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order • If not an issue, don’t address it, e.g., if not scope issue then don’t get into scope o Talk about scope if lease or consignment or kick-out issue • • • Don’t outline dump! Only state a definition if it is critical to your answer! Classify the parties o Attachment go through elements of 9-203 (SA, value, rights) If given a description of collateral in SA address whether it was sufficient – 9-108 – reasonable identification test • Can use A9 types as a description but should only do so when you can say “all equip/inventory” bc how much is unclear w/ just the category o But if you can’t put the “all,” specify the amount, but most courts are ok w/ just the A9 type o Perfection: Filing – if facts say the filing is fine, you don’t need to get into where the FS should be filed and what is in a FS, etc. • Just say you are allowed to file a FS to perfect in inventory/equip (if that’s what the collateral is) Possession/Control o Then get into proceeds issue if applicable • • Define what a “proceed” (only use definition if it is critical to your answer!) – whatever received on dispo of the collateral Say what kind of proceeds they are • Chattel paper: record that evidences both a (1) monetary obligation & (2) a SI Attachment 9-203(f) – prop attached in original collateral = properly attached subject to 9-315(a)(2) – need to be identifiable proceeds Perfection 9-315(c) & (d) – run through the reqs
Battle: o 9-322 – start w/ race rule w/ section (a) and then go to applicable exceptions Cite to authority! Make sure it is correct!
9-102 Definitions (52) Judgment Lien Creditor (LC): (A) a creditor that has acquired a lien on the prop involved by attachment, levy, or the like; (B) an assignee for the benefit of creditors from the time of assignment (C) a trustee in bankruptcy from the date of filing the petition; OR (D) a receiver in equity from the time of appointment (72) Secured Party (SP)—the creditor (A) a person in whose favor a Security Interest (SI) is created or provided for under a security agreement (SA), whether or not any obligation to be secured is outstanding; (B) a person that holds an ag lien; (C) a consignor; (D) a person to which accounts, chattel paper, pyt intangibles, or promissory notes have been sold; (E) a trustee, indenture trustee, agent, collateral agent, or other representative in whose favor a SI or ag lien is created or provided for; OR (F) a person that holds a SI arising under §§ 2-402, 2-505, 2-711(3), 2A-508(5), 4-210, or 5-118. (12) Collateral—the prop subject to a SI or ag lien. The term includes: (A) proceeds to which a SI attaches; (B) accounts, chattel paper, pyt intangibles, & promissory notes that have been sold; and (C) goods that are the subject of a consignment. (28) Debtor—person who owes $ (A) a person having an interest, other than a SI or other lien, in the collateral, whether or not the person is an obligor; (B) a seller of accounts, chattel paper, pyt intangibles, or promissory notes; or (C) a consignee. (59) Obligor—person who owes $ - A person that, w/ respect to an obligation secured by a SI or an ag lien on the collateral, (i) owes pyt or other perf of the obligation, (ii) has provided prop other than the collateral to secure pyt or other perf of the obligation, OR (iii) is otherwise accountable in whole or in part for pyt or other perf of the obligation. - The term does not include issuers or nominated persons under a letter of credit. SI: a prop right that the lender has when the debtor defaults, so if default occurs, lender (creditor) can get the prop Benedict v. Ratner pg. 6 Ratner loans carpet people (Hubb) $---right to pyt on goods or services (accounts receivable). Ratner uses this to secure the loan, want SIs to all accounts that you open up w/ customers now and in the future. Ratner can come in and take the $ that those customers have paid if Hubb does not pay its debt. Hubb did not keep this $ separate, and could use it for anything. Leave nothing in case of a default. The court was worried about the possibility of other creditors that they wouldn’t be put on notice that Ratner has SI in accounts receivable. So when Hubb goes to get other loans, the lender has no idea that Ratner has an 2
interest on all the accounts….secret lien or ostensible ownership---it looks like Hubb has all ownership of the accounts, when in fact he does not, it = secrecy. - The court was afraid that Hubb was going to defraud other lenders. If creditor does not exercise any control over the accounts, then going to say the SI is fraudulent. o The court had a loophole, if the creditor exercises some obvious control over the accounts, then that control will give the world notice that he has interest in the accounts and w/ that notice it will be ok. Case refers us to 9-205 comment---this § repeals the rule of Benedict v. Ratner how could they do this-bc the court is interpreting state law. A9 requires notice of SI—whole objective of A9 is to give notice to the world, and that’s what the article is about Several security devices enacted in every state w/ diff rules on notice: Pledge: where debtor gives physical possession of the collateral to the creditor.---no notice problem, bc gives good notice. But are impractical, bc debtor will usually have to keep the collateral, like his biz equip that he needs to run it. And there’s some collateral that is intangible, like account receivable, bc it is a right to pyt which is intangible. Chattel mortgage: similar to real prop mortgage. Conditional Sale: seller holds the title until it is paid off—sell good on credit, but keep title until it is paid off. Is there a secrecy problem w/ conditional sale? Probably, bc it looks like the buyer has full control of the prop, but the lender doesn’t know that there are title problems, so the State has to make a filing system for conditional sales. So A9 was developed to have all of the rules in one place, so every state by adopting their own version of A9, we now have a version that all states use. Bank gives loan and will make the debtor sign loan K, promissory note and SA—debtor says that for the term of the loan that he will give a SI in the prop. When the note is signed the SI attaches—attachment means that SI becomes enforceable. SI attaches to PP. Have valid SI and if debtor defaults, there are A9 remedies. Gives lender the right to collateral from the debtor. - One remedy is to repossess the prop—don’t have to notify the debtor, get cops to do it or anything. To get priority for SI: - Give notice of your SI to the world bc if you do this then everyone is on warning and if they know they have a SI in the car, then they have interest secondary to you. - But you have to follow A9 ways to get notice, usually by a filing statement (FS) w/ a public office. - Once you file notice then you are perfected, done everything you have done. Giving notice is perfecting the SI. Must properly attach SI and properly give notice. A9 is set up like a timeline--look at index--7 chapters to A9, set up from the beginning of the transactions (T) to end of the T. - 9-100’s (scope): 2 parties have to figure out if their T is governed by A9 - 9-200’s (creating SI): addresses rights and duties of 2 parties to the agreement—creditor and debtor 3
but. B. and if the collectible accounts exceeded the amount of the loan. 17: SI defined Assume that a state statute gives someone doing repairs a possessory artisan’s lien on the prop repaired. etc. has to give notice of its ownership rights and if they don’t and the farmer defrauds another creditor. it’s consensual If prior to the repair work. being strapped for funds. Problem 3 pg.Yes.. and Mack wouldn’t let him have the car back.---if you have outright sale of accounts (debtor definition includes seller of accounts) Here farmer (debtor) selling to finance co.- 9-300’s (perfection): perfect it by giving notice so you can have priority over the other creditors 9-400’s (rights of 3rd parties): assignment of SIs--creditors transferring SIs from creditors to creditors 9-500’s – filing FS 9-600’s – remedies if there is a default 9-700’s (transition rules): for transition from old A9 to new A9…. (Note that this is not a loan from the finance co. Baker signed a statement giving Mack’s Garage a right to repossess the car if the bill wasn’t paid.e. . 18 To raise $. II. OVERVIEW: 9-109(a) sub§ will get you into A9—but (c) and (d) will kick you out of it. so it is included in A9-109(a)(3). the excess would be returned to Farmer Brown. to the farmer w/ the accounts put up as collateral. (creditor). It is critical to know if the T entering into is covered by A9 or not. Is Mack’s artisan’s lien an A9 SI? See 9-109(d)(2). Problem 2 pg. pyt of intangibles. this is A9 SI bc it was consensual. go through notes. it is not A9 SI.A3—sale of accounts. code book and outline. does this agreement create a SI under the code? See 9-109(a)(1) . Is this type of sale governed by A9? .. CONSIGNMENT 4 . 9-109 scope of A9 A. bc if you are covered by A9. Want to prevent the secrecy. the farmer may sell the accounts again to someone else. it is an outright sale. Farmer Brown’s Fresh Vegetables Roadside Stand sold all of its accounts receivable to Nightflyer Finance Co. i. See 9-608(b)) Is this sale nonetheless an A9 SI? See 9-109(a)(3). which notified the customers that henceforth all pyts should be made directly to Nightflyer. the finance co. chattel paper. This is included in A9 bc if no notice is given. then that creditor may have priority over the finance co.This is a lien that comes from the state statute. Mr. Flow chart—§ #’s w/ words on what the § is about---spend about 10 minutes each week on it. Mr. . If it were a loan. is buying at a discount. couldn’t pay the full bill..Not an SI bc it’s an outright sale. and while it gives Mack security. than you must comply w/ it. in an actual sale Nighflyer can keep the surplus.what happens to those Ts b/t the transitions? Secret for getting an A in the class---every couple of weeks. bc A9 SI are agreed on by both parties. finance co. Baker took his car into Mack’s Garage for repair.
for each delivery the aggregate value of the goods is $1k or more 6.” will the bank’s SI reach the items in the store that belong to the dealers if the dealers have never taken the steps required of consignors under A9? See 9-102(a)(20)(A)(iii). merchant is not generally known by its creditors to be substantially engaged in selling the goods of others 5. the goods are not consumer goods immediately before the delivery 7. who controls the terms of the sale and can tell the retailer how much to sell the paintings for. include consignments under scope of A9. and there are advantages for the consignor and the consignee (retailer). a person delivers goods to a merchant for the purpose of a sale 2. they can also give the goods back if it is not selling . Problem 4 pg. is it large enough to be included in A9? . the T does not create a SI that secures an obligation. ASK Is it a true consignment or not.Consignment: when you have something you want to sell and bring it to a shop and they sell it for you---it is a marketing procedure. merchant deals in goods of that kind under a diff name than the cosigner 3. So A9 drafters included consignments in UCC—require notice of consignments in UCC article 2-326. Q to ask: . even though they don’t own them. The risk of loss stays w/ the consignor. which requires notice of true consignments.Is it a sale/SI disguised as a consignment?---trying to prevent consignee’s creditors from being defrauded.Is it important enough to be included in A9? o 7 reqs of consignment under 9-102(a)(20) • 902(a)(2)(iii)----merchant is not generally known by its creditors to be substantially engaged in selling the goods of others 5 .Are we dealing w/ a true consignment or dealing it w/ a disguised SI and sale? o True consignment bc the consignor retains title. and returning to the dealer’s items that remained unsold. . w/ the store handling the sales and taking a commission on each one. which was a problem. merchant is not an auctioneer 4. At CL there was no requirement of anyone giving notice of consignments. When revised A9. The retailer gets a commission. and if it is. o 9-109(a)(4) applies to consignments but one qualification---a lot of consignments are minor in nature. and Antiques R Us only gets a commission as opposed to all profit.Is it a true consignment? Or . so drafters said only apply A9 to most important types of consignments---so must meet definition of A9 consignment 9-102(a)(20) 7 reqs for consignment: 9-102(a)(20) 1. Title still remains w/ the artist (consigner). well known as a place where antique dealers could hire out space and exhibit their wares. 20: Antiques R Us was the largest antiques store in the city. When the store takes out a loan from ONB and uses as collateral “all its prop.Is there an ostensible ownership problem w/ consignment? Secrecy problem? o Yes bc the retailer might put up a line of credit and use the paintings as collateral.
A person delivers goods to a merchant for the purpose of a sale---delivery has to be to a merchant. so this requirement is met. Inc. Mehdi did deliver the carpets to a merchant for sale 2. assume rugs worth more than 1k 6. retailer has to be dealing in a name diff than artist’s name. Court applied 2-326 which is the law for a true consignment but threw around terms sale and SI.---this is here to reiterate the fact to check twice to make sure not a sale and SI. for each delivery the aggregate value of the goods is $1k or more 6. merchant is not generally known by its creditors to be substantially engaged in selling the goods to others 5.Court said that it was intended that the agreement was for security bc of the risk of loss---if the risk is on Fabers then it indicates a SI bc generally in a consignment the risk is on the consignor. 3. is it really a disguised sale and SI---we already met this 6 . Merchant deals in goods of that kind under a diff name than the person making the delivery---so if an artist delivers paintings to retailer. merchant has to deal those rugs under a diff name other than person making delivery---Fabers is dealing under Faber’s World of Carpets. Once you find a true consignment. 3. Not all consignments are in A9 just the important ones. it’s like Sears saying they sell Maytag washers when in fact Sears owns them 5.---this is what you begin w/. 2. the goods are not consumer goods immediately before the delivery---consumer good is for your own personal use. rugs not consumer goods before delivery---this is met 7. Commingling the $ from sales of proceeds from sale of carpets. A9 does not have definition of merchant. court says it is like Sears dealing Maytag washers. . then he could return them back to Mehdi So this seems to be a true consignment not a sale and SI. page 20 take facts of the case and apply to definition in A9 .However arguments for true consignment would be: o Mehdi set the price o Advertising it as Mehdi’s carpets o Title stayed w/ Mehdi o Every time Fabers sold the rug. if the answer is that it is a true consignment then look to the other 6 to determine if it is w/n the scope of art. but it is defined in A2 as a person who deals in that kind of goods. if Fabers could not sell the carpets. they would have to give the $ to Mehdi o Court called the T as sale or return. 9. Fabers is not an auctioneer 4. Generally used consumer goods are not very valuable and depreciate quickly so not worth A9 protections 7. and there are diff remedies b/t true consignment and sale disguised as a consignment In re Fabers. merchant is not an auctioneer—bc everyone already knows 4. the T does not create a SI that secures an obligation. Fabers has to NOT be generally known by creditors to be substantially engaged in selling the goods of others---don’t know that creditors read the newspapers.1. you have to find out if it is important enough to be in A9: 1.
then go to 9-102(a)(2) . the consignor has the right to inspect the goods and the books. then lessor can enforce any remedy in the L agreement (leased car has to be returned and lessee is still responsible for all L obligations as damages) Article 2A---deals w/ Ks for the leasing of goods 7 . The collection was appraised as being worth over $25k. 2. The consignee is obligated to segregate the consigned goods from its own inventory. tax benefits. 7.Factors Indicating A Consignment (Also on pg. 5. a large gun and weapons dealer. which mostly sold items that it either manufactured itself or bought from other dealers around the globe.Factor 6--how is Luke using the swords. 8. not the lessee. 9 of syllabus) 1. Luke asked WOW to sell the collection for him. 10. The risk of loss remains w/ the consignor. the consignor reserves title to the delivered goods until they are sold. It is a personal collection so probably mean it is a personal use so will not be A9 true consignment--only have to miss 1 of the reqs to kick it out of A9. 9.This is a true consignment included in A9 and Medhi failed to comply w/ A9 and so trustee could take the carpets. 3. the consignor exerts control over the sale price.Transfer of right to possess and use . True consignments: consignee is a true agent 2. 22: Luke Skywalker inherited a valuable sword collection from his father.lessor has the risk of loss. Consignments: 2 types that we will come across 1. Lease: 2A-103(p) L . 6. the consignee is obligated to hold the proceeds of sales and forward them to the consignor. the consignor reserves the right to demand the return of the goods at will. 4.For a term . Problem 5 pg. he took it down to Weapons of the World (WOW).Consideration When people enter into a L: . the consignee is required to keep separate books and records pertaining to the goods. records. When parties just call the T a consignment---consignor selling goods on credit and label as consignment to avoid A9. shipping papers and other docs refer to the T as a consignment. and consignee doesn’t have to worry about the reqs of A9 & so worry about complying w/ state law C. First: is it T a true consignment or disguised sale and SI? . and if default. Is this an A9 consignment so that Luke needs to take A9 steps to protect himself from WOW’s other creditors who have an interest in the store’s inventory? Assuming it is a true consignment.Car dealerships would rather L then sell bc when L. and premises of the consignee. . the consignee has the right to return the goods which are not sold.
Winston claims credit sale w/ SI disguised as a L.- L: is transfer of right to possess and use goods for a certain term of time w/ consideration. do chapter 13---keeps all prop but must put together pyt plan. o But if there is a clause that allows termination of L at any time indicates a L . c. then it is part of her estate = part of pyt plan. . the lessee has an option to become the owner of the goods for no additional or nominal additional consideration upon compliance w/ the L agreement.Chrysler argues that it was a true L w/ the option to buy at the end.” 8 . Party arguments: . and what prevents them for putting good up for collateral? o Is a true L governed by A9 so we can give notice? 9-109 does not cover a true L • If trying to determine if T is in A9 or not: o Have to determine if true L (not under A9). OR d. o L says “I the debtor.chapter 13 is reorg bankruptcy---debts far exceed assets. instead of sale and SI. she declares chapter 13 bankruptcy. the lessee is bound to renew the L for the remaining economic life of the goods or is bound to become the owner of the goods. b. but set minimum income and debt under certain amount. then plan is implemented---runs 3-5 yrs.—(definition) In true L.L pyts equal how much it is worth at the beginning of the L and a nominal option to purchase at the end of the L term makes it look like a sale. OR o Disguised credit sale w/ SI and parties are calling it a L. Court reviews the plan and court agrees. AND 3. the original term of the L is equal to or greater than the remaining economic life of the goods. AND 2.Article 2-A made so attys would know how to draft a true L. . the lessee has an option to renew the L for the remaining economic life of the goods for no additional or for nominal additional consideration upon compliance w/ the L agreement. How do we distinguish a true L from a disguised credit sale (sale and SI disguised as a L?)? 1-203: Why does it look like a sale as opposed to a true L? . 1-203 Guidance: L Distinguished from SI §1-203(b) a SI is created in a L: 1. if the obligation is NOT terminable by the lessee. In Re Winston—in packet: Term of the L is 48 months at $545/month Option to PM8391. plan to pay all creditors a certain amount of $. which she tells them that she wants to exercise option but before makes pyt. any one of the following 4: a. Once you comply w/ the plan all remaining debts are discharged and you get a clean start. if the lessee has an obligation to continue paying consideration for the term of the L. lessor gets the reversionary interest o Secrecy problem---looks to the world that lessee owns the good.30---but must give 30 days’ notice. which means she really owns the car and if she owns it. agree that this is a L.
The lessee has an option to renew the L for the remaining economic life of the goods for no additional consideration or for nominal additional consideration upon compliance w/ the L agreement i.Court looks at the 1-203(b) test: 1. a.Retail: $11025 . It means you are back to fall back GR in (a) to balance all facts and circumstances---and can do this in sub§ (c) 6 factors if present the court should consider---strong evidence of sale and SI if have 2 or 3 factors but not each one in itself is determinative of sale and SI. Here not met. If they have to pay fair market rent for use. If there is a right to terminate. . so $8391 is not nominal. The original term of the L is equal to or greater than the remaining economic life of the goods: i. insurance---factor indicating sale and SI.Winston is saying that she paid the fees. then it is a true L 2. Court also considered: . ii.$12k Winston contends this is the value of the car $8391 is close enough to $12k. Must meet one of the following 4 a. then it will not be nominal The court looks at diff fmv: . then it is all over. If option price is w/n 70% of FMV then it will not be nominal that is what this court is saying. then you are not done. If you meet step 1 but don’t meet step 2.since $8391 is not nominal then step 2 of test (meeting 1. Under this part of 1-203 no reversionary interest to lessor d. Original term of the L is 4 yrs. then true L. If $8391 is Fmv. If the lessee has no right to terminate. or 4) is not met. Court asks whether the lessee could terminate the L at will. 2. nominal consideration § 1-203(d) 1.Loan: $7875 . Under this part of 1-203 no reversionary interest to lessor c. The lessee is bound to renew the L for the remaining economic life of the goods or is bound to become the owner of the goods i. then go to step 2 b. 9 . 3. Become the owner---if fmv of the goods at the time you exercise the option (at the end of 4 yrs here) then it is not nominal. and when looking at remaining economic life (sub§ e)--must be determined w/ reference of facts and circumstances at the time the T was entered into. ii. then it is not nominal 2. bc she was not bound to renew the L and was not bound to become the owner---had an option to become the owner. Here (b)(1) is not present ii. interest. 1. Under this part of 1-203 no reversionary interest to lessor b. i. Here this was not present. 3. The lessee has an option to become the owner of the goods for no additional consideration or for nominal additional consideration upon compliance w/ the L agreement.Trade in value: $8725 .
Inc. it is a sale bc both steps are met! So sale and SI. or registration fees. The lessee assumes the risk of loss of the goods. ONB seized all the shop’s equip. MAY BE EVIDENCE OF A SALE BUT IS NOT DETERMINATIVE IN & OF ITSELF. a. a. taxes. The lessee has an option to renew the L for a fixed rent that is equal to or greater than the reasonable predictable fair market rent for the use of the goods for the term of the renewal at the time the option is to be performed.Is it a true L or disguised SI? .00. and the rental pyts over this period exactly equaled the current market price of the machine. The lessee has an option to become the owner of the goods for a fixed price that is equal to or greater than the reasonably predictable cost of performing under the L agreement if the option is not exercised. Inc. insurance. The L was for 5 yrs. or 6. then you are done and it is a true L If no right to terminate. The lessee has an option to renew the L or to become the owner of the goods. When Connie’s Print Shop failed to repay the loan. recording. Thereafter Connie’s Print Shop borrowed $ from the ONB and signed a SA w/ the bank granting it an interest in all of the print shop’s “equip. .G. In the lawsuit ONB v. 23: B. but lessee may be willing to take it on if pyts are smaller 3. The present value of the consideration the lessee is obligated to pay the lessor for the right to possession and use of the goods is substantially equal to or is greater than the FMV of the goods at the time the L is entered into. The lessee agrees to pay.I. 2. BIG Machines. 2. 25: 10 . 5. 4.1.” ONB duly perfected its SI by filing a FS in the appropriate place.Apply 2 part test in 1-203(b) o Step 1: is there or is there not right to terminate? There is no right to terminate---if this is NOT met. including the duplicating machine. meaning there is right to terminate then it is a true L! If there is right to terminate. leased a duplicating machine to Connie’s Print Shop. Option to renew or option to buy indicates a true L. BIG Machines did not file an A9 FS. Problem 7 pg. • To know if nominal or not: o Compare pyts to fmv---go to (d) o Under Winston if option price is w/n 70% then $5 is not nominal. then go to step 2 o Step 2: going to 1.. o If it is nominal then. w/ respect to the goods. or service or maintenance costs. filling. Risk of loss usually retained by lessor. 3 and 4 to see if any are met (1) at the time L entered into it is equal to or greater than the economic life of the goods (2) lessee is bound to renew (3) lessee option to renew (4) does lessee have option to become owner for no additional or nominal consideration? • In problem 6 it was for $5. who gets the machine? Read §1-203. Machines. Problem 6 pg. The L K further provided that at the end of the 5 yrs Connie’s Print Shop might purchase the machine outright by paying BIG Machines $5.
