherwise provided in (b) and §9-312(b).payment intangible.What if the K for payment was only a negotiable promissory note. Want to perfect the security interest. that was an instrument within the meaning of §9-102(47). and could never be goods.b. Under §9-310. but it doesn’t contain a security interest in specific goods. It is the only way. negotiable documents. debtor cannot be an agent for the secured party for possession . so that they are secured. instruments.. which is intangible. but does not include rights to payment evidence by chattel paper or an instrument. What happens when 3rd party has possession of instrument? 19. §9-312(b).general intangible under which the account debtor’s principal obligation is a monetary obligation). and is of a type in the ordinary course of business is transferred by delivery with any necessary indorsement or assignment. and commercial tort claims you MUST FILE. §9-102(a)(11). and its perfected properly at the time of sale. is holding the note. a financing statemetn must be filed to perfect all security interest and ag liens. For every other piece of property other than Accounts. How to perfect a security interest in Accounts? File –While §9-312(a & b) doesn’t list accounts.a purchaser of an instrument has priority over a security interest in the instrument perfected by a method other than possession if the purchaser gives value and takes possession of the instrument in good faith and w/o knowledge that the purchase violates the rights of the secured party. . Garp Assoc. iff you can’t fit it in then it’s a general intangible. However. . . (47). §9-313. includes payment intangibles. §9-330(d). §9-313(a).any personal property. this is a franchise. comment 3 & 4. Default Rule. (42)-general intangible. or investment property. §9-312(a)-Perfection by filing permitted for chattel paper. . is not itself a lease or security agreement.
ex: you go to sears and buy a washer & dryer on your sears credit card.IS this a consumer good? 9-102(a)(23). Notes: need to ask for the original documents to check if the lender loaned against the property. §9-625(f & g): [f-Statutory Damages]: debtor or consumer obligor may recover actual damages. §9-210: This section gives the right to request information to the debtor only. The lack of certificate of title.Automatic Perfection §9-311(b) §9-313: When Possession by or Delivery to a Secured Party Perfects Security interest Without filing. state law doesn’t allow for issuance of certificate of title for a mobile home. you grant a security interest in the goods. indicates that we don’t need to look at the certificate of title. The certificate of title is clean. Based upon how the property is used. Was the mobile home acquired in a credit transaction. to get the purchase price. Under §9-313(c) & the comments: get the 3rd party to authenticate an acknowledgement that it holds possession of the collateral for the secured party’s benefit. or bought from the dealer itself with a security interest? 2 ways Sellers PMSI. are options are to go through article 9. rare book collection. 20K mobile home. Or under comment 3 a third-party may hold possession as an agent for the principal party (secured creditor). What do you advise? “discovering Automatic Perfection” §9-104 §9-309(1). 2nd – Is this a Purchase Money security Interest? §9-103: Defines PMSI.go to a bank to buy a boat from the boat dealer. What if they release the note.4 – Looking into proposed collateral to determine if there might be liens against the collateral that wouldn’t show up on even a diligent search. §9-625(b) + $500 in each case where a person fails to comply with a §9210 request.Under §9-313(c) a 3rd party may hold possession of collateral for the secured party. and maybe the real estate record if it’s a fixture. specifically exempted under §9- .located in remote corner. b. What about an automatically perfected security interst? Look to §9-309. and to buy the bank’s interest. 19.§9-330(d) Since we can’t get possession of the note. Issues: Does the LOC has a security interest in the goods? c. Do they have to tell? Under §9-313(f) a person in possession of collateral is not required to acknowledge that it holds possession for a secured party’s benefit. Mercedes-Benz: 309(1). Search the article 9 filing records. a.  Lenders PMSI. To determine whether or not the LOC is a agent in possession for a SP we would need to ask them.Look to how the mobile home was acquired. You grant the bank a security interest in the boat to secure the money. PMSI? 1st. and don’t tell us? They are given safe harbor under §9313(g): there is no duty unless the person agrees or law provides.
checking account: Deposit Account. we would need to contact the Bank. 4 categories of goods: Inventory. Here the property is used to review stock quotations and is stored at Kettering’s office.Art 9 doesn’t apply to assignment of a deposit account in a consumer transaction. which directs us to §9-104. §9-310(b)(8). actual use theories. the right to payment becomes a payment intangible and ceases to be a claim arising in tort. Control is established using 9-314. 9 applies or does not apply to. You want to see that the debtor has possession of the property. equipment f. equipment. §9-109(d)(12). account in SP’s name. We’ll need to check the documents. you’ll need to file a financing statement. we would need to ask again. solid gold ingot and 20 unset diamonds: No this. consumer good. computer equipment: The cost of the computer is immaterial as to determining whether this is a consumer good or something else. doesn’t appear under 9-309(1) as a category of goods that may be automatically perfected. it just prevents article 9 from applying. To find out if the Bank is a secured party. other than a commercial tort claim. Therefore you will always have to perfect an automobile on the certificate of title. consumer good. These differing theories: under the intended use at the time of purchase theory. If not this would make the computer something other than consumer goods: either inventory or equipment. 9-311 covers a certificate of title statue. 19. Farm. Always be concerned about the Bank’s Common Law Right of Set-Off.Does article 9 govern this suit? Commerical v. NOTE: once a claim arising in tort has been settled and reduced to a contractual obligation to pay. e. d(13).Article 9 does not apply to an assignment of a claim arising in tort. 1st. inventory.5 Janet wants to use a lawsuit against her former broker investor guy as collateral for a loan from her brother for 100K.You can’t have a automatically perfected security interest in collateral covered by 9311. to see if the good was purchased with the intent of making this a consumer good.Pig Example on why this is bad. then you are 1 st in line and good as gold. (b) Debtor secured party and the bank can authenticate a record. farm products. contact the vendor. check to see he doesn’t have possession. Non-Commercial Tort Claim. If equipment. . Under actual use theory. However a second issue arises: the intended use at the time of purchase vs. of which automobiles are covered in all 50 states. These facts seem to indicate that this would likely be used in Kettering’s business. d. inventory. (c) secured party can become the bank’s “customer. Kettering may have purchased the computer with the intention using it as a family. In defining a consumer good. 9-109: Scope section. Equipment vs. Finding out about a record. and would likely be equipment. Collateral such as a deposit account is best held under control then filing. This doesn’t preclude a security interest from attaching forever. A secured party has control of a deposit account if: (a) Secured Party can be the bank. tells you what Art. You should file a financing statement. the principle use of the property determines whether it is a consumer good or not.
1.you would be taking a security interest in the partnership interest. . has to be recorded in the real estate. the question becomes whether this is her business or profession.you can only perfect by filing. if not. or (b) the claimant is an individual and the claim: (i) arose in the course of claimant’s business or profession. They want to lend 1. In making a determination.goods used or bought for use primarily for personal. a. the claimant (Janet) is an individual. §9-109(a).Pacific Interests hold 200K mortgage and note from Mark VI Partners.individual occurs obligation primarily for personal reasons AND (B) a security interest in consumer goods secures the obligation.If suing under the Contract theory. 9. Contract Breach. joint tenants with interest in the real estate itself.nothing discusses commercial tort claim as an exception. could they perfect by a fixture filing? The issue is whether the land has fixtures. If held as a partnership.5 mil to Pacific Interests. AND (ii) does not include damages arising from personal injury or death.Article 9 applies to transaction regardless of form that creates a security interest in fixtures by contract.(SLP) lends to people banks won’t touch. (24). Accounts. PI recorded the mortgage and the note in the real estate recording system. If they have a co-tenancy. IT IS THE ONLY WAY.“Consumer Goods Transaction”. 9-334: fixtures. Commercial Tort Claims. . e. family. NOTE: Interest in a trust is personal property.defines account. the property rights to proceeds fro the suits would likely be classified as a general intangible. individually: Need to find out if there is a partnership/ joint venture or if held as a joint tenancy. 9-310(b). and a partnership interest is personal property.§9-102(a)(2). How to perfect? The partnership interest would likely be a “general intangible”. If commercial tort claim.Article 9 does not apply to creation or transfer of an interest in or lien on real property except as applied under 9-203 & 9-308. hence governed by Art. Assignment 20: The Land and Fixtures Recording Systems Fixtures Problem Set 20 20.. to not include commercial tort claims (13) – “Commercial Tort Claim” : claim arising in tort where: (a) claimant is an organization. if so they could make a fixture filing. and as such may only be perfected by filing. or household purposes in which: (A). (d)(11). How should SLP perfect in 1/3rd interest in 160 acre tract of land? Does the form in which title is held matter? Corporation vs. §9-310(a).must file a financing statement to perfect all security interests. How to perfect 9-102(a)(2): (47): . 9-604. 9-109(d) (11). If non-commercial: put judicial notice in the court file. because it is an intangible property right embodied this partnership interest. original is in possession of PI. fixture filings. and General Intangibles = YOU MUST FILE TO PERFECT.
if an account file a financing statement. and similar items. etc. Some are bolted to the building.) (5) indicte that it is to be filed in the real property records (6) description of the real property.Filing Office. Might not be an instrument. take possession. 9-102(a)(41) – Fixtures: goods that have become so related to particular property that an interest in them arises under real property law. Look to definition of a negotiable instrument: “ . Store fixtures consist of shelving. This is a promissory note..9-109(b): 9-308(e): 9-310(a): 9-312(a) 9-313(a) 9-330(d): Possession is best. 9-501(a). some are free standing. (c) [Wherever the State directs] in all other cases where the collateral is goods that are or about to become fixtures. . Security interest in the mortgage is itself an interest in real estate. or both (a) File in the State Office if personal. Under 9-102(a)(65) a promissory note is defined. The question is what type of Collateral is a promissory note? In this case probably an “Instrument” under 9-102(a)(47). Under 9-109(b). because we can lose priority to someone else with filing. and perfection can be achieved by filing or possession. counters. (b) File in the locally declared office for real property if: (1) collateral is timber to be cut.What a Real Property Related Financing statement must contain: (1) name of the debtor (2) name of the secured party (3) describe the collateral covered by the financing statement (4) indicate that it covers real property collateral (fixture. probably not a negotiable instrument because not the kind of document where you bundle all this together. AND the financing statement is not filed as a fixture filing. 9-502(b).Local. h.we can take a security interest in the property Article 9 applies to. . cash registers. State. . 9-109(d)(11). Lease gives Pet’s World right to remove fixtures at the end of the lease. Record an assignment of the mortgage? Only if you’re nervous Nelly. If this had been secured by = chattel paper. . you are perfected in the mortgage without doing anything more. . and if unsure (which we are).right to payment of a monetary obligation that is secured by property be sold.look to local business practices . What could it be? Account.9-203(g): attachment of a security interest in a right to payment or performance by perfecting the security interest in the promissory note. “Store fixtures” offered as collateral in Pet World. . sufficient to give constructive notice. which happens to be secured by a lien on real estate. . or (2) fixture filing financing statement. AND . irregardless of the fact that the property is secured by something outside the scope of Article 9. cages. .
A: 1st. 9-502(a) & (b) What if the mobile home is not a fixture? PSF had its mortgage filed before the financing statement. When Folds sells a mobile home. Barker bought a mobile home. All PSF has is a interest in real property. If not a fixture then it would be characterized as a good. . Texas follows the MI rule of the Cliff’s Ridge case.(7) if debtor doesn’t have interest in the property. The description is always [brand] mobile home. b.tells us where to file when we need to perfect. the name of the record owner.Priority of Security interests in Fixtures: (e) a perfected interest in fixtures has priority over a conflicting interest in fixtures if: debtor has a interest of record in the real property or is in possession of the real property and the security interest: . You can also perfect as a fixture. If a consumer good.You represent Folds mobile homes.You filing statement must contain all 7 pieces of information. or as a fixture filing in the real estate records. Pacific argues the home is a fixture. Pacific brought foreclosure proceedings on the lot. c. Main Point: You can perfect in a fixture under Article 9. then it would be a seller’s PMSI. if this was a fixture we would lose to PSF. a fixture filing is filed in the real property records. they are perfected under Article 9. security agreement. and the objective intent of the parties is the most controlling fact. How should Folds perfect in the future? §9-102(a)(41). Fold’s Win or lose? §9-334(e)(1) . d. . If a good. and file it as a fixture filing as well.3. as they financed his purchase. How do you perfect a security interest in fixtures? 9-501(a). therefore a limited perfection (this is not a fixture filing). How to do that? Look to 9-501(a)(1)(B). What’s the logical thing to do if you’re not sure? File it under the UCC as if it was goods. 20. If we had made a fixture filing before the other creditor had recorded and their interest we would have priority?????? If you don’t make a fixture filing. If you just perfect under article 9 and it turns out it’s a fixture. Assignment 22: Maintaining Perfection Through Lapse and Bankruptcy . and serial number. and a standard financing statement. then you are subject to some limitations which we will discuss later. put it on a lot. Under 9-502(b). In the definition. could any of these items be fixtures? We’ll need to look at the definition. Is Fold’s interest perfected? If a fixture. and under e3 we perfected any way. you can perfect a security interest in a fixture under article 9. a. §9102(a)(41). and don’t perfect as to goods. the drafters are deferring to real property law to decide state by state what a fixture is. therefore we don’t care because they couldn’t have an interest in the mobile home. See definition of goods. We would’ve perfected as a good. PSF is not a lien creditor or trustee. it has the buyer execute a promissory note. and automatically perfected. the only people you’ll beat are the lien creditor and trustee. What if the challenger was a trustee in Bankruptcy? §9-334(e)(3): even if we didn’t make a fixture filing we would still control over a lien creditor. and belongs to the lot. Files in the SOS. Fixture Filing protects you against more creditors.
