Question 1

D is a business selling new and used pianos. On January 1, D borrowed $500,000 from B, a bank. To secure
the obligation to repay the loan, D signed an agreement granting B a security interest in “all the inventory
and accounts of D, whether now owned or later acquired.”

On February 1, B filed a financing statement in the appropriate state office. The financing statement listed
D as the debtor and B as the creditor, and it identified “all personal property” as the collateral.

Shortly afterward, D entered the following transactions:

On February 10, D sold a new piano to C, a consumer. The sale occurred in C’s store during normal business
hours. C paid slightly under fair market value for the piano. D gave C this appreciable discount because C
paid cash for the piano. At no point during this transaction was C aware of the financial relationship between
D and B.

On March 1, D traded F a used piano for furniture and framed art. D immediately displayed this furniture
and framed art in its store, but never offered these items for sale.

On March 5, D purchased an antique grand piano from S, a seller of restored pianos. The sale was on credit,
with S providing this credit. Payment was due in 30 days. D and S signed a written agreement stating, in
part, that S retained title to the antique piano until D paid the full purchase price to S. The agreement also
stated that S retained a security interest in the piano it sold to D on credit, to secure D’s obligation to pay
the purchase price. S never filed a financing statement.

It is now May 1, and D has defaulted on its payment obligation to B. Also, D has not paid S for the antique
piano, which is still on display in D’s store.

Per the written agreement with D, S claims to still own the antique piano. In the alternative, S claims it
holds a purchase-money security interest in the antique piano, which was automatically perfected at the
point of sale. Finally, B claims a security interest in the furniture and framed art that D acquired through
the trade with F, as well as every piano that D currently owns and has sold since February 1.

Questions

1. Does B have a perfected security interest in the furniture and framed art that D acquired through the trade
with F? Explain.
2. As between B and C, who has a superior claim to the piano that D sold to C? Explain.
3. As between B and S, who has a superior claim to the antique piano? Explain.
 Question 2 - Fact Pattern
Three years ago, D borrowed $1 million from B, a bank, to start “DogBar,” a bar where dog owners and
their dogs could meet up and socialize with one another. Both D and B signed the loan agreement, which
provided that D granted B a security interest in D’s “equipment, accounts, and deposit accounts, now owned
and later acquired.”

That same day, B filed a properly completed finance statement in the appropriate state office; the statement
reflected the granted security interest. B also had D open a business checking account at B, where D would
deposit the $1 million. With the cash from the loan, D purchased alcohol, bar furniture, and kitchen
equipment.

After two years, D decided to expand its business to include a luxury dog boarding facility. To properly
cool the dogs’ sleeping rooms, D needed to buy air-conditioning units to install directly into the window of
each room. But D lacked sufficient cash to buy the units directly from a seller, and D had no line of credit
available to obtain the cash. Worse yet, no seller would sell the units to D on credit. Accordingly, D
requested an additional $25,000 in financing from B. B denied this request, so D applied for a $25,000 loan
from Finance Company (“FC”), with the loan money to go directly towards buying the air-conditioning
units.

On June 1, FC agreed to lend D the $25,000, but on the condition that D sign and deliver a security
agreement containing the following language: “D grants to FC a security interest in all of D’s personal
property, especially those certain air-conditioning units to be located at D’s dog boarding facility.” FC also
required D to authorize a financing statement containing a collateral description identical to that of the
security agreement; however, FC did not file a financing statement at that time. Instead, FC first distributed
the loan proceeds directly to D, and then D immediately deposited the proceeds into its business checking
account with B.

On June 2, D received notice that a utility company had obtained a judgment against it in the amount of
$1,500. This took place one day after D deposited the $25,000 check, and before D could purchase the air-
conditioning units. The reason for the judgment was that D had failed to pay its utility bills for the past six
months.

Under state law, the judgment afforded the utility company a judgment lien against all of D’s personal
property. The judgment lien took effect on June 5. (Assume that, under Article 9 of the Uniform
Commercial Code, or UCC, this qualifies the utility company as a lien creditor with respect to all of D’s
personal property).

With this news, D decided to buy only half as many air conditioning units as it initially wanted, thinking
that saving roughly half the money from FC’s loan might be wise. On June 7, D ordered the units and gave
notice to FC that it had done so. On June 8, FC filed its properly completed financing statement in the
appropriate state office. When the air-conditioning units arrived on June 15, D had them installed in its new
dog-boarding facility. The installation was very easy, with little damage or alteration to the existing window
structures.

D is now in default on its repayment obligations to both B and FC, and the utility company’s $1,500 lien
on D’s personal property remains in place.
Questions
1. Identify the status and priority of B, FC, and the utility company, concerning the following items: D’s
unopened bottles of alcohol, the kitchen equipment, the window air-conditioning units, and D’s business
checking account. Explain.
 Question 3

Debtor (D) is in the private transportation business, using its fleet of unmarked luxury automobiles and
boats to transport its clients. Starting in 2007, D’s profits declined, so D decided to borrow money to remain
solvent. D maintained all its financial accounts, including its savings account, at Bank (B). D thus requested
a loan from B, and B agreed.