Assume no right to terminate 2. but by itself is not enough.000 1. At the outset of the L the copier had a fmv of $300k and a predicted 10-yr useful life. has the option to become the owner of the copier at the end of the 5-yr period by paying Copies. so go back to (a) to consider facts and circumstances---to do this use (c). the amount of $10k.Biz Corp leased a massive copier from Copies. a.Option: 10. then it means that step 1 of test is met but step 2 is not met.000 . The lessee has option to renew… f.000 ii. Lessee agrees to pay. or service or maintenance costs d. Bound to renew--no c. insurance. Lessee assumes risk of loss c. w/ respect to the goods. Original---no b. for a 5-yr period. then go to step (a) which will take you to sub§ (c)---to balance. but if she has to pay 330k in 5 yrs. if it is not nominal. If one of the 4 factors is met in step 2 then it is a sale & SI If you meet step 1 but not step 2. if find 2 or 3 then court might decide that it is sale instead of true L. What is the fmv of the good after 5 yrs? 1. Option to become owner i. taxes. The lessee has an option to renew the L… e. Discounting to Present value of the consideration---definition in code---if she pay 300k up front then it is out of pocket. Is this a true L or a secured sale? Would we reach a diff result of the copier’s useful life were only 5 yrs? FMV at beginning of L $300k . it is evidence of sale. The lessee has an option to become the owner…. Inc. Look at 4 following steps to see if any are met. then it is not nominal. filing. Option to renew--no d. if w/n 70% of fmv. Is there a right to terminate? a. a.Pyts: 330. Over the course of the 5-yr L the rental pyts would total to $330k.Life: 10 yrs . but remember that (c) is not an exclusive list. She is agreeing to pay $30k more. The L provides that Biz Corp. she would invest the remaining 30k. look at depreciation 2.Term: 5 yrs . recording or registration fees. ii. If there is a right to terminate w/ a penalty---applied to 2 part test---right to terminate w/ penalty is equivalent of no right to terminate!!!!!! 11 - . Inc. and the interest over 5 yrs would be more than 30k b. Is it w/n 70% of 10. If you meet step 1 then you go to step 2. want to prove fmv 3. present value of the consideration i.
you do not have to comply w/ A9. . D. bc you don’t need to file under A9. Equitable CL right to subrogation---(If the surety has to pay off the debt of the principle (Cash) then subrogation allows surety to step into shoes of person they pay (the bank) and to exercise the rights of that bank---means that the surety can go after the car under the SA) Crash doesn’t pay for supplies. here Standard wants the $—but also someone else wants that $! Crash gave bank SI in $ that is owed to them by Mercy (this is an account receivable collateral). so Standard steps into shoes of suppliers and pays them off and exercises right to $ that Mercy was supposed to pay Crash that Crash was to pay suppliers. the more sureties we have the more lending---CL. This means suppliers can sue owner to get the $ that general Contractor didn’t give them. pointed to its filed SI. and stated that Standard Surety’s subrogation right was only an unfiled A9 SI. if you wanted the tax advantages of true L. Who should win? Mercy Hospital wants addition on hospital and hires Crash as general contractor. Standard Surety claimed a superior right to unpaid monies retained by Mercy Hospital. However. but it is not under A9. which were to be paid to Crash. So owner hire surety to guarantee (standard) and they have to put up a bond. if you don’t give precautionary notice. and Standard Surety had to finish and pay off the employees and suppliers. Encourages you to file under A9 & it covers you & gives people notice about what is going on. ----there is a secrecy problem. but why not file FS to give notice anyway. give notice under A9 to terminate!!!!! For true L. Halfway through the job. Other Ts Problem 8 pg. At this point.bank argument: bank gave notice & perfected the title & SI & standard didn’t give notice to anyone o Standard will say nothing in the law says surety has to give notice 12 .Whenever in doubt. which will make you safe under A9. it is not evidence of a sale. Standard Surety issued such a perf and pyt bond covering Crash’s obligation to Mercy Hospital. by virtue of the CL right to subrogation (the equitable right given to sureties to step into the legal shoes of persons they have paid). 34: When Mercy Hospital’s administrators decided to build a new addition. So bank takes SI in the account---PP---A9 applies---and then file to perfect. why didn’t you file o 9-505: if you play it safe and make a precautionary filing. We favor sureties. and court says it is true L then you are ok. In true L situation. To finance the construction. Under state construction law. ONB dully filed an A9 FS. they hired a general contractor named Crash Construction and required it to get a surety to guaranty the perf of the construction job and the pyt of all the workers and material suppliers (to avoid a mechanic’s lien on the hospital). then suppliers have a lien against the owner to get back the benefit the owner received from supplies. Crash went bankrupt.But what are the downsides of this? o IRS will say. Crash borrowed $ from ONB and gave as collateral the right to collect the progress pyts from Mercy Hospital as they came due. Priority battle b/t Bank and Standard: . ONB also claimed this fund. if general Contractor does not pay suppliers.
but: a. Subrogation comes from CL. or promissory notes as part of a sale of the biz out of which they arose. 2. A sale of accounts. 36 Philko Aviation. An assignment of a claim for wages. other than a judgment taken on a right to payment that was collateral. but § 9-315 and 9-322 apply w/ respect to proceeds and priorities in proceeds. 5. 36 Main issue: Shacket argues that in IL there is state law that says when you buy a plane you can do it through a purely oral K. (A) liens on real prop in § 9-203 and 9-308. 9-109(d): 13 situations that don’t want you in A9 so will kick you out: 1. Surety will win bc Sureties are favored under CL. Fed law supersedes state law. and not required to file. salary. other than an assignment by or to a health-care provider of a health-care-insurance receivable and any subsequent assignment of the right to payment. so if don’t get equitable subrogation. payment intangible. Shacket pg. 9-109(a)(1) Once determine w/n A9---under 9-109(a). 10. you might be kicked out by 9-109(c) or (d) . or promissory note to an assignee in full or partial satisfaction of a preexisting indebtedness. but § 9-333 applies w/ respect to priority of the lien. other than an ag lien. An assignment of a single account. including a lease or rents thereunder. (A) § 9-340 applies w/ respect to the effectiveness of rights of recoupment or set-off against deposit accounts. other than an ag lien. 6. But once in 9-109. What sureties do to cover themselves. (B) § 9-404 applies w/ respect to defenses or claims of an account debtor. or other compensation of an employee.No bc it is not consensual. A LL's lien. An assignment of a right to pyt under a K to an assignee that is also obligated to perform under the K. v. it is not governed by A9. they will write the subrogation into the K.(c)(1) fed law supersedes state law---Shacket case pg. except to the extent that provision is made for: a. 13 . 7. not the agreement of the parties. Bank replies: Standard’s right to subrogation is an A9 SI – interest in PP to secure their …might label T at surityship. chattel paper. The creation or transfer of an interest in or lien on real prop. A right of recoupment or set-off. which means that CL would govern it. 8. chattel paper. payment intangibles. Inc. 9. A transfer of an interest in or an assignment of a claim under a policy of insurance. 9-109(a)(1) regardless of the form. 4. they will then exercise contractual right to subrogation which would be governed by A9---under scope. SC looked at policy of fed act: congress wanted one office to look to see if title to plane is encumbered and to do that EVERY plane must be sold by paper and filed w/ the office. and b. A lien. Is it A9 security? . 11. An assignment of accounts. or promissory notes which is for the purpose of collection only. payment intangibles. given by statute or other rule of law for services or materials. Although it is security. 3. An assignment of a right represented by a judgment.
41: When Christopher Morley opened his bookshop. or a.look at comment 10---indicates when drafters used the term landlord’s lien. they were talking about typical landlord lien that arises from landlord tenant law in state statutes. They signed a L agreement providing that all the inventory (the books) would be subject to a lien in the landlord’s favor and could be seized and sold if Christopher defaulted in rent pyts. But there are some sales which are so minor or have such little to do w/ commercial financing that we just kick them out of A9 . Carl gave the lending bank a SI in “all present and future commissions earned or to be earned” from MIA. Problem 10 pg.independent Contractors . Is the landlord’s lien required to be perfected under A9? Is landlord’s lien covered by A9 so landlord has to give notice? . and 9-519. let communities or individual states legislate this the way that they want to. A9 will apply bc it was talking about Contractual lien not lien from state statute. (B) fixtures in § 9-334.people who get commissions---people don’t rely on commissions as much as they do as promise to pay under employment K.: personal tort suit cannot be collateral 13. a. Independent Contractors are not employees under this § and commissions are not the type of compensation that this § is referring to!!! 9-109(a)(3): sale of accounts---when it is an outright sale. Ex. (D) SAs covering personal and real prop in § 9-604. no typical creditor or debtor. though his primary sales were the life and automobile policies of the Montana Insurance Association (MIA). like an independent Contractor. In order to float a loan to buy a car. (C) fixture filings in § 9-501. Does A9 cover this assignment? It starts in A9 but does it get kicked out? . then not covered by this provision. and d. the landlord wanted security for the rent.9-109(d)(1): A9 does not apply to landlord liens---why? Bc this is sloppy drafting and doesn’t mean what it says….9-109(d)(3)---no SI in wages. An assignment of a claim arising in tort. 12. so why is it included in A9? Bc there is a secrecy problem bc accounts are intangible in nature. but § 9-315 and 9-322 apply w/ respect to proceeds and priorities in proceeds. Courts have held that in situation like problem 9. 41: Carl Jugular was an independent insurance agent who sold policies for many companies. Business’s can use their accounts as collateral c. 9-502. Individuals can use their accounts as collateral for biz loan Problem 9 pg. but § 9-315 and 9-322 apply w/ respect to proceeds and priorities in proceeds.These situations in problem 11----deal w/ 9-109(d)(4-7) 14 . other than a commercial tort claim. If you have a lot of kids at home and wages are garnished that are supposed to feed 10 kids…. If they are not a typical employee. 9-516. Employers don’t want to do it.b. salary or other compensation---comments indicate a lot of social concerns when granting SIs in wages. 9-512. An assignment of a deposit account in a consumer T.comments say leave this to local law. Ex. . bank issued debtor a credit card took collateral in the form of debtor’s personal checking account = A9 doesn’t apply b. c.
Must Trash comply w/ A9? See §9-109(d)(5). Logan sold the account to Trash Collection Agency. Must the art supplies store take A9 steps? See §9-109(d)(7). then they can go after the house if customer defaults too. So having SI in mortgage. he sold not only all the tangible assets but his outstanding accounts receivable as well. If the bank has SI in notes. and bank can say to customers you make the pyts to us (bank) and not to loan co. read Official Comment 7 to §9-109. pressed by his art supplies store for pyt of his outstanding tab. has promissory notes from customers. Bank is really cautious and so loan co. 15 . Does the loan co. Logan transferred to the store the $ due him from a client whose portrait he had painted the month before. 2nd Part of problem 11---part of transfer of account but 9-109(d)(6)----no secrecy problem here so not A9 steps When one of Logan’s clients refused to pay for a delivered painting. have to comply w/ A9 bc it has SI? • No. taking into ONB’s possession as collateral the real prop mortgages and accompanying promissory notes given to LLC by its borrowers. so say put up your house (mortgage). Loan co. Must the buyer take steps required by A9 of a SP? See §§9-102(a)(72) (D) and 9-109(d)(4). 41: When Michael Logan sold his lucrative art biz to John Pivarski. Loan co. the moment it is assigned it will be cashed in. Problem 12 pg.Problem 11 pg. bc it is real prop 9-109(a)(1) says only PP. Need ONB do anything either in the real prop recording office or under the UCC’s A9 to protect its interest in this collateral? Compare §§9-109(d)(11) and 9-109(b). so how about SI in notes to get a loan from the bank.. 43: Local Loan Co.(d)(4) sale of accounts as part of sale of biz is excluded. (LLC) needed to borrow $. But do have kick out § that reiterates fact that A9 does not apply to liens or interest in real prop----(d)(11). and see §9-203(g) and 9-308(e). If Logan received a commission to paint the portrait of the city’s mayor but decided he was too busy to perform the task and (w/ the mayor’s permission) transferred the job (and the right of pyt) to another artist. will put up mortgages as SI. so no secrecy so don’t bother w/ A9. 4th part of 11: transfer of account but (d)(7) says when only ONE account is assigned. then the bank doesn’t need subrogation bc A9 SI in the notes. and ONB agreed to loan it the requisite amount. Finally. 3rd part of 11: Collection agency doesn’t have to comply w/ A9 bc by the time they file. the account will be gone. wants collateral. . must the new artist take A9 steps? See §9-109(d)(6).
right to get paid) Prop that has no physical form whatsoever.No.Deposit accounts Problem 17 pg. 42: (a) Piano—Equip 9-102(33) (b) Cattle fattened by a farmer for sale—farm products OR inventory 9-102(48) . Equip—catchall category for goods Some prop that is not physical in nature.Does the bank have to comply by A9 and give notice? • 9-109(b) SI in secured obligation: o To a SI in a secured obligation---means SI in the notes.Account: right to pyt. Consumer goods ii. Inventory iii. Bank has to comply w/ A9 for the notes bc it is PP. they will be on notice bc the bank has SI in the note. then they are automatically attached to the underlying mortgage. physical.e. will take mortgages and offer it up as collateral to another lender---will that lender be fooled? o No bc when lender is offered the mortgage they will say. then automatically deemed to have given notice to mortgage (9-308(b)).Farmer’s tractor—not supplies under farm products bc it is not something that can be used up = equip .Manure—farm products 9-102(34)(D) or (C) as a supply to put on crops 16 . tangible. 9-203(g) says that under A9 when you attach to the note you are automatically attached to the mortgage. Memorize the categories. a. Goods 9-102(44): a good is something that is moveable. II. Farm products—must meet 2 reqs: good still have to be in hands of farmer iv. where is the note? Only way you can exercise the interest in mortgage is when the debt is defaulted on. Collateral Collateral has diff categories and the collateral categories are how you perfect the SI. Creation of the SI A. Do they have to comply w/ A9 for the mortgages? Is there a secrecy problem regarding the mortgages if the bank has given notice regarding the notes? . intangible in nature . but the right to the prop is wrapped up w/n 4 corners of piece of paper---paper is tangible but right is intangible. Goods are subdivided into 4 categories w/ definition in 9-102(44) i. . and when they see the note.Instruments. the loan co.look at how the debtor is using it at the time of the classification 1. although right to prop can be evidenced by writing it down and put on paper. If it is tangible and moveable it is a good. including promissory notes (IOU) can be sold from person to person (i. . the right is not wrapped up in the paper. o If the bank properly attaches SI to the note. and it is movable at the time the SI attaches. When you perfect in the note. see and touch..Farmer’s chickens—farm products . Classifications of these: .
If it is used as a home. bc can’t fit it in anywhere else and purely intangible right. Do they become unperfected bc of change in the use? (e) (f) (g) In Re Troupe: pg. it is inventory. 43 17 . It is not a category of collateral in of itself. Commercial tort claim is its own category of collateral. So way to distinguish this. a. If you take the curtains home they change to consumer goods. This is risky though bc if debtor loses lawsuit. and list all categories. For equip you have to file w/ the town clerk. Type of inventory that you sell has a high turnover rate. General intangible is a catchall category---means everything but. If use as collateral it would be called General Intangible. Account can include right to pyt for services that have not yet been rendered--more risky for collateral. then it is worthless. This is diff than a tractor bc that doesn’t get used up quickly like pencils and stationary (inventory) tractor is equip bc used for a long time. so this paragraph in sub§ 42 lists all A9 categories together. 9-109(d)(12)---only kicks out personal tort claims. The subcategory of good depends on how the debtor is using it. A right to sue is called a chosen action---if it is based on K it is called a Contractual chosen action.(c) Mobile Home—depends on what the debtor is using it for. then a consumer good. It is a right that has no physical characteristics. To perfect for consumer goods you will have to file for a separate office--secretary of state. and not anything else. Right to sue for auto accident—chosen tort action---here it is a personal tort claim (not a commercial tort claim) so it can still be a general intangible. i. Pull out each of the terms and find the definition for it to learn the categories. c. Bc both types of goods turnover quickly then going to lump them together b. Once a claim arising in tort has been settled and becomes contractual. Contractual rights to pyt is called a payment intangible and goes under the general intangible category. It is simply a type of good. if it is not a good. Settlement agreement: can the settlement agreement be used as collateral? We already know that personal tort claims cannot be used as collateral. which also means account (a right to pyt for goods and services). curtains for law office as collateral: equip. If it lasts a long time then it is equip Liquor License: if there is a default. Newspapers right to pyt for delivery of papers: account--right to pyt for services rendered. call it general intangible. Contractual right to pyt. the personal tort claim becomes a contractual settlement and we call that a pyt intangible---9-102(61). b. (d) Manufactured home 9-102(53)—prefabricated homes. Payment intangible is a brand new term. Fixed asset is taxable—tractor you might have to pay taxes on. Right to return of security deposit as collateral for a loan: payment intangible which is subcategory of general intangible. Pencils and other stationary supplies: Official comment 4A in 9-102(a)(48)(D) materials consumed in biz. PERSONAL TORT CLAIMS CANNOT BE USED AS COLLATERAL!!! What is a commercial tort claim? 9-102(a)(13)---generally for economic damages not personal damages. In A9 it is called 9-102(42) General Intangible---catch all category for all of the classifications. If it’s on a lot to be sold. The reason for it is because courts were confused regarding payment for services. Pyt intangible is not a category in of itself---type of general intangible (sub-category of general intangible). the bank could exercise its interest in liquor license by selling it to someone else and make a profit---but have to get city or state approval. a. A right to payment of a monetary obligation for something other than goods and services. It is a right to $. b. a. i. This is like the stuff you use in biz that’s quickly used up.
Same milk in hands of restaurant: inventory bc it is still held for sale. Either way restaurant uses the milk would be inventory bc it turns over quickly. When it needs to borrow $. 18 . can it use these credit card Ts as collateral? See 9-102(a)(2). how would you protect yourself for perfection purposes? . 9-109(a)(3). . its atty.Same milk in hands of grocery store: inventory bc held for sale . . 49: Mercy Hospital needs financing and calls you. 49-50: Milk in hands of farmer: farm products. You can have same piece of collateral and it can be in diff classifications at diff times depending on how person uses it.Under new code generally file in one type of office for collateral. comment 4. 49: Passport Credit Card Co. . w/ this Q. But once he has the goods or services he can assign the claim over to the hospital that can use accounts as collateral. sending them to cardholders. but extensive canning operation would be manufacturing process. 9-102(a)(2)(vii) tells of rights to credit card pyts Problem 20 pg. Once assign the right to pyt to the hospital already have the right to services. The merchants would then send the resulting paperwork to Passport for reimbursement (minus Passport’s fee). You are the atty for Passport. then it can only be one classification. if he sells it then it is inventory. so hospital can use those insurance receivable as collateral bc they are owed the $. 6th paragraph. Problem 19 pg. health care insurance receivables---hospital’s right to claim $ after the person has received services. . The hospital always has a large number of such receivables in the collection process.Problem 18 pg. Many of its patients are members of various health plans and when they come in for treatment they sign paperwork authorizing the hospital to seek pyt from their health insurance coverage provider. 9-102(a)(46) Health care insurance receivable---right to pyt for goods or services provided.Yes bc they have a right to pyt from the customers for goods and services so merely classified as an account. Remember that the outright sale of such prop by Passport is also an A9 T. If you are in doubt about classification. does it take it out of category of farm products bc been subject to manufacturing process? No. But if you pick it at one time. When he has a claim from Blue Cross he needs the $ to pay off doctor. What is and is not manufacturing operation. bc in hands of farmer and product of livestock in un-manufactured state. issued millions of credit cards internationally. So if farmer puts milk into cartons then it is manufacturing process---depends on how the farmer uses it when SI attaches---if family will drink it = consumer goods. When the hospital borrows $ can it use the monies due it from the various health plans as collateral? See 9-109(d)(8) and 9-102(a)(46). but hospital can. When in doubt do it under all classifications that it may fit under. Health care insurance claims. But what if using milk to bake cakes it would be inventory still bc it would be consumed quickly. o Subcategory of Account! o Kick out § 9-109(d)(8)---can’t use health insurance as SI personally. At one end of spectrum some processes are so close to farming that not constitutes manufacturing process.If the farmer pasteurizes the milk. who then used them in millions of Ts w/ merchants.file it under both classifications.
or equip.Cert of deposit is negotiable instrument bc it is merely a promise to pay by the bank at particular time w/ particular amount of interest.---your entitlement to stock held by your broker---in A9 it is called a security. If you are purchasing pure software not associated w/ a good yet then it is a general intangible.Cert of Deposit issued by a bank: 3-104 defines a negotiable instrument (it is an unconditional promise or order to pay a fixed amount of $). Whenever the debtor is a consumer you cannot use your deposit accounts as collateral. If the instrument is filled out in a particular way and using particular language then qualifies as negotiable instrument---meaning it can go b/t person to person.Exception: debtor is a biz then they can use their deposit account as collateral Computer Program: General Intangible----but it can be a good too.Instrument is a piece of paper that contains right to pyt . very limited 100 shares of stock recorded on the books of the debtor’s stockbroker: security entitlement in article 8. Rare coins bought by hobbyist for coin collection: coin collection cannot be a good under the definition and so it cannot be a consumer good. but is valuable bc allows you to get to the goods bc it is a right to the goods. However if it is embedded in goods (like a computer) then it is a good. While it is a coin collection. Difference b/t instrument and doc . and if it is not $. it is not $.This is $ bc being used as a medium of exchange so it cannot be a good. inventory. So what is it? $ under A9 is called $. . which is a general intangible---right to pyt for something other than goods or services. If you put it up as collateral---how would bank classify it in A9 terms? 9-102(47) Instrument = negotiable instrument is classified as an instrument. 19 . Tax refund: pyt intangible. A bond is a security so we call it investment prop. it is its own category. So entitlement to 100 shares of stock is called investment prop. Air Bill issued by an airline as a receipt for frozen shrimp: Doc 9-102(29)---doc of title 1-201(16) Receipt given to a farmer by silo operator: doc (doc of title refers to warehouse receipt 9-102(a)(42) – Right to the goods that are being stored/shipped is wrapped up in the warehouse receipt. Debenture bond issued by a corp: 8-102(15) obligation of corp of issuer is called security.Doc is simply a receipt to the goods. then it can be a good. Right to pyt is wrapped up into piece of paper. so they are valuable. . Investment properties are very. It is a general intangible. and then it can be a consumer good. But in A9 collateral it is investment prop 9-102(49)---means a security.Promise to pay $: check and promissory note. Checking account at the bank: Deposit account---9-102(29) 9-109(d)(13)---cannot use as A9 collateral an assignment of a deposit account in a consumer T. 1-201(24) $ definition---medium of exchange currently authorized or adopted by a gov’t. Money is its own A9 classification. . What if Sears puts up the $ they have in their vault as collateral? .
v. so leave it to real prop law and not deal w/ it under A9. Problem 22 pg. Inc. But Morgan County Feeders had perfected a SI in the cattle. 52-53: How would you categorize the car L Ks that Dime-A-Minute Rental Cars use as collateral when it borrows $ from a bank? . 52: Sam Ambulance was a lawyer who loved speculative investments. He decided to keep it for yrs and let it appreciate in value (he did not himself play the guitar). Problem 21 pg. But if the cattle is anything else. Allen defaults on pyts to Morgan. But court doesn’t buy this bc cattle used in recreational cattle drives are not used up quickly. . Chattel Paper is a monetary obligation (like a promissory note) + SA or if it is a L then the L. bc using $ to run law office?---use of guitar is not the use of the business--doesn’t matter how using the loan $---look at how the debtor uses the collateral itself. .If Dime a Minute defaults. Sam not in biz of selling guitars. pg. the only way he will win is if the cattle which Allen doesn’t normally sell.Debtor Allen is not a farmer and to be a farm product there needs to be a farmer.Inventory---good held for sale---Comment 4---to be inventory you have to be in the biz of selling that item. When Elvis Presley died. so not inventory. If Ambulance uses the guitar as collateral for a loan needed to run his law practice.9-102(a)(2)(i) for prop that ---type of prop talking about is PP. How do we classify the cattle in hands of Allen? . how is the gain classified? . including a L or rents there under. If a debtor sells collateral w/o permission of creditor. McCormick.Only time to worry about chattel paper is when first creditor goes to another creditor for a loan. o (2) has to evidence either a SI or a L.What about equipment.---How can it be inventory? Life of the cattle is so short so type of goods that used up quickly in business. So if you are in position of McCormick’s atty. then the bank can call up the people who have the L and tell them to make the pyts to them. not real prop Morgan County Feeders.Monthly rental obligations owed to landlord who wants to use obligations toward loan: . and Morgan will win. Morgan wins. then McCormick is protected as a buyer. o it is not an account bc drafters didn’t want to bc prop law already covers it. 20 .Must fit in definition of good---so it would be consumer good. it would inventory. . So this is good collateral---but how do you categorize the L K? It would be chattel paper 9-102(a)(11)---piece of paper when taken together made up of 2 things: o (1) it is a monetary obligation---obligated in L K to pay monthly rentals. .Guitar is being held as an investment---but not investment prop bc it is limited and only applies to stocks and bonds. generally SI continues into the hands of the buyer. If the cattle in the hands of Allen is inventory.9-109(d)(11) not included in A9---kicks out the creation or transfer of an interest in or lien on real prop. so the cattle are equipment. Ambulance managed to acquire one of the singer’s guitars. To protect run of the mill buyers and to encourage buying from retailers there are some §s that protect buyers. so they seized the cattle before they were delivered to McCormick. . 50: Allan and McCormick had an agreement where Allen would sell McCormick 56 head of cattle.
is a statutory lien (bc it arises by statute and is not created by the consent of the debtor—farmer). (C) very limited---collateral as paper stock cert (today it is almost always electronic)---paper has to be given to the creditor.e. (D) implies that SA doesn’t have to be in writing---creditor has possession or control then don’t need a writing c. it is much like a pledge. so the debtor has to have rights in the collateral. Once it attaches the secured creditor is A9 creditor and if default. Debtor has to have rights in collateral or at least the right to transfer rights in the collateral. 54: When Frederick Bean bought a new computer on credit from Centerboro Office Supply. -How can someone grant a SI in collateral he doesn’t have any right to. i.Classifying collateral in A9 terms----important to put collateral in correct category b/c determines how to perfect the SI. next have to fill out some papers. Problem 24 pg. When reqs are met. When creditor has paper. One of the following conditions have to be met: all the conditions tell you that the 3rd requirement is you have to have a SA (you have to have a K). When debtor keeps collateral then the SA has to be in writing and signed by the debtor (authenticated) and describe what the collateral is. of course. Debtor has to authenticate (sign) a SA. 53 The state of Montana has enacted a statute giving unpaid crop dusters a lien on the crops of the farmer. so promise can be giving value 2. Problem 23 pg. SA has to provide description of collateral and timber stuff.---doesn’t say anything about a writing implies in pledge situation SA can be oral if you want it to be. b. so can have oral SA d. Value has to be given: the creditor gives value to the debtor in return for the SI. Definition of value in 1-204: anything that would suffice as consideration of a K is value--promise can be consideration. Normally this is giving the loan. Attachment of SI Once you’ve categorized the collateral. then secured creditor has A9 remedies. there are reqs parties have to meet. This. a. once created the lien holder has to comply w/ A9 B.To get priority over other creditors—take additional steps—perfection 9-203(b) reqs for attachment: 1.” by which he agreed that title to the computer would 21 . Statute of Frauds---reason why creditor keeps the collateral and reason why for the debtor to have possession of collateral. 4 sub§s: a. it becomes legally enforceable. 3. To bring SI to life. Liens 9-109(a)(2)--ag liens--created by state statute. then there has to be a written SA.. (A) debtor keeps the collateral. before he could take it home the store made him sign a “Conditional Sale K. SI attaches to the collateral. . Is this nonetheless an A9 T requiring compliance w/ the usual A9 rules? See 9-102(a)(5) and 9-109(a)(2) and (d)(2). (B) deals w/ a pledge: debtor gives physical possession of collateral to creditor.
that was the trade name. o 9-502(a) tells you the basic info that you need in a FS. Problem 25 pg. SA C. The K described the computer.Must have info listed in 9-516(b) o Extra info for financial statement (FS) and if the info is not in the FS it won’t be accepted. bc he was the sole proprietor. then SA must be in writing. Perfection of SI You want priority over 3rd parties in collateral--to get it. a. So you use the individual’s name. and then you have perfected the SI. If debtor keeps the collateral. seller doesn’t have title at all even if though he has the papers bc buyer has constructive title. So meets all the reqs. 55: Harry Fellini ran a movie theater called “Fellini’s Art Theater. a description of the collateral. it will still be ok for the court bc it does put them on warning. Perfection means that you gave notice of your SI by following A9. 9-503(c) says that a debtor’s trade name is insufficient. 1. Need the name of debtor Name of the secured creditor or its representative Description of the collateral . Seller taking SI---issue is. Purpose of the form is to warn other people that you have SI---so it doesn’t need much info. and 2-401(1). o 2-401(1): conditional sale K---seller delivering goods to buyer under credit K. Debtor has rights in collateral 3.There are several ways to give notice depending on the type of collateral . 9-203(3) – SA can be oral if the seller keeps the collateral. and purport to retain title. second sentence.” 1. bc it will put them on warning. The FS calls for a listing of the “debtor’s name.” but.Is this T even governed by A9? Scope 9-109---SI = interest in PP to secure the credit pyts. even though it is nice to have the extra info in 9-516(b). Should the parties use the biz name or individual name? Read 9-503. When he goes to borrow $ for theater. All the seller has is a SI. what name does he use bc his name is boring. . 22 ..remain w/ the store until he had fully paid for his purchase. but nowhere did it mention a SI. you must also read 9-516(b) and 9-520 w/ 9-502(a) . you have to give notice to the world of your SI the way A9 says. He gave a SI in the business’s equip to Sharkteeth Finance Co. Signed by Creditor 2. It will be enough to perfect. But if filing officer does accept it w/ info missing then: 9-520 says that as long as the basic info (9-502(a) info) is there and the extra 9516(b) is not there. . the biz is the individual. don’t need magic words to make a SA---as long as parties intending to make one and meet the reqs then it will be SA. Does the K qualify as a SA under 9-203? See 1-201(35) last sentence of the first paragraph. do we have a Security Agreement? All you need is a signature by the debtor.Whenever you read 9-502(a). assume that bc it is a K. you have to have words of grant where debtor says to creditor that giving interest in prop. When dealing w/ a sole proprietor.General way is filling out a FS that you file w/ the public office.