What to do? §9-102(a)(39). Today.a debtor who becomes bound by a security agreement. Nobody has a security interest in it yet. But a continuation statement must be filed 6 months prior to the expiration date. even if we want to. upon expiration. but you would get priority as of that date. 30.Problem Set 22 22. 30. §9-510(c). including after acquired property. 22. not the 2nd. §9-515. You’re going to need authenticated record or use 9-509(b) to get authorization to file another financing statement. whether or not expressly covered. b. 22. filed a continuation statement on Jul. This could be a problem. Debtor files Chapter 11. as to any purchaser of value. kicking and cooling.Duration and Effectiveness of financing statement §9-516(b)(7). it merely gives you a later date of priority. MODERNyou can re-perfect by filing another financing statement. because 9-509(b) only gives you implicit authorization from the security agreement as to the 1st financing statement.a continuation statement that is not filed within the 6 month period(§9-515(d)) is ineffective §9-515. Filed his financing statement 5 years and 2 months ago. The note was amoritized over 12 years. find intervening interests? Does it matter if those interests we acquired before or after the financing statement lapsed??? -9-515(c): financing statement is deemed never to have been effective. A: What about filing a new financing statement? We can’t file a new financing statement. 7. loan officer asks: a. Here the 6 month window begins on Jun. does this change advice for filing the banks next continuation? BRC §362(b)(3).1 – Bank of East Paltaka perfected on Dec. we’ll call it FS #2? It wouldn’t be a valid continuation statement. Did the bank file at the proper time? §9-515: YES. c.financing statement means a record or records composed of an initial financing statement and any files record relating to the initial financing statement §9-509(b). When should Bank file the next continuation statement for the filing? Here the Bank may start filing upon Jun. 2006. There is no continuation statement on file.filing does not occur if a officer refuses to accept if the continuation statement is not filed within the 6 month window. What to do? File a financing statement. and an amendment covering: (1) collateral in the security agreement AND (2) property that becomes collateral under §9-315(a)(2). so we would take our interest and keep on rocking and rolling. Uh oh. What if we search.2 Juan Gomez. The court stringently read the code to say that once a financing statement lapses there is no way to revive your perfection. 2011. Gomez has sold his restaurant and taken a security interest in all the restaurant equipment. with balloon payment after 6. 2010. 2001. authorizes the filing of an initial financing statement. NO. a financing statement is effective for only 5 years after the date of filing. What if we sneak it by them? 9-510(c) says that it is still ineffective. the case will be extended for 2 years. Purchasers are . 2006. 30. the automatic stay problem is expressly allowed under 362(b)(3) and 546(b)(1)(B) which allow the maintenance of a security interest to which the trustee is subject to. Could put language” the debtor agrees to all authorization for filing financing statements for perfecting all and future interests. Mar. what about Hays pg 376?? The court treated it as a 2nd financing statement before any contravening statement had been filed.
Bank’s security agreement covers 12 fork lifts. Burden is on you to demonstrate that you had possession. when we filed. continuity of perfection. Here the financing statement does cover collateral still secured by the collateral in the security agreement. Your client holds 120K 1st Security interest. 22. Effect of Lapsed Financing Statement §9-308(c): When Security Interest or Ag Lien is perfected. Therefore their filing perfection relates back to the date of perfection in possession. and they would’ve already had a perfected interest by possession. balance stands @ $210. secured creditors. These would be goods. NBC who filed a financing statement in regards to debtors accounts receivable. perfection by different methods.under 9-308(c): the first date of perfection can be one way [possession]. if there is no obligation secured by the collateral covered by the financing statement.3 Circus filed Bankruptcy. NBC FS#1 collapsed. Does this make any difference? §9-515: Duration and Effectiveness of Financing Statement. which isn’t covered by security agreement. Non-purchasers are trustees and lien creditors. it counts as perfected from the earliest date of perfection. and is then perfected a second different way during the time the first perfection is still applicable. under (c). there must be a provision in the security agreement. Therefore we cannot force them to file a termination statement. There are no provisions governing release of collateral. and any voluntary party. and then perfected by another way [filing]. §9-512: Amendment of Financing Statement Can we force them to file an amendment? No. How can this problem be avoided??? Ask where the stuff is? Possession is notice. then you can perfect by possession. the permissive language allows the secured party to choose whether or not to amend. because this is not consumer goods. Worthen filed a financing statement in respect to same collateral. At some point the circus would need their assets.5 a. Does 1st bank have to give Beaver the release? §9-513: Termination Statement Under 9-513. As long as AFP has maintained possession of the circus goods. AFP had possession on the day filings made. NBC filed a 2nd financing statement covering the same collateral. In that case. and if there is no inter-period where the interest was un-perfected. Here (c) applies. §9-322(a)(1): fist in time rule for priority. and if they don’t have possession this puts you on notice. [Continuous perfection . This issue came up in the Worthen Bank Case on pg 373. and debtor filed bankruptcy. Why didn’t this work??? 9-308 only applies when you perfect by one way. 22. Financing statement filed describe collateral as equipment. Beaver wants to borrow against drill press. . This is not the rule for non-purchasers. AFP also has security interest in the same property for 1 million. to force someone to grant a release. wouldn’t this help our client? NO.174.buyers. a stamping machine.” The bank lent $400K to Beaver Manufacturing. under 9-512: the language is “may” not “shall”. and all “replacements or additions. §9-313. SP shall file termination statement. and when AFP released them to the circus. First Bank. and wants First Bank to file a release to the drill press and office furniture. The issue becomes. Your client filed 1st. A security interest is perfected continuously if it is originally perfected by one method under this article and is later perfected by another method under this article. NBC made argument that FS#2 related back to FS#1 under 308(c). without an intermediate period when it was unperfected.
list of collateral defined. §9-322(a)(1): first in time priority rule You can get them to issue a list of the collateral. Bonnie kept a boat and used it personally. The moral of the story: if the debtor thinks he might want to borrow in the future. Whoever perfects first. wins.1 GBT finances BBWs inventory under a financing statement that describes the collateral as “inventory.Secured Party shall comply with this request 14 days after receipt. the financing statement relates the date of perfection. . This is done by §9-210.b. did the interlude have any effect on perfection of the bank’s security interest? §9-506(a): [Minor errors and omissions]: valid unless they make the financing statement seriously misleading.” The agreement contains no restriction on BBW’s ability to finance equipment or real estate elsewhere. its legal. for the collateral covered. or makes the transfer a default. accounts. Do we have priority? No. and chattel paper. [X] cannot be consumer goods because there was no transfer of ownership. 23. What’s the problem with bonnie keeping a boat at her house? It will change the boat from inventory to [X]. to the date the financing statement was filed. §9-502(d): financing statement may be filed before a security agreement is made or a security interest otherwise attaches. Anything the new lender can do? Can they call 1st Bank and make an agreement? Maybe. and 6 months later they need more money. get a loan against the drill presses. (b)(2). and Use Assignment 23 = all hell breaking loose. will Beaver be able to assure another lender that it will have the 1st filed security agreement against the drill presses. cause if he breaches it puts you back where you started. that’s just stupid. and show it to new Lender §9-210: Debtor can request the list of collateral. Now we’re in a fight for the drill presses. (a)(3). Assuming no transfer of ownership. does not prevent the transfer from taking effect. because First Bank would have filed first. Assignment 23: Maintaining Perfection Through Changes of Name. §9-507(b): [Information becoming seriously misleading]: except as otherwise provided [change in debtors name/ 9-508] a financing statement is not rendered ineffective if the information becomes seriously misleading under 9-506. Why wouldn’t someone issue a security agreement and lend money against the drill presses and furniture??? Say we do loan them money. and it demonstrates that they don’t have a security interest in the drill press. he needs to not-authorize such broad language in the financing statement. Could Beaver solve its problem. Contrary to provisions of the security agreement. Look to 9-502(d). but up to 1st Bank. What about agreement with debtor. and force them to list everything. a. §9-401(b): an agreement between the debtor and SP which prohibits a transfer of the debtor’s rights in collateral. If not. Identity. They go to the 1st Bank. demanding 1st Bank to issue written statement of collateral.
As such it would make the financing statement seriously misleading. it’s not affected. in which a security interest continues even if the SP knows or consent to the disposition. GBT assumes they own the collateral. otherwise they have an unperfected security interest. If its being used as equipment. So its probably equipment. The corporation took a boat that was inventory and exchanged it for a forklift. Assume. what evidence would exist of that fact. BBW traded one of the boats for a forklift. Under 9-315(c). household use. . 9-315(a): security interest follows into the hands of the transferee. IF bonnie did transfer ownership. that is now equipment. a financing statement remains effective despite being seriously misleading under 9506. It is received upon disposition of the boat.  proceeds are collateral in which a security interest may be perfected by filing in the office in which the financing statement has been filed. Would it make any difference if BBW bought the forklift using cash it had received from customer who bought a new boat? §9-315(a) & (d). and they are not being used as inventory. Assuming it’s used for personal. because the financing statement doesn’t cover equipment. Immediately UNPERFECTED when the use changes. A financing statement is still good. c. If the goods are subject to certificate of title. 9-315(d) a perfection interest in proceeds becomes unperfected on the 21st day after the security interest attaches to eh proceeds unless: (a) Following conditions are satisfied:  a filed financing statement covers the original collateral. who cares. We don’t have a interest in equipment. Then go to 9-507(b): except for changes in debtor’s name. d. if the debtor uses the collateral in a different way than described in the financing statement.a security interest in proveeds is a perfected security interest if the security interest in the original collateral was perfected. A security interest automatically attaches to the 9-203(f). they have to re-perfect by the appropriate method. If Bonnie did transfer ownership is GBT still perfected? §9-507(a): financing statement remains effective. BBW uses the forklift to move the boats in and out of storage. this occurred in a jurisdiction which doesn’t issue certificates of title for boats. but wonders whether we need to do anything about perfection? §9-315(a) & (d) Forklift would now be equipment. the boat would now be a consumer good. Start with 9-506(a): do the errors make the financing statement misleading. and when a new debtor comes in.  the proceeds are not acquired with cash proceeds. 9-311. yeah probably. The financing statement now covers inventory that isn’t owned by the corporation anymore. b. they need to re-perfect under notation of title. So its not misleading. it doesn’t matter. If Bonnie transferred ownership of the boat from her corporation to herself before she took the boat home. and under 9315(a)(2) we automatically get a security interest.therefore the corporation still owns the boat. How do we decided if our interest in proceeds is perfected? Proceeds has its own rules about perfection. but the forklift is proceeds. It means.
if the name is the exact name which appears on the public record under which they were organized. and financing statement is not effective to perfect a security interest in collateral acquired by the debtor more than 4 months after the change unless an amendment to financing statement which renders it not seriously misleading is filed within 4 months after the change. (d)(2) doesn’t apply. Once continuous perfection gets broken. Automatic Perfection under (c) which goes for 20 days. it basically says that you have to re-perfect by the appropriate method. and therefore this continuation of perfection would not apply for (d)(1). Might take a couple of months. changed its corporate name to SW General 6 months ago. Under (d)(2) Is this a case of identifiable cash proceeds? No. 2 boats suffer storm damage.2 SW appliance Corp. e. we need to figure out how to do this within the 20 day period. Say if the guy then filed bankruptcy. and if not what do they need to do to get one? There is no way to claim this insurance policy as collateral under Article 9. which basically means that we would file a financing statement that would include the new “collateral”. If you have a security interest in these boats.no we can’t file a claim for insurance in the SOS office. Insurance claims can still be proceeds under 9-102(a)(64). What about (d)(3)? (d)(3) requires that we perfect other than (c). Proceeds are included in the definition of collateral. You will still have an interest in the cash proceeds. insurance proceeds don’t look like any of those things. because article 9 doesn’t apply to this. GBT was not named loss payee. (d)(3) isn’t automatic perfection. you have a security interest in the claim. which will be pending. Security Agreement provided BBW would insure the boats against storm damage. . after 20 days the perfection in the claim expired. and then use (d)(2) for automatic perfection of cash proceeds? No. Is there a situation where d(1) doesn’t apply. Does GBT have a perfected security interest in the claim against the former insurer. you cannot resurrect perfection. They are unperfected outside of article 9.financing statement provides the name of the debtor if the debtor is a registered organization. 9-512 9-507(c). 23. Boat’s get destroyed. GBT is name loss payee on new policy. The question becomes. you can’t resurrect perfection.if a debtor so changes its names that it becomes seriously misleading under 9-506.financing statement must have the name of a debtor 9-503(a)(1). you would lose to the trustee. But you could probably make the claim that this is a proceed. is this perfected for a security interest in proceeds under 9-315? The collateral was a boat. and we’re looking at (d)(3) and we do have to do anything? If the collateral was of a type described in the financing statement. Since storm BBW changed insurers. as soon as something becomes proceeds it becomes collateral. because this would be proceeds acquired with cash proceeds. but your interest won’t be perfected. claim pending.Yes. and the filing statement perfected the security interest under the 2 boats. within 20 days of the change. What about (d)(1). Now we’ll have to find a way under (d). Can GBT simply wait until the claim gets paid. and require GBT be named as loss payee. (d)(2) wouldn’t apply either. To claim a security interest in this claim. This is where overbroad descriptions in the financing statement really help the secured party out. Is there anything we can do to make sure GBT remains perfected in all its collateral. 9-502(a)(1). then Financing statement is effective to perfect a security interest in collateral acquired by the debtor within 4 months after the change.