Accordingly, in January 2010, D and B executed a loan agreement providing for a $3 million loan from B
to D. The loan agreement included the following security-interest clause: “D grants B a security interest in
all of D’s automobiles, boats, accounts, and deposit accounts held at B, now owned and hereafter acquired.”

D is in State X. Pursuant to State X’s law on perfecting a security interest in automobiles and boats, B had
its security interest properly notated on the certificate of title for each vehicle in D’s current fleet. This
notation will encumber each certificate of title until the $3 million loan is paid in full. B also filed a properly
completed financing statement with the office of the Secretary of State X (the central statewide filing office
designated by statute). The financing statement described the collateral as “B’s automobiles, boats, and
accounts.”

By 2014, D’s business was almost back to its pre-2007 profit margin. Wanting to grow and take advantage
of low interest rates, D decided to borrow money from FC, a financing company. In February 2014, D
borrowed $2 million from FC. The corresponding security agreement stated that D granted FC a security
interest in all of D’s automobiles and boats, as well as D’s savings account with B. FC then filed a financing
statement with the office of the Secretary of State X. The financing statement properly identified D as the
debtor and described the collateral as “all of the debtor’s assets.” With the loan proceeds from FC, D
purchased several new automobiles and boats.

Unfortunately, D’s business later started to decline again. By February 2017, D was in default on its loan
with B. Since the $3 million loan in January 2010, B has not monitored D’s assets, nor taken any additional
steps regarding its security interest. After D refused to surrender collateral to bring the outstanding balance
current, B decided to pull directly from D’s savings account and apply that money toward the outstanding
balance.

D also defaulted on its loan from FC. FC worried that it would not recover the outstanding balance on its
loan, so it decided to hire a repossession company to seize, or at least render inoperable, some of D’s assets.
At approximately 10:00 in the morning, the repossession company found two of D’s boats stored in a private
marina. This marina was accessible by a public road, with just a locked gate between the parking lot and
the dock. Without anyone noticing, the company’s employees quickly cut the lock on the gate, gained access
to the boats, and rendered them inoperable.

Questions

1. As of February 2017, does B have a perfected security interest in any of D’s assets, and if so, which?
Explain.
2. As of February 2017, does FC have a perfected security interest in any of D’s assets, and if so, which?
Explain.
3. Were B’s and FC’s respective post-default actions lawful? Explain.
 Question 4
Debtor LLC (D) is a potato farming business registered in State X. Bank (B) holds a security interest,
perfected by filing, in D’s existing and after-acquired equipment and farm products. B’s financing statement
is effective for another four years. The security agreement between D and B also includes a future-advance
clause, under which the present security interest secures later advances from B to D. However, B is not
contractually obliged to fund any future advances.

D’s neighbor is D’s Farm LLC (D2), which grows all types of berries, plums, and cherries. D2 is also
registered in State X. Financing Company (FC) holds a perfected security interest in D2’s existing and
after-acquired equipment and farm products. FC’s financing statement was filed just before B filed its
financing statement.

Wanting to expand farming operations, D acquires D2, consolidating D2 into its existing business. Pursuant
to State X’s corporation law, this binds D to fulfill D2’s prior contracts, including the security agreement
between D2 and FC.

For the first year, everything went great. D was happy with its purchase of D2, which D learned would
consistently produce a fruit crop exceeding the profitability of D’s potato crop. D had sufficient funds both
to continue meeting its own financial obligations and to pay those of D2’s that it assumed through the
acquisition and consolidation. But due to some upfront costs attending D’s expansion into fruit farming, B
did make two additional loans to D, one for $50,000 and another for $25,000.

The following year, State X experienced its worst draught in many decades. D’s crops suffered greatly
because of the draught. To make matters financially worse for D, two of D’s former employees won a
wrongful termination lawsuit against D. Judgment was entered against D in the amount of $100,000, and
the former employees acquired the status of lien creditors against D’s equipment. The newly minted lien
creditors immediately sent notice to D’s creditors of their liens attaching to D’s equipment.

Because of the disastrous effects of the draught, B decided to extend another $30,000 loan to D, exactly
three months after the lien creditors gave notice to D’s creditors.

Unfortunately, the $30,000 loan was not enough to keep D’s business afloat. D could not meet its financial
obligations and defaulted on its loans with B and FC. D has not repaid its last three loans from B, nor has
it paid the $100,000 lien attached to its equipment.

Questions

1. If D continues to not pay its debts to either B or FC, which of them has a superior claim to D’s equipment
and farm products? Explain.
2. Do D’s former employees, those who are now lien creditors, have priority over B to any of D’s
equipment? Explain.