.9-503(a)(3) deals w/ trust and trustee 3. 1. Ms. it is not a biz. 56: Problem 27 pg. 56: The debtor’s correct name was “Raymond F.. Comment 2 says how to read sub§ (4)(a) if the debtor is an individual. and a corp is an org. other than sole proprietorship. and limited liability partnership .” interior design being her specialty. Is the FS effective? See 9-506. in order to come to life.. as long as they are not seriously misleading. In re John’s Bean Farm of Homestead. Problem 26 pg. . is considered. there are certain businesses called registered orgs. 1-3 deal w/ specialized situations.Danger here is if the searcher searches under correct name & can’t find it bc it is under incorrect name . . If the theater were run as a partnership. Reading 9-503(a)(4) is the GR. Here. and she changed 23 . but (4) says a FS sufficiently provides the name of the debtor: if the debtor has a name. use the individual’s name. only if it provides the individual or organizational name of the debtor. separate to shareholders.2 other types of registered orgs: limited liability co. it will be ok.9-506(c): if bring correct name and the office using standard searching technique still finds it w/ the mistake. iii. Inc. then FS is sufficient. and sole proprietor. biz has to make public filing w/ the state and w/o it. What if he incorporates the biz and is only shareholder---now does he use Art Theater Inc or Harry Fallini: .Org is an entity unto itself. ONB duly filed a FS. 2. Sargent Co. ONB and Ms.. Org is individuals. Subsequently. even a minor mistake.” but the FS listed the debtor’s name as “Raymond F. seriously misleading. but if the debtor is an org then you use org’s name.9-506(b) any goof up in debtors name is by matter of law considered seriously misleading---only way to bail out is if you meet sub§ (c) . Inc.i. 9-506 allows for minor mistakes in financial statements. he is the individual. then has to use individual name.9-506(a) says that FS substantially satisfying reqs will be effective even w/ minor errors or omissions unless errors or omissions makes it seriously misleading. Inc.” and it was so indexed. b. a. Any mistake in the debtor’s name.9-503(a)(2) deals w/ situation where debtor has died and have to deal w/ estate . Sargent. Individual is sole proprietor or someone not a biz 2.sub§ 9-503(a)(1): if debtor is a registered org. Song married Fred Dancer. Use the partnerships name under 9-503(a)(4) bc it is an org. If search run under debtor’s correct name produces financing statement with the incorrect name. . Song signed a SA showing her as the debtor and giving ONB an interest in the inventory and the equip. as a matter of law. 63: Barbra Song borrowed $50k from ONB in order to start a biz called “Barb’s Interiors. ii. In this case.: pg. the court held it was a serious error bc filing office had ancient computer system that only searched under name as given and small error turned up nothing. would the partnership’s name be used as the debtor’s name? See 9-503(a)(4) and its Official Comment 2.
. o Normally after acquired clause used w/ inventory that is turned over and accounts receivable. Is inventory financing worthwhile? Yes. Voice doesn’t take on responsibilities of American’s SA unless they agree to it.her name to Barbra Dancer. Voice of Japan. but use something called after-acquired property (AAP) clause in SA governed by 9-204(a) which says SI bar. Must LNB refile to keep its SI perfected in (1) the accounts actually transferred by American Electronics to Voice of Japan. which moved into the same retail location. Did ONB lose its SI bc it failed to refile when her name changed? See 9-507(c) and its Official Comment 4. Shared burden b/t the creditor and the searcher. 24 . SI in that collateral will be unperfected unless during the 4 month period the creditor discovers the name change and amends its filing. - - Problem 28 pg. L---and this is true even if they KNOW about the transfer. it is the creditor’s responsibility to find out. OR Issue is will LNB have to amend its filing to reflect Voice’s name instead of American Electronics? o 9-507(a) says that LNB’s filing remains good despite the sale. How can creditor discover that there is a SI. She borrowed another $50k from the Nightflyer Finance Co. When the latter ran into financial difficulty. o Searchers only need to do is trace title to the prop that is offered to them---look at original papers to the accounts and see the original party’s and then search under all of the people who sold the collateral---burden is placed solely on the searcher---any creditor would check to see that there is clean title and trace the title. Or if Voice agrees to accept all of American’s liabilities that means that they would agree to take up the SA. its assets were sold to a new electronics concern. (2) accounts thereafter acquired by Voice of Japan? See 9-507(a) and its Official Comment 3. She changed her name. which loaned her the $ after searching the records under “Dancer” and finding no prior encumbrances on the businesses inventory and equip. only covers what was agreed to w/ American. But you can have after acquired clause w/ any type of collateral. o Creditor might motivate debtor to tell you of name change---if you don’t tell them of name change.---so it is a compromise. It is not the debtor’s responsibility to notify of name change. exchange. o there is a grace period to discover the name change---9-507(c) o open SI covering inventory now owned and after acquired. 64: The LNB filed a FS in the proper place to perfect its SI in the accounts receivable of the American Electronics Store. then it constitutes as a default and can exercise A9 remedies against debtor. SAME is true of all inventory that gets in the next 4 months after the name change is safe. Then name change.Who bears the risk? Are we going to require original creditor to change the name or will the full burden be on the searcher? Her SI was in inventory---there is a problem of SI in inventory---sell collateral. All inventory on floor before name change is still around will be perfected. Any collateral that she gets in after 4 months. It is only brand new accounts opened by American. in all inventory on floor right now and all inventory in the future so when all this inventory is sold the SI will go to the newly acquired inventory (also called a floating lien). not by Voice. Does LNB have to do anything to protect interest in new accounts? LNB’s SI does not cover the new accounts..
9-203(d) and (e) and its Official Comment 7.When Voice agrees to take on old SA or is forced to by some other law. that merges takes on the old co. if there is some other law other than A9 that forces them to take on that SA.No. 9-203(e) and 9-508 address 2 issues---when new entity (new debtor) takes on old SA. which says that a new debtor means a person that becomes bound as debtor under 9-203(d) by a SA previously entered into by another person---key is does the new corp or Voice become bound as a new debtor under 9-203(d) • New debtor becomes bound on someone else’s SA in one of 2 situations: 1.so another rule 9508(a). so will not find American’s name….Do we get the same result if American Electronics Store merges w/ Voice of Japan and the new entity is called “Voice of Electronics. the searcher traces title and it will only go back to VE. o if the state law says that the co. they don’t have to if they don’t want to bc they know that they are in biz w/ each other and no 3rd parties are affected. Issue: if VE opens up new accounts. But what about the old filing? Old filing has old debtors name on it and if VE opens new accounts.HANDOUT from 5-26-11 25 . then they become a new debtor under the SA---debtor means someone responsible under SA. o Filing will remain effective to perfect the new accounts for 4 months from the new debtor taking over (those will be perfected for LNB ) but accounts opened after 4 months then for LNB to keep perfected in those they have to discover the new debtor and change the filing to perfect the new debtors name. . 9-102(a) (56) definition of a brand new debtor. .”? See 9-102(a)(56). here we have American that was original debtor and then they merge w/ Voice and now brand new corp called VE.New debtor words are not applicable to a transferee . then we go back to the 4 month compromise. the only problem of that agreement is it lists the debtor as American and not VE. So do they have to re-write the SA to put VE’s name on as debtor? . are those accounts now under LNB’s SA? o This is a secrecy problem bc no ability to trace the title. Same for the new corps---only way after acquired clause of old SA will extend is only if they agree to take on the SA or if they are forced to by state law. would be a new debtor. and 9-508.’s liability then that new co. Inc. if they agree to it/by K 2. - Distinguish b/t old debtor and new debtor .Says that if the difference b/t old debtors name and new debtors name makes the filing seriously misleading under 9-506. so is the new entity (debtor) responsible for the old SA opened by American when it comes to their brand new accounts? Does the AAP clause apply to the new accounts opened up by Voice or the new corp? Only if they agree to it or if there is some law that forces them to take it on.
if you have written Security Agreement the debtor has to sign it (be authenticated by the debtor). giving the co. This is how the secrecy problem is solved. just enough to put someone on warning so they can look further. Under whose name should the FS be filed? Robin is not the debtor at all which means that RICHARD has to sign SA and RICHARD has to be listed as debtor in FS. whichever occurs first. Robin probably has to sign loan K and promissory note 95% of the time the obligor and debtor is the same person.9-203(b) and 9-504 state that you have to indicate what the collateral is.. LNB will have to refer them to finance co. Problem 29 pg. but LNB assigns its interest in the debtor’s accounts to ONB? Need the records be changed? Read 9-310(c) and 9-511. Should the lender make both sign the SA (only Robin signed the promissory note)? . he received permission from his foster brother. a SI in “all PP the debtor now owns or ever owns or ever hopes to own b/t now and the end of the world or his death.What if the opposite happens.Remember under attachment reqs.9-310(c) says that original filing remains good. person who has to make pyts on obligation. they go after Richard’s boat. o Robin is obligor: 9-102(a)(59)---Robin owes the pyt. Issue here is who has to sign the Security Agreement and Financial Statement? Robin bc he is taking out loan and is making pyts or Richard bc if Robin defaults.Does finance co. When you have a filing. 64: When Robin Oakapple found out that he could not get a loan unless he had collateral. .” Does this perfect an interest in his guitar? Compare 9-108 and 9-504. Finance co. o 9-504: so if these parties want to they can change the filing to reflect the new creditor’s name. We need a description of the collateral for statute of frauds issues---to prevent overreaching by the creditor.Which of these parties is the debtor and which is the obligor? Compare 9-102(a)(28)(A) and 9102(a)(59). Richard Dauntless. Description of Collateral: . it is filed under the debtor’s name. o Can 3rd parties be fooled? No secrecy when you change the creditors . to use Richard’s yacht as collateral. don’t have to change it bc 3rd parties will not be fooled by it. o Richard is debtor: 9-102(a)(28)(A) debtor is defined as person who has received the interest in the collateral. is now going to have to file to comply w/ A9 to protect its interest in the accounts.description in the filing is to warn someone. but don’t have to if don’t want to. or LNB have to amend filing? The purpose of filing is to notify 3rd parties. ownership interest or whatever---it is the person who has the collateral. 26 . . . 65 Peter Poor signed a SA and FS in favor of the Total Finance Co. .Description also protects both parties from the other over-reaching claims of what is covered Problem 30 pg. Scope of A9 covers sale of accounts as a secured T even if no debtor and no collateral bc it still presents a secrecy problem. How much is enough to constitute a description in SA. But don’t want to require too much info. and the debtor remains the same.
and the bank gave it to her. and PP. equipment.9-504 Indication of Collateral: filing covers all PP. In re Grabowski: pg. description will be ok as long as it reasonably identifies prop described.Talking about perfection here so this is in the FS. o 9-108(e) description by type is insufficient---type means: deals w/ situation that is more specific then all PP. which took a SI (according to the filed FS) in “all inventory. if you want to use an A9 type. No case about it. Did the bank give up their interest in the jewelry bc gave up perfection by possession? o It says PP---is all PP too broad for FS? 9-504 covers all PP. 65: Problem 31 pg.Suppose have SA and creditor describes debtor’s (retail store) as “inventory. must look to see if it include the guitar.---ok describing collateral as all PP. so she decided to open branches all over the state. 69: Polly Travis owned a clothing store that was doing quite well. You are the lawyer for Longhorn State Bank. the description is fine for the filing. general intangibles.” o (b)(3) says that if you leave an A9 category then it will be sufficient. How much is enough to be reasonable? o The description of the prop is not reasonable bc 9-108(c) says super-generic or descriptions of all the debtor’s assets or PP is not enough for SA.” Does this limit the SI to existing inventory only. accounts receivable. o If you put this same description in SA. Is their interest in the jewelry perfected by the filed FS? What will be your argument? LC beats unperfected secured creditor. So here. o What if you don’t have SI in all PP but just in the jewelry? His thought is that court will not allow all PP unless all PP is covered. In the SA. only do so when your interest covers ALL of that type! 27 . Want the SA to be specific. Before she could return it to the bank.SA description: 9-108(a) general test---except as otherwise provided in the exceptions. Don’t want 3rd parties to be able to strike down filing bc it was not specific. making her bring it from her home and putting it in the vault. It is enough for FS but not for SA--have to be more specific for SA. another creditor seized it by judicial process. or does the SI extend to replacement for the original collateral? .” The bank also made her pledge her extensive collection of jewelry to the bank.” Is that sufficient description for SA in 9-108(b) sets forth examples of what is “reasonable. Would this be enough in a filing or do we require more? . . but filing doesn’t have to be specific. Court has not said this yet though. Problem 32 pg. 69-70: The SA and the FS both described the collateral as “inventory. it would not fly bc it would be super-generic description under 9-108(c) SA deals w/ actually having SI in the collateral---an attachment Filing means giving notice. She borrowed $ to do so from Longhorn State Bank. instruments. What does category mean? Be careful of these examples bc pulled lists from old code but in old code it was in context and the context is not here. A yr later she asked to have the jewelry back so that she could wear it on a social occasion.
which is more specific than all PP. Comment 2 to 9-502 says don’t have to put after acquired clauses in FSs. 70: The SA stated that the collateral was “machinery.hard to make it ok. In the comments. course of dealing.SP’s interest does not reach the inventory and accounts receivable bc if they are not included in an unambiguous SA the FS cannot expand that – In re Martin Grinding o If we look to CL K rules. comment 3 to 9-108.” To this list the FS added “inventory and accounts receivable. Should the SA be drafted to say that the debtor grants a SI in “the abacus-12 plus all other equipment.. bc then the person is warned and can look to the SA. Problem 34. . look to CL rules Problem 35. pg.” but the FS has simply mentioned “inventory. If you want your SI to cover both present and after acquired collateral. The bank is planning to make a loan to Luddite Technology. 614 F2d 924. and so then searcher can just investigate further. then say so in SA. Is the purported doc w/ the blank a 9-293 SA? What about the FS? What about both? See In re Bollinger. so if you are arguing that the stuff should be included. . and fixtures.It is enough to put them on notice just to put inventory. an email w/ the following Q. Problem 33 pg. this is ok.” but the seller forgot to fill in his name. However. If the SA had said “inventory now owned or after-acquired. 71: The loan officer at ONB has sent you.- Q answer: would “all inventory” be enough to cover present and future inventory? when talking about inventory it rolls over---just saying inventory it implies present and after acquired. case cited got lucky and said: o Do not need the name bc a formal grant of a SI. and correspondence b/t the parties 28 . which makes computer hardware. Split of authority. furniture. this is untracked interpretation and so leave it to court decisions in that particular state.” does this perfect a SI in after-acquired inventory? See official comment 3 to 9-108 and official comment 2 to 9-502. 71: The SA stated that the tractor buyer granted a SI to “_____. see attached list? o It would allow the creditor or the debtor to reach too far. see attached list. .But what if it was in the SA---various equipment. so that is not ok. Does the SP’s interest reach inventory and accounts receivable? See 9-203(b) and 793 F2d 592 . Some courts say no though. it does say equipment. Other creditors object.” or simply “all equipment”? Or do you have a better phraseology? . Inc. particularly the Abacus-12. 70: The FS’s description said “Various Equipment.all 3 would be just fine but 2nd one is the best – 9-108(3) Problem 36 pg. pg. equipment. Is the statement sufficient to perfect a SI in the debtor’s equipment? . In the SA this would not be good enough. and wants to take a SI in all of the equip of the debtor. The seller later filed a FS showing he had a SI in the buyer’s tractor.” “all equipment. look at the totality of the circumstances including the FS. Luddite’s most important piece of equip is the very expensive Abacus-12. 3rd party creditors wouldn’t be prejudiced in this case.Is this good enough to perfect or not? o Yes.” The parties are all willing to testify that the loan was intended to be secured by inventory and accounts receivable as well as by the items listed in the SA. the bank’s atty.” No list was attached. they say that if you are going to create it then you have to say it.
Inc. unless the agreement expressly postpones the time of attachment. 77: Roy Gabriel decided to go into the music biz and borrowed $35K from ONB in order to open his shop named Gabriel’s Trumpets. . Filing on Jan 7 does not make a difference here.. or designated i.Attachment is the process by which the SI in favor of the creditor becomes effective against the debtor. his inventory consisted of four guitars and a pitch pipe. (b) if the K is for future goods then it is when goods are shipped.Steps for attachment in 9-203.e.” The same day he received the $. become effective) to the guitars. then March 30 b) Does your answer change if we add the fact that the bank filed a proper FS covering Gabriel’s inventory on January 7? .The guitar and pitch pipe attach on January 6th bc the bank gave value that day. (a) means buyer and seller decide what goods they are going to sell and buy.Perfection is the process by which the creditor’s SI becomes effective against most of the world. pitch pipe. On January 6. 29 . TTMC shipped them to Gabriel. . who received them that day and displayed them in the store. and trumpets? See 9-203(a) and read 2-501. i. but don’t have a price or K. . So here it looks like March 15 - 9-203(a) says that SI attaches against collateral when it becomes enforceable by debtor under (b). Border State Bank of Greenbush v Bagley Livestock Exchange. If they don’t specify when identification occurs then have to go to (a) (b) or (c). he signed a SA w/ the bank.Attachment of the SI . o But parties can agree when it will attach too. TTMC packaged the 40 trumpets and marked them “For Shipment to Gabriel’s Trumpet Store.” On March 30. Gabriel did have a K w/ Triumphant Trumpet Manufacturing Co. a. (TTMC) to sell him 40 trumpets. Filing only deals w/ perfection and has nothing to do w/ when it attaches. marked. giving ONB an interest in “all existing and after-acquired inventory in the store. a) On what day or days did the bank’s SI attach (i. To be identified you have to have a K and party agreement when and on what event identification occurs. On January 6. The parties can agree when that identification occurs. But when the K is made there is automatic identification at that point. On March 15. SA and he already owned the guitars and pitch pipe (had rights in them) What about trumpets? When does buyer in credit sale actually get rights for what they are buying? o 2-501(1) states that a credit buyer gets rights in the goods he is buying when the goods are identified as the goods to that K. which he paid for in advance of the delivery date (March 30).Jan 6 SA and value Rights arise---guitar and pitch pipe on Jan 6 bc he owned them Rights arise for Trumpet on March 15. Here they already have a K but trumpets not in existence b.: pg 72 Problem 37 pg. So if they agreed that attachment is when the goods arrived.
Does he have a SI in the car? See 346 BR 220 (holding no SI where. After Daniels sends a form to the Registry of Motor Vehicles. 78: Daniel lends Jennifer $ to buy a car. In re Howell: another attachment case pg. But this way of pyt was acceptable to Tradex. but prob not here bc doesn’t look like it was ACRO’s intent to have the notes as collateral and since they were acquired by the bank later. so that is when the attachment would be. Problem 38 pg. The bank happens to get possession of valuable promissory notes belonging to ACRO. . Definition of value is broad: more than giving loan $. 78: ACRO owes considerable funds to its bank. the parties never executed a written SA. . Howell borrows $ from the bank and the bank takes SI in its accounts and Howell listed the letter of credit as one of its accounts. They agree over the phone that the car will be collateral for the debt. when did the SI attach? . and if the bank did not make any commitment (see 9-102(a)(68)) to advance any $ until that date. wanted to buy some rice and pay for it w/ a commercial letter of credit. it is anything that would constitute consideration for a K--. bc the Ts were closed in the bank’s offices and the notes put in the vault.making a promise/commitment is consideration and giving value. “although a lien appears on the title to her vehicle. 9-102(a)(68)----this is definition of making a commitment—promising or obligating yourself. FS can be filed before a SA is made or a SI attaches.”). or 30 . . Why would a creditor wish to file a FS before the SI had attached? See 9-322(a)(1). So Howell and Tradex came up w/ a plan: Tradax would sell its rice to Bar Schwartz under Howell’s name. 78 Howell and Tradex both sell rice. Bar Schwartz. this would suffice as giving value.In some instances if there is a priority battle w/ another secured creditor.Yes.Bank who argues that they have perfected SI bc it is an account. sometimes priority dates from filing not attachment. • Not valid bc only an oral SA and creditor not in possession of car Problem 39 pg. c) If the bank did not advance any $ until March 31 (the date the bank actually saw the trumpets in the store). But Bar Schwartz could not buy rice from Howell bc Howell would not accept the commercial letter of credit as pyt. A customer. they prob were not listed/described in the FS – In re ACRO Biz Fin. Do the notes become collateral for ACRO’s debt to the bank? See 357 BR 785 • Maybe the notes become collateral for ACRO’s debt to the bank bc it depends on extrinsic evidence.So if the bank did not loan any $ on the 31st but made the promise do to so. but Bar Schwartz refused to buy rice from Tradex. he is listed as an accreditor on the car’s cert of title. Who gets the letter of credit rights? . Corp.no value is given until March 31.Can a FS be filed before the SA is signed? Attached? See 9-502(d).
you can file before attachment.Seller takes the goods to shipper and shipper gives seller a bill of lading which is a valuable receipt (no one can get those goods w/o the bill of lading). Exceptions – 3 other ways to perfect • (1) Pledge: possession by creditor • (2) Control: Some types of collateral that cannot be physically possessed but there are ways to exercise control • (3) Automatic Perfection: when perfection is automatic upon attachment • Look at chart that tells us how to perfect for each type of collateral! 2. . asks for a bill of lading. Those §s are the exceptions.Used when buyer and seller live in diff cities and seller doesn’t want to ship goods until assured they will get paid and buyer does not want to give out any $ until they inspect the goods . Howell goes bankrupt. Howell should not have used it on their books. the collateral has to be physical in nature. 9-310(b)(6) gives the exception dealing w/ possession and refers to 9-313. e. you must FILE a FS in order to perfect a SI. before the letter of credit is paid off. and then the bank pays the seller and gets reimbursed from buyer. goes to the bank. So seller gives the bill of lading to buyer’s bank . Perfection by possession (pledge): o To pledge.Letter of credit belongs to Tradex. and if you do that then perfection occurs at the moment of attachment. o what does possession mean? Could 3rd party possess collateral on behalf of the secured creditor? 31 .- Tradex bc they have right to get paid? Letters of credit: can be used as collateral under A9 . Perfecting the SI Reqs of Perfecting: begins w/ 9-308: • (a) before you perfect you must have attachment! How can you perfect something that doesn’t exist? o But you can take steps for perfection before the attachment. a letter of credit is ITS OWN TYPE OF COLLATERAL! III.So buyer goes to bank to get letter of credit and the bank backs up the promise to pay in the letter of credit the buyer will have to pay fee to bank to get the letter and then the buyer will send letter of credit to seller. the buyer inspects. Most common way to perfect is to file a FS – 9-310 (GR) o 9-310(a) states that except as otherwise provided in (b) and in 9-312(b). so who gets the right to pyt? ..g.So when goods arrive. Here. Under the new code. Steps to take to perfect: 4 diff steps – the method for perfecting SI depends on the type of collateral 1. which tells you what types of collateral can be perfected by possession. This is a rights to the collateral case. a letter of credit is not an account receivable.