how far back do you need to explore? Is there some point that a financing statement becomes ineffective? 5 years. if we file an amendment . does a continuation statement have to include the new name of debtor that changed its name since the original filing? 9-102(a)(27). NO.9-5069-509(b). You need to look at what type of collateral you’re taking a security interest in. What’s the problem in our case now? If there is high turn-over in their inventory we lose our perfection as to all the equipment.3 a.automatically have an interest in proceeds 9-109 9-109(d)(13 9-102(a)(29) and (64) b. every 3 months. and bank accounts. If there’s a lot of big machinery. §9-515(e)? What if someone comes in and wants to borrow money. money. do they have a perfected interest? Under 9-315(c) . which suffices for the name. it would restart the clock on our financing statement at the date of filing the amendment. and figure out when he acquired this collateral. It’s possible to claim an interest as original collateral. gives us 2 bites at the apple. If ONB has a security interest in the bank account is it perfected? A bank account is a deposit account. does it have a 30 year life? Probably going to need to look back 10-15 years to see if he changed his name. This is a continuous perfection problem. 9-203(f). These rules really only deal with after acquired property. 23. By filing a financing statement with SOS they’re still unperfected. What about making an argument under proceeds? That the money in the bank account comes from the sale of something in which we had a security interest. 9-512(a).by executing a security agreement the debtor agrees to the filing of a financing statement and amendments. This would leave a 2 month window of exposed vulnerability. c. but you could have continuation statements on file. how often to check corporate records to make sure she could amend GBTs financing statements to avoid loss of collateral: at least before then end of every 4 months. fixtures. You’ll need the file #. which describe the collateral as equipment. While we lose our perfection. it would seem that it is included under bank accounts. form for amendments in 9-521. If an intervening interest did come in during the 4 month period after the name change. ONB lent 1 million to Beaver.: One of Beaver’s assets is a bank account which contains 85. and you can only perfect a security interest in a bank account by control.097. Loan included a security agreement and financing statement.Authorization Section. b. a continuation statement doesn’t even have to have a name on it. our security interest is still perfected. If they can trace proceeds from other collateral. and proceeds. Does this 2 way claim help us? Yeah. How can a old change of name be relevant. 9-516(b)(3) & (5). inventory. Conservatively.5 a. which is why the form has a place for a name on it. 23. which produces and services commercial pumping equipment. Is the name change seriously misleading? Your always ok to collateral owned at the time and four months after the name change. under 9-102(a)(29). Does ONB have a security interest in the account? Would this be original collateral under the s/a they signed? Look to the language of the s/a. how long has he owned it. chattel paper. general intangibles. 9-521 doubles as a continuation statement and an amendment. accounts.
Has a permanent tenured job at University of Missouri in KC. . If Shatner formed a Nevada Corporation under the name S. then the corporation is the debtor. do they have a perfected security interest under (d). What if the business is unincorporated and Louise owns a 1. How is this determined? Author quotes the “nerve center test”.1You file financing statement for 1st bank. under 2. d. b. Additionally. Look to (b)(3): a debtor that is an organization and has more than one place of business is located at its chief executive office (note a place of business is anywhere there is business operations taking place). and you would have to file in Nevada. Now where do you file? Is this the real debtor? 9-307(e) applies to registered organizations. a. filing in Missouri would be a good idea. We should file in Arizona and Kansas because he has homes in both states.they would have a perfected interest for 20 days. What if Beaver commingled $100 of its own money into the GBT Account? Perfection is automatic under 9-315? Must trace to prove that the money in the account is Assignment 24: Maintaining Perfection Through Relocation of Debtor or Collateral Assignment 24. and include corporations. The official comments. What if you find out he and his ex-wife are partners? Look to §9-307(a) place of business is a place where the debtor conducts its affairs. you must perfect in the state of incorporation. Under §9-307: use to determine where a debtor is located. . During summers. and inventory of Shatner engineering. accounts. What debtor names should be listed on each of the filings? If individual =Must use the exact legal name of the debtor. and his ex-wife runs the business. . If you have enough money. if an organization = use the corporation’s exact name.§9-301: Look to the principal residence of the debtor. Shatner returns to house in Tucson. I would file in Hawaii. The safe side says perfect in AZ. and we have continuous perfection forever as to cash proceeds. Does it Matter if the proceeds have been in for more than 45 days? No. says that principal residence is not defined. Kansas is certainly one. Is the debtor an organization? No because this is a sole proprietor and an organization requires more than one person.collateral moving around 24.3rd interest as a tenant in common. the question becomes. Here we use §9-307(b): a debtor who is an individual is located at the individual’s principal residence. MO. He’s sole owner. KS. c. and file there. In what states should you file? 1st look to who is the debtor. If the corporation owns the assets. Engineering Products. organization? If he’s sole proprietor.What states to file in? What names to list? See part a. Local law governs perfection. the bank account would be cash proceeds. Under (d)(2). which is a registered organization. Where is the organization conducting its affairs? Clearly wherever Shatner lives or stays is going to be in play. d. 24. Lives in an apartment on the Kansas Side of the line. c. Shatner probably lives in Kansas. In this problem. Collateral is the equipment. regardless of the location of the business operations. school is in Missouri. and the home in AZ could become his principal residence. individual v.2 .
The operations can move solely to AZ or to Mo. under 9-507. and if there is more than one location. What if this is an organization? If William and his wife are partners in a joint venture. and won’t show up. what if one dropped out? Its going to change the filing to principal residence. Subject to exceptions: while a debtor is located in a jurisdiction. Transfers the collateral to someone located in another jurisdiction §9-316(a)(3). the local law of that jurisdiction governs perfections. Intrastate transfers are continued. searches will you make? In what names will you search? In which filing systems? §9-301(1): Law governing Perfection and Priority of Security Interests. and are required to post such mergers. comment 3 Search under Tang’s name. What U. the effects of perfection or non-perfection. 24.Global Bank lending 1. Because we have wind that he may want to move to MO. and would require a new filing under the state in which the corporation was reincorporated.C. or the sale/ transfer of assets. Where are decisions being made? Must also monitor if there are two partners. What to do to monitor the location? Monitor the individuals principal residence. and general intangibles of Argon. Here the SOS makes it a little bit easier for us.C. go ahead and file in MO. you would need to file within 4 months to keep the perfected security interest. How would the answer change if loan were for $25 million? We’re assuming they’ve perfected their security interests where they were initially suppose to. the creditor has one year to find out. Any merger would wipe out their assets under the particular state. Is there anything we need to be aware of? Mergers. as long as the debtor didn’t agree the collateral would be transferred free of security interest. the security interest is deemed never to have been perfected against a purchaser of the collateral for value.3. what is the location of their chief executive office. If the security interest lapses. must figure out a way to find a debtors principal residence. What should 1st bank do to monitor the locations of the debtor? §9-316(a) &(b) b. 9-316(a)(3).a. How to find that out? This is more than likely going to be an internal transaction. Why search under Argon? Because if Argon is a debtor in a secured transaction. You would need to monitor where their business operations are located. The Key issue for an organization is the location of their business operations. Essentially you have 4 month period to find out the debtor moved. Because a merger is treated as a transfer of assets.9 million to Tang Aluminum to purchase inventory. If the debtors location changes. and they’ve granted security interest in all this collateral. the security interest granted will follow into . What can happen if they are individuals? He can move from state to state. What if they sold the assets? They could form a new corporation and sell their assets to the new corporation in another state. equipment. because it’s possible someone didn’t file against Tang. What if it’s a corporation? We know the corporation is incorporated in Nevada. They monitor. Article 9 gives us ONE Year to find out. 9-307(a-e) Location of a Debtor: (a) place of business (b) General rules (c) limitation of applicability (d) continuation of location: cessation of existence (e) location of registered organization organized under State law 9-316(a) 9-507(a) 9-507. Bank expects 1st security in those assets.as an individual he can move his principal residence and your security interest will lapse after the expiration of 4 months under §9-316(a)(2). and priority. and also the internal structure of the company. but if transferred to another jurisdiction ( an inter-state transfer). under 9-316(b). accounts.
obtains new clean certificate from that state. Thirdbank takes SI and perfect on the AL certificate. First Bank lends $65K to Kahled to purchase Jaguar. So if there’s a good faith purchaser. So long as there is a certificate of title issued anywhere. the perfection would continue for a year after the transfer. §9-337: also applies to this situation. . if intrastate those security interests would be valid forever. If it happened in TX: would have to look under the name of the old corporation. One month after new title issued. Even if it’s an intrastate transaction. and the debtor had sold the car in AL under the AL COT. If AL requires that all certificates of title state that they may be subject to other security interests not shown on the certificate.Tang’s hands if it is a intrastate transaction. Anything else? how about if either corporation has resulted form some kind of interstate merger? Need to check to see if they’re the survivor of an interstate merger. the 4 month rule doesn’t apply. “This state” will refer to AL in this problem. those security interests would still be valid if it was a intrastate transfer. Assignment 25: Maintaining Perfection in Certificate of Title Systems 25. uber-far back.1 a. If Argon acquired it from someone else in another jurisdiction. See 9-316(d) & (e) Firstbank is still perfected assuming the WI certificate of title is valid under WI law. We’re covered against the trustee. (not a purchaser of value) but as to Secondbank and Thirdbank. First Bank perfects by notation on WI certificate of title and akes possession of he certificate. if the state doesn’t. Kahled borrows $45K from Thirdbank. Note. but for $25 million. You’ll need to decided how far to go back. . a security interest in goods covered by a certificate of title which is perfected by any method under the law of another jurisdiction . 6months after new certificate. In most cases. However. For $250K not that far. because the security interests are still perfected for 4 months. and is deemed never to have been perfected against purchasers of value is we don’t refile in the appropriate state during that 4 month window. . they take free. those security interests would still be valid for a year. . Debtors goes to AL. Under article 9. specifically 9-316(d): subject to (e). Secondbank takes security interest and perfects on the AL certificate. The COT was issued and 7 months have passed. Going to have to look under Argon. that if 9-337 applies. 7 months later K files bankruptcy. 9-508 applies and it treats it like a name change. Kahled borrows $50K from Secondbank. . How about a name change? Have Tang or Argon changed their name? The filing statements would be good as to all the collateral acquired for the following 4 months. Anything Else? Where Argon got this property from. the security interest would still be perfected for one year. 9-337 will not apply. does not mean that a security interest perfected under that law becomes unperfected automatically. Then we need to go to 9-316(e): a SI interest under (d) becomes unperfected as against a purchaser of the goods for value 4 months after the new certificate of title is issued. and the secured creditor’s security interest is immediately cut-off upon sale to a non-dealer. he would be protected under 9-337. Because if Argon acquired this with security interests attached. Kahled moves to ‘Bama. no security interest is noted on it. Is Firstbank perfected? So we’ve got security interest by FB in WI. the security interrset will remain perfected. and good as to any of the collateral acquired before the name change. If it was an intrastate merger. the rules under 9-307(c) would apply. then if the buyer gave value and received delivery of the goods without knowledge of the interest. Goods become covered by certificate 9-303: comment 4: the fact that the law of one state ceases to apply under (b).
Babs moved to NY without notifying the bank of her move. What about 9-337? Let’s assume we’re in a state that doesn’t require “subject to prior liens” put on the title. notification must be sent to (a) 9-617(b): rights of a good-faith transferee in the transfer of collateral. 9-625(b): a person is liable for damages caused by a failure to comply with Article 9. Suppose Babs has the COT. Firstbank immediately demanded that Secondbank apply for notation of Firstbanks’ lien on the AL certificate. takes free of rights and interests. This is 25. is the Bank still perfected? How long? Missouri COT is still valid and still covers the car.3 a. went to AL and perfected within the 4 months.1 26. 25. suppose she registers the car in NY and gets NY plates a week after she arrives. the security interest is subordinate to Secondbanks. Is the bank’s SI still perfected? For how long? 9-303: it doesn’t make any difference if the goods are covered by COT in any jurisdiction. Does this change anything? Yes. lien is noted. because they found out about it. Who has the priority? Firstbank. but Firstbank wins as to Thirdbank. She surrenders the old COT in NY. 9-611c)(3): if the collateral is other than consumer goods. it doesn’t matter if the car is in NY or anywhere else. d.MO law probably holds that when a COT is surrendered is no longer valid. and has possession of certificate. subject to exceptions. Change one fact: Firstbank learned of the issuance of the new certificate 3 months after issuance.2.Babs lives in Missouri. doedsn’t issue COT. this would unperfect their security interest at that time..b. and owns a Nissan that is titled in Missouri. and Bank still has MO COT. as long as Secondbank didn’t know of Firstbank’s security interest. Secondbank promptly complies. Walk through: perfected under WI. Babs applies for NY COT. UMB financed purchase o fthe car.1 redux. and Firstbank’s lien was noted on the AL certificate. Its perfected forever as long as no new COT is issued and she b. b. 4 months have passed since move. AL issues certificate of title. a. any left overs go to the secondary lien holders. 9-615(a): it doesn’t make any sense to bid more than 27K. 9-303(b) goods ceased to be covered by COT at the earlier of [lists things] local law. NY c.4 Assignment 26: The Concept of Priority: State law 26. 25. . Between Firstbank and Secondbank who has priority 9-316(d) & (e). Assuming the facts of b. Secondbank wins as to Firstbank. Therefore their interest dates back to the WI COT perfection.