. put the inventory in a locked room. . the Kidding Delight janitor.9-313(f): they don’t have to if they don’t want to. owns The White Star of England. Since the bank has possession of it.Draw distinction. But what about the toys in the doc? What does the bank have to do to perfect in the toys? • Could file. thus creating an escrow arrangement in which possession is held by the escrow agent? See 9-313(c).Problem 40 – pg. o So Kiddie assigns the doc over to the bank. 84-85: Kiddie Delight. Kiddie Delight pledged the warehouse receipt (a doc) to MSB in return for a loan. o So how does the bank perfect in a doc? Possess or file. Bank can get SI in toys and perfect it and have control over toys simply by having a piece of 32 . has agreed to buy the diamond from Gracie. If that is the case. It called up Fred’s Field Warehouse Co. and posted a sign on the door saying “Contents of Room Under Control of Fred’s Field Warehouse. Bank says we can file a FS but the problem is we don’t have physical control in case Kiddie decides to sell. (f). o But bank has nowhere to store it. It is very valuable bc right to goods are wrapped up in the receipt and whoever has it has the rights to the toys. then you can perfect in the goods simply by perfecting in the doc o The warehouse receipt. But the museum is not an agent so they would have to give out acknowledgment. a) By having possession of the doc. as their local warehouse custodian (Mort was paid $1.For goods you can file or possess. then don’t need acknowledgement bc agent is stepping into shoes of the secured creditor. Gracie and Brown have signed the purchase agreement.00 a week by Fred’s to mind the goods.” Fred’s then issued a negotiable warehouse receipt deliverable to the order of Kiddie Delight.9-313(c): in order to validly possess the 3rd party that has collateral has to agree to do so in an authenticated record. . Bank tells Kiddie to hire a warehouseman to warehouse the toys---warehouse receipt made out to Kiddie. wanted to borrow $ and use its inventory of toys as collateral. a famous large diamond that is currently on display at the Astor Museum in New York. and Fred’s came to the plant. . Kiddie Delight went bankrupt shortly thereafter. Fred’s hired Mort Menial. Molly Brown. His Q: can he perfect a SI in the diamond by simply notifying the Astor Museum of the sale and telling the museum to hold it for his benefit until she makes pyt in full. Inc. no physical possession. Problem 41 pg. then they have perfection---perfected SI in the goods.. • 9-312(c): as long as the goods are in possession of bailee who issues the doc. which contains a clause granting him a SI in his own diamond until she has made all the required pyts. Archibald Gracie. So bank takes possession of doc. The museum can say no to the creditor. Bank can get control of toys w/o having to have them shipped over. 84: Your client. he continued to receive his normal paycheck from Kiddie Delight). in CL terms museum would be a bailee (they are holding the diamond on behalf of a creditor) but there are also situations where a creditor can have an agent possess it for him. is a manufacturer of toys. and she has made a substantial down pyt and an agreement to make three more pyts before she gets possession. • There is a SA and attachment how will the bank perfect the toys? . if the museum says yes. a wealthy Colorado investor. but filing in of itself does not allow them to control the toys. In A9 terms warehouse receipt is a doc. did the bank have a perfected SI in the inventory? See 9-312(c) and Official comment 3 to 9-313. and (g).
then can give up receipt for 20 days.If the bank gives up possession of the receipt will they become unperfected? o 9-312(f): 20 day grace period---if the debtor needs to prepare the goods for ultimate sale or exchange. 9-309 shows the types of collateral when perfection is automatic when attaches. took possession of the notes. Does the bank have a perfected SI in any or all of the promissory notes? See 9-312(g) and (h). 368 BR 91 • No. in return for a loan.- paper. On October 12 the karate school went bankrupt. “a patent-right is incorporeal prop. unless file a FS. 85: ONB makes a loan to Pi Solutions. better get receipt back w/n 20 days or they become unperfected unless they file FS. The finance co. they would see warehouse and ask for warehouse receipt and then be on notice that the bank has the receipt. can ONB perfect w/ a pledge – taking possession of Pi’s patent cert? See In re Coldwave Systems.e. . gave him the note on April 6.’s president. so the bank does not want the debtor to sell the note to someone else. Rather than filing. And it is Nov. 21. Bank has 20 days to make sure they get the note back but if it becomes unperfected upon expiration of the 20th day. A month later Karate. Promissory note is an instrument---to perfect instrument you need file or possess • here bank takes possession of promissory notes so it has a perfected SI in the notes in possession • for the note not in possession 9-312(g) provides a 20 day grace period in order to have the instruments paid off---can give up the note to debtor so debtor can present it to the maker and have it paid off. 3. Problem 42 pg. What if close to Dec. No secrecy problem bc if Kiddie tried to offer toys to anyone else. Inc. Inc. was a self-defense training school. not susceptible of actual delivery or possession” Problem 43 pg. ONB learns that it’s unsettled whether a SI is perfected by filing in the state UCC office or the fed patent and trademark office. . but they will want the receipt back bc it gives them physical control over the toys.. o 9-309(1) SI is perfected upon attachment if it is a PMSI in consumer goods. It pledged 36 of the promissory notes given it by its customers to Nightflyer Finance Co. 1 and Kidde has advertised that toys will be on sale in showroom by that day.Must prepare the toys for sale so go to bank and ask bank for receipt so can get receipt and get into warehouse to assemble toys. The parties signed a SA. ONB has a brainwaive. the seller has a SI in). 85-86: Karate. What does possession mean? 9-312(c) says only possession when true possession If the bank loses out bc court says Fred didn’t have possession--who can the bank recover from? Fred. Arnold Sun. and the finance co. secured by Pi’s patent on a solar powered night light. 33 . Automatic Perfection 9-310(b)(2) exception---don’t have to file if your SI is perfected automatically upon attachment. asked Nightflyer to let him have back one of the notes so that he could present it to the customer for pyt (an article 3 presentment). PMSI (purchase money security interest): whenever you buy something on credit. But they want possession back bc instruments are negotiable and the right to pyt is wrapped up in the note. Sun put it in his desk at the school and forgot about it. the thing that the seller is selling (i.
if we require a filing for every single one of them then filing system would be overran 2. o PM creditors get more rights than regular A9 sellers 9-309 tells us that although you can have PMSI in goods or software. and Mrs. Inc. Why allow automatic perfection: 1. and borrowed $80 for the stated purpose of buying a sewing machine. the only ones that are perfected automatically are PMSIs in consumer goods. They filed for bankruptcy on October 12.Remember 9-309 begins by saying there is an exception in (a)(1) 9-311(b) governs certain types of security goods that are very valuable and do not depreciate quickly---like cars/automobiles---so for cars perfection is not automatic. usually there will be no other creditor willing to take SI in beat up consumer goods Allow secrecy for PMSI in consumer goods . This doesn’t apply to accessions. a SI in all their currently owned consumer goods plus those acquired in the future. the Browns went to First Finance Co.” Consumers are bullied by retailer to grant SI in everything they own in order to terrorize the consumer into making the weekly pyts. PMSI Problem 44 pg. consumer goods usually are not the most valuable types of collateral. So courts will examine the SIs and use CL K doctrines to make sure consumer knows what he is really getting into. which is a good that is attached to another good • If he takes SI in a snowmobile and includes all after acquired goods put on the snowmobile---so if put DVD player on snowmobile that DVD player is an 34 . The Browns bought the machine on October 11. 87: Bilko Siding.. o What day did Bilko give value? They extended the credit for PMSI on August 4.- 9-103(b)(1) PM collateral---defined in 9-103(a)(1) – goods or software that secures a purchase-money obligation incurred w/ respect to that collateral • So you can only get a PMSI in GOODS & SOFTWARE then PM obligation which is defined in 9-103(a)(2) – an obligation of an obligor incurred as all or part of the price of the collateral or for value given to enable the debtor to acquire rights in or the use of the collateral if the value is in fact so used. (a) Did Bilko’s SI attach to the sewing machine? See 9-204(b) Courts are very suspicious of SIs that say “all consumer goods. giving the co. First Finance did not file a FS. Is this description of collateral “all consumer goods now owned and later acquired” a sufficient description in the SA? Assuming we get by those two problems. put aluminum siding on Mr. Bilko. When did Bilko’s SI attach to the sewing machine? . First Finance. a. 1. granting it a SI in the machine. They signed a SA w/ the finance co. and their trustee all claim the machine. Brown’s home. if you offer consumer good as collateral. On September 25. sellers sell many types of goods on credit every day. Bilko’s SI does not touch the sewing machine bc the Browns did not buy the machine until October 11---which is well out of the 10 days. They signed a K on August 4.Creditor can have an after acquired clause in consumer goods but it is limited to consumer goods that the debtor gets w/n 10 days after it gave value.
and give longer time to pay w/ smaller pyts. pg. In re Short. And then they go under. Now under bankruptcy code. Trustee: if the secured creditor is unperfected the trustee will win. and creditor can take what they are owed into bankruptcy court.It does matter . . . (c) Would First Finance have been a PMSI if the Browns had used the $80 to pay a liquor bill and had used $80 from their savings account to buy the sewing machine? . First Finance was automatically perfected at attachment and attachment happened before bankruptcy. 88 Shorts buys furniture and gave a PMSI to seller who assigns to American. 3. there is a § in bankruptcy code that says SI in household goods are taken off the goods. Shorts argues that American doesn’t have PMSI in the bedroom furniture anymore. or use of collateral if the value is in fact so used. So grant another loan and this loan is used to pay off the first loan. Shorts make a few pyts. First Finance is PM lender. Bilko: prob the trustee bc Bilko did not have SI attach under 9-204(d) 10 day requirement First Finance v.But there is an exception. o How can finance companies protect---make check payable to both the debtor and sewing machine store. if the SI is PMSI. o Value is in fact so used---you have to use the exact loan $ given to buy the collateral and if you don’t then no PMSI. and in order for that check to be cashed both parties have to sign---to ensure the debtor takes the check to the store – 3-110(d) o Who gets the machine? Trustee v. so in order to allow the debtor to keep their goods. But it was a PMSI. but the rest will be thrown into the pot w/ the other creditors. how about refinance.9-103(b) definition of PM lender key to definition is in 9-103(a)(2) PM obligation: value given to acquire rights. then it cannot be destroyed bc debtor would not have had goods to begin w/ if it had not been for PM seller.So how do they argue that it is a SI but it is no longer a PMSI in the furniture? o Definition of PM lender or seller in 9-103(a)(1)/(2) dealing w/ a loan so it is a PM lender 35 . so it will win. Then Shorts goes and gets another loan and has a yr to pay off---they go back to American and say they can’t make this much in pyts. 2. but a lot of household goods may have SI. when we have a liquidation bankruptcy the debtor can normally keep the household goods. o two types of PM creditors: PM seller and PM Lender under 9-103(b). Papers state that 2nd loan is still secured by PMSI in the furniture and the rest of the loan is secured by regular SI in all of the Shorts’ household goods. (b) Did the loan agreement create a PMSI even though First Finance was a lender and not the seller of the machine? See 9-103(a)(2).So they can still get the $2880 from furniture. which is automatically perfected bc it is a consumer good. .accession---but didn’t do it until 2 months after acquired clause---10 day limitation does not apply bc it is an accession---this is not too burdensome on debtor bc it is only those that are attached to the snowmobile and not everything that he owns.
Duel status rule (the rule the court adopted): refinanced loan can be PM and non-PM (it can have a duel status)---the balance on the PM part of original obligation still goes into the loan---$2880 is still PM and the rest of it is not and is regular SI. seller will sue you under K. the 2nd loan is used to pay off previous debt. It selected one from the stock of Treasures of Persia. so later GECC says they want collateral in the loan so Spartan grants SI in all inventory now owned and later acquired. none of the buyer’s creditor’s interests will attach. o Nightflyer will say that it gave the loan the day after the sale. The first obligation here was PM part---$2880 is reduced to $24something. so take it back and try it out. .But here buyer likes it and wants to buy it. The § makes it clear that while the buyer is trying it out. first pyt applied to earlier loan. and if you don’t like it we’ll take it back.2-326 explains a T that is a “sale on approval”: seller says to buyer. First in. NOT CONSUMERS! . there is a new way to allocate the pyt in sub§ (e)---but we are not responsible for this.9-103(f) adopting duel status rule. All of the equip of Façade Motors was covered by a perfected security floating lien in favor of ONB. 96 Façade Motors decided to buy an expensive Oriental rug for its main office. Is this PMSI? 36 . 96 Spartan owes a lot of $ to GECC. Is Nightflyer’s loan a PM loan or not? 9-103(a)(2) o it is not bc they are using loan $ to get the rug but are they using the $ to acquire rights in the rug? When you enter into credit K.. If you default on pyts. Inc.9-103(h) says that when it comes to consumers leave it to the courts to apply whatever rule they think it is appropriate. . As soon as a PM loan is refinanced. When new code does apply duel status rule. loan is not used to acquire rights in collateral. you still have full ownership rights to what you are buying. which let Façade Motors take the rug back to the office to try it out to see if it wanted to buy the rug. The $ is not being used to acquire the rights in the bedroom furniture. so refinanced loan still has duel character---so at least in $2880 American will be saved and still be able to get the 2880 bc PM. As soon a Façade gets possession of the rug (and before it makes up its corporate mind whether it wants to buy it) Does the bank’s lien attach? See 2-326(1) and (2). GECC v. and this amount is considered PM American will still be able to get out of the estate in bankruptcy but the rest of the loan have to share w/ creditors. Under the new code---drafters tried to solve the split in authority . Problem 45 pg. isn’t it close enough? This is what’s at issue in next case. GMAC: pg. even though you owe $. but this does not apply to consumer goods!!!!! o Duel status rule is for businesses. o So can allow transformation rules for consumers or can allow duel status rule or may come up w/ new rule. it is no longer PM in character. The 2nd loan is not used by the debtors to acquire rights in furniture---they already own it under K for sale. first out: two loans combined. Bc already own rug. if not sure that good will work for you. not to get the furniture Transformation rule: it is in support of the debtor & some courts have adopted it.
it was to renovate the dealership.- 9-103(a)(2) bc it is a loan you are in the second clause---the loan $ isn’t used to buy the collateral.This is the closely allied doctrine.Court applies closely allied doctrine: o Balancing Factors: Closeness in time: how close the loan was given to the actual purchase • Here it was close. Spartan needs $ to buy more inventory and goes to GMAC and says that they will give them SI in the inventory that they buy w/ the $ loaned. GMAC and Spartan. Law favors PM secured creditors over regular secured creditors---PM creditor has priority over even previously perfected secured creditors. so it is a regular secured loan. So GMAC is a PM lender and have PMSI. reimbursement b/t 2 and 6 days • Here court favors GMAC bc loan closely allied to purchase Obligation that GMAC had to Spartan before the sale: if already committed to make reimbursement. b. Spartan wants to get 2 Mercedes but uses their own $ to buy and GMAC reimburse. intend the $ to be a PM loan---look at the language of the K---in their K GMAC would only be considered PM if they give the $ directly to the car distributor as opposed to the dealer---court said this language was vague and course of perf—what they are doing. a SI does not qualify as a PMSI if the debtor acquires prop on unsecured credit and subsequently creates the SI to secure the purchase price. GECC says cannot be PM bc loan was given AFTER Spartan bought the cars so can’t get 2 cars under loan $ GMAC says close is close enough . $ was not used to buy inventory. Thus. 37 . then closely allied Intent: did the parties. . Automatic Perfection for Assignment of Accounts or Pyt Intangibles 9-309(2): automatic perfection for an assignment of accounts or pyt intangibles that does not by itself or in conjunction w/ other assignments to the same assignee transfer a significant part of the assignor’s outstanding accounts or pyt intangibles. o So take SI in someone’s accounts---if only take SI in small part of the accounts then don’t have to file. Look at course of perf: what was done by the parties and what is done by the trade Has title passed at the time make loan: against GMAC bc Spartan has title before reimbursed Court said here that close was close enough and GMAC is PM lender and so have priority over GECC for the 2 cars and the rest of the inventory that was bought w/ GMAC loans. can overcome the K. not a PMSI. NOTE: comment 3 to 9-103 last paragraph says: the concept of a PMSI requires a “close nexus” b/t the acquisition of the collateral (which is the sale of the Mercedes) and the secured obligation (which is the loan).
Comment 4: is the assignment casual and isolated anyone who regularly takes assignments in accounts should file, but if you don’t usually take assignments in accounts, chances are you don’t need to perfect by filing a FS. seems to be 2 diff tests.
In re Wood, pg. 105: Trustee will say that Larkin was unperfected and did not file a FS. Larkin wants to come under an exemption. The court says the burden of proof is on the assignee. So does he have to meet the burden of both tests or just one. - Did Larkin meet the burden of proof? o He did not present evidence on the first test (significant percentage) so he fails on this test. What about the second test. - The appellate court says that this was a one-time deal, it was casual and isolated so he meets this test. - Fails one test and meets the other, so he is exempted. The court says that if you go though both tests, you just have to pass one in order to be exempted from filing a FS. - But there is language in the opinion that says that if you fail the % test, the casual and isolated test will not allow the exemption and vice versa. - Most courts say that both tests have to be reviewed and both tests have to be met! - In meeting both tests when you say you are not taking a significant percentage, does this mean number amounts or dollar amounts? o The courts have looked at dollar amounts, not the number of accounts. Look at the dollar amount percentage. o The test is hard to meet, so don’t rely on it. Just file to be safe. Problem 46 pg. 108: ONB sold all the promissory notes it was holding in its vault to LNB. Remember that the sale of promissory notes is an A9 T (w/ the seller being the “debtor” and the buyer the “SP”—see 9-109(a)(3)). Must LNB file a FS or make sure it has possession in order to perfect its SI in the notes? See 9-309(4). Sale of promissory notes---outright sale of promissory notes is a secured T---governed in the scope §. Normally the buyer of the notes is considered the creditor and has to give notice, but 9-304 says that you don’t have to take any steps to give that notice, you are automatically perfected. o No secrecy problem bc promissory notes are negotiable instruments and the right to pyt is wrapped up in the paper---whoever has the paper has the right to pyt.
Problem 47 pg. 109: When Nightflyer Finance Co. loaned $20k to Portia Moot to enable her to expand her law practice, she gave the finance co. a SI in her accounts receivable (the monies her clients owed her), which Nightflyer promptly perfected by filing a FS in the appropriate place. One of these accounts has a surety, the mother of the client, who promised Portia that she would pay the debt if the client did not. What must NFC do to perfect its interest in the surety obligation of the mother? See 9-102(a)(77), 9-102(a)(71), 9-203(f), and 9-308(d). Biz loan, SI in the accounts. One of the accounts must have a surety. Mom of client signed on as a surety. What must finance co. do to get interest in surety: - Supporting obligation: a secondary obligation that supports/backs up primary obligation. - Here the client has primary obligation and mom has secondary obligation. 38
Do you want SI in suretyship rights? You want this in case the other person doesn’t pay. If you have SI in surety obligation then can go after the surety. To perfect SI in surety obligation---9-203(f) says if you properly attach to accounts, then you are automatically attached to supporting obligation. What about perfection---do you have to describe the suretyship right in the filing statement---9-308(d) automatic perfection, perfection of a SI in collateral also perfects a SI in a supporting obligation for the collateral.
4. PERFECTION BY FILING:
9-310: filing is the general way to perfect a SI. 9-501(a)(2) is the rule that applies most of the time: you file in the office of_____. State code says one central office to make all filings and state will fill it in. Only exception is (1)---file in real prop office for land. GR is you only need to make one filing in one office. Problem 48 pg. 110: Hamlet Corp borrowed $100k from the Elsinore Finance Co. and gave it a SI in the corp’s equip. The parties properly filled out a FS; W. Shakespeare was mentioned on the FS as president of Hamlet Corp. Elsinore gave the FS and the filing fee to a clerk at the Secretary of State’s office. The clerk, Ophelia Nunnery, had just announced her intention to quit to her fellow office workers and was not paying attention to her job as she indexed the FS under “Shakespeare” instead of “Hamlet.” One yr later another finance co. loaned Hamlet Corp more $, taking a SI in the same equip (the second finance co. checked the records and found nothing under “Hamlet Corp.). Since priority of creditors in this situation depends on the order of filing (9-322(a)(1)), did Elsinore “file” first, or did it bear the risk of clerical error? See 9-516(a), 9-517 and its official comment 2. Filing officer goofs up your filing. Filing officer misfiles under the wrong name---bad bc a secrecy problem. Is the first creditor perfected due to goof up in filing---risk on the searcher or is the risk of filing office error on original filer? - 9-516(a) tells you what constitutes a filing---if you properly fill out FS and properly give fee, then you’ve done what you can. - 9-517 failure of financing office to correctly file does not affect the filing---the risk is on the searcher (Official Comment 2). o If the searcher is a victim of secrecy then they should sue the state for the mistake. - 9-523 says you are allowed to bring a copy w/ you and have it certified so that if the filing office loses your filing, you will have proof that you did it correctly---file for your records. Problem 49 pg. 111: ONB had a SI in the equip of the Weekend Construction Co. for which it filed a FS in the proper place on May 1, 2002. Antitrust National Bank took a SI in the same collateral and filed its FS on May 2, 2002, in the same place. (a) How long is a FS effective? See 9-515(a). - 9-515(a)---FS expires 5 yrs from the date of filing. (b) If ONB files a continuation statement on May 1, 2006, is its perfected position continued? See 9-515(d), 9510(c). Pre-revision decisions called this problem of “premature renewal.” - 9-515(d) to be effective continuation statement has to be filed w/n 6 months of expiration. 39
(c) If ONB never files a continuation statement at all, after May 1, 2007, does it nonetheless retain its priority over ANB (who, after all, always thought itself a junior to ONB’s prior filing and would get a windfall if it suddenly prevails)? See 9-515(c). - do the priorities flip flop here? o 9-515(c) last sentence, if they do allow FS to expire, then it becomes unperfected and it is deemed never to have been perfected as against a purchaser of the collateral for value. But the perfection as against a purchaser of collateral for value. 1-201(29) purchase means buying something and includes any voluntary T where you get an interest in someone else’s prop. Bc SI gives you an interest in someone’s prop, then you are considered a purchaser here. Other points regarding continuation statements: - when filing is going to expire, cannot file a brand new FS, must file a CONTINUATION statement 9515(d). o Must file a continuation statement, and if you do w/n the 6 month period, then you are renewed for another five yrs NOT from when you file continuation statement, but from when your original expired. - If you mess up and expire, you cannot file a continuation statement, you have to file a new Financial Statement. Problem 50 pg. 112: When Portia Moot paid off her debt to LNB, which had loaned her $3k to buy a computer for her law office (and taken a PMSI therein, for which it had duly filed a FS), she wanted the bank to clear up the records down at the filing office. Does she have this right? See 9-513. Once a debtor has paid off the obligation, it is wise to terminate the filing. So termination of the filing is needed---who has responsibility to do it? Creditor or debtor? - Bc FS expires after 5 yrs, there is no general duty for the creditor to file a termination. - 9-513: gives the debtor the power to make sure the filings are terminated. Difference b/t biz debtors 9513(c) and consumer debtors. o biz debtors can make a demand (writing) of termination---and w/n 20 days, the SP has to file the termination statement themselves, or send termination statement to debtor - If it files consumer goods, then consumer gets more protection. 9-513(a) and (b) says the burden for consumer is on secured creditor---after obligation is paid off and no other obligations remain, creditor has 30 days to terminate the filing. Unless the consumer is smart and makes a demand then they have 20 days to terminate the filing. o Debtor can recover loss from the creditor not terminating---9-625: can sue for damages and there is also a $500 PUNITIAVE damage award. Release from SA: - way to do it is in 9-512 9-514: address situation where creditor makes loan to debtor making SI, and later the creditor assigns SI to another creditor. Bc no secrecy problem, original filing does not have to be changed. - 9-514 says if they want to, they can amend the filing to reflect new creditors name so old creditor won’t have to refer to new creditor. 40
9-105. When it comes to perfection need one set of rules bc 3rd parties need to know where to look. or electronic chattel paper – 9-314 o Control generally means that the SP has taken the steps described in §s 9-104. 5. 9-106. 113: When atty Sam Ambulance handled a divorce for a client. its official comment 3. pg. the SP of record. 1-301 states that you have to follow rules in 9-301 to 9-307. Open filing system: 9-523: says that once a security of filing is made on a debtor. and every type of filing on the debtor is put in the same file. . Andrew Anarchist.9-518: is how to make corrections to a FS---how you amend it. Perfection by Control Only 4 types of collateral that can be perfected by control: investment prop. a group that did not recognize the authority of the state or fed gov’t. which are the same in every state. president of the Freeman CL Movement. How do you get rid of bogus filings though? Comment 3 cites you to 9-509(d)(2) 9-509(d)(2): normally debtors cannot file termination statements. The irate ex-spouse filed 42 phony FSs in the public records showing that all of Sam’s assets were security for various non-existent loans in favor of Anarchist. but she also wanted to buy a large sailboat in Cleveland. 9-518. State Law Governing Perfection Which state laws govern your perfection? If debtor lives in one state and creditor lives in another--which state laws control the T? o UCC has its own conflict of laws rule 1-301: tells you that the parties to a T can agree on which states laws will govern the T. When the obligation is paid off the filing office keeps the file for an additional yr. Probably won’t get a reply bc fake secured creditors o comment 3 states that a creditor is still deemed to have received the demand. he incurred the wrath of her ex-husband. o If the parties forget to agree. the creditor’s SI automatically is 41 . 116: Mary Bush lived in a home she owned in Cheyenne. What can Sam do to clear up these clouds on his title to his prop (which the CL would have regarded as defamation)? See 9-513. letter-ofcredit rights. and 9-107. it is put into an open file. Wyoming. you can still terminate filings---send authenticated demand to all addressed of SPs on bogus filings. OH. but in this situation of bogus filings we do allow the debtor to file termination statement. . 6. OH law provides that whenever a consumer has paid more than 75% of a debt secured by consumer goods.9-513: (c)(4) even though the filings are bogus. but the debtor has to put on the termination statement that the debtor filed the termination statement. and 9-625(b) and (e)(4). so by not sending termination statements if you can find bad guy you can sue for damages. then 1-301 says have to follow the conflict of laws principles--figure out which state has the closest relationship to the T? o 1-301(g) says however there are certain provisions of the UCC that bc perfecting SI gives notice to parties. deposit accounts. its official comment 3.Problem 51. so it’s obvious to anyone investigating the state of the collateral that the SP has rights therein. Problem 52 pg. and planned to keep the boat there after the purchase.
Comment 7 explains application of 1 v. like filing a FS o Effect of Perfection or Non-perfection under 9-301: means effect is about legal status the secured creditor gets by being perfected or unperfected. This means that when talking about where to file. So go to Wyoming where the debtor is located. and priority. like negotiable docs and negotiable promissory notes. always look to (2) where the creditor is. If boats in OH are covered by cert of title. But pretend that creditor will have to file---so where do they file? . (3) is not activated at all---not relevant bc dealing w/ intangible. 9-301(2) deals w/ pledges---where creditor has possession of collateral---for everything.Where do you file FS? o Talking about perfection---so it is under (1) o But cars have cert of title so ignore 9-301(1) and go to (3). even if the collateral moves around Exceptions: . What if debtor lives in Wyoming and puts up copyright for collateral but copyright is recorded in OH. but car is kept in OH? . you have to use this! Type of collateral--tangible types of collateral (that you can feel and touch like goods) or pieces of paper where right is wrapped up in the paper.stripped from the consumer goods.9-301(3) if the collateral is one of the types mentioned. effect. . but Wyoming has no such rule. 42 . even when dealing w/ tangible collateral still in #1. still talking about (1) bc 3(c) doesn’t talk about where to perfect. then you will follow cert of title rules. regardless of where operating w/ tangible collateral. 3 and 4. the local law in that juris governs perfection. While a debtor is located in a juris. it means you go back to (1). perfection. . does not deal w/ perfection. o Priority under 9-301: referring to laws governing battles b/t secured creditor and 3rd parties who also want collateral 9-301(1) is the GR subject to exceptions in 2. If a creditor loans Mary the $ to buy the sailboat and takes a SI in it. But if you are dealing w/ effect or priority rules. 3(c)---want to read 1 and 3(c) together.GR says that you should file where the debtor is located. o deals w/ fixtures o deals w/ timber o is most common---law of state where the collateral is. The debtor lives in Wyoming and puts up car as collateral.How do you perfect in a sailboat? This would be a Purchase Money SI in a consumer good auto perfection.If priority battle where do you look? o Copyright is a general intangible. When talking about technical steps or perfection.9-301 creditor should file o Perfection: under 9-301---technical steps you have to take to actually perfect. 3(c) only deals w/ effect and priority. where should the creditor file the FS? . effect and priority. Bc it is a general intangible. and it is a tangible type of collateral then under 3(c) you look to where the collateral is located and deal w/ that state’s laws.
What if the corp was registered in Jahala---a pacific island nation? . where creditor has possession of collateral 9-301(4) collateral dealing w/ wells and mines---look to where the collateral is located. Their corp stationary used their home address. and they did all the corporate paperwork at their home in Baltimore. in order to come into existence have to register w/ in the particular state--only types of businesses is LLC. Problem 54 pg. Factory & $ is a legal partnership that has its only place of biz in Chicago. it’s located at chief executive office. effect. LLP.It is an intangible. does the bank lose its perfection. Il. Registered. and priority deal w/ where bank is located . or does it have a grace period in which to refile in the new juris? Read 9-316(a). in what state should the FS be filed? See 9-307(b) and (e).Where is the debtor located? 9-307 tells us where debtor is located. where they are located o 9-307(e) if it is a registered org then located wherever the org is registered. we will file where the debtor is located. priority. Further. When dealing w/ specialized collateral may not be in 9-301 at all: . o 9-307(b) GR 9-307(b)(2) org is a biz other than a sole proprietorship. • Here it would be Maryland.- possessory SI: it is a pledge. Where do you file---where the debtor is located or where the collateral is located??? .9-306 letter---perfection. perfection. 118: Factory. 43 . Here have corp. effect. Comments say that chief executive office is where the biz is managed from. 2013. so would be in DE. so would qualify as registered org.Since it says it is a registered org in Jahala would it be in (e)? It says registered org under state law---to be registered org has to be registered in one of the 50 states. where ONB.C.9-303 deals w/ goods covered by cert of title . the corp was really a husband and wife type of biz. on Jan 1. When the corp borrows $ against its accounts receivable. Takes you back to 9-301(1) which says to file where the debtor is located. If the law firm makes a permanent move to D. savings check accounts. and effect .9-305 investment prop---stocks and bonds---as GR look to where prop is located for perfection.9-304 bank accounts. MD (where they also kept the corp records). 116: Peripatetic Corp was organized under the laws of the State of Delaware but has its large retail store outlet in New Jersey. . So 9-301(3) will not apply.. 9-301(1). and Corp. had filed its FS. Problem 53 pg. and priority are all governed by state where bank is located. Says when only have one place of biz 9-307(b)(3) when have more than one place of biz. absent a pledge.9-307(c) if it is not in a juris that has a public notice system then it is presumed to be in DC . which has a SI in the accounts receivable of the firm.
LC bc 9-316(a)(2) there is a 4 month grace period. If it does expire. the Chicago law firm in the last Problem. and priority battle b/t new creditor and ONB. it becomes unperfected into the future. (clause 2) If it was a Lien Creditor on 4/29 unperfection only relates back for the benefit of purchasers for value ---and LC doesn’t qualify as a purchaser for value---not voluntary T. . . you are unperfected not only into the future.Once you expire. B/t LC and ONB. If it files in D. both of which had a perfected SI in the firm’s accounts receivable—ONB.New creditor wins bc 9-316(b) ONB let 4 months expire so became unperfected and was deemed to never have been perfected against a purchaser of collateral for value. So grace period will expire on 5/1. had two creditors before its permanent move to D. then you are good for another 5 yrs. which had filed its FS first and LNB which had filed second. If you meet your grace period by filing before it expires in the new state. Default. will it retain its priority over LNB? See 9-316(b) and its official comment 3. Problem 55 pg. but Octopus National was careless and didn’t realize that the firm had moved until that September.C. even if ONB is just lazy. 9-316(b) Change in governing law.C. ONB lets grace period expire. who gets the collateral? . So LC will lose to ONB. so ONB is second in line to LNB.. will ONB retain priority over LNB even though LNB knows it would have been # 2? . 44 . . your unperfection will relate backward. 118: Suppose that Factory. in September.C.9-316(b) tells you consequences of missing grace period: o If they do not perfect before the SI they become unperfected. Debtor moves to NB on 1/1. (1st Clause) What if on 4/1 the debtor went to a new lender in NB and offered up the collateral and that is when the new creditor becomes a secured creditor.1-201(29) – purchaser is a person who takes an interest in prop to any voluntary T---this is what a SI is. before the end of March of that year. or (2) 4 months from the move If the law firm merges: . 2013. (they sued).Does the bank lose its perfection? 9-316(a) shorter of: (1) the amount of time that is left on the expiration period.9-316(a)(3) gives more time when dealing w/ someone else who becomes debtor o 1 yr of transfer of collateral to the new person. . both creditors filing in Chicago early in the yr of 2012. LNB promptly refiled in D. . Note the definitions of purchase and purchaser in 1-201(29) and (30). So a yr or the time left under (1)---how much time is left until expiration---whichever is earlier.9-316(a)(2) Hypo 1: Octopus is perfected in IL.No. Factory & $. If you miss your grace period. and pretend that you never were perfected as to any 3rd party claim if they qualify as a purchaser. ONB lets grace period expire and on 5/3 LC puts lien on collateral. When the move occurred on January 1.
ONB or Second secured creditor? . and have sheriff levy as soon as possible. . FS not necessary or sufficient to perfect SI in a good that is covered by law of state for cert of title--instead have to look at that state’s law.But LCs just sue. A. Now who wins? . - Certificate of Title: Cars have cert of title---in MI get it at Secretary of State office o Evidences ownership of the car 9-310. Priority battle takes place. so who will win.9-303(c) law of the juris that issued cert of title that COVERS the good governs perfection . Governing Law: Multi-state Ts . day after expiration of grace period to get the lien. snowmobiles.Goods become covered by cert of title as soon as you submit application and fee to appropriate authority 9-303(b)----coverage continues forever except when 2 things happen: o When it ceases to be effective under the law of the issuing juris o The time the goods become covered subsequently by cert of title issued by another juris o THESE ARE THE ONLY 2 TIMES THAT INITIAL CERT OF TITLE WON’T GOVERN. MI law noting the lien on cert of title puts the world on notice (so consistent w/ A9). What if the LC waited until 5/2. If the SI does not become perfected under the law of the juris (like ONB here) it becomes unperfected.The LC would have priority interest bc 9-316(b) applies clause 1. which is someone who does a voluntary T w/ debtor.An example is a LC under purchaser definition what they meant here was if the state has any voluntary type creditors---but not talking about LCs. Hypo 2: Move on 1/1. so they will win. get judgment. debtor goes to the person and agrees to put up collateral. 9-311---goods covered by cert of title are treated differently---excluded. then initial title will cover (but this is not perfection).---use clause 1 when someone comes in after the expiration. LCs don’t need as much protection as purchaser.ONB refiled again. If neither of these two things happen. ATV’s When they are inventory in dealers stock---A9 still applies o Distinguish new car/boat---cert title statute applies o Inventory – A9 applies to a new car until it is sold bc no title has been issued yet. Perfection in MI is when you note the lien on title---not the same thing as admitting application fee to the state. Definition of purchaser also says LC they will lose to the collateral but can get everything else. 2 inquires. Coverage not the same thing as perfection.Purchasers get the advantage of retroactive unperfection but not non-purchasers bc when talking about a purchaser. . 9-311 lists every good that is subject to cert of title in that state o In MI---automobiles. 45 . So LC will win. On 5/11 a second secured creditor takes SI in same collateral and perfects. Grace period expires on 5/1. They are not defrauded like purchasers. On 5/10 ONB files.
Somehow she was able to do this w/o surrendering the OK cert (though TX law apparently required her to turn in the old cert before a new one should have been issued). William Innocent.Is it perfected? 9-316(d) which tells us to look to OK law…TX law says to look to OK law. as MI law required. which certificate of title is valid? . Holly Tourist. the trustee in bankruptcy argued that Ringer Truck City was unperfected since it had not gotten a MI cert of title and had its lien interest noted thereon. OK. 9-316(d) and (e) and its official comment 5. that he lived in IN.9-303(c) local law of the juris under whose cert of title the goods are covered only 2 things make the coverage end: o Another state issues cert of title o It becomes ineffective under cert of title state law Here no other state issued cert of title and the cert of title was not ineffective under IN law---so IN law governs. and that same day she re-registered the car there and got a TX cert. decide which of them is entitled to the car. When Saylor went bankrupt a yr later. Saylor told the dealership that he lived in IN and that the truck would be domiciled there. What law governs? . Inc. How should this come out? See 9-303(a). As of May 28. Holly drove the car to Dallas. Ringer Truck City argued that it was entitled to believe the debtor when he told the co. 9-337 and its official comment. learning of the sale to William. OK law says 9-316(e) 46 . who paid full value therefore w/o knowledge of NCS’s interests. IN law requires that the lien interest be noted on the cert of title. . Bankruptcy trustee’s goal is to maximize the amount of assets available for general creditors--try to void all SIs. Problem 57 pg. He gave Ringer Truck City the address of his sister. TX. Coverage is when the state issues cert of title---when application and the fee are received by the state office • It is not perfected unless the lien is noted on the cert of title. from Norman Car Sales (NCS).Texas As of May 12 what law applies? . • Problem 56 pg.new cert doesn’t indicate that there is a SI in the car on the title. bought a new car on credit while on vacation in Norman. . which NCS did on May 12. TX required lien interests to be noted on the cert of title as a condition of perfection. but the TX cert showed no liens of any kind thereon. Bc the State of IN charged a great deal less for licenses and other registration fees. 125: On May 10. who did live in IN. On May 14. On May 26. Assuming that her resale of the car was a “default” so as to entitle NCS to repossess.TX bc TX issued a new cert 9-303---TX law covers so TX governs cert of title.OK title is still good May 14 what law applies? . a resident of Dallas. o 9-316(d) SI remains valid as long as it would be valid under the law of the state that issued it. Holly sold the car to her neighbor. See 9-303 and its Official comment 6. When his old rig wore out and he decided to buy a completely new truck. On May 28. 119: Lyle Saylor was a trucker who lived and worked in the state of MI. he went to PA and purchased a truck on credit from Ringer Truck City. o So look to OK cert to see how long the SI is valid. OK law required lien interests to be noted on the cert of title as a condition of perfection. NCS arranged for the car to be repossessed from in front of his house. Only one valid cert of title. a step that Ringer Truck City duly took when it procured the IN Cert.
o 9-316(e): if it is noted on the lien. so must use 9-301. Want to protect buyers who got ripped off. Does ONB’s perfection in the second state last as long as its filed FS is still effective or for only 4 months? See 9-316.9-337(1) protects non-professional buyers if certain conditions are met: o Step 1: car is brought into new state while subject to perfected SI from old state o Step 2: state 2 issues cert of title that is clear (doesn’t list state 1 lien) o Step 3: buyer is not in biz of selling such goods o Step 4: buyer gives value o Step 5: buyer receives delivery of good after new state issued clear title and w/o knowledge of SI. so they are perfected. So Norman has 4 months to find the title and note the lien on it. . and move to non-cert of title state. so how will lender perfect SI? FS what happens when Joe goes to another state? Go to the change in location law. Purchaser for value is pretty much everyone but LC. the lien will remain perfected until it becomes unperfected in title of state that you are perfected in. State has no cert of title statute. If you go from non-cert state to cert state have to go to 9301. You do not have to file in second state bc lien under original title still remains valid. which step the financing bank. 47 . and 9-303 doesn’t apply bc the state did not have a cert of title statutes. ONB duly took. SI is valid UNLESS it would have become invalid under OK law for some reason or after 4 months have expired. Armstrong then moved to a state (MI) that required all SIs on boats to be noted on certs of title issued by the state.Don’t forget under 1-103 can make equitable arguments . cert of title issued on it and moves to new state…what law governs? . 125-26: Joseph Armstrong bought a yacht in a state (NB) that did not use certs of title for boats and that required the filing for perfection in such collateral. 9-316(d) and (e) only apply if there is a cert of title. If William can show these 5 then he takes free of Norman’s lien (if the person who buys it can demonstrate these 5 things they prevail no matter what!) 9-337(2) protects subsequent secured parties. Norman only took 2 weeks. Does ONB’s perfection in the second state last as long as its filed FS is still effective or for only 4 months? See 9-316. Problem 58 pg. William Innocent bought car and paid full value and Norman has superior interest bc it was not 4 months. 9-303 If you start out in cert of title state. but he never took the trouble to get such a cert. go to 9-316(a) – only perfected for 4 months.The state that issued the title governs the boat---lasts forever until new title is issued or something happens in first state to invalidate the original title. So if start out in cert of title state. Since there is a change in location.
As long as creditor has SI it is protected against the debtor o Perfected secured creditor is protected against the whole world. (a) SI is secondary to the rights of: (1) a person entitled to priority under 9-322. Problem 59 pg. OR (b) if you have SA AND file a FS will beat LC. go to 9-201. Who gets the proceeds? . ONB. and the definition of Lien Creditor in 9-102(a)(52). 127: Epstein’s Bookstore borrowed $10k from ONB. Perfection of Priorities are in 9-300’s 100’s general stuff 200’s SIs and how they attach 300’s perfection and priorities 400’s we don’t talk about 500’s formalistic stuff for FS 600’s remedies 9-201 General Rule: except as otherwise provided in UCC. never got around to filing the FS. SA is effective according to term b/t parties against purchasers of the collateral and against creditors . . . due to negligence. ONB’s atty. but it is not perfected.Step 1: Classify the claimants: o Bank is unperfected secured creditor. is Judicial Lien Creditor (LC).if you have SI you win.Read Cert of Title section of the Understanding Secured Transactions book! IV. Martin’s Travel Service (MTS) was an unpaid creditor for the bookstore that sued on the debt and recovered a judgment against the store. 48 . It then had the sheriff levy on the inventory. Otherwise LC wins. Who is battling here? What are they fighting over? . unless you can find something else in UCC that says you lose.if you have SP against unsecured party. ONB learned of this and calls you. signing a SA giving the bank a floating lien over the store’s inventory. it covers more than LCs but whenever you have LC battling someone 317 is good starting point.Unsecured creditor v.Want to get the inventory and sell it. Does ONB or MTS get paid first when the inventory is sold? See 9-317(a)(2). Priority Priority Problems: this is the core of the class---battles b/t 2 parties for claiming an interest in the same collateral. unperfected creditor o Unsecured creditor: at the bottom level o Unperfected creditor has SI. o Travel co. 9-317: always think LC. and (2) except as otherwise provided (a) a person that becomes a LC before SI becomes perfected LC beats unperfected SP if LC is first in time.
1: a debtor signs a SA. What if the bank had filed FS but SA didn’t attach? • Then there is no battle bc nothing is owed to the bank. Which bank has the superior interest in the collateral? See 9-322(a)(2) and official comment 3 to 9-317. . It requires perfection or FS and SA are given but not attached yet. Classify the claimants: . but the bank failed to file the FS that Coke Travel Agency had signed bc the bank’s atty lost the statement in the maze of papers on his desk. but wants to check the debtor’s credit. Six months later. which means SI didn’t attach. 128: 49 .Which party has priority? The bank – 317(a)(2)(b)---here a FS was filed and SA executed before judicial lien arose.Who wins battle 9-317(a)(1) references 9-322 o 9-322 priorities among conflicting SI 9-322(a)(1) perfected v. Coke Travel Agency needed another loan and applied for one from the Bentham National Bank. granting the bank a SI in its equipment Feb. • 317 doesn’t require perfection. no commitment to loan = no value.Bank: perfected secured creditor .- Step 2: Find the Relevant Priority Rule: Who wins – LC v. unperfected 1st to attach wins Problem 61 pg.Manfield: unperfected secured creditor . unperfected perfected wins 9-322(a)(3) unperfected v. (a)(2) (b) Problem 60 pg.LC . Bentham National Bank did file a FS in the proper place. Feb 3: A LC arises Feb 5: The bank makes the loan. If instead of a judgment creditor seizure Epstein files bankruptcy while ONB is unperfected. Creditor can have priority over LC even if doesn’t perfect SI until after judicial lien arose.--key phrase—this means didn’t give value. o So here the LC prevails. unperfected secured creditor? o 9-317: bank’s SI falls below LCs interest if the LC became a LC before (a) SI perfected. How do you classify the claimants? . which searched the files. It doesn’t issue a commitment to loan.Date the debtor files bankruptcy is the cut off for them to file 9-102(a)(52)(c) Hypo 1: Feb. OR (b) Have SI and filed FS. perfected first to either perfect OR file 9-322(a)(2) perfected v. discovered that there were no FSs recorded for Coke Travel Agency as debtor. 128: Coke Travel Agency used its accounts receivable as collateral for a loan from the Mansfield State Bank. 1: The bank files a FS. and took a SI in the agency’s accounts receivable.Bentham: perfected secured creditor .
“but all future advances of whatever kind. FNB filed its FS first. is it possible for two creditors to have perfected SIs in the same collateral? If they don’t commit then there is no value = no perfection Pre-9/25: Eastriver goes to FNB and SSB and signs a SA and a FS 9/25 – FNB files its FS but gave no value or did not commit to give value = no perfection 10/2 – SSB files and perfects 11/10 – FNB loans the $ 11/20 – Debtor defaults Who are the parties: .Jay Eastriver ran a clothing store and needed $.” Six months later FNB loaned Eastriver an additional $10k and had him sign a new promissory note for that amount. the FNB and the Second State Bank. the SA provided that the inventory would secure not only the current loan.File FS . on September 25. 50 .Makes a loan 10/2 – SSB and debtor . Problem 62 pg. and asked each to loan him $ using his inventory as collateral. or are they sufficient to protect the bank? See 9-204(c) and its official comment 7. They each made him sign a SA. So 9-322(a)(1) governs. Who files or perfected first? o FNB filed first so they win! 9-308 and 9-502(b) states that you can pre-file Hypo 2: 9/25 – FNB and Debtor have: . 129: When FNB took a perfected SI in the inventory of Jay Eastriver’s clothing store. I’m agreeing right now that this collateral that you are using for current loan will also be collateral to be used for any future loans.Makes loan 11/3 – FNB v. Eastriver paid neither bank.Signed SA—same collateral . Second State both loaned East River the $ and filed its FS. Future advance clause---means whatever collateral he put forth on day 1 will secure future loans as well under 9-204. FNB does not have a perfected SA bc it was unsigned – no SI – unsecured. On October 2. Answer these Qs: (a) Did both banks have a perfected SI.In SA. SSB (unsecured v secured) who wins? • SB wins under 9-201. debtor is saying to creditor in advance clause---if you make me loans in the future. . assuming they filed in the proper place? That is.File FS .Unsigned SA .2 perfected secured parties. He went to two banks. Do the existing filed FS and SA need to be altered in any way. but did not loan Eastriver any $ (nor did it make any commitment to do so) until November 10.