9-203 has 3 things required for attachment. and also a promissory note. 10th. 9-401: d. if done before they execute a lien.c. (2) something under 9-203(b)(3): get an signed security agreement AND file a financing statement covering the collateral. Look to this section to see if she has made some sort of commitment. but they’re probably going to levy on the property. and be first in time and first in right. 9-317(a)(2)(B). a secured party may take possession of collateral. which is defined under 1-204. Which is sometimes defined as a binding commitment to extend credit. One of the requirements is that she has to give value. Book points to 9-317.2a. Under 9-609 you have a right of possession. 28. However. Interest is attached and perfected when you get a judgment and the sheriff gains possession through the writ of execution. and it doesn’t attach until the sheriff seizes the property. she’s filed. 9-317(a) Here. (1) perfect Security interest before the person becomes a lien creditor. 9-308 requires 4 things for perfection. Under 9-308(a): a security interest is not perfected unless it has attached and all the requirements are satisfied.after default. which she hasn’t done. try to get a security interest in all or some of the debtors property: Under 9-317(b) either. you have priority. Under 9-203(b)(3) if she executes a security agreement she’ll satisfy the section and gain priority over the lien creditor. no. and you are owed more money than the property is worth. Assignment 28: Lien Creditors Against Secured Creditors: The Basics 28. If you show al the proper documents to the sheriff. In Mar. and also security for a preexisting claim. She hasn’t given value. But she hasn’t disbursed yet. Dispose of collateral under 9-610. Phylliss will have priority over the lien if she lends the money and meets one of the requirements under 9-203(b)(3). they start plastering.3 9-317(a)(2) . 9-609(a). then you get the property. she probably hasn’t because the whole point of the searches was to inquire if she was going to loan the money. This is the Grocery Supply case. has a security agreement. 9-308: security interest is perfected if it has attached 9-203(b): Priority between lien creditor and non-purchase money Art. A person becomes a lien creditor when their lien attaches. 9 secured depends on whether the lien creditor becomes a lien creditor before the secured creditor (1) perfects its security interest OR (2) files a financing statement and complies with 9-203(b)(3) b.1 9-317(a): Interests that take priority over or take free of security interest or agricultural lien 9-201(a): You could bring suit. 28. Is Phyllis perfected.
9-317(e) won’t protect us. if you sell the goods are credit and execute a security interest as to the collateral to secure payment of the purchase price. Then. that’s a new lien. 28. What if the boat used for business. Tell her to go ahead and sign it. go to the sheriff. 9-102(a)(23). the proper way to file is to file a financing statement. What are the requirements for attachment? Has there been value given? Yes. you’ll need to know if they’re in a certificate of title jurisdiction. because we don’t have possession.9-203(b) Between the time they’re searching alien creditor could come in an execute a judgment. Seller’s PMSI. Then security interest is perfected. Is this a consumer good? Use of the collateral is determinative of whether it is a consumer good. 9-317(b)(2) Once the sherrif releases the property he releases the lien. and satisfies 9-203(b). then its equipment. for any PMSI. The good news is that she’s in the office and will sign the security agreement if you say its ok. So before you lend any money. Not a consumer good. The advice is to file a financing statement right now. It is a consumer good most likely What if it’s a consumer good? Automatically perfected. Assum it’s a Non-COT. This is probably a Seller’s PMSI. and we haven’t executed a security agreement. 28. Therefore. Question becomes is this a PMSI. How to know if this is a purchasemoney security interest? A PMSI if the money lent to purchase collateral.9 . under Grocery Supply.in a consumer good? 9-309(1) says you are automatically perfected in a consumer good with a purchase money security interest. We haven’t filed a financing statement. Look to 9-317(e). so 9-317(a)(2)(b) won’t work. therefore no PMSI-consumer good automatic perfection. if used for personal household. and under 9-317(a)(2)(a). Lenders’s PMSI is when you lend money from a Bank. we win. if he takes it back the next day. make sure the debtor has possession of the collateral. Is there a problem? Here our security interest hasn’t attached.6 Can she get the boat back from the sheriff today. 28.defines consumer goods 9-308(a). use the money to buy collateral.7 Edith didn’t sign the security agreement. and file the financing statement. because it only protects as to between the time the security interest attaches and the time of filing a financing statement. and gain possession of the collateral under Grocery Supply. if the security interest has attached. there is a 20 day grace period in which to file a financing statement after the debtor receives delivery of the collateral. At that point.Perfection of a security interest 9-309(1) 9-317(a & e) 9-609 Since it’s a boat. Possession goes to notice. or family then consumer good. Go to the Sheriff and get the boat back.
. What could the security agreement have in it to make the advance secured? What the original agreement to contain a clause which is a “dragnet” clause. and saw her financing statement was duly filed. describe the collateral. They get priority if the debt to which they’re related has priority to the extent they are related. but as a general rule you must exempt your future advances to gain priority. the 10K interst. Fraud issue comes up under fraudulent transfer act. And (3) If the advance was made within 45 days of the levy? What about the 45 days? She can probably do it. Minority Rule: distinguishes between optional and obligatory advances. Carol has knowledge of the levy. Carol lent 1000 to bob. Have priority over anything owed at the time of the levy. She knows. A Security interest is subordinate to a lien creditor only if the security interest wasn’t perfected before the person became a lien creditor. and therefore actual knowledge. She will get the boat from the sheriff. Mortgagee certainly has priority as to the 50K original mortgage. to cover future advances. . Somewhere you have to describe the obligation that is secured by the collateral. so they will likely try and bid up to the value of the boat. 29. these are considered –non-advances. . The schuste Case is the MODERN Rules: all amounts have priority with respect to lien creditor have priority over the lien creditor’s.3 A year ago. and this $1000 would survive the sale. Bidders would probably bid at least. If the security agreement only describes the $1000 agreement then it would only operate as to the $1000 not any future advances. and have priority. .2 Debtor borrows 50K from secured party. the obligation. . will she get priority with the $31K? There are 3 ways to “bootstrap” a future advance to the earlier date of priority: 9-323(b): (1) not know about the advance.Assignment 29: Lien Creditors Against Secured Creditors: Future Advances 29. To what extent will the future advances gain 9-323(b): 3 ways a secured party may gain priority over a lien creditor in regards to future advances. What if all she does is give him the 31K and have him sign a note? The basic issue becomes. perfecting her security interest in the boat. so that they can recover their If Carol makes the advance . and the 5K in attn’y’s fees. Uni-Imports (466). What if no future Advance clause? You could execute a new security agreement. Carol asks whether this will work. if it was optional not entitled to priority. It’s now in the sheriffs compound. 29. If she does nothing . executes a note and security agreement. The financing statement is on file. . $31K because its subject to her 1000 lien. and describes the obligation. Bob gave a security interest in his 32’ boat.Her senior lien would survive the judicial sale. The issue is the 25K future advance.1 [real estate law] PRioriy battle between mortgagee and someone who has recorded a judgment on the property. . . is this a secured or unsecured loan? For a secured loan there has to be a security agreement which describes the collateral. BCA is owed $45K. BCA recovered a judgment against Bob in the amount of 45K. More like the minority rule. Will this give Carol priority? 9-317 & 9-323 are the priority rules. . (2) make the advance pursuant to a commitment when you didn’t know. The issue becomes that this is done to defraud the lien creditor. A transfer of a property interest includes the conveyance of a . Yesterday they levied the boat. . Bob wants an additional advance of 31K.
what will be your bidding strategy at the sale UCC 9323(b) & (d). Let’s assume they discover.property interest. UFA. If she executes that security agreement within the 45 day period of the levy. also a lien creditor. Converted into Chapter 7 on October 15. BCA could try to show actual fraud: that the whole reason this was done is to defraud BCA. The buyer has the boat. .1 Which of the following can the trustee avoid under the BRC §544(a)? Bankruptcy filed on April 15. and this is made a secured loan. Assignment 30. b. Bob owes Carol 5K. you conducted a UCC search found Carol’s financing statement. BCA is a creditor so they have they right to do some discovery. The basic security interst will definitely go through. as Chapter 11. Does Carol’s security interest for continue through to the Buyer’s hands? Yes. only applies to the debtor. the trustee. within that 45-day window. This seems Nuts doesn’t it? Fully conduct a sheriff’s sale. Call carol to see how big her interest is.says that a buyer of goodsother than a buyer in ordinary course of business takes free of a security interest to the extent it secures advances made after the earlier of: (1) the time the SP acquired knowledge of the buyer’s purchase. she has a security interest. Can she expand her interest in the Cash proceeds up to 45 days after the levy. and decdied the boat’s worth 32K. . 30. OR (2) 45 days after the purchase. Let’s say. How do you plan to get the information? §9-210. and there’s a buyer @ the sale. Can she expand the amount of her interest to the buyer? §9-323(d). Constructive fraud can only apply if Bob doesn’t get a reasonable value for the property in exchange for the interest. secured by the boat. The very second the debtor files bankruptcy. and up to the time of the 45 day period. Assignment 30: Trustees in Bankruptcy Against Secured Creditors: The Strong Arm Clause Under 30. This 45 day period is different than 9-323(b) because it is the “earlier of” language rather than the absolute 45-day period. Future Advances can increase the amount of Carol’s Interest. Carol advances 31K to Bob. If you can’t get the information. who pays $31K. the trustee instantly has the status of a lien creditor. and find out how much the interest is. . on April 3rd. Why in the hell would drafter’s do this? Beat the IRS. a. who can request this type of information.focusing on priority battles between Trustee in Bankruptcy and Secured Creditors. Carol can make a future advance and assert priority over those identifiable cash proceeds. Does this help them. and the Federal Tax lien act. Yes. Does Carol have any interest in the sale of the boat? Yes. 29. still less than 45 days after levy. the future advances will be covered. What if the sale is held 28 days after the levy. she doesn’t tell. In preopartion for bidding. under 9-315(d)(2) identifiable cash proceeds. If the boats sold. in finding out how much to bid? Not really. it does as long as the seller doesn’t authorize otherwise.4 Assume you represent BCA.
. Wrongfully accepted financing statement that satisfy 9-502(b) are effective. UB application fore a COT showing its lien. but impossible to tell its agasint the organization reather than a trade name. Attachment occurs when value is given. but it only applies to purchasers for value. They had a security interest in other equipment of G. In this case. c. Question when is a security interest perfected? A security interest in perfected is when it has attached & filing of a financing statement. it is applicable only to the extent that it is a sufficient financing statement. d. and a security agreement. it is exempted under 9-506(c) which satisfies 9-502(b).the effect of a financing statement lapses. upon lapse a financing statement ceases to be effective and any interest becomes unperfected. and any act to enforce the lien would be in violation of the automatic stay. The Bank’s interest would be A-OK. the Article 9 problem is perfection. More than likely the court will void this security interest as unperfected at the time of filing for bankruptcy. a security agreement. was still sitting on someone’s desk at the bank. On July 15. Its now Oct. However. Lawyers filled it in. f. debtor has rights in the collateral. Filing office should’ve rejected the filing. Attorney filed the FS on April 22. G bought a new Lexus for use by its executives. Filing a continuation statement won’t help us. but at the time of filing of the petition. UB delivered the application to the DMV.a. Automatic Stay Exception §362(b)(3) – to the extent that the trustee’s rights and powers are subject to perfection under §546(b) b. The trustee is treated as a lien creditor who was granted a judgment and levied on the date of the bankruptcy filing. Wyandotte Bank financed G’s acquisition of new machinery 8 months prior to Bankruptcy filing. 15. 9 days before chapter 11 is filed. On April 25. This would create an unperfected security interest during the bankruptcy. April 6. The absence o the description creates the absence of attachment because the description is necessary for attachment of a security interest. e. the security interest became unperfected as the financing statement was no longer valid. Glass co didn’t file a continuation statement. SO as against the Trustee. filed a financing statement 5 years prior to July 15. G signed a promissory note. even though it wouldn’t be a violation of the automatic stay. G signed a security agreement in favor of Union Bank. secured creditor by interest in front loaders. the financing statement is effective. Torgeson. not the filing office. Omitted all the information on his financing statement required by §9-516(b)(5) As result financing statement shows up under correct name of debtor. and a financing statement BUT Description of collateral in the security agreement was left blank. and is deemed never to have been perfected against a purchaser of value. 9-308. However. but not before a lawyer resigned. Same facts. 9-338 would seem to help the trustee. but Bank filed financing statement on April 14. §9-502. FNB made a loan to Gargantuan 2 years before filing of the Chapter 11 case. 9-515(c). Giddy up! We beat the Trustee. Paralegal filed the signed financing statement in the attorney’s office. The only question is was the security interest perfected when the bankruptcy is filed? It was. Name problem. The Trustee may avoid the secured creditor because filing the financing statement on April 22 would violate the automatic stay under §362(a)(4). But since it has been accepted.
ll need to perfect on the certificate of title because it’s a car. The trustee asks you to review the following transactions for possible avoidances as preferences. is allowed. you have been assigned Gargantuan Industries bankruptcy. If we left something out? Filing officer has to reject it. Filing occurred on the 26th. this would be a lender: the money would have to be used to purchase the collateral. Then. §546(b) “permits perfection of an interest in property to be effective against the trustee that acquires rights in such property before the date of perfection. This was done on April 25. Does the application for title violate the automatic stay? Lets look to §362(a)(4). One of the problems is that What happens if we’ve already disbursed the proceeds of sale and the purchaser files bankruptcy before the documents are received and recorded by the filing offices. and that would enables us to reperfect. What do they have to do to perfect? Here you. 30.automatic stay provision.1 – As the newest associates at a glamorous. Non-PMSIs Non-PMSI’s don’t have a grace period and would give other creditors priority over us. 1 st bank filed the FS the following morning. 1st. they financed the purchase of the car. So when Bankruptcy was filed they were unperfected. Gargantuan borrowed 300K for 1st bank. G filed under Chapter 11 on Sept. PMSI’s v. big-city bankruptcy firm. §362(b)(3). 9-311(b). Attachment occurred on the 6th. Here they’re in the grace period of 9-317(e).any act to maintain of perfect an interest of property to the extent that trustees power is subject to under §546(b). Their interest arose when BR was filed.. a. they had a security agreement.” PMSI? Allows a 20 day grace period after delivering the collateral.Senior Partne asks you to review and comment on the firms procedures for closing on sales of business. the relation-back periods for the certificate of title statutes are ignored by the courts in favor of Article 9. On Aug. and if they can prove the debtor borrowed the money to buy the car. FORGET THE UMVCTA IF YOU WANT TO DO WELL ON THIS FINAL. . If you really want to be safe. and filing a financing statement isn’t necessary for perfection in a car. G executed the loan documents on that day. How to decide if this is a PMSI? 2 kinds. 30. Assignment 31: Trustees in Bankruptcy Against Secured Creditors: Preferences Problem Set 31 31. and everything is OK. AND have to have a security interest in that property that was purchased.2. This basically means we didn’t violate the automatic stay. 9-317(e) refers to filina financing statement. Filing occurred between BR and the grace period. you have to wait for confirmation from the filing office that they’ve received our paperwork. They included a security agreement and financing statement. and they have a SI n the car.Did UB’s delivery of the application violate the automatic stay? 1st Did UB security interest attach along the way? Yes. The bank financed the purchase. Check out Comment 8 to 9-317. 15. the case was converted to Chapter 7. In 9-311. On Dec. The 20-day grace period over the 10 day grace period.