The father filed a FS in the proper place. world is already on notice = don’t need to file a new FS unless there is new collateral. then you have to file a new FS. .There is already a FS out there. Notes for this problem: . Is this right? • Second State would prefer that the court rule that the first FS was “spent” when the underlying debt was paid off. FNB’s atty reasoned that the earlier FS would protect the later loan’s priority. Answer these Qs: 51 . Filbert Philately. FNB loaned Eastriver more $. if there is new collateral. The parties signed a new SA. even though this loan was not contemplated when the first FS was filed. i. and gave him a signed SA in the same stamp collection. but no new FS was filed.Needed new SA bc the first doesn’t cover after agreements (future advance). See 9-323(a) and its official comment 3. if there is already a FS then you are already putting them on notice. Problem 64 pg.- Floor financing: when you have an after acquired and a future advance clause banks give periodic loans to retailer and all loans are secured by incoming inventory (security due to after acquired clause). using the same inventory as collateral. Philately later borrowed $ from his father. and could not be used to give a top priority to a later uncontemplated loan. No they don’t have file a new SA 9-204(c): you don’t have to give future advances but you can. Example 1. Eastriver then paid off the loan to FNB completely. Problem 63 pg. A month later. but the bank never filed a termination statement. Does FNB have to file a new FS for every advance? • No bc the purpose is to just give notice to the world. 129: Assume that in the last problem that after FNB made Eastriver the first loan and filed its FS. Hypo 3: May 1: the bank and the debtor enter into SA w/ future advance clause May 1: bank makes initial $500 loan May 1: bank files FS May 15: bank makes 2nd $500 loan May 25: bank makes 3rd loan A SI doesn’t attach to the 2nd loan until May 15 and doesn’t attach to 3rd loan until May 25. and this lender also filed a FS in the correct place. he then borrowed more $ from the Second State Bank.. • FNB assumes that first FS was sufficient even though they make new SA and used old FS. Did they have to file a new FS? . 129-130 Phillip Philately pledged his valuable stamp collection to the Collectors National Bank (CNB) in return for a loan (he gave CNB an oral SI in the collateral. no FS was signed).e.They don’t need new FS bc there was existing FS covering IDENTICAL collateral. If there is diff collateral then you need a new FS. If there is no future advance agreement in first SA then you need a new SA for the new loan. The bank put the stamp collection in its vault.
did bank give value. pledge = possession = don’t have to file a FS. 2 yrs later Poll received a charge card from the same bank and used it to finance a trip to Australia to look over cattle ranching there.9-312(f): does it help the bank—temporary perfection---even if you give up possession your perfection will remain if you give up possession for ultimate sale or exchange or prepare them for sale. the bank repossessed the cattle (even though his pyts on the cattle purchase loan were current). Here the bank was the first to perfect. When he failed to pay the credit card bill. that is what provisions say. Poll signed a SA using the cattle as collateral for this "and all other obligations now or hereafter.9-322(a)(1): the first to file or perfect wins. Both parties are perfected secured parties…so who wins? . . one provision says that if you default on the card.No. will be perfected for 20 days? . 9-312(f) is not relevant bc the stamp collection is not for sale or exchange Does the bank regain priority when it regains possession? . dad has had continuous perfection and the bank did not have continuous perfection.9-313(d): as soon as bank gave up the stamps they lose perfection. bc it perfected by possession before the dad filed = bank wins Philip goes to bank and takes away stamp collection to add new stamps to it? Does bank lose perfection? .Who has priority then b/t the dad and the bank in the second one? o Possession is not the same as automatic o Possession gives notice o The bank still has possession and then perfection first = they are still are first Dragnet Provisions: When you get a credit card. It applies if there is a future advance provision.Bank should’ve filed another FS Hypo 4: May 1: Phil and bank sign SA May 3: dad gets SI in stamps and files FS May 8: bank makes second loan Does the bank need a new SA? .If no FA Provision. owed to the bank.(a) Who has priority b/t CNB and the father? Can have oral agreement if it is a pledge. they can take any collateral that we have given for any other loan that they have given. is there an agreement? There is an agreement but does it apply. If there is any sort of loan. then they still have possession and they are still perfected . Problem 65 pg." A FS covering this T was filed in the appropriate place.Is there a SI in 2nd loan---need rights in collateral. they lost it.But 9-313(d). . . It depends on whether there is a future advance provision in the old agreement. Did the bank's SI in the cattle encompass the credit card obligation? 9-204(c) future advance clauses are allowed in SAs 52 . 130: Howard "Red" Poll decided to go into the cattle biz and borrowed $65k from the Brangus National Bank to finance part of the purchase of the initial herd.
and I give SI in that good to the lender (a PMSI) Or I buy a good and borrow $ from seller and give SI to the seller. o Loans were not of the same class. Tests used to determine if dragnet clause is permitted: . he subject to cross collateral provision? . Both granted the bank a PMSI in their vehicles. Purchase Money Security Interest (PMSI): A loan $ to buy a good and take a SI in that good. equipment. Courts are more sympathetic to individuals rather than big businesses. If the two debts are of the same class then same collateral can be used for diff loans. so argue for whichever test you want .If this was on exam you would have to argue both ways bc there is no bright line o Argue equity. o Court rejected it and found that OR the Supreme Court adopted same class test . It is the same class. o Ex. inventory . A9 rejects this though in Comment 5 to 9-204: this article rejects the holdings of cases decided under formal A9 that applied other tests and goes w/ the Plain Meaning Rule. using the objects purchased as collateral) w/ a diff bank than the one that financed his ranching operations (w/ a traditional loan. Is that right. Both SA have dragnet provisions. can infer that they knew about it…. Problem 66 pg. This case has been overruled by A9 bc this case used same class rule but the code rejects this. then you satisfy the knowledge requirement. loans to purchase vehicles and credit cards from the same bank.Same class test: if the debts are of the same class then you can have cross collateralization. but it is prob encompassed In Re Wollin pg. K. now existing or after acquired" owed to the same creditor. but note that Comments are not the law. There are diff levels of class: consumer good.o Courts usually find that this clause is open to interpretation.: I borrow $ to buy a good. Debtors testify that didn’t read loan docs and creditor did not discuss dragnet provision. the new bank's loan officer now insisted that his cattle also protect the debts he owed on his Visa card. using his cattle as collateral). to avoid language of UCC A. 136: Aware of difficulties w/ cross-collateralization clauses.Same specific use test: o Some courts said 2nd purpose has to be same purpose as 1st loan to uphold the FAC Courts will enforce this provision against sophisticated biz people but hesitate to enforce it against consumers. Both banks had him sign SAs that provided that the collateral nominated for each debt would also protect "any and all debts. 131: 2 couples received consumer lines of credit.Plain Meaning Rule: What UCC adopted---courts will uphold unambiguous clauses. so the answer depends. Non-consumer good PMSI T equip.Code gives special treatment to PMSI lenders---they get priority 53 . rancher Howard Poll was always careful to keep his consumer obligations (from his Visa card. o If you can satisfy same class test. etc. Howard was therefore distressed to learn that when the two banks merged.
Video Wonder's manager responded to an ad in the newspaper placed by Agatha Shaw. (See §9-204(a)) The policy of Sophy's Interiors was not to file FSs for its credit furniture sales. where he made $2k worth of credit purchases and signed a SA on behalf of Paramount Homes in favor of the seller. including Fang. who was selling her beloved German shepherd.- Why we allow PMSI? It is fair bc person wouldn’t have had the equip unless the bank gave them the $. but he had proven too much for her. It doesn’t harm the first bank in any way bc not dipping into old collateral that first bank had. her atty. to Sophy's Interiors. She had bought him for protection when he was but a pup. 9-324 priority of PMSI In re Wild West World.Application of 9-324 Problem 68 pg. Shaw and the manager agreed that the store would not get any title to Fang until all the pyts had been made. 137 When Paramount Homes finished building "Utopia. Problem 67 pg. Having the equip can advance the biz and increase probability that both will be paid back. saying she wanted a good home for Fang. it had to furnish the clubhouse. Ltd. Fang proved to be a fine watchdog for the store. She checked out the store carefully before agreeing to sell Video Wonder the dog. having seriously injured a meter-reader and two mailmen. The agreement was signed on June 8. a furniture store. The manager agreed to send her $100 a month until the dog was paid for. Ms. He cost the store $1. Bill Gilbert..200." its newest fancy apartment complex. 142 Video Wonder. had granted a floating lien over its inventory and equip to LNB. .Sullivan: previously perfected secured creditor and its interest included this prop (after acquire prop)---had rights in the furniture. which perfected its SI by filing a FS in the appropriate place. Bill failed to mention that all his employer's equip was designated as collateral on an existing SA and FS in favor of Sullivan National Bank. so as soon as attached it was perfected . Agatha Shaw is upset. LNB seized all of the store's assets. This agreement contained an "after-acquired prop" clause.LNB: perfected secured creditor in inventory and equip including after-acquired . at which time she agreed in writing to sign over Fang's papers. which stated that later similar collateral coming into the buyer's estate would automatically fall under the bank's SI.Shaw: PM secured creditor 54 . Needing a guard dog for the store. an electronics store. but when Video Wonder stopped making pyts to all creditors two months later. Fang. LLC.Sophy Interiors: 9-324 a PMSI in goods other than inventory has priority over conflicting SI in same goods o Must file FS w/n 20 days If you perfect w/n 20 days then have priority. She calls you. so it sent its construction manager.If Sophy doesn’t perfect its SI w/n 20 days Sullivan will win. (a) Why might it have such a policy? Is it wise here? Classify claimants: . Is there any hope for her? How do you classify parties? . Debtor: pg 137 . the goods were delivered that same day.
Otherwise PMSI seller would have an advantage over PMSI Lender. when SI attaches. in fact. Can she argue that the bank's SI only attached to Video Wonder's equity in the dog. and. claiming its PMSI.Hart filed w/n 20 days after sale so perfected PMSI . it had no prop interest to which the bank's floating lien could attach? There is nothing in A9 that provides portioning equity. Three months after the delivery of the backhoe.Parties agreed that Shaw would not get title to dog until Shaw paid in full which is a conditional sale agreement and they are always invalid. She just loses. go to the rule that governs the battle---there is a rule governing every priority battle .Key here: when does the debtor receive possession of the collateral Hypo 5: Aug 7: seller sells equip to the debtor and takes PMSI Aug 17: a LC levies on equipment Aug 22: the seller files its PMSI Would 9-324(a) protect seller against LC? .9-324(a) only governs battles b/t PM secured creditors and other secured creditors. . Use 9-322 for priority b/t SIs Perfected secured creditor v. Argument is backhoe doesn’t become collateral until sale. you beat the world unless the code says otherwise. 55 . unperfected secured creditor. 9-322(a)(2)---perfected beats unperfected. Who wins in the priority battle b/t Hart Farm Equip and ONB? See §2-326(2). Problem 69 pg. 143 Hart Farm Equip leased a construction backhoe to Farmer Bean for a six-month period w/ the understanding that Farmer Bean would be given the option to purchase the backhoe at any time during that period.9-201(a) states that if you have an attached SI. Farmer Bean agreed to buy the backhoe. 9-201 Golden Rule: gives you the basic rights of secured creditor . even if unperfected. 9-317---fights b/t secured parties & other types of interests o 9-317(a)(2) tells us that LCs who get their lien before a SI is perfected.unperfected secured creditor fighting a LC. 9-317(e) gives them same 20 day grace period---in this case seller prevails bc grace period relates back. This problem turns on last 2 lines of 9-324(a) if the PMSI is perfected when the debtor receives possession of collateral w/n 20 days---when did farmer receive possession of collateral? Hart has to file w/n 20 days. 9-317(a)(2): normally they get a 20 day grace period. and Hart Farm Equip filed its FS the next day. the L at one point called this a "sale on approval.When does the equip become collateral---definition of collateral is subject to SI. then the LC has priority but a perfected secured creditor beats LC. Comment 3 to §9-324." Farmer Bean's equip was already subject to a perfected floating lien in favor of ONB. classify the priorities---who is fighting 2. LC wins as long as its lien is perfected by its SI. . Steps when have priority battle 1. or that until Video Wonder had paid the entire debt.
Seller: PM secured seller (PMSI).Auto attachment so creditor doesn’t have to file under 9-510 . Classify Parties a. Wednesday go to 2nd bank.Hypo 1: Go to 1st bank on Monday and say need loan. How can 2nd bank help themselves in order to get priority over 1st bank? . PM creditor has priority over other secured creditors if it files when debtor receives possession of the collateral OR w/n 20 days of the debtor receiving possession Hypo: Same facts as above except the collateral was consumer goods and PMSI seller sells consumer goods to debtor on credit.5/10 debtor goes to seller & buys a machine. When does first bank perfect? Under 9-308 cannot be perfected unless you attach.Subordination agreement. So who has priority? o 9-322(a)(1) if you have perfected secured parties.2nd bank is put on notice of the filing of first bank. Go to 9-324(a) – priority of PMSIs where collateral is NOT inventory or livestock: a. and value given. Fill out SA and file FS and then will call if grant you a loan. value. for the $ that they loan they will get 1st place---2nd bank call first bank. only PMSI in consumer goods are auto perfected 2. so don’t perfect until Friday. grant SA w/ seller w/ machine as collateral & file FS . 1st bank SI attaches must have SA. Will the PMSI still win if the collateral is consumer goods? . and rights = perfected on Wednesday. Bank: perfected secured creditor b.5/1 debtor grants the bank SI in equipment.9-204(b) puts a 10 day limit on after-acquired clauses floating over consumer goods. the first to file OR perfect will have priority o 1st bank will win. Can take steps for perfection before attachment though. Value was not given until Friday. they were the first to file so they have priority. 1. What happens if have 2 secured creditors and neither one bothered to file or perfect---2 unperfected secured creditors? 9-322(a)(3) first to attach wins 56 . 1st bank attaches on Friday. bank loans $ and files a FS and have after-acquired clause in SA (creditor takes SI in equip you have on hand today and any equip you get later) . The debtor has to obtain the goods w/n 10 days of the creditor getting value for the goods to be covered by the afteracquired clause covering consumer goods. Hypo 2: . 2nd bank o SI attached Wednesday bc SA. Friday 1st bank grants loan. .5/20 debtor default. who gives loan and fill out SA and file statement. even though they were the 2nd to attach and the 2nd to be perfected. rights in collateral.
and. If the bank filed to perfect to begin w/. so go to finance co.So the bank will continue to have priority for any further advances they make as long as use the same collateral under the advance clause. then 9-323 is not an issue. PM Creditors: . bank doesn’t want to give loan. o So the bank as priority to the 1st w loans of each party Hypo: Inventory worth $20k 5/1: bank loans $5k to debtor and takes SI in debtor’s inventory---SA w/ after acquired clause and future advance clause and then file ($5k) 5/5: need $ to fix up store.Hypo: Inventory worth $20k 5/1: bank takes SI in inventory---SA w/ after acquired clause and future advance clause and then file ($5k) 5/5: need $ to fix up store.9-323 Priority of Future Advances o (a)(1) perfection of SI dates from the time the advance is made but only to the extent that the SI secures and advance that is made by automatic perfection or temporary periods of perfection. bank doesn’t want to give loan. if the PMSI is perfected when the debtor receives possession of the collateral or w/n 20 days thereafter 57 . gives SA and loan and files w/ collateral being same inventory as bank’s collateral ($5k) . is also perfected secured creditors o There’s a default and the parties are fighting over inventory. so go to finance co. and finance co. a perfected SI in its identifiable proceeds also has priority. What about battle of financing co. . 9-323(a)(1) only applies in rare circumstance where initial perfection of bank is not filed (it is automatic or temporary periods where there is no notice) only then will they say if the bank makes an advance will their priority date from the advance bc it is only fair bc finance co.If there was a default and priority battle b/t the bank and the financing co.Exception for inventory and livestock is much harder to meet then when not dealing w/ inventory or livestock 9-324 Priority of PMSI . on 5/5 and bank advance on 5/10? . who has priority? 9-322(a)(1) who filed or perfected first? The bank filed first. and finance co. and the collateral to be used is the same collateral = no new FS. except as otherwise provided in § 9-327. a perfected PMSI in goods other than inventory or livestock. who would win? o Classify the parties: Bank is perfected secured creditor Financing co. back to 9-322(a)(1) perfection is from the earlier of the time it is filed or perfected. the purpose of filing is to put the world on notice that the collateral is subject to SA.9-324(a) Except as otherwise provided in subsection (g). The bank does not need to file a new FS. gives SA and loan for $5k and files w/ collateral being same inventory as bank’s collateral 5/10: bank makes another loan for $5k There is an advance clause in the original SA so the bank did not have to enter into a new SA on 5/10.. would have never discovered the SI bc there is no filing. has priority over a conflicting SI in the same goods.
that it is sent. but here we assume that notice arrived same day as she sent it bc they protested. Madame Belinda herself wrote Merchants Credit Ass’n on 12/11 and informed the credit manager of the sale. • However.9-324(b)(1): the PMSI is perfected when the debtor receives possession of the inventory . even if it was never received..- - 9-324(b) PM creditor has priority in inventory if: o (1) the PMSI is perfected when the debtor receives possession of the inventory. the date of the sale. o (3) the holder of the conflicting SI receives the notification w/n 6 months before the debtor receives possession of the livestock. 1. which took a PMSI in the clothes on 12/10. and o (4) the notification states that the person sending the notification has or expects to acquire a PMSI in livestock of the debtor and describes the livestock Problem 71 pg. so Belinda has to give notice. 144: The Merchant’s Credit Ass’n held a perfected SI in the inventory of Harold’s Clothing Store. the seller was to be Madame Belinda’s Fashions. Inc. 9-324(d) PM creditor as priority in livestock if: o (1) the PMSI is perfected when the debtor receives possession of the livestock. must be signed writing or electronic record that is confirmed) o We’re told that Belinda did send notice. and o (4) the notification states that the person sending the notification has or expects to acquire a PMSI in inventory of the debtor and describes the inventory. So she needs to meet the elements of 9-324(b) . o (2) the PM secured party sends an authenticated notification to the holder of the conflicting SI. o (2) the PM secured party sends an authenticated notification to the holder of the conflicting SI. There is a qualification to having to send notice in (c) 9-324(c) PM creditor only has to send notice if the holder of the earlier SI had filed before PM creditor had filed its FS. o (3) the holder of the conflicting SI receives the notification w/n 5 yrs before the debtor receives possession of the inventory. the goods were delivered to the store on 12/12. • Here this is the case. (a) Who has priority? Under general race rule when have 2 perfected secured creditors racing each other the first to file/perfect wins and Belinda would lose. it was properly transmitted • § 3 uses diff term holder of conflicted interest has to RECEIVE o A1 defines receive: other party actually gets the notice.9-324(b)(2): authenticated notice (cannot be oral. Madame Belinda filed on 12/11. the definition of send in 9-102: means if you put on right address and right postage. 58 . If the notice does not get there before then won’t have priority. .9-324(b)(3): holder of conflicting interest has to receive the notice w/n 5 yrs BEFORE the debtor gets possession of inventory creditor also has to receive notice before debtor gets possession of the collateral o This is problematic under facts bc she did not send notice until the 11th and the debtor received possession of the goods on the 12th and that notice will probably not get to the debtor w/n one day. Harold went to a fashion showing in NY and contracted to buy $4k worth of new clothes for resale. He protested but did nothing.
This is what the court held too. Once he gets $ from the sale. 144: deals w/ livestock 9-324(d) 9-324(d)(3)---five yr notice period is reduced to 6 months for livestock Hoxie is in the biz of financing and selling cattle and operating a feedlot near Hoxie. long after the cattle had been sold and the proceeding commenced. When it is time to renew the filing all she has to do is send a new notice at that time. Bc Morkins never received physically possession of cattle.So if the drafters just wanted to require a sending why didn’t they just say so in 2 and not talk about receiving or if they wanted receiving to be requirement. Kunkel v.Possession: Hoxie never turned physical possession over to Morkins Hoxie will hold onto physical possession of cattle under feed lot agreement. and send a fax or email and do all that to qualify for the exception . Other courts look at PMSI holder and hold that bc sending is all the PM creditor can do as long as they send it before turning over the goods. Hoxie financed Morken’s cattle purchases. 1994. why did they use send in 2? Most courts would lean to receipt of the notice. it will be ok bc 99% of the time it will only take a day to receive and will not give debtor time to defraud original creditor. Morken executed a loan agreement and promissory not in favor of Hoxie and a SA granting Hoxie a PMSI in the cattle. the Morkens purchased interests in 1900 head of cattle from Hoxie. Kansas. Hoxie could sell the cattle in its own name but needed Morken’s authority to sell and Morken determined the selling price of the cattle. Can they get around the notice requirement and if so why? . . Sprage Bank pg. After Bankruptcy proceedings commenced.9-324(b)(3) states that when Belinda sends the notice she can keep selling the inventory described in the notice for 5 yrs before having to send another notice (bc her FS if effective for 5 yrs). and never did that until after litigation started. It is the $550k that is the subject of competing claims by Sprage and Hoxie. Hoxie did not file a FS but instead perfected its SI by taking possession of the cattle pursuant to the feedlot agreements b/t Morken and Hoxie.9-324(b)(4): tells you what the notice must say that you are taking a PMSI in the inventory and then describe the inventory. Hoxie sold the cattle and then deducted amounts owed to Hoxie for care and feeding of the cattle and about $550k in sale proceeds remained. If you are PM seller drop notice in the mail. Hoxie under 9-324(d) has to send notice to the bank. he will take commission and pay expenses and turn rest of $ over to Morkins. What is the purpose of the notice? It is to prevent fraud by Morkins on the bank---try to prevent the Morkins from offering cattle up for collateral as advance---but Morkins don’t have physical possession of cattle---and this will notify the bank when they ask to see the cattle that it is in possession of 3rd party. as above. Hoxie says that they don’t have to send notice to the bank. is it sufficient to permit Madame Belinda to keep selling goods to Harold for an indefinite period thereafter or only for this one T? See 9-324(b)(3). which were identified by lot number when the docs were executed. If the notice was received on 12/11. On June 10. 59 . In 5 Ts b/t February and April 1994. Morken filed Chapter 11 Bankruptcy. For each T. Hoxie did not send its statutory notification to Sprague until March 1995.
Classify the parties: . On the same day he borrowed the $1. 155: Barbara Shipek was pleased and flattered when Tim Isle. 154: Hans Racing Equip bought much of its inventory from Standard Auto Wholesales.Look at definition of SP: 9-102(72) states that secured creditor includes an A9 consignor. asked her if he could exhibit and sell some of her pottery. owner of Isle’s Fine Art Works.Barb: she will say that she is the true owner of the goods 9-319: says that Tim as consignee has rights in the consigned pottery---he will be considered to have the same rights that Barb has---this means that since the debtor has rights in the collateral. Here 2 PM secured creditors are fighting.9-324(g) conflicting PMSI---the seller beats the lender! o 9-324(g)(1) price of collateral is seller---seller beats the lender o If 2 lenders tie. the bank’s SI attaches. which always took a PMSI in the goods sold to Hans and which filed a FS that same day. Hans also borrowed $ from the Matching Dishes National Bank (MDNB) to finance the purchase of inventory from wholesalers. part of which was used to pay off Standard Auto.. . 60 . Both creditors knew of the other. who wins? Under (g)(2) go back to race rule---first to file/perfect Problem 73 pg. we are pretending that she is a secured creditor. making a down pyt and giving Standard a PMSI in the goods for the rest. one is PM seller and other is PM lender. They both send notice to each other.Even though Barb is really not a secured creditor. The goods were delivered to Hans on April 2. Who has priority if both parties meet reqs under 9-324? . Tim defaults and bank comes and repossesses everything in Tim’s store including Barb’s pieces. claiming a SI in Han’s inventory. Problem 72 pg. so they both sent written notice to each other. Which creditor has priority? See 9-324(g) and its official comment 13. which had a perfected floating lien on the store’s inventory. What law governs under priority battle? . On March 28.Bank: perfected secured creditor w/ after acquired clause . but it has to meet the reqs in 9-102 o Suppose that all reqs are met and it is a true consignment under A9. Let’s assume that the court determines it is a true consignment. the 5 yr or 6 month period depending on livestock or inventory will never begin.- Comment 5 to 9-324 states that if the debtor never receives possession. She gave him 5 of her favorite pieces.500 down pyt from MDNB and also gave the bank a PMSI in the same goods. Priority b/t Barb and the bank. had foreclosed and seized everything up in the store including Barb’s pottery. Can ONB do this to her? Is this a true consignment or is Barb merely disguising it as consignment: go to factors from In re Favors and the handout and balance. Barb is classified as 9-103(d) . Hans contracted to buy $3k in goods from Standard.9-109(a)(4) says that A9 covers true consignments. MDNB filed a FS. Inc. The next day she took a party of friends down to the store to see the display and was astounded to learn that ONB. Tim goes to bank and gave bank a SI in all inventory now owned and after acquired---after acquired clause.
they have to be delivered to secured creditor for control. which governs stocks and bonds. so you are automatically perfected! a. But if the investment prop is in paper certs. Advise the bank how it can perfect its SI in this bank account and which of the methods of control specified in 9-104 would be the safest form of security. o Bank deposit accounts 9-312 (b) states for this the only way to perfect is by control Consumers cannot use bank accounts as collateral but businesses can • Consumers are kicked out in scope § 9-203 attachment (must give value. • 9-106 explains on how to take control over investment prop o Your referred to A8. and need SA) • 9-203(d) where you have control. so sent back into the race rule under 9-322. PERFECTION BY CONTROL: . 157: Computer World. then taking control means that the creditor makes agreement w/ broker that broker will not dispense any of the stock w/o the secured creditor’s permission. o If it is more common type of investment prop that is electronic in form. are also the bank where the account is maintained. secured in part by the bank account that Computer World maintains at LNB. debtor has to have rights in deposit account. 9-104 states that there is 3 ways for the investment bank to take control 1. How do you perfect? GR in 9-310 is perfect by filing unless it meets exception listed in 9-310(b) or 9-312(b) • In 9-312 for bank deposit account the only way to perfect is by taking control. Inc. This is not true for investment bank 61 . desires to borrow $ from Investment Bank of America. then control beats filing. the SA can be oral. You are the atty for Investment Bank of America.- 9-103(d) states that pretend SI of consignor in a consignment is going to be considered a PM secured creditor in the pottery. 1st way: you as secured creditor.3 types of specialized collateral where you can perfect by taking control over the collateral (does not mean taking possession): o Investment prop (stocks and bonds) Perfect by either control or by filing under the perfection §s Go to 9-328 when 2 secured creditors fighting over investment prop • If one perfected by control and the other by filing. which will grant it a revolving line of credit. How do you take control over bank deposit accounts? 9-104 Problem 75 pg. but don’t suggest it. Barb will protect her pottery by notifying the bank under 9-324(b) and do the other steps---since she is considered a PM secured creditor in INVENTORY then she can look to 9324(b) for protection o So if she sends notice to the bank before turning pottery over to Tim then she will have priority o Here she did not do this.