§547(c). Let’s go through the requirements: The 1st requirement. because the date of transfer was AFTER a security interest was granted. yes. What if the debtor could prove that the security agreement wasn’t signed until the date of perfection? Can we now say the transfer occurred on August 15? NO. 4th – Insolvent= the presumption is that the debtor was insolvent when the transfer occurred. If the perfection occurs within 30 days after it attached. The longer the security agreement goes unsigned.. the harder it is to say that the parties intended a contemporaneous exchange. (3) the transfer has to be for or on account of a pre-existing debt (prior to when the transfer occurred). Question of Fact for the court. 5th – The transfer did occur within the 90 day period before bankruptcy was file.The transfer was a contemporaneous transaction.did the transfer enable the creditor to receive more? Did the granting of a security interest give them greater claim than if they had been unsecured? YES. its August 16th. Attachment occurred on August 15. if perfected within 30 days of attachment. (6) The transfer must’ve enabled the creditor to receive more value than if the transfer had not been made and the debtor had just filed bankruptcy. The language of the statute says. A security interest will always allow a creditor to get more out of a debtor than anything else) Way to analyze these cases is to say WHEN WAS THE TRANSFER MADE? b(2. In this case. the time of transfer is the date of attachment. Here. (always be satisfied.a transfer is made (a) at the time the transfer takes effect between the transferor and the transferee. (4) The transfer has to be made while the debtor is insolvent (Generally a debtor is insolvent when its debts exceed its assets. that such to the extent that such a transfer was intended by the debtor and the creditor that the transfer was made to be contemporaneous exchange for new value given to the debtor.Question becomes can the trustee avoid this security interest? At first blush notice that the security interest was perfected before bankruptcy. 3rd. is the interest a transfer of the debor yes. 3. Look to 547(e)(2). the parties intended the exchange to be contemporaneous because it’s a security interest agreement. Here the security interest attached on Aug. 7) require that you need to know when the transfer was made. 15.is a safe harbor provision which allows us to pre-empt the trustee’s avoidance under (b). (1) There has to be a transfer of the interest of the Debtor in property (always satisfied). . and the trustee cannot satisfy §547(b)(2). Date of transfer is deemed to occur when the security interest attaches. There are 6 requirements for avoidance. AND is in fact a substantially contemporaneous exchange. transfer would be on account of a preexisting debt. because signing the attachment on 16th moves the attachment to 16th. 547(f) creates a presumption of insolvency for the 90 day period before filing) (5) The transfer had to be made within the 90 day period before the bankruptcy was filed (expands to 1 year when the person is an insider). “takes effect” when the security interest attaches. 2nd is it to a creditor. 4. All 6 must be satisfied. 6th. therefore Trustee can’t avoid it. parties to a secured transaction always want the transfer to be contemporaneous. (2) The transfer has to be to or for the benefit of a creditor (always satisfied). unless it can be avoided as a preference. and perfection occurred on August 16.
. 11th. But does anything save it? 547(c)(1). Here value was given. and attachment on July 21st. The trustee will be able to avoid it. the office received the envelope and accepted the filing. this is a 5-month delay.b. Was it perfected within 30days? No. EMS delivered the network to Gargantuan the following day. Made on account of a Pre-existing debt. Fourthbank issued the $30. because that was when the security agreement was signed (last of the 3 req. A security interest takes effect when it attaches. When was the transfer made? 547(e)(2)(a). Gargantuan signed a promissory note for the $30. when was the transfer made? This is determined by the date of attachment if the s/a is perfected within 30 days. In this case the time of perfection was Jul. (d) On July 21. 22. which is well within the 30 day allowed by (e)(2). Feb.000 check to EMS on July 21. 7th the debtor borrowed 300K from 3rd bank on unsecured one-year promissory note. 5 months later. What about 547(c)? Intended as a contemporaneous exchange? Yes. On Jul. and debt came into existence on Feb 7. So attachment occurred either on 21 or 22. Bankruptcy on sept. 1st. and When did the debt come into existence? Transfer on 11th. HYPO: What if the filing statement wasn’t filed until August 25th? the goods weren’t delivered until jul. c. 11. Where to look if perfection hasn’t occurred within 30 day transfer period? §547(e)(2)(B). G signed and executed s/a on Feb 7th.will save the transaction. the debtor signed security agreement for 300K loan. the f/S was mailed the same day. and the transfer relates back to the day of attachment. and a financing statement. and debtor has rights in collateral. Fourthbank mailed the financing statement to the office of the Secretary of State. value given. Immediately perfected by filing financing statement on same day. We start with. 7th borrowed 300K from 3rd bank on a secured note. During preference period? Yes Insolvent? Presumed §547(c)(1) has no application because the loan was made when it was unsecured The trustee can avoid the transfer.). 7th b/c that is the date s/a signed. 11th. 11th. 1st Question is When was the transfer made? Have to go to §547(e)(2). Courts have held in a case of delay. On Feb. The security interest attached on Jul. Now this is a pre-existing debt. In this problem it doesn’t make any difference because the transfer was made. §547(c) will not save this transfer. The transfer occurred on Jul. 29th.000. it might be jul 21st or jul. where it was received and accepted for filing on July 30. Then was it in fact a substantially contemporaneous exchange? Hell NO. There might be an issue as to when the debtor acquired rights in the collateral. 3rd bank attempted to file F/S but it was lost in the mail. and the filing statement was filed with the 30 day preference period. The attachment and perfection occurred on the same day.000 loan from Fourthbank. because it wasn’t intended to apply to a case of perfection outside the 30-day grace period. Transfer was made at the time when the security interest takes effect. Gargantuan purchased network software and hardware from the Electronic Machine Shop (EMS). When did it attach? Feb.which state that the time of transfer is @ the time of perfection. because the parties intended that this would be a contemporaneous exchange. Gargantuan financed the purchase with a $30. Can the Trustee avoid that interest. Is the SI avoidable under 547(c)? The 3 main requirements: Did the transfer occur on account of a pre-existing debt? If the transfer occurred on the 22nd then the transfer can avoided. a security agreement granting Fourthbank a security interest in the network. This would be avoidable by the trustee. On or account of a pre-existing debt? When was the transfer made.
transfer under 547(e)(2) occurs on April 12. Requirements for avoidance: Insolvency. Pre-exisitng debt? Yes. . the wife of Gargantuan CEO. Day after verdict. For 547(c)(1) to apply you have to show there was a substantially contemporaneous exchange.2. Here the transfer was on 4. if such creditor was an insider at the time of the transfer. Made within 90 days? No. Under § 547(e)(2) a transfer is made when the interest attaches if the interest is perfected within 30 days (§ 547(e)(2)(A)). Filed a suit a year ago. and the transfer may be avoided. Elsa has never been involved in the management of Gargantuan. but the other elements were not met until she signed the SA on April 12. 4thbank issued the check. given at or after signing of s/a that contains description of property as collateral. Is there a better way? Go to the debtor and threaten to force the debtor into bankruptcy unless given a security interest.between 90. P31. The security interest attaches when the elements of § 9-203(b) are met. if the security interest secures new value. The better answer is to go to the creditors and threaten to screw them by gong to bankruptcy unless they give a more equal share.The 1st question on avoidibility: when’s the transfer occur? Here the transfer occurs on August 25. Thus. “Insider defined in the definitions” She is an insider. 4 other creditors filed financing statements and recorded mortgages. and 547(c)(3). Here the Trustee would have to prove that the debtor was insolvent. transfer made within 90 day before bankruptcy filed. (f) On March 9. Do we get any advantage to forcing the debtor into bankruptcy? Yes. the transfer’s on account a previous existing debt. but this was pretty long. Is there any problem with this strategy? WE only get pro-rata. and 30% shareholder. Won a verdict.involuntary bankruptcy act. given by or on behalf of sP under such agreement [FIND THE REST OF THIS SECTION AND MARK IT AS A SAFE HARBOR] (e) Would the result be different if. Elsa gave value on March 9. because it’s been about 2 months.days and 1 year. on an unsecured promissory note. but he didn’t get the papers over to her for signing until April 12. and Gargantuan had used the other funds to purchase the network? (Think Not a PMSI) If the money wasn’t used to buy the equipment. Insider creditor. or when the interest is perfected if after 30 days (§ 547(e)(2)(B)). The trustee could then probably avoid those security interests when there is a presumption of insolvency. then §547(c)(3) doesn’t apply. for a preexisting debt. Mike promised Elsa that the loan would be secured. However. Gargantuan did not have the money to make its payroll. because the date of attachment only controls if the security interest was perfected within 30 days of attachment. It is avoidable under (b)? Yes. president. Generally. Yesterday the judgment became final.12. Michael Cohen. The financing statement was filed late in the afternoon of April 12. Step 1 is to determine the date of the transfer. Attachment occurred on April 12. §303(a).Safe harbor. look to §547(b)(4)(B). and perfection (filing the financing statement) was the same day.000 that day from Elsa Cohen. That’s less than 90 days. its within the 90 presumptory period of insolvency. It solved the problem by borrowing $300. Here. within the 30 day grace period is okay.
loan balance = 150K -70K = 80K. This allows the trustee to avoid the security interest to the extent that the Creditor improved their position within the 90 day period prior to Bankruptcy. and an unsecured claim of 80K for a total claim of 150K. because the Trustee can avoid 50K. FP1: FP2 .000 and the value of the inventory was $120. Because it’s a positive #. and an unsecured claim of 130K. and then ended up being 250K. This is the difference between the amount of the loan and the value of the collateral. However. On June 1. Figure out how much the creditor is unsecured at the second point which is the end of the 90 day period (the date of the bankruptcy petition). Swissbank holds a perfected security interest in the inventory of Gift of Love. This will give SwissBank a secured claim of 20K. First point. Every item in the inventory at the time of bankruptcy was acquired by Gift of Love on unsecured credit after June 1. and ended up being 170K. the outstanding balance on the loan was $250. prior to Bankruptcy. Starts off saying (b) doesn’t apply to accounts receivable or inventory EXCEPT: [Court Gobbledygook] Conceptually (c)(5) treats inventory and receivables as if the creditor has a interest in a singular mass. the perfection and attachment is immediate. But note that attachment cannot occur until the debtor acquires rights in the collateral (§ 9-203(b)(2)). With an after-acquired property clause. For each item of inventory.000. we must assume that attachment and perfection occurred in the past. the Trustee can avoid this amount. Notice it doesn’t apply to all collateral.value of inventory = 250K – 120K= 130K. Gift of Love was petitioned in to Chapter 7. Test= First point – Second point. attachment cannot occur until the debtor has acquired it. the transfer occurred on the date of acquisition of the item (because attachment and perfection occurred that same date – § 547(e)(2) and also note § 547(e)(3)).P31. Any time you have a security interest in after-acquired collateral this will be result. Does the trustee have any rights against Swissbank? Does it matter that all $70. But see § 547(c)(5). Be sure to apply §547(b) before you apply §547(c) Caveats. they can knock the 70K secured claim down to 20K.000.000 and the inventory to $70. 8/29. only to inventory or a receivable. what was the Secured Creditor’s position? Loan balance . The Trustee has the potential to avoid all of the security interests if they meet the criteria of § 547(b). the loan balance had been reduced to $150. By August 29. The way courts do this is through the TWO Point TEST.What if the loan balance was originally 100K. Figure out how much the creditor is unsecured at the first point (the beginning of the 90 day period). 130-80= 50K. Here the problem is that the entire inventory was acquired during the 90 day period previous to the filing for bankruptcy. Every time a new piece of inventory is acquired. Swissbank will have a secured claim of 70K. Second Point.3. The value of inventory was 120K.000 of the inventory remaining at the time of the filing of the petition was purchased by Gift of Love less than 90 days before the petition was filed? In this problem.
we need to have a future advance clause. it will have priority over any other later secured party who files a financing statement. • To make sure our 30K is secured. Sometime after that the debtor acquires a computer.000. Generally. Change it up again . • Check to make sure the security agreement covers after-acquired property. 200K is unsecured. so (c)(5) doesn’t apply. Without committing to make the loan. In late July. FP1: LB = 250K V/I = 120K FP2 LB = 250K V/I = 50K 1st What’s the claim in BR? The claim is 250K. Even Later SP1 executes a loan. Ex: Assume on March 1 Secured Party executes a security interest in the debtor’s equipment. (Don’t ever use negative numbers in the 2-point test).LB = 100K V/I = 120K LB = 250K V/I = 170K Here in FP 1. • If the original SA doesn’t have a future-advance clause. • If it doesn’t we’ll have to draft a new security agreement that will cover the property. Bank Two and Dawgs signed a security agreement on August 5 and Bank Two advanced funds to .1. Yu’re not better off because you are more in debt. Then sometime after that SP2 executes a security interest in the computer. as long as it is secured by a security interest. • The other point is that the 1st secured party will also have priority in regards to any extensions of credit whenever that is done. on August 1 Bank One filed a financing statement against Dawgs showing the equipment as collateral. $20K. 50K of which is secured. Bank Two approved the loan and filed a financing statement against Dawgs showing the equipment as collateral. §506 Bi-furcate the claim. . On August 5. on the condition that they have a security interest in the computer. loaning money $10. . This will still gives us priority over SP2 because of our earlier financing statement. Also in late July. Problem Set 32 P32. He can never improve his position from 0. once a secure party has a financing statement. 2nd Look to see if (c)(5) applies. Dawgs applied for a similar loan from Bank Two. Assignment 32: Secured Creditors against Secured Creditors: The Basics Summary: • Basic rule is the first to file or perfect rule of 9-322(a)(1). Is there any way that SP1 can ensure that they will have a security interest in the computer for the total 30K. and files a financing statement. Dawgs & More (Dawgs) applied to Bank One for a loan against its lawn dog manufacturing equipment. he’s over-secured. and then filed a financing statement.
” and filed a financing . 9-323(b).000. $250. became a lien creditor by levying on the equipment. gets SA and loans funds Aug 7 C-Dogs becomes lien creditor by levying against equipment (§ 9-317) Aug 10 B1 gets SA and loans funds There are three parties fighting over the same collateral here. Who has priority in the equipment? UCC §§ 9-203(b). This generally happens in situations like this (where one of the parties is subject to different priority rules than the others). rules between lien creditors and secured parties. then you perfected when you filed and filing controls again. i. C-Dogs (Lien Creditor) (§ 9-317) B1 had filed. 9-308(a). A year ago. The bank should check who has possession again on the day they sign the SA and loan the funds. Bk 2 = Bk1 The bank should file and check who has possession of the collateral on the filing date. (the rule says file. B1 v. 93232(a)(1). The key thing to remember is that this problem does a good job of pointing out THERE ARE DIFFERENT RULES. and Bank One advanced funds against the equipment. Time Line Aug 1 B1 filed a FS Aug 5 B2 files a FS for equipment. the only time perfection pays a role here is when perfection is by a method other than filing). Bk 1 v. Centurion National Bank loaned Flight Analysis. C-Dogs = C-Dogs Bk 2 v.e. 9-317(a). and then continued on to places unknown. B2 (§ 9-322) B1 was the first to file. They approved the loan to Dawgs. B1 (Art 9 SP) v. Bank One received the report of their UCC search showing their financing statement to be in first position. You essentially have 3 different priority battles. B2 (Art 9) v. So C-Dogs wins here. took a security interest in “flight simulation equipment. § 9-308 covers the rules for perfection. P32.2. C-Dogs (Lien Creditor) (§ 9-317) B2 wins because they perfected before C-Dogs became a lien creditor. a supplier and judgment creditor of Dawgs. C-Dogs = Bk2 Bk 1 v. As soon as the check from Bank One cleared. This will protect the bank from a lien creditor who has levied and taken possession. Bank One and Dawgs signed a security agreement. On August 10. Circular priority problem: Who has priority over the other? They sometimes occur because the priority rules vary among the types of competition. where they paused only long enough to join the proceeds from the Bank Two loan. If you file first then filing controls. the owners of Dawgs wired the Bank One loan proceeds to Freeport in the Bahamas. There is nothing in Article 9 to help courts deal with this. if you wait to file until you perfect. but the interest did not attach until after C-Dogs became a lien creditor. On August 7 C-Dogs. they generally say that public policy favors one party depending on the facts and equities of the case. Inc.Debtor.
” Will this work? UCC §§ 9-322(a)(1). (2) the security interest created by the other person was perfected when the debtor acquired the collateral. Harley Davidson. He recalls that Centurion took and perfected a security interest in some flight simulation equipment owned by Pilots Unlimited. because the transfer has no effect on the financing statement. Timeline: Mar. There are 3 requirements under 9-325(a): (1) the debtor acquired the collateral subject to the security interest created by the other person. A few days ago. 9-325. Centurion filed its financing statement on September 21. 9-322(a)(1) First secured party to either file a financing statement or perfect his security interest before the other secured party does either has priority. Who has priority? In selling the equipment to Pilot’s Unlimited. Harley figures that once Pilots Unlimited owns the collateral. they searched for prior interests. 21: CNB files FS against Flight Because under § 9-322 priority is determined by first to file or perfect. 21: CNB files FS and gets SA against Pilots Jul. and (3) there is no period thereafter when the security interest is unperfected. The proposed plan is to get FA to sell the equipment to PU. The fact that FNB has a security interest in FAs equipment will allow the security interest to follow the collateral under 9-315(a)(1): unless the secured party specifically agrees the transfer is free of their interest it will follow the collateral. but 9-325 codified the fair result of this situation. and perfected that interest by filing a financing statement on March 21 of last year describing the collateral as “flight simulation equipment. and 9-507.” Harley now proposes to get Flight Analysis to sell its flight simulation equipment to Pilots Unlimited. because when they filed their FS against Flight. Here this means that 1st national will have priority unless something else is done. CNB would pick up an extra security interest from their after-acquired property clause in PU. Centurion learned for the first time that First National Bank had filed a financing statement against the same collateral on July 21 of the same year. Under 9-325. including after-acquired equipment. Under 9-507(a) also provides that the financing statement of FNB is unaffected. .statement using those words as the description of collateral. It is just unfair the FNB should lose their security interest. They could never know that some other company with a perfected interest in all after-acquired property would become the owner of the collateral. Centurion’s chief loan officer. sees what is coming and is scrambling for a way out. FNBs security interest is alive and well. 21: FNB file FS against Flight Sep. Under 9-315(a)(1) both security interests will follow the security interests to PU. CNB is worried since FNB was the first to file. The courts used to use property law. The “debtor” for the purposes of this paragraph is PU. CNB will be the secured creditor of the transferee. “Centurion will be first because we will have the earliest financing statement on file that covers the collateral. the security interest created by a debtor is subordinate to a security interests created by another person.
would’ve filed first and the first filed financing statement covering equipment would cover any interest in equipment that they gained. Carol Dearing lent $1. Business Credit Associates (BCA) lent Muzzetti $45. Question is does she need to file a new financing statement. behind an eight-foot cyclone fence that is topped with concertina wire.000. The boat now sits in the repo agent’s compound. because none was contemplated at the time. and the previous one didn’t cover the after-acquired property. George Sol Estes borrowed $7.3. P32. Here.” ONB has just approved a $40. Now Bob is back to ask another favor of Carol. . Prior to 9-325. Can we somehow make an argument that the original financing statement covers our present security agreement? Under 9-502(d) A financing statement can be filed before a scurity agreement is made or a scurity interest otherwise attaches.000 “to protect the boat from sale by BCA and prevent BCA from collecting. This means that the security interest created by PU is subordinate to the security interest created by FA. As we do our new deal. Musselman’s inserted fact: Assume another secured party came along and took a security interest in just the dry-cleaning equipment. and they filed a financing statement perfecting their security interest. How to fix this if you are secured party # 1? What about having a subordinate agreement? Or paying off the lien for the computer equipment and getting them to file a termination statement. P32. (a) A year ago.” The security agreement contained no provision regarding future advances. but wonders if she must also file a new financing statement. what do we need to have the debtor do? Have to prepare a new security agreement. taking a security interest in several items of collateral. 9-502(d). About a month later. What Bob wants is an additional advance of $31. 9-609(a). ONB. Therefore they would have priority. to be secured by the dry cleaning equipment in his shop. asks whether this will work. Bob Muzzetti.000 to her friend. BCA also filed an effective financing statement. replacements or accessions. The transferee acquires the collateral subject to the existing liens of the transferor. Molly Parker.So in this case the debtor has to be PU because they acquired the collateral subject to the security interest created by FA. BCA repossessed the boat. Bob gave her a security interest in his 32-foot Bayliner boat and saw that her financing statement was properly filed in accord with the law of the state. The security agreement he signed at that time provided that the collateral would consist of the computer and any “substitutions. ONB filed a financing statement indicating that the collateral was “equipment. some courts reasoned that the after-acquired property clause allows the transferee to grant the interests only to the extent they have rights in the collateral. who has been your client for years.4. A s/a must have a description of the collateral. A year ago. Muzzetti fell behind in his payments to BCA and yesterday.500 from Octopus National Bank (ONB) to purchase a computer for his dry cleaning business. the loan officer at ONB.” Carol. What do you tell her? UCC §§ 9-322(a)(1). including the boat. March 1.000 line of credit for George. tells you that she knows she must prepare a new security agreement. UCC §§ 9-322(a)(1). the other person.
and make a new security agreement. If she does that. UCC § 9-339. This article does not preclude subordination by agreement by a person entitled to priority. Assume on March 1. P32. Harley Davidson is under a lot of pressure in his job at Centurion National Bank. BCA can ask the other creditors to obtain subordination agreements. On April 1.) “One more. Again. Finally. Debtor signs a security agreement. SP1 takes a security interest in Debtors equipment. YES. especially as to any future advances she might make. (2) They can also get a new S/A describing the new advance. SP2 takes a security interest in the computer (again with a security agreement and by filing a financing statement). SP1’s Future Advance: (1) They should have a future advance clause in the first S/A. BCA. Is there anything else you can suggest? UCC § 9-339. no security agreement. Would the scheme work under these circumstances? Comment 4 to UCC § 9-322. SP1 loans Debtor an additional $25k by taking a security interest in the computer. Debtor later acquires a computer. “and I may no longer be viable in my current position. P32. (2) They can get a new S/A describing the computer. Here we take a break and do a review and discussion of security interests and priority. then she’ll have priority over the boat. If she makes an advance now.” Harley says. SP1’s Security Interest in the Computer: (1) They should have had an a/a/p/c (after-acquired property clause) in the first S/A.6.as long as the financing statement description is broad enough. Davidson’s freewheeling lending policies have generated a number of “nonproducing assets. Bob’s statement about preventing. can she get priority over BCA. While its high-risk lending remains profitable overall.” (To put it as politely as possible. (b) Assume that Carol had filed a financing statement against Bob before BCA repossessed. any amount the debtor will owe in the future relates back to the date of the first S/A.” . and SP1 files the financing statement and gives a $10k loan to Debtor that day. your client. The scheme would work even if she had only filed a financing statement.5. Priority Subject to Subordination. but Bob had not authorized a security agreement and Carol had not lent any money. has sensed the need for a change in the way it does business. on May 1. nor given value . On the heels of its bad experience with Bob Muzzetti. BCA does not want to continue being victimized by the likes of Bob Muzzetti and Carol Dearing.Carol filed and perfected her security interest before BCA perfected or filed. She has to make the advance. there might be a fraud issue. That way. Restricting its loans to first security interests is not a practical solution because nearly all of BCA’s borrowers have given security interests in their collateral and the creditors who have taken them want to retain their current priority until they are paid.
000 and is unsecured. a miracle happened.000 first on almost a million five in collateral. (a) Is there any way that First National could have an effective financing statement that doesn’t show up on an official search in the state in which Grumman’s business is located? UCC §§ 9-316(a) and (b). First National Bank. and what kind of entity the debtor is. Under 9-316(a). KNOW THE RULES FOR 9-307. It could be we’re searching under the wrong name. Harley would like you to give your opinion that Centurion will have priority. Harley has tentatively cut a deal with Grumman. Centurion has something to gain and nothing to lose by making the new loan – provided that Centurion will have priority over First National. Until yesterday. Harley is sure the assets will yield less than $1. 9-507(a).000 advance will remain vulnerable as a preference for 90 days. 9-517. 9-301. . which Harley has laid gently on the desk in front of you.000 advance will not.000 advance already outstanding and the new $100.000 to Grumman. a security interest remains perfected for four months after a debtor moves jurisdictions. Yesterday. To seize his opportunity.000 loan. The type of entity will determine the proper name and residence of the entity. Grumman’s deteriorating financial condition looked like it would be the bale of straw that broke the camel’s back. From her point of view. 9-338. It could be that the financing statement was wrongfully rejected by the filing office.” Harley says. §9-316(a) & (b). shows no filings against Paul Grumman. 9-516(d). If the debtor has recently moved. In return. inventory. See § 9307 If he has moved within the last four months. there could be a effective financing statement. Centurion’s loan to Grumman is in the amount of $150.” The bankruptcy expert in your firm tells you that the old $150. The first inquiry is to figure out who owns the collateral. but the new $100. “that will leave us with a $250. perhaps putting your job in jeopardy as well. The certificate. Harley says he is sure that the assets are in Grumman’s possession and that “Paul Grumman” is the correct name of the debtor – sure enough to bet his career on it.5 million security interest in all of Grumman’s assets (principally equipment. you worry that the firm may not be able to hang onto Centurion’s business. Paul Grumman may not be the proper name to search under (especially if Grumman is not the entity that owns the collateral). Harley received the Secretary of State’s search report in the mail. desperate for ideas Harley ran a UCC search under Grumman’s name. The financial statements Grumman has given Centurion from time to time have always shown Centurion’s principal competitor. Centurion is to advance an additional $100. See § 9-517 and 9-516. “The way I figure. 9-506(c). Two weeks ago. Remember. as the holder of a $1. there could be a security interest in another jurisdiction. Grumman will grant a security interest in favor of Centurion that will secure both the $150. 9-502(d). In the event of liquidation. and accounts).Harley tells you this in the context of a discussion of the Paul Grumman loan.5 million. 9-517: Effective as to everyone except a purchaser for value in reasonable reliance upon the absence of anything in the SOS files. the owner of the collateral is the “debtor” as defined in 9-102. 9515(c). If Harley loses his job.