(a) What should Ms. What if there is default on both obligations to both banks? Who has priority? Classify the parties: o IB is a perfected secured creditor perfected by control. o Letters of Credit 9-312(b) says that the only way to perfect is by control. A month later Distortion went bankrupt. 2nd way: if debtor. o If you can determine that the bank authorized to sell free of SI then the sale itself cuts off the SI and its ok---so look at SA to determine if the bank authorized sale free of SI. a SI does continue w/n collateral notwithstanding party unless the SP authorized the dispo of the collateral free of the SI. all get together and make an authenticated agreement and say that LNB will not dispense any funds w/o IB’s permission---but not many of these agreements will be entered into bc this opens up K liability 3. 159: Betty Consumer bought a television set from Distortion TV. a retail store.9-315(a)(1) read together w/ 9-201(a): looking at these 2. o LNB is perfected secured creditor perfected by control 2 perfected secured creditors Deposit accounts have their own priority rule 9-327 o 9-327(1) perfected beats unperfected o 9-327(2) perfected v. they become a customer on the account a. the bank was repossessing. investment bank and bank where account is contained. If Computer World later borrows $ from LNB and grants the bank a SI in account carried there. would LNB have priority over your client? • 9-104(1) SP is the bank where the account is maintained.2. So IB put their name on the account w/ Computer World. Consumer tell the banks flunky? See 9-320(a). He explained that ONB held a perfected SI in all of Distortion’s inventory and that since Distortion had not paid off its debts to ONB. Inc. So IB will be given priority bc they were a customer on the account. LNB is the bank in control bc the deposit account is in their bank. Problem 77 pg. which means that Computer World cannot withdraw w/o IB’s signature too.. 62 - . and a minor functionary from the ONB showed up on her stoop and asked her to turn over the set. perfected back to race rule---rank according to priority of who had control 1st! 9-327(3) is an exception to (2) says that LNB will win even though losing under #2 race rule bc they are the bank where the account is maintained. 9-201(a) says that a SA is effective according to its terms against purchasers of the collateral . 3rd way: if investment bank puts their name on the account as an account holder. 9-327(4) is an exception to (3): says if becoming a customer (getting a name on the account) then they will have priority over where the account was maintained.
How A9 protects buyers: 63 . Can’t go there and buy the good to satisfy a debt that the store has owed to you. Must give new value for the good 1. Buyer that takes possession or has right to possess vi.Glendenning took possession The court said: . such as lying. Glendenning: pg. From a person who is in the biz of selling goods of that kind v. International is going after Glendenning. took possession. Just bc you know about the SI. Barnes filled out papers incorrectly and said that he traded in 4 tractors and paid some cash. if they sell under it. Person buys in good faith ii. Does not include someone who buys the biz She would have been protected here bc she was a buyer in the ordinary course of biz. Glendenning argued that he was a buyer in ordinary course of biz: . and gave new value cash for it. consider any type of wrongdoing. no one would buy from you.Run of the mill type of sale that Barnes engages in every day. 9-320 protects buyers of goods: this is the exception in case the bank does not provide in SA that seller can’t sell free of the SA. 1.Bought in good faith . This is not what happened. bc if you can’t sell free of the SI.9% of the time. Barnes in biz of selling tractors . This is usually true 99. o She was in good faith. doesn’t = you know about a violation of the SA iii. didn’t know anything about bank’s SI (most private consumers don’t know about them). Sale in ordinary course 1. International asked Glendenning if he traded in tractors & paid in cash & he said he did even though he did not. v. International Harvester Co. then it is not free of the SI. 2. If the sale was not authorized or was authorized subject to SA and what the buyer bought was a good then look to 9-320. W/o knowledge that the sale violates the SA 1. (a): a buyer in the ordinary course of biz takes free of the SI a. Must be a run of the mill sale that they engage in every day iv. 159 International tells its dealers that they can sell free of the SI if they sell for the particular FMV. which is well below FMV. it’s an ordinary sale from someone who normally sells it. They are arguing that the sale was not authorized free of SI bc Barnes sold it for $16k.Glendenning had sold tractors before as a dealer for International for many yrs and knows that they have SI and knows that they demand FMV to take free of SI and he knew that he lied = not good faith o When determining good faith. 102(a)(9) Buyer in the ordinary course of biz: 1-201(9) i. A person buys good in ordinary course if the sale comports usage of trade or the seller’s own customary practices (course of perf) 2.
. he frequently parked 64 . but he had purchased the car for his own private use. In re Western Iowa Limestone.- 9-201 golden rule together w/ 9-315(a)(1) are read together. In ordinary sale that seller usually conducts or is common in trade. so when Howard took the car. It routinely sold textiles on credit to Mill Fabrics. Is Howard a 1-201(9) “buyer in the ordinary course of biz” so as to take free of ONB’s SI? He did not give new value when he paid w/ the check so under A3 and A4 the delivery of the check is not pyt. W/o knowledge of violation. as required by state law. pyt occurs when you actually cash the check. Mill Fabrics became insolvent and never paid Deering for the textiles and Deering therefore refused to deliver them to Tanbro. Buy in good faith. Therefore. signing a SA to that effect and giving Deering a FS that it duly filed. Arthur was a used car dealer by profession. but Howard endorsed it back over to Smiles when he saw a new car he wanted to buy. Deals of this kind were common in the textile industry. It was Mill Fabrics’ practice to resell the fabrics to Tanbro Fabrics. While the textiles were still in Deering’s warehouse. gives the basic rights of the secured creditor SI will continue into the hands of the buyer unless the creditor has authorized the sale free of the SI. Who should prevail? See 9320(e) and its official comment 8. a firm that finished the textiles into dyed and patterned fabrics. which paid Mill Fabrics for them but delayed taking delivery for a few weeks. he took it in pyt of the outstanding debt. Unfortunately. When litigated. Nonetheless.9-320(e): subsections (a) & (b) do not affect a SI in goods in the possession of the SP under § 9-313 o So the buyer is not protected here. Under the revised code. Problem 80 pg. 5. who showed up one morning to buy a new car from Smiles. 173: Arthur Greenbaum bought a new car on credit from Lorri's Car City. The president of Smiles first gave Howard a check for $5k. and 6. 164: Deering Milliken was a textile manufacturer. the sale is not authorized free of SI. The buyer has to give new value. Buyer has to take possession of goods or at least have the right to goods. Mill Fabrics sold the textiles to Tanbro. the debt was still outstanding. 164 Rule: constructive possession satisfies the “possession” requirement for “buyer in ordinary course of biz” Problem 79 pg. 3. which took a PMSI in the vehicle. the court found Tanbro is a buyer in the ordinary course. so that the fabrics remained in Deering’s possession. when Smiles gave Howard the check. Mill Fabrics contracted to buy them from Deering. would buyer Tanbro have good title? . 173: ONB had a perfected SI in all cars on Smiles Motors’ lot. 4. o In situations where the sale is not authorized. Inc. and all parties knew of the others’ interest. In turn. Howard Teeth. so the buyer will need additional protection If what is sold is a good then go to 9-320 which protects buyers in the ordinary course of biz (common everyday buyer) as defined in 1-201(9) – 6 reqs: 1. a wholesaler. pg. Smiles owed $5k in past due insurance premiums to its insurance agent. Problem 78 pg. Tanbro sued. perfecting same by notation of its lien interest on the cert of title. Buy in ordinary course. 2.
The spa asked to have 10 of the notes back for presentment to the makers for pyt. 9-320 is only for goods b. So Ann has to go to 9-320 i. 2.the car on his lot. so Ann probably thought it was ok bc Author probably did not show her the cert of title 2. pledged 50 of its promissory notes to the Conservative State Bank and Trust Co. Would 9-320(a) protect the buyer? . (a) if you qualify under this protection then you beat a perfected secured creditor. What problematic reqs of buyer in ordinary course that Ann may or may not meet? 1. Buyer has to be a holder in due course. Inc. When everyone learned what had happened. (CSBTC) in return for a loan. and the bank duly turned over the notes. a bona fide purchaser w/o knowledge of CSBTC's interest. 173-74: Wonder Spa. Conservative bank is secured creditor and perfection by possession. 1. Doubtful bc Lorries thought that they were selling the car to Arthur 2. which Wonder Spa sold (discounted) to ONB. Problem 81 pg. demanding that it release the title. Ann sued Lorri's Car City. In ordinary course of biz if it was his own personal car. & securities: i. This resale was in direct violation of spa's agreement w/ CSBTC.Have to be buying in the ordinary course of the biz of selling those types of goods. 65 . Was the sale authorized free of the SI? i. When cars are inventory on the lot they have no cert of title. so protect the buyer and Lorrie’s can go after Arthur for violating the SA 3. docs.9-320 only applies when the debtor sells goods and here what is being sold is instruments not goods. Classify the parties: a. 9-331 is for rights of purchasers of instruments. and one day sold it for cash to Ann Matheson. so under 9-201 & 9-315(a)(1) it’s not an authorized sale.. then the buyer would not be buying in the course of the dealership’s biz. What result? Is Ann Protected? • Look at first step: 1. a. Could argue that when he bought the car and parked it on the lot. Which bank is entitled to the instruments? Read §§9-312(g) & 9-331 The sale of the notes violated the SA. The spa is in the biz of selling spas not notes . Then look to what is being sold: a. Most likely Ann will lose. So in this problem. a customer in search of a good used car. so SI continues into the hands of the buyer and the buyer needs additional protection. 9-320 doesn’t apply 1. 9-312(g) says that they can turn over the notes for 20 days before losing perfection. Arthur did not mention to her that it was his personal car. There must be a negotiable instrument being sold 2. The bank took possession of the notes. his intent was to sell it as inventory.
Inc. ONB will see the SI and under A3 they cannot be a holder in due course bc they will have that knowledge. Voice of Japan: PM creditor who is perfected. but are they perfected in the 10 promissory notes that they gave up possession i. So if they don’t know about the SI. A3 holder in due course is someone who buys a negotiable instrument (rights to pyt wrapped up w/n whoever has the instrument has the right to pyt) and they have to buy for new value w/o any knowledge of any problems (any type of claim or defense w/ that paper) i. i. bank took possession for perfection purposes..e. so when sold to ONB. giving it a PMSI in the receiver. then they can qualify as holder in due course b.a. it is a PMSI in consumer goods Is Nancy protected? • Voice probably did not authorize Andy to sell free of the SI so the SI travels to Nancy and Nancy needs protection from it. the filing protects it from garage sale buyer 66 . Is the buyer protected? 9-331 – it looks like ONB is a holder in due course so ONB takes free of the SI. 1. he held a garage sale and sold the receiver to Nancy Neighbor for $200 cash. Problem 83 pg. an electronics store. 6 months later. Voice of Japan did not file a FS. Classify parties: a. and is there perfection still good? • 9-312(g) gives them 20 days ---so after 20 days they would not be perfected. when Andy still owed Voice of Japan $300. Being a holder in due course is like being a buyer in the ordinary course of goods Conservative Bank: secured creditor. 174-175: Andy Audio bought a stereo receiver on credit from Voice of Japan. so 9-320(a) will not help her • 9-320(b) buyer of consumer goods elements o The seller has to be using the good as a consumer good o The buyer buys w/o notice of the SI o The buyer buys for value o It is a consumer to another consumer type of sale o Buyer not protected if the secured creditor had filed a FS covering the goods If 2 yrs later when the seller still owes the store $. A3 says if you are a holder in due course you are a super-holder and take free of most claims and defects including a perfected SI. Nancy: buyer b.. If Andy stops making pyts to Voice of Japan. could’ve filed but didn’t. Is there anyway Conservative could have protected themselves from a holder in due course? • They should’ve stamped the notes w/ their SI before they were released to the debtor. and then gave up possession of the notes. • She is not a buyer in the ordinary course of biz bc Andy is not in the biz of selling the stereo (run of the mill sale from a biz that deals in those kind of goods in an ongoing basis). can it repossess the receiver from Nancy? See 9-320(b) and its official comment 5.
on April 8. and 9-315(a)(1) Sale not authorized free of SI so Frank has to look for protection Will 9-320(a) protect Frank? No. and 9-317(e). Creditors can still approve a sale subject to SI. like a buyer o Buyer. 4/2 PMSI 4/8 buyer—Paul sold to a new buyer who bought w/o knowledge of PMSI 4/10 file FS Code favors PM creditors. WTIC was actuality a family biz. Does ONB or Used Stereo Heaven have the superior claim to the equipment? Compare §§2-403. PM creditors can beat buyers even though they are not perfected at the time of the sale. as long as file w/n 20 days of the buyer giving the goods. RFC sued him for conversion (a tort that does not require scienteror guilty knowledge for its commission). 175: Paul Pop was a rock singer to whom ONB loaned $8k so he could buy stereo equip for his road show. Though technically a corp. 9-401 (b). (the co. RFC lived up to its name and repossessed all equip. and on April 10. Problem 84 pg. Bill met Frank Family. unperfected at the time of the sale? • 9-317(b) applies when secured creditor fighting some other type of claimant. sold ice cream to children from trucks that traveled through the city's neighborhoods). 9-317(e). One day while making his rounds. receives the collateral w/o knowledge of SI. will take free of SI if: buyer gives value. (RFC) had a perfected (filed) SI in the equip of White Truck Ice Cream (WTIC). On April 2. 9-320(b) won’t work either bc it is not consumer goods So look at the rights of the creditor under 9-201 and 9-315---he is not protected from the SI.Problem 83 pg. 9-201. a consumer who asked about buying an ice cream-making machine for his family. When Frank refused to turn over the ice cream machine. and Bill White-Truck himself frequently drove one of the trucks. their priority will relate back and will beat the intervening buyer. Problem 85 pg. and receives it before the SI is perfected Unperfected secured creditor is going to lose to the buyer even if the buyer is not in the ordinary course of biz (c) Would we get a diff result if the finance co. in the interim. bc he did not buy from a person who deals w/ goods of that type. Paul sold the equip to Used Stereo Heaven. Sale has to be approved and approved free of the SI. knew and approved of the sale? Compare §9-315(a)(1). ONB filed its FS in the proper place. for which Frank paid cash. Inc. 175: 67 . Bill promptly sold him one of the machines the co. (b) what if finance co. which bought w/o knowledge of the bank's PMSI. When WTIC failed to make its pyts. 174: The Repossession Finance Co. However. Answer these Qs: (a) Does Frank lose? Compare §§9-201. other than SP. Paul purchased the equipment. RFC will have priority over Frank. owned.
When Farmer Bean borrowed a large amount of $ from Farmers’ Friend Financing Co.Buyers of farm products are normally big corporate food processing companies who have lawyers and the financer is usually a small town bank.Also encourage banks/creditors to lend $ to farmers. Clovis v.Food Security Act on pg. Bank sues the auctioneer for conversion. 168 says that the auctioneer is merely the selling agent of the farmer and under agency theory the auctioneer steps into the shoes of the farmer and is deemed to be responsible like the farmer is. they are more likely to loan $ to farmers. by knowing that they will have this extra protection. . 1540: act intended to provide protection for both creditors of farmers and buyers of farm products . If the buyer follows pyt instructions it takes free of SI o Pyt instructions are usually buyer has to make check payable to buyer and the creditor • If buyer does not follow pyt instructions then take subject to SI 68 . they will not be able to change their mind. Every yr the farmer sold w/o bank’s consent and bank never said anything bc farmer always turned around and paid the bank. he was required to sign a SA by which he promised not to sell the crop that was the collateral for the loan w/o the written consent of FFFC. Does the buyer take free of the SI of the SP under 9-320(a)? 9-320 doesn’t apply to a person buying farm products or a person engaged in farming operations buyers of farm products will not be buyers in the ordinary course. Pg. If the bank never complained yr after yr even though farmer selling w/o their consent. buyer. Bank then sends notice to all buyers and notice on the list describing creditor. . every yr he sold the crop to the same buyer and remitted the proceeds to FCC w/o getting its written consent. products subject to SI. Bc of these reasons buyers are more hesitant to buy from farmers so courts: . Thomas pg. and pyt instructions.Instituted doctrine of waiver . Nonetheless. so drafters wanted to protect small town bank rather than the big corps.Guilty of conversion bc there was a statute saying that auctioneer was personally liable o Why have a statute like this? The auctioneer bc of the principle/agent---auctioneer is a selling agent of the farmer. Buyers of farm products are not protected like buyers of inventory are: why? . his agent isn’t allowed to make the sale either---so auctioneer responsible for discovering the SI Auctioneer gets around it under 1-103(b) CL principles still apply under the code---so court applied doctrine of waiver. (FFFC). But one yr the bank did not get paid. 176 Bank takes SI in farmer’s cattle and SI expressly said that farmer could not sell the cattle unless received the bank’s consent first. so if the farmer isn’t allowed to make the sale. creditor says give me a list of all buyers and agents.How the act works: o States have the option of adopting one of 2 systems (1) Individualized notice system (adopted by 32 states) • When farmer goes to creditor to get a loan.
telling them that all payments for Farmer Bean’s crops should be by check made payable to ONB. • Note: 3 reqs under FSA are completely separate from A9. 183 Farmer Bean borrowed $ from ONB. It also required him to give the bank a list of potential buyers to whom he had sold his Farmer Bean did so.) must still comply w/ A9 filing Problem 86 pg. o Effective FS is not an A9 FS o It describes creditor. .If the secured creditor wants to protect SI from any other type of claimant (other secured creditors. a buyer in the ordinary course as defined in 1631(c)(1)? See 752 F. Supp 329 and 426 SE2d 63 • Yes – 1631(c)(1) Does rural take free of ONB’s SI? • Yes. but it does not contain pyt instructions • All buyers who want to be protected also have to register w/ secretary of state • Periodically secretary of state sends notice to all buyers who the secured creditors are and what products subject to SI. .. Problem: farmer sells off the list---sells to someone not on the list and buyer never received notice of SI. Is Rural Silo. If they follow instructions then take free of SI and if violate instructions take subject to SI. Paul v. The bank sent a written notice complying w/ 1631(e)(1) to each of the listed buyers. which had him sign a SA covering his crops. Inc. they levy a fine that is really large that they will have to pay (2) Central filing system (adopted by 18 states) • All creditors who lend $ to farmers file what is called an effective FS w/ secretary of state.Complying w/ FSA means creditor will be protected from buyers of farm products (buyers in ordinary course of farm products. So buyer remains protected under act and secured creditor to lose out • To motivate farmers to not to sell off list. One buyer not on the list was Rural Silo. etc. a grain merchant that contracted to buy all of Farmer Bean’s 2010 wheat crop. LCs. whichever is greater 1631(h)(3) Farm Credit Bank of St. The SA forbade him the right to sell his crops w/o the bank’s written consent. The list was of the 5 buyers to whom he had sold his crop (or parts thereof) in the past. products subject to SI. which has its own definition) only protect buyers from creditors if the buyers obey pyt instructions. which after all knew all about ONB’s SI. 1631(d) Does the bank have any other remedy here? Yes • ONB can have farmer fined for 5k or 15% of the value or benefit received for such farm product described in the SA. F & A Dairy: pg 184 Problem 87 pg. who farmer is. 188: 69 . It bought the crop from Farmer Bean and paid him cash for it at his request. Rural Silo knew that Farmer Bean had borrowed $ from ONB and that ONB had filed a FS to perfect its SI (the state had not created an FSA central filing system). Buyer is then required to call secured creditor and get the pyt instructions.
Mr. and Mrs. Halyard purchased a large sailboat w/ $ borrowed from the Boilerplate National Bank (BNB), which took a SI therein and promptly filed a FS in the proper place. The Halyards sold the boat to Oil Slick Boat Sales, Inc., a used boat concern, telling Oil Slick of the bank’s interest and of the necessity of making monthly pyts to the bank. Oil Slick turned around and resold the boat to Mr. and Mrs. Blink, innocent people who paid full value for the boat believing Oil Slick had clear title. When BNB did not receive its usual monthly pyt, it investigated, found the boat, and repossessed it. Has the Blinks’ prop been converted or do they fit into §9-320(a)? Halyards want to buy a boat---go to bank to get loan. Bank says use boat as collateral to secure the loan. This is a PMSI in consumer goods so the bank does not have to file. But the bank files anyway. Why did they file in addition to automatic perfection? - 9-320(b) consumer buyer: so if Halyards sell the boat to another consumer then they should file to be protected from the next consumer, so bank filed to be protected from future consumers Halyards decide to sell the boat to Oil Slick, a used boat dealer---tell Oil Slick about SI and that Oil Slick should make SI pyt to the bank. Oil Slick sells to Blink, bona fide purchaser. - Will 9-320(a) protect Blinks as buyers in the ordinary course o Bought in good faith w/o knowledge of violation o Run of the mill sale of someone who sells in the biz of new boats o They took possession o And paid new value - But Blinks , the buyer, only takes free of a SI created by the buyer's seller: o The SI has to be created by the BUYER’s Seller! Buyer is only protected from SI created by the seller. Oil Slick did not create the SI in the boat, the Halyards did. So Blinks are not the buyers in the ordinary course. The Blinks could always trace title, it is easier for them to protect themselves than the bank bc the bank would have to keep tabs on their debtors. - What Blinks could do bc they lost title: o 2-403(1) a person w/ voidable title (Oil Slick bc their title is encumbered w/ SI) still has the power to transfer clean title as long as it is a good faith purchaser for value This protects most buyers from claimants that have some type of claim But when claimant has a SI, 2-403 will not apply. When A2 refers to LCs it also means secured creditors When a good faith buyer fights an A9 secured creditor they have to rely on 9-320, not A2 o 2-312 warranty of title: says that any time a seller sells a good, they warranty to the buyer that the buyer gets clean title, unless the buyers know otherwise. Breach of warranty of title too Problem w/ warranty of title is that warranties can be disclaimed if the seller disclaims them in the proper manner----so if you buy a used good from a seller that disclaims warranty of title, then don’t buy!
Repair Person Priority Statute:
9-333 (repair person priority statute statutory lien holders) • Sets out priority rule when you have a repair person who gets a lien on repaired goods through state law & a secured creditor also has SI in same goods, priority battle b/t statutory lien holder & secured creditor • Bc we want to encourage repairs, A9 gives priority to repair person but only when they meet certain reqs 70
3 reqs have to be met for statutory lien holders to have priority 1. The repair has to be a run of the mill repair in the repair person’s course of biz a. Can’t be out of the ordinary 2. The lien has to be created by statute or law in favor of that person a. This lien arises by some other state law b. Usually every state has statutes for repair person’s liens 3. It has to be a possessory lien a. The repair person has to be in possession of the repaired good to prevent secrecy If repair person meets these 3 reqs, the repair person will have priority through 9-333(b), unless the statute that created the lien says otherwise. Hypo: The Repossession Finance Co. (RFC) had a perfected SI in Hattie Mobile’s car (RFC’s lien was noted on the cert of title as required by state law). The car broke down on the interstate one day, and Hattie had it towed to Mike’s Greasepit Garage, where it was repaired. State law gave a possessory artisan’s lien to repairpersons. The garage told Hattie it was claiming such a lien, but when she pleaded w/ the manager, he let her drive the car to work after she assured him that she would return the car to the garage for storage every night (fortunately, she lived across the street). Repossession found out about this practice and, deeming itself insecure (§1-309), accelerated the amount due and repossessed the car from the parking lot in front of Hattie’s place of business. (a) Which creditor has the superior interest in the car under §9-333? Even if the lien reattaches when the car comes back to him in his garage, does the garage get the priority back? - While she has the car back that is repaired, what is to prevent her from going to another creditor and get another loan? Secrecy problem---they don’t know about the repair person’s lien. - Most courts have held that once you have given up possession of the car, even if they get possession back, they do not get priority of their lien back over previous interests. Lose possession, lose priority. Therefore, do not give up possession of the good.