P32. she has been losing a considerable amount of money on bad debts. Sara Wisnewski has been manufacturing high-quality speakers for audio systems since 1979. For the past few years. I would advise them to do the deal and litigate.Has he moved within the last 4 months? Are you sure you have the right name? If FNB has a filing under a wrong name and it doesn’t turn up under What if FNB has filed it under the right name but it was wrongfully rejected? Improperly filed? We couldn’t reasonably rely because we knew about the prior interest. because you’ll win. call FNB and ask if they have a security interest in the collateral. Her attorney in the bankruptcy case explained to her that “the bank got the speakers because they had the first security interest. who promptly filed bankruptcy. The problem is that . without shooting yourself in the foot? UCC § 9-322(a)(1) and Comment 4 to that section.” (a) Sara thinks she should have the first security interest and she’d like you to tell her what she needs to do to get it. Second. Musselman calls the 9-324 provisions “super-priority. (b) How can you find out if such a financing statement exists. so you can ask them to pay off your unsecured loan and take it as a future advance. The dealer still had most of her speakers in stock when it closed its doors. If they won’t back down.000 worth of speakers to a dealer. what if your search under “Gruman” (an incorrect spelling) and find First National’s filing? Don’t ask First National. they’ll threaten to sue you because you did a sneaky thing. At the same time. (d) Is there an ethical issue here? Let’s assume FNB doesn’t have an effective filing. orders have been running in excess of her manufacturing capacity and she has been unable to fill all she receives from dealers. Her speakers are among the best available and her prices are reasonable. Tell them that you think you have priority because you searched and didn’t find their financing statement. but the bankruptcy court gave them to the inventory lender. You don’t want to have to litigate. Just real quick. file a financing statement in your state.” Under 9-324(a) a PMSI takes priority in goods other than inventory if the PMSI is perfected within 20 days after the debtor receives possession. In your initial conference.7. 9324(a) and (b). Sara literally ended up having to buy her own speakers back from the bank to fill other orders. Get it authorized by 9-509(b). Obviously. take a look at 9-103 where PMSI is defined. she told you about a case in which she sold $15. What do you tell her? UCC §§ 9-102(a)(48). if you ask them they will immediately act to correct any mistake there might be. Is there a way to eliminate this risk. For example. and by the time of the loan be certain that we’re ok? (c) What should you do? First. Option 2 is to agree to subordinate as to any future advances you will make.
filed financing statement.  the holder of the conflicting S/I receives the notification within 5 years before the debtor receives possession of the inventory. proceeds of the inventory. The S/A has a a/a/p/c and a f/a/c. (a) Does B even have a security interest in the account? . and describe the inventory. A perfects its security interest by filing a financing statement. Since A has a security interest in “accounts. Finally. 9-324(a): applies to goods other than inventory or livestock. and in proceeds of the chattel paper. 9-324(a) does not apply to the goods. Later Debtor sells inventory to G on credit. Debtor defaults to both A and B. payable from G to Debtor. consumer goods. since Sara is selling to dealers of speakers. On April 1. Under this section. This generates an account receivable. However. Thus. many inventory lenders put a clause in their security agreement that any subsequent security interests. and which we will discuss in the next class: On March 1. including PMSIs. and  The notification must state that the person sending the notification has or expects to acquire a PMSI in inventory. constitute a default. Would give priority over the first to perfect rule IF the security interest is perfected within 20 days after the debtor gets possession. That section says a PMSI in inventory will take priority over conflicting security interests if the holder of the PMSI meets the four requirements of 9-324(b) (perfection and notification to conflicting party).Is the PMSI in inventory. Also Identifiable Cash Proceeds. 4th – Priority of a PMSI holder who gives notice and perfects before the debtor receives possession extends to chattel paper.here. priority extends to ALL PROCEEDS. (b) What problems do you foresee? What can Sara do about them? According to the reading. 3rd – (a) if non-inventory: 20 day grace period to perfect 9-324(a) (b) If inventory: 9-324(b)  PMSI must be perfected (s/a. give money) when the debtor receives possession of the inventory. the PMSI could push them into default with inventory lender. etc. The S/A has an after-acquired property clause. as well as a futureadvances clause. the speakers are inventory in the hands of the dealers.  PMSI s/p send authenticated notification to the holder of the conflicting security interest.” A’s interest automatically attaches and perfects.Do we have a PMSI? Check 9-103 2nd. Here Musselman puts a hypo in the board for us to think about. Debtor grants a security interest to B in all his inventory. So here. B perfects by filing a financing statement. 9-324(b) may apply. To summarize the thought process here for 9-324: 1st. Debtor signs an S/A with A granting an interest in all his accounts. or non-inventory.
The promissory note would be an instrument. D buys inventory from B.Yes. Ex: A takes a s/i in D’s inventory. Who has priority? In the first one we said that A won. and got CASH back. If this is the case then A wins. filing in inventory takes place at the SOS. B has a perfected security interest in them. The question becomes. (B) yes. Note that none of these give PMSI super-priority over accounts! Thus. but § 9-315(d) may require some action or the perfection will lapse. under § 9-315(a)(2) (a security interest attaches to any identifiable proceeds of collateral). Then must look to § 9-315(d). That section gives PMSI in inventory super-priority over conflicting interests in (1) the same inventory. (C) Yes. 9-102(a)(11). and B has a perfected security interest in accounts. because B’s super priority didn’t extend to accounts. (c) What if the inventory was sold on credit and Debtor got a promissory note secured by the inventory sold? The proceeds would now be chattel paper. Have to redo the analysis. Let’s also assume. are they still perfected under 9-315(d)? Same answer as to accounts under 9-315(d)(1). A has a perfected security interest in accounts. on credit and grants B a s/i in the inventory that he bought from B (seller’s pmsi). does B’s interest remain perfected? § 9-315(c) says a security interest in proceeds is a perfected interest if the security interest in the original collateral was perfected. . 9-330(d): the only was if B had a super-priority under the PMSI that extends EXCEPT if there was a purchaser of the instrument has priority if he takes possession and gives value of the instrument in good faith and without knowledge that the purchase violates the rights of the secured party. Therefore. that it bought from B. but if the instrument is in the possession of the debtor B wins. B has priority over A if he complies with 9-324(b). B’s security interest will continue. because the inventory was sold for proceeds. to whomever. One of the three must be satisfied in order to maintain perfection beyond 21 days. the proceeds weren’t acquired with cash proceeds. What 9-324(b) does is say that the priority does extend to chattel paper but only to the extent that 9-330 allows it. (3) identifiable cash proceeds. Now A & B have a priority battle over the cash. (2) chattel paper or other instrument. and so does a filing for account. B’s interest remains perfected. Looking to (d)(1): (A) is satisfied because the financing statement is filed. first to file controls. A has an interest in chattel paper as well. B would not get super-priority over A’s perfected interest in the accounts. After acquired property clause. Thus. (b) What if B’s S/I was a PMSI in the inventory? Look to § 9-324(b) which is the super-priority rule for PMSIs in inventory. Heres its chattel paper. The debtor sells some of the inventory. These are still proceeds.
George Onasis. and have an interest in the proceeds as Both have perfected security interests. Thus.. Exceptions: most applicable is Comment 9: or 9-334(e)(3): the conflicting interest is a lien on the real property obtained by legal or equitable proceedings after the security interest was perfected by any method permitted by this article. Sound City. (41). It’s attached in such a way that state real property law says an interest in the fixture arises under real property and anyone who has an interest in real property. Assignment 33: Secured Creditors against Secured Creditors: Land and Fixtures What we’re dealing with in this chapter is Art. Whenever. Inc. To start. UCC §§ 9-102(a)(40).4. § 9-102(a)(41) (definition of fixture). The installer spent three days on the site. but the fixture is attached to some real property. § 9-102(a)(40) defines “fixture filing” as the filing of a financing statement covering goods that are to become fixtures. and (52). and financing statement has been filed in the SOS office. and § 9-102(a)(41) defines “fixture” as a good that has become so related to real property that an interest arises under real property law. (a) Two months ago your client. and filed a non-fixture financing statement in the office of the Secretary of State. Problem Set 33. The state in which this took place does not issue certificates of title for mobile homes. Comment 4 to UCC § 9-501. (3) PMSI in consumer goods. Eighteen months before filing bankruptcy.well A. the real estate interest wins UNLESS AN EXCEPTION APPLIES. does he have a perfected security interest? 9-501(a). under 9-324(b) he has priority as to cash proceeds. the trustee in bankruptcy for William Miller. sold a sound system to Jake’s Bar and Restaurant during Jake’s remodeling. the real estate interest generally wins by default. P33. Folds took a security interest in the mobile home. Miller bought a mobile home on credit from Folds Mobile Home Sales (Folds). (2) make a fixture filing in the real estate records. 9 secured parties taking a security interest in a fixture. The general rule is described in § 9-334(c): a security interest in fixtures is subordinate to a conflicting interest of an encumbrancer or owner of the related real property other than the debtor. running wiring from the stage to the control booth and from there to . has retained you to advise on avoidance matters. Since the mobile home is a fixture. You have four options with a fixture: (1) filing a F/S under Article 9 that perfects a security interest in the good that became a fixture (filed with SOS). OR If the goods were certain type of fixtures: “readily removable” P33. there is an Article 9 secured party going against someone with an interest in the real estate. (4) if you own the real estate upon which the good becomes a fixture. 9-501(a). you must file it in the appropriate office.has a s/I because they are proceeds B has a s/I in this particular inventory. Who wins? B. if perfection is going to be by filing. which is (see below). the mobile home was a fixture even before Folds filed its financing statement. Onasis asks your opinion as to whether the estate has priority over Folds. 9317(a) and 9-334(e)(3) and (4). Under its laws.3.
Now the installer says that Jake’s complaints are bogus and “he’s just stalling for time. you get a lien on the entire real property. In general how do you get one and what rights do you get? File a claim a lien: you get a lien on the real property. the new lender. (2) the security interest is a PMSI. and (4) the security interest is perfected by a fixture filing before the goods became fixtures or within 20 days thereafter. But. where does this leave you? Mechanics Lien: important to understand the concept. the debtor may offer an Article 9 security interest. If they threaten to file a mechanics’ lien. but some was fished through the conduits used in the electrical wiring of the building. (3) the conflicting interest arises before the goods became fixtures. Most of the wiring is above the drop ceiling. What do you recommend? (b) You discovered that the reason Jake was stalling for time was that he was in the process of refinancing the bar and restaurant.” Sound City has neither promissory note nor security agreement. -How to determine priority with a mechanic’s lien? In general is there something you can do to get ahead of a newly recorded mortgage? [SKYLINE properties case] Is this erection & construction. In subsection (e) . Before you could do anything. Mercantile Bank. Should they accept an Article 9 security interest in the sound system? Look at § 9-604. This is the remedy provision for security interest in fixtures if there has been a default.we can get priority over the bank. Assuming that the Bank acted in good faith and without knowledge that Sound City had installed the sound system. some of the control panels are built in. and you can foreclose this through some sort of judicial process. Usually these liens are threatened to be filed. basically allows a lien to be obtained for labor to be preformed or property to be furnished. under subsection (d) you must reimburse the other owners and encumbrancers for any damage caused by removal (but not for a reduction in the value of the property because of the removal of the collateral). Jake was supposed to pay for the sound system as soon as it was installed. Instead. The point is that if you file one.speakers throughout the premises. he complained about the quality of the sound and had the installer back every few days. In subsection (d) a perfected security interest in the fixture has priority over a conflicting interest if: (1) the debtor has an interest of record in or is in possession of the real property. recorded their mortgage. Speakers are bolted to walls and ceiling beams.the PMSI exception to the first to file rule as it applies to fixtures: A perfected security interest in Fixtures has priority over a conflicting interest of an encumbrancer or owner of the real property if the debtor has an interest of record in or is in possession of the real property AND 3 requirements Analyzing the problem under § 9-334. if alteration no priority over the bank 9-334(d). The general rule in subsection (c) is that the fixture interest will be subordinated to the real estate interest. then you may remove the collateral. If your security interest has priority over ALL OTHER owners and encumbrancers.
9-203(b). note that the debtor is defined as a person who has an interest in the collateral (§ 9-102(a)(28)). Nor does he know whether there are mortgages outstanding against the property. SUBJECT to 9-334(e) and (f). the security interest is a seller’s PMSI. Musselman doesn’t want to go into that. a construction mortgage is superior to 9-334(d) [PMSI]. Dub’s.The key is that under (d) or (e)(1) you must file a financing statement if you even hope to get priority. This would meet all the criteria. Note that under subsection (f) the conflicting interest holder (here the construction mortgage) must consent to give the fixture interest priority. it looks like the fixture will take priority under § 9-334(d). and 9334(f). do you have to have a contract with Realty Partners. Thus. and the customer will pay in installments over a period of 18 months after installation.5. Will Sound City be entitled to a mechanic’s lien? If it is. he says he doesn’t know whether Dub’s owns the place where the installation will be done or whether they rent it. Sound City has contracted for another installation. P33. and (h). except this time the customer is Dub’s Lounge. Can we rip it out? Yeah. . would Dub’s consent in writing to removal of the sound system in the event of default be of help? UCC § 9-334(f). says he wants at least the right to “rip everything back out if they don’t pay for it. if it turns out that Dub’s has the premises under a long-term lease from Realty Partners Ltd. Thus. No remodeling will be done. The job is similar to the one they did for Jake’s Bar and Restaurant. as the owner of the collateral. 9-502(b)(4). will we be able to get priority by a fixture filing now? This scenario may meet the fixture priority exception under 9-334(d). However.. 9-509. is the debtor and has the authority to authorize the filing of a financing statement. In the construction scenario. (c) Does your answer to part b. 9502(b)(4). will that be an adequate remedy? We didn’t spend any time on this question. The person who has authorization to allow the filing of the financing statement is the debtor under § 9-509(a)(1). subject to 9-604 which says we have to reimburse for the damage we cause. First. What if we go ahead and do a fixture filing and there are other owners of interest in the property (mortgagors. and it satisfies the other requirements under (d) if we file a fixture filing within to 20 days after installation. For example. so he wants to skip this question. Mechanic’s liens don’t usually work in these situations (installment loans).” In response to your questions. 9-604(c). (a) Assume Sound City installs a sound system on Dub’s authority and Dub’s doesn’t pay for it. (e). change if Sound City is installing a sound system in a new building that is under construction? UCC §§ 9-334(d). The debtor is in possession of the property under the lease. look at § 9-334(h): a construction mortgage is superior to a security interest in fixtures if a record of the mortgage is recorded before the goods become fixtures and goods become fixtures before the completion of the construction. Bill Sauls. owners)? We’ll have a conflicting interest. or can Sound City do the deal on Dub’s signature alone? UCC §§ 9-334. First. Whose authorization does Sound City need? UCC §§ 9-102(a)(28). (b) Assume Sound City decides to make a fixture filing. the owner of Sound City.
Butthead didn’t know about the security agreement with Davis Department Store and (wouldn’t you know it?) made the mistake of paying by check. security agreement. because it has to be the consent of the construction mortgagee (the conflicting party). Assignment 36: Buyers against Secured Creditors Gen Rule. Note that this section says that the S/P will lose if they did not file a financing statement – so a S/P who takes an automatically perfected PMSI in consumer goods. 9-320. Six months later.1. Davis filed the financing statement in the statewide UCC records. 9-320(a) is an exception to 9-315(a)(1). Rather than track down the debtor wan to track down the equipment. 1st look to 9-315(a)(1): because if the secured party did authorize the transaction the S/I is gone. where the owner or encumbrancer always wins. may lose their security interest! But Davis did file a financing statement. It says that a BIOC (buyer in ordinary course) takes free of a security interest.Would Dub’s consent to removal help? NO. Then look to the exceptions in (d).925. The security agreement provided that Beavis agrees not to sell the collateral. 9-317(b): if the secured party’s S/I was unperfected when the buyer received delivery of the collateral. Starting with 9-315(a)(1) the security interest continues because the secured party did not authorize the disposition free of the security interest. (2) Without knowledge that the purchase violates the rights of another. Beavis lost his job at the meat processing plant and moved to Tennessee. This assignment is the list of exceptions: Problem Set 36 (p. (3) Seller has to sell the collateral in the ordinary course of business. . Buyer in the ordinary course of business is defined under 1-201(b)(9). Start with subsection (c). Then look to the exceptions under 9-320(a). the buyer will have priority over the secured party if he paid value for the collateral and if he bought the collateral without . Davis identified Butthead as the buyer from Beavis’ checking account records. because this is for a buyer in the ordinary course of business. but signed a promissory note.9-315(a)(1): Buyer always takes subject to the security interest unless the s/c authorizes. . If so. and (f). Davis Department Store sold a combination TV-stereo-VCR-popcorn popper to Beavis on credit for $1. Before leaving. 9-401(b). but can have consequences. There is a process in 9-334. (4) Under 9-401 can’t prevent a party from selling property. which lays out four basic requirements: (1) Must purchase in good faith. do they have to refund his $960? UCC §§ 1-201(9)(Rev. Does the buyer qualify under 9-320? No. 592) P36. § 1-201)(b)(9)). A BIOC is defined under § 1-201(b)(9). Beavis paid no money down. (e). 9-315(a). and financing statement. Davis asks whether it is entitled to repossess the entertainment unit from Butthead. There are 4 basic requirements: Next look to § 9-320(b): it is known as the Garage Sale Exception. We also have an interest in the proceeds. he held a garage sale at which he sold the entertainment unit to his friend Butthead for $960. One last exception .
OCB. § 1-201(b)(9)). the buyer is buying in the ordinary course of business of inventory. so Butthead loses under this provision as well. Fourth. The security agreement between UCB and Sound City authorized sales only in the ordinary course of business. filed under Chapter 7 of the Bankruptcy Code. Then there is conditional authorization. the debtor surrendered it to UCB.000. A deficiency of $36. this was not an authorized sale because the conditions weren’t satisfied. (4) in the ordinary course of such a transaction as done by the seller.200. First. Sound City sells sound systems at retail to consumers and businesses. Will this make a difference? No. Sound City. Davis was already perfected. (2) Know that under RFC. 9-323(d) and (e).(1) Have to be buying from a dealer.knowledge of secured party’s security interest. Inc. Here. so the security interest continues. (3). Rhonda paid $2. +Seller must’ve created the s/i. prohibited sales on credit. Remember the handout Musselman gave you? Look at it. apply 9-323(d) and (e). Your client. What could Rhonda know that wouldn’t allow her to buy? If Rhonda knew of the conditions in the contract Second. (3) without knowledge that the sale violates the rights of another. because most of the time under 9-320(a).000 in cash and signed a negotiable promissory note for the remaining $10. and proceeds must be deposited in specific account). and required that “Debtor deposit all proceeds of sales of collateral to Debtor’s account #937284 at University City Bank. and that’s o. (2) in good faith. 9-320.” UCB perfected the security interest by filing a financing statement.2. University City Bank (UCB). Inc. 2 lines of cases: (1) if there is a condition in the language of the K. you learned of the following transactions that took place before the filing of the bankruptcy: (a) Sound City sold a sound system to Rhonda Fried for $12. apply § 9-320(b). apply § 9-315(a)(1). Sound City deposited Rhonda’s check to an account with a bank other than UCB and used the money to pay a utility bill. About a month later. . There is no evidence that she knew of the restrictive provisions of the security agreement. UCB has been unable to determine what Sound City did with the proceeds. On October 20. specifically Section III(C). Through discovery. it has to be satisfied to comply with a waiver of authorization.000. Davis is not required to refund the $960. but you cannot know that they way you’re buying it would violates the rights of a secured party. That section says the S/I will continue unless authorized by S/P. a court might find that the condition was waived if there was evidence that the S/P knew that the Debtor regularly violated the conditions and the S/P didn’t enforce the condition. P36. has a security interest in the inventory of Sound City. apply § 9-320(a). Sound City sold the Rhonda note for $9. Is UCB entitled to repossess the sound system from Rhonda? UCC §§ 9-315(a). The trustee abandoned the inventory. there is a conditional authorization (no sale on credit. and UCB sold it and applied the proceeds to the inventory loan.000 remains owing to UCB on the Sound City loan. This is the BIOC exception to 9-315(a). 1-201(9) (Rev. Even though the Debtor violated the conditions. Third.you can know the security interest exists.
As of July 17.” A few weeks ago. This is a priority battle between Alecia and All Seasons. She paid for the recreational vehicle with a $23. Clearly. and apply 9-315(a). All Seasons did not consent to the sale free of the security interest. At the time he sold the Lindy to Sunrise. Next apply § 9-320(a). 9-320. This doesn’t work either because Eddy is not in the business of selling RVs. Sound City owed George $16. then you have to analyze if she took free of the security interest. (a) Alecia wants to sue to remove All Seasons’ lien from the title to the Lindy. They are the people that care. That doctrine says you get good title to something if your title was “sheltered” by someone ahead of you in the chain of title. Eddy granted All Seasons a security interest in the Lindy to secure a part of the purchase price.000 sound system as partial payment and Sound City installed it in his home. Alecia has two bites at the apple to show that she took free of any S/I. 9315. Sunrise deposited Alicia’s $23. What about 9-320(b)? No. Eventually.3. over a year ago.458 for legal services rendered in two employment discrimination suits. This is because of the Shelter Doctrine from property law. she learned the history of the Lindy. A man named Kenneth Eddy purchased it from All Seasons R.000 of the purchase price. How good is her case? UCC §§ 9-315(a).000 cashier’s check and drove it home. Sunrise bought the Lindy subject to that lien and agreed to pay it. apply 9-317(b). In such cases. 9-320(a). then everything would be cool for Alecia. this provision would never work in the case of sale to dealers. If not. When the title did not arrive as promised. In the security agreement.V. Alecia complained to Sunrise. Eddy agreed “not to transfer any interest in the vehicle. because All Seasons’ S/I was perfected. because they stand to lose money. Is UCB entitled to repossess the sound system from George? UCC §§ 1-201(9)(Rev.V. The salesman at Sunrise assured her that she would receive title to the Lindy directly from the Division of Motor Vehicles within two weeks. no. George agreed to accept a $14. What about 9-317(b)? Again. If Sunrise had acquired title free of security interest. Therefore. . In the last sentence of 1-201(9). Alecia Card bought a used 1992 “Lindy Delux Housecar” (the Lindy) from the used car lot of Sunrise R. Start with Sunrise. P36. Sunrise is not a BIOC. § 1-201(b)(9)).V. (Sunrise) for another recreational vehicle.000 to its operating account and spent the money on rent and other expenses. Sunrise didn’t take it for personal use. so 9-315(a) does not clear the title. This is a double transaction. Because there are two transactions. (b) George Paulos is a lawyer who has been representing Sound City for several years. Sunrise doesn’t give a crap either. Eddy doesn’t give a crap because he already his new car and is off on vacation somewhere. Alecia also learned that Eddy did not notify All Seasons that he was selling to Sunrise and did not obtain All Seasons’ permission to sell. Eddy still owed All Seasons $17. you have to analyze each one separately in chronological order. 9-323(d) and (e). Instead. total or partial satisfaction of an antecedent debt is specifically defined as not a buyer in the ordinary course of business. Eddy violated the security agreement by trading the Lindy to Sunrise R.Fifth.
Even before today. (c) Should you recommend a psychiatrist or try to deal with this yourself? If you try to deal with it yourself. she has valid fears. what would she have learned? See UCC § 9-311(d) and Comment 4 to that section. she’s screwed. 9-317(b): NO still perfected. (b) If Alecia had insisted on seeing the certificate of title for the Lindy before she paid her $23. where did AMP get that piano? YES. and asked them what they need to release the lien. Also. form for motor vehicle certificate of title in Assignment 25.” You told her you’d think about it and give her a call this afternoon. (a) Is there anything to her fears? UCC § 9-320(a).she would’ve seen the lien. Under 9-320(a). “but they haven’t been through what you and I have.” she replied matter-of-factly. which is not that big a deal. or could it occur with respect to new goods as well? This is a problem that is more likely to happen to used goods. a little too basic. friendly person. because Sunrise didn’t create the S/I in the RV. including Comment 3. and would like you to “represent her at the closing. Alecia Card is back to see you for the fourth time since you represented her in the All Seasons case. because acquired from Manufacturer. With new goods it’s LESS LIKELY. Then she could have contacted All Seasons. P36. No.000. its inventory in Sunrises hands – they didn’t buy it primarily for personal use. she has been asking questions that seem… well. That provision 9-320(b): NO. Note that Alecia meets the requirements of BIOC. you told her that most people who buy things in the mall just represent themselves. because most used cars are in someone else’s name. She could buy a piano subject to a S/I that she doesn’t know about. now look to AC.4. energetic. has found a reconditioned one she likes for $5. you had been suspecting that Alecia might be showing signs of paranoia. How to protect herself? She should’ve asked to see the certificate of title before she paid . what will you say to Alecia and what will you do to get ready for the “closing”? (d) Is this a problem that is unique to used goods. then it was free of the security interest. Although she is a bright. She would have seen the lien in favor of All Seasons. would’ve seen the title is not in the dealer’s name.S/I goes through. 9-320(a): NO. In your meeting this morning. One way to deal with the problem is to pay cash and not leave any way for AMP to identify her. if it was bought. Alecia explained that she has been shopping for a piano. “Yes. SHES SCREWED. it’s more difficult to determine whether there is an S/I covering the piano because there is no title or many times no financing statement for a piano. .” Covering your surprise. Also. She trusted Sunrise and because of the way this came about. You have to wonder. (b) Can the problem be dealt with by a thorough search of the public records? UCC § 9-507(a).000 at American Piano Company in the Galleria Mall.
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