Priority Battle of Fixtures
A9 does not apply to SI in real prop so you’ll never have battle b/t mortgagee and A9 creditor 9-109 says A9 applies to SI in PP and fixtures. Fixture definition 9-102(a)(41): a good, but NOT an A9 classification, fixture is real prop label. o The A9 classification for any fixture is a good. So fixtures could be inventory, equip, farm product, or consumer good. You want to classify fixture as a type of good. A fixture is a good, but when does a good become a fixture? o Comment 3 to 9-334: 3 types of items considered as fixtures: (1) Pure goods: items that are tangible, movable, you can identify and touch it. (2) Goods so integrated into real prop that they lose character as goods and become part of the real prop. • Like a 2X4 to build a house, loses character of good & becomes part of realty (3) Goods that when put into realty are attached in such a manner that if the real prop is sold, title to the good goes w/ it. 71
Like a hot water heater in the basement, you can still point to it and say there it is but it is so attached. o Fixtures can be covered by the mortgage mortgage can cover the building and all things (fixtures) attached to the building Problem is that before the fixture was put into the building it was a pure good. So might have priority battle over the hot water heater b/t real prop encumbrancer and the PMSI in the water heater. • Drafters of A9 state that we will handle the priority rules in A9 – 9-334 When priority battle over fixture is b/t two A9 creditors, don’t go to 9-334!! • Use 9-322 race rule and 9-324. If battle over fixture is b/t two real prop creditors, then real prop law governs priority battle. 9-334 is only activated when 2 steps are met: 1. Battle is over a fixture; and 2. When classifying the parties you have a real prop creditor (mortgagee) v. A9 creditor. When does a good become a fixture: - Goods that have become so related to particular real prop o Has to be attached in some way to real prop - Interest in them arises under real prop law o Have to look to state prop law here George v. Commercial Credit George v. Commercial Credit pg. 202: This involves the sale and default of a mobile home. HWY sales wants to secure credit pyts so take the mortgage under real prop law and it is assigned to Commercial Credit. Before mortgage is paid, debtor files for bankruptcy. Trustee fights Commercial Credit for mobile home. - How we classify Commercial Credit depends on how we classify mobile home o If the state classifies mobile home as a fixture then Commercial Credit will be ok bc mortgage would win o But trustee argues that it’s not a fixture Commercial’s only hope is that court looks to state law and not A9 that mobile home qualifies as fixture Wisconsin Fixture Test: 1. Physical attachment to prop; 2. Adapting the good to the use of the land; and 3. Intent of the person attaching good to realty to see if he is intending to make it permanent. a. Court: intent is the most important part of the test. i. This is one test to prove intent and prong 1 and 2 are 2 ways to show intent objectively. o Physical annexation: connect w/ power lines, septic tank, took wheels off, on concrete blocks, and connected natural gas. o Adaptation: the land is a trailer park, so is the good being adapted to use as permanent home in the trailer park yes; putting up a porch, putting utilities on it, home insurance policy, etc. o These objective factors go to proving intent. 72
or which is filed as a fixture filing and covers goods that are or are to become fixtures. such as a railroad or utility co.IN WI a mobile home is a fixture. . Fixture filing perfects you against all other claimants. and an indication of collateral (b) when dealing w/ fixture you also need: description of real prop that the good is affixed to. a FS that covers as-extracted collateral or timber to be cut. but regular perfection will not give you as much protection as a fixture filing .Anytime you want to use a fixture in a security you have to abide by the rules in A9. then real prop creditors will discover them.File a fixture filing in the real prop office to receive the most protection available. o (3) provide a description of the real prop to which the collateral is related [sufficient to give constructive notice of a mortgage under the law of this State if the description were contained in a record of the mortgage of the real prop].If you are not concerned about real prop creditors. provide the name of a record owner. So if that co.. its mortgage will cover the mobile home Point of case: . Gives you more protection as against real prop creditors. must satisfy sub§ (a) and also: o (1) indicate that it covers this type of collateral. • Fixture filing has more info and is filed in diff office. to be sufficient. • Reason for this is so that mortgagees will discover A9 SI in fixtures. And other info from (b): • Except as otherwise provided in Section § 9-501(b).9-102(a)(40): fixture filing: filing of FS and satisfying §s 9-502(a) and (b) o 9-502 tells us what info has to be in a FS (a) need name of debtor. Some debtors have PP that runs throughout the state.] The office in which to file a FS to perfect a SI in collateral. of a transmitting utility is the office of [ ]. but exception in 9334(b): o One other way to get an encumbrance on fixture. which is usually the county recorder’s office. puts up that prop as collateral then secured creditor has to file under 9-501(b) • (b) [Filing office for transmitting utilities. and o (4) if the debtor does not have an interest of record in the real prop. . 204: 73 . 9-501(a)(1) must file in the same office where you file mortgages in your state.To determine if the good is a fixture you have to look to state prop law! A lot of states have this test. o (2) indicate that it is to be filed [for record] in the real prop records. through real prop law instead of A9 How do you perfect for a fixture? . Problem 94 pg. which is good for Commercial Credit. including fixtures. The FS also constitutes a fixture filing as to the collateral indicated in the FS which is or is to become fixtures. you can make a regular A9 filing for fixtures & still become perfected. If required fixture filings to be put right into mortgage filings. name of SP.
using as part of the collateral its extensive network of railroad track (rails and ties). Is the mortgage effective as a FS? See 9-502(c). we have to determine which state laws govern perfection: o Look to 9-301(3)(a) perfection is where the goods are located for fixture filing So make filing where the collateral is located not where the debtor is located. which winds through 12 western states. Are RR tracks considered fixtures in each of the 12 states? • Look at state prop law and assuming they are fixtures in all 12 states. and (3) intention of the person making annexation to make a permanent accession tot eh freehold. A lavish designer bathtub. and the RR defaults on the loan and you have priority battle. 9-501 tells you where to file in states and it would be under 9-501(b): fixtures of transmitting utility covered under this. . and the mortgage was filed in the real prop recorder’s office.” Simon and CSB signed the mortgage. (2) application or adaption to the use or purpose to which the realty is devoted. you only have to make 1 filing in each state in the office that the particular state designates. look at states version of 9-505(b) Which state’s law would govern effect and priority? . and ordinary building materials (subject only to realty filing). to which he mortgaged the real estate “and all appurtenances or things affixed thereto. so he borrowed $4M from Construction State Bank (CSB).Asked in problem does the bank really have to fill out separate fixture filing form or can it just use a mortgage as not only perfection of mortgage but also for fixture filing. Must it file a FS in each county? See 9-501(b) and 9-102(a)(80). o But A9 can only cover the fixtures and not the real prop.In some states A9 provides better remedies than real prop law does. here collateral is located in 12 states. ONB consults you. The pipes that carry the hot water through the walls most likely a fixture 3. handcrafted and carefully set in the corner could be a fixture Problem 95 pg. 74 . Problem 96 pg. which they record & take A9 SI in fixtures so if there’s a default in fixtures there’s a choice b/t real prop remedies & A9 remedies So fill out A9 SA for fixtures which they attach to mortgage or write in same paper. so a lot of real prop creditors file also under A9 to get the better remedies. o Filings are to be made in the state office. Decide how each of the following would be characterized: 1. o So they’ll take a mortgage covering real prop and fixtures. So professor thinks that it would have to be where the debtor is located. 205: Simon Mustache decided to erect an apartment building on a vacant lot he owned. courts look to three tests (1) actual physical annexation to the realty. would it make sense to say for priority to look to where the collateral is located. The furnace that heats the building & water fixture 2. The track is installed in 117 counties. o If you have a transmitting utility like the RR co. So have mortgagee who is also A9 creditor in the fixtures. He will let us know next week. which contained a legal description of the realty. . A couch that has been sitting in the living room for 20 yrs good 4. now present or after-acquired.Look at 9-301(3)(c) the effect of perfection and priority is where the good is located. fixtures (subject to UCC and realty filing).In differentiation among goods (subject to UCC filing). 205: Monopoly Railway went to ONB and asked to borrow $.
It’s a super-duper PM creditor bc its loan went to build the building in the first place. A9 creditor wins. In order for 9-334 to be applicable. The battle is over a fixture b.Must meet 2 reqs in order for a SI in fixtures to be SUBORDINATE to construction mortgagee 1. so you need a description (2) real prop that the fixtures are related to has to be described (3) recorded mortgage must provide all info in 9-502(a) and (b) (4) has to be duly recorded in county recorder’s office. and w/o the building there would not be a good in the first place to attach to the building. • Comment 6 explains these reqs. If a record of the mortgage is recorded before the goods become fixtures.9-334 is a race statute GR of 9-334 is 9-334(e)(1) = race rule . .Interest of record: debtor is owner or part owner of the real prop.(h) priority rules governing a battle b/t A9 creditor and a mortgagee . o Then it says that SI will win if perfected by a fixture filing before the interest of the encumbrancer or owner is of record If A9 creditor makes fixture filing before mortgagee records mortgage. If the mortgagee records before the A9 creditor makes a fixture filing. Good way to approach 9-334 is pretend that you are an atty for A9 creditor bc all exceptions favor A9 creditor. Make sure it applies: a. so it is a race to county recorder’s office. If the debtor does not own the real prop they have to be at least in possession of it. . One type of real prop creditor who is super creditor that will take priority over even PMSI in 9-334(d) is a construction mortgage 9-334(h). and 2. The battle is b/t mortgagee and A9 creditor 2. then the mortgagee will win o Exceptions 9-324(e)(1): exceptions that we deal w/ most of the time will be in (d) PMSI: must meet 4 reqs to have priority (1) perfected SI in fixtures will have priority if debtor has an interest of record in or is in possession of real prop (2) SI is a PMSI (3) interest of the mortgagee arises before the goods become fixtures (4) SI has to be perfected by a fixture filing before goods become fixtures or w/n 20 days thereafter 20 day grace period to file that runs from the time the good is attached and becomes a fixture.Construction mortgagee is a person who lends the $ so the building will be built. have to have mortgagee fighting A9 creditor over the fixture. The goods have to become fixtures before the completion of the construction. 9-334(c) . Pretend that your representing an A9 creditor and go to the race rule in 9-344(e)(1) 75 .- o 9-502(c) says you can use a mortgage as fixture filing but have to meet 4 reqs: (1) indicate the goods that it covers. 9-334(h) is an exception to the 9-334(d) exception. How to analyze 9-334: 1. Bc the mortgage covers fixtures and SI would be 9-334.
Classify the parties: o Blast is A9 creditor and bank is mortgagee and fighting over fixture (furnace) so go to 9-334. will Blast prevail? .9-502(b): need sentence that says “this fixture filing is to be filed along w/ the mortgages” o They do this to make sure it is filed correctly to ensure that real prop mortgagee will discover Will Blast prevail over claimant? . To find out that if it is a fixture look to state prop law. If you qualify under the exception check 9-334(h) bc still might be in trouble if fighting construction mortgagee Problem 96 pg.Does Blast even need to file? PMSI in consumer good is automatically perfected. 205 continued: During construction of the apartment building. But if A9 creditor loses then have to go to exceptions 3. What can Blast do to ensure that it will have priority: . have all info in 9-502(a) and (b) and file in county recorder’s office.9-334(d): is Blast a PM creditor? o The debtor has to have an interest of record or be in possession – met bc Simon owns building o SI has to be a PMSI – Blast has it bc debtor Simon purchased it on credit o Interest in encumbrancer owner arises before. giving Blast a SI in the furnace that described the real estate. o How do you classify a consumer good? Is Simon using the furnace for own personal purposes? Here classified as equip so have to file = not subject to auto perfection . it says that mortgage winning under race rule o File fixture filing before the good becomes fixture or 20 days after. Where should Blast file its FS? See 9501. so look to an exception .The bank will agree to one bc if they don’t then Blast won’t sell the furnace If the bank’s interest is not recorded. 9-334(d) PM creditor exception: i.Look to race rule in 9-334(e)(1): o Bank wins under the race rule bc filed the mortgage before the building even went up. so if they file then they’ll win unless the bank is a construction mortgagee.Yes bc under the race rule in (e) Blast will win.Ask for subordination agreement under 9-339 . Find an exception: a.a. the bank will win. Is there a technical sentence that needs to be filed in FS . b. 206: 76 .Where should he file? o Make a fixture filing. If the A9 creditor wins under 9-334(e)(1) then done. so A9 creditor loses. . Simon Mustache bought a furnace on credit from Blast Home Supplies. Problem 97 pg. 9-334(h) Construction Mortgagee – must meet the reqs: • Recorded before the goods became fixtures (recorded before building built) • Goods become fixtures before completion of construction So here. .
So what they are saying is that 9-334(h) only trumps 9-334(d)!!! 9-334(e)(2): readily removable exception---explained in comment 8 1. 2. Would a mortgagee rely on this type of equip as security for its mortgage? Always make fixture filing bc it will give you most protection possible. o Talking about a microwave that Simon uses to make his lunch---not being used to run apartment building. b. they don’t think of readily removable fixtures as being security for mortgage---don’t rely on computer or microwave as security only thinking about big fixture---so this § gives priority to the A9 creditor so balancing we have (e)(2)(A) and (B) . 9-334(d) Blast would win under (d) here. and it has to be in the hands of the debtor (comment 8) – Simon is the debtor and it would not be in his hands.(e)(2)(a) and (b).9-334(e)(2)(B) equip not being used to operate the building as an apartment building. . Perfected by ANY method. the secured creditor can argue under (e)(2) that it is readily removable office machine and then beat the construction mortgagee. usually what happens is when secured creditor sells the machine. Bank is the construction mortgagee. Check to see if in 9-334 A9 creditor (Blast) v. Bank recorded before building went up ii. (C) replacements of domestic appliances that are consumer goods. When get down to where construction mortgagee who beats secured creditor.) See 9-334(e)(2) and (f)(2) and Official comment 8. (A) a factory or office machines. assuming that qualifies as fixture goes through rest of analysis. But did the refrigerator become a fixture before completion of construction? Most likely But can Blast also be protected under 9-334(f)? . In this problem (C) would not be met bc it has to be a replacement and it is the original here. assume that it is a fixture 2. b. 77 . (B) equip that is not primarily used or leased for use in the operation of the real prop. real estate mortgage (bank) and fight has to be over fixture.This rule will only protect A9 creditor who replaces consumer good in the hands of the debtor o 9-334(e)(2)(c) only protects replacement consumer good. Fixture is readily removable and a. what if Simon buys a computer? Is the computer a fixture look to state law. . . but construction mortgagee will win over Blast if there is construction mortgage. Race rule in 9-334(e)---bank wins bc bank recorded before building went up 3. Does Blast have an exception to race rule? a. Go through analysis again: 1. it’s used to feed him.Would your answer to the last problem’s priority disputes change if the object in Q were a refrigerator? What if it were a computer that Simon had purchased for use in his office (which is located in the apartment building?) (Note: some states would consider the computer a fixture under the industrial plant doctrine.When dealing w/ readily removable items. or c. Look to state law to see if refrigerator is a fixture. 9-334(h) Bank has to meet reqs under (h) i. don’t think about it being fixture and file regular FS---on the other hand mortgagee bank takes a mortgage and encumbers it w/ building and all fixtures.9-334(h) provides that (e) and (f) are exceptions to (h).
is it the type of fixture that a mortgagee would rely on to secure the mortgage? . Pretend representing A9 creditor and go to race rule in 9-334(e)(1) a. so his intent is not there. then it is not readily removable. Is 9-334(d) applicable? 78 . So Lawyer for LBJ files FS and fixture filing. He goes to bank and gives bank a mortgage covering the land and all of its attachments and future attachments. Units will remain DiBiase’s PP according to SA. 9-334(d) PM exception i. The battle is b/t mortgager and A9 creditor 2. . .FIXTURE TEST: o (1) Physical annexation Air conditioners attached to wall by holes in walls o (2) Adaptation Will make the customers stay comfortable o (3) Intent of party making attachment DiBiase said in SA that the units were to remain PP and not part of hotel. so LBJ becomes PMSI of the units. b. Here the bank wins under the race rule so go to step 3 3. v. But if A9 creditor loses. Incorporates it as Grand Beach and goes to LBJ to buy air conditioners. Lewiston Bottled Gas Co. Find exception: a. then have to go to exception i. The battle is over a fixture and state law shows it’s a fixture b. .If they would rely. Key Bank: pg. Make sure it applies: a. Are the air conditioning units fixtures? They used the same 3 part test from WI. 206 DiBiase owns land and wants to build motel on it. The 3 part test is subjective in nature and prove subjective intent by objective factors of physical annexation and adaptation. DiBiase needed more $ and goes back to bank and says needs another loan and DiBiase said take second mortgage on building and bank runs search under DiBiase’s name and does not discover PMSI and so have battle b/t bank and LBJ over the air conditioning units.If they would not rely then it is probably readily removable. It is an objective test to prove subjective intent. and LBJ take SI in units. Attack Outline: How to analyze 9-334: 1. If the A9 creditor wins under 9-334(e)(1) then done. but it is under the name Grand Beach.Key Bank is properly recorded real estate mortgager DiBiase wants to create a corp to run the motel and oversee building the motel.Look at how your state defines what is readily removable---if it is not readily removable. Then DiBiase defaults.
Assume that state real prop laws permit CSB’s after-acquired prop mortgage to reach fixtures installed by lessees (if they don’t. 9-519 says cross index under debtor and owner’s name. Yes 4. . recovered judgment. which reserved a SI therein but never filed a FS.Perfected secured creditors beat LCs. and she bought another refrigerator on time from Easy Credit Department Store.Can the bank look to 9-334(h) for protection as construction mortgagee? 79 . did not put it under DiBiases name too---need to have name of the co. a.1. . Tuesday Tenant moved in. Yes he has possession of prop and owns it 3. If a record of the mortgage is recorded before the goods become fixtures. Will Simon’s creditors holding SIs in the fixtures prevail if they have perfected by fixture filings? See 9-334(e)(3). Did the interest of the encumbrancer or owner arise before goods become fixtures? When did the interest of mortgagee arise and when did goods become fixtures? If the interest in the mortgagee is first then requirement is met. Does the debtor have possession or an interest of record of the real prop? a. The goods become fixtures before the completion of the construction Problem 98 pg. Person who has real prop encumbranced they are meaning real prop creditor (generally mean mortgagee---the bank here) i. and the name of the person who owns the landDiBiase 1. Is the SI a PMSI? a. Easy Credit will always prevail. This requirement is redundant bc simply repeating that construction mortgagee wins under race rule b. . so she sued him. see 9-334(f)(2)) Will Easy Credit be entitled to priority if it is forced to repossess? See 9-334(e)(2)(C) and Official Comment 8 third paragraph. Susan Mean. 210: Simon Mustache failed to pay his atty. Go to 9-334(d) pull out reqs and apply to facts 2. AND b. she had him remove it. 9-334(h) construction mortgagee exception: 1.9-334(e)(3) states that a perfected SI in fixtures has priority over a conflicting interest of an encumbrancer or owner of the real prop if the conflicting interest is a lien on the real prop obtained by legal or equitable proceedings after the SI was perfected by any method permitted by this article o Making fixture law consistent w/ 9-317(a) Problem 99 pg. and levied on the apartment building and its contents. Let’s assume A9 creditors did not make fixture filing but did perfect under A9 before Susan got a judgment lien. They put the wrong name here and did it wrong. If you qualify under the exception of 9-334(d) check 9-334(h) bc still might be in trouble if fighting construction mortgagee 2. Here the atty does have encumbrance on real prop and its contents and gets interest by judgment lien. Fixture filing before the goods become fixtures or w/n 20 days thereafter i. Except as provided in 9-334(e) and 9-334(f) a SI in fixtures is subordinate to a construction mortgage if: a. 210: After the building was complete. ii. Not liking the refrigerator Simon had installed.
but don’t have to pay for diminution in value. Should the filing contain Simon’s name? . will this help Easy or not? . when make fixture filing. 210: Assume Tuesday bought a trash compactor on credit from Easy Credit and had her kitchen area remodeled to accommodate it.9-334(e)(2) would probably work assuming the juris would deem fixture to be readily removable 9334(e)(2)(C) – replacement of domestic appliances that are consumer goods.Situation is if tenant purchases refrigerator out of its own funds and fixture in her own apartment o 9-334(f)(2) says if state prop law allows a tenant who installs fixture at own expense to remove the fixture and take it free of real prop mortgage.Does the $ go to the owner of the building or the mortgagee? o 9-604(d) pay the encumbrancer (mortgagee) other than the debtor. a trash compactor built into counter top is probably not readily removable.PM creditor (Easy) has 20 days to file a fixture filing.9-334(e)(2)(c): if you rely on exception in (e)(2) you can rely on any method of perfection. It was installed on May 5. Bank wins under race rule of (e)(1) but Easy is PMSI. the reason you don’t give $ to Simon is that he was responsible for the default and the damage to the building reduces the value of the collateral. which is 9-334(e)(2) Problem 101 pg.Not under 9-334(d) bc they didn’t make a fixture filing under (d)(3). bc the building is already completed by the time the refrigerator goes in.o No. So Easy needs another exception . Comments have explanation for readily removable exception. 9-604(c) remedy is repossession they must pay for the physical damage. Problem 100 pg. Have to pay for the cost of repair 9-604(d) . the real estate mortgagee. Auto perfection: appears consumer good in the hands of the debtor. . Is it entitled to automatic perfection of its SI in consumer goods here? See Official Comment 3 (Last sentence) to 9-309. If Simon defaults on his pyts. But have to check the state law to see if fixture can be taken free of real estate mortgage. must comply w/ 9-502(a) and (b) required info in fixture filing. so give the $ to secured creditor to raise up the value of the collateral. 9-334(f)(2) says SI in fixtures perfected or unperfected will still have priority over real estate creditor if the debtor has the rights to remove the goods . Will Easy still take priority? . Easy Credit comes to you on May 7.It needs to be in the owner of record of real prop. One priority rule that we haven’t looked at: 80 . what liability does Blast have to CSB if removal (repossession) of the furnace will do $1k damage to the building’s structure and if to replace it Simon (or CSB) will have to spend $8k? See 9-604 and its official comment 2. so allows automatic perfection. 210-11: Assume that Blast Home Supplies held a perfected SI in Simon’s furnace and that this interest was entitled to priority over CSB. Under (e)(2) can perfect under ANY method of A9. then the mortgage does not attach to the fixture---so the only interest in the fridge is that of the A9 creditor.
It is undisputed that the new kitchen Sears installed and financed was a fixture and that Sears obtained a PMSI in the fixture to secure full pyt. That was the only trip doublewide made in its life. Battle b/t A9 creditor and mortgagee---9-334(i)---A9 creditor always wins bc want to encourage PM loans to farmers. . 1988. Sears needs exception 9-334(d) PMSI must make fixture filing w/n 20 days. 211 Maplewood Bank gave a PM mortgage to the Capers on September 20. and on other the hand can have A9 SI in growing crops as goods. The remedy is repossessing all the fixtures---and would cause a lot of physical damage to the house itself and so don’t want to do that bc have to pay for the physical damage they cause 9-604(d).” When Farmer Bean borrowed $ to plant this year’s crop.Today under revised code they may be able to get the difference in value remedy but depends on state prop law—9-604(b)—can exercise A9 remedy or any remedy under state real prop law. The mortgage stated that it extended to the realty and all things “growing on. 1990. Sears filed a FS covering a completely new kitchen installed in the mortgaged premises at the request of the Capers after they executed a SA. and Farmer Bean built a fancy deck that he extended out the front door of the trailer.Drafters decided that real estate mortgage can cover crops. They defaulted bc they were broke. then go back to sub§ 9-334(c).- Comment 5 Residual Rule (fall back rule): if none of these other priority rules work for one reason or another. Sears SI is limited to the fixtures and does not extend to the real estate. It was then placed on a foundation that had been built on the vacant lot. Sears should have negotiated this w/ the bank before going to court. will it prevail over Rural State’s mortgage lien? See 9-334(i) and official comment 12. Problem 103 pg. Fixtures are something related or attached to real prop. now in existence or in the future. 1989 the Capers executed a 2nd mortgage on the previously mortgaged premises through New Jersey Savings Bank which was recorded on August 23. 1988 and recorded it on October 5. The Capers defaulted on their pyts due to Maplewood and Sears and Maplewood declared that the entire balance was due which Capers did not pay so the bank foreclosed on November 5. so you can only repossess. for $100k. he had it towed to a vacant lot on his farm w/ police protection in route. This makes sense but there is no authority for the remedy bc it is not in the former code---go to the legislature if you want it. Problem 102 pg. Sears: pg. or attached thereto. Inc. The debtors can be sued for the deficiency. which says the real estate mortgagee wins (the title to (c) calls it the GR. the PM lender. and large WIDE LOAD signs attached. attached to various utilities for electricity and water. August 18. 215: When Farmer Bean bought a doublewide trailer from Traveling Homes. 215: Farmer Bean had a filed a mortgage on his home in favor of Rural State Bank.. If the latter files its FS in the appropriate place. not the GR) Maplewood Bank v. What is the remedy that Sears tried to invoke? They said to the bank to sell the house and instead of pulling out fixtures give us the difference in value of the house w/ old fixtures and the house w/ new fixtures. 1989. What about farmers crops that are attached to land? . he gave a SI in the crop to Seeds. The PMSI that Sears had in the fixtures gave them super-priority as to those goods or chattels which became fixtures. In real life the problem is the remedy. 1989. On May 31. but it is the fall back rule. Inc. If you are the atty representing the bank that loaned Farmer Bean the $ to buy 81 .
V. or the gov’t sues you.6322 tells you when the lien is created and when it terminates---it arises on the date that it is assessed. what steps should be taken to perfect its PMSI in the collateral: a real estate mortgage.IRS has own definition of secured creditor 6323(h) o SI qualifier: in order to have SI must meet 3 reqs (1) prop (collateral) has to be in existence at the time of tax lien filing (2) SI has to be protected under state law against LCs 82 . or a notation of the bank’s interest on a cert of title used for the doublewide? See 9-334(e)(4). (tax lien filed. decided that if they sell this and there is a default don’t want to be stuck w/ real prop remedies.doublewide. . not A9 definitions. .what is the best way to perfect SI? o Note interest under cert of title if the state allows this 9-334(e)(4) bc if you end up fighting real prop creditor who has interest in land and all fixtures. But when revised A9.cert of title---assuming that your state has cert of title. how do you perfect? Real estate mortgage If it is a fixture in the state---can perfect under A9 fixture filing.6323(a) is priority rule: says that tax lien beats the world even if it is second in line. If you are the A9 creditor who loaned the $ so the farmer could buy the trailer what is the advised action? . real and personal belonging to that person---covers everything you own . If you are lending $ for farmer to buy the trailer should you take a mortgage or A9 SI? . then you will win bc they are second in line bc people should be able to rely on cert of title. So have priority even if state allows real estate mortgage to also cover this. o Only exceptions are for the claimants listed 6323(a) o In order for the tax lien to beat these listed claims it has to be filed before one of the claims arises. a fixture filing under A9 of the UCC. o Lot of problems w/ this provision---politics. o Assessment occurs when they sign an assessment form o Once assessed it remains effective until you pay your taxes.These types of attached homes were considered real prop. So drafters did this---and put in a definition in 9-102 of manufactured home---complicated definition---mobile home has to meet specifications and if qualifies then it is a manufactured home defined under A9 so can take A9 SI instead of real estate mortgage…. gets a judgment and you satisfy the judgment. so you would take real estate mortgage in the house and all its fixtures and A9 SI in fixtures too---this is what happened.If a person owes fed tax and does not pay it then this lien is created covering all prop. not assessed. o If the state does not cover them w/ cert of title. Whenever you deal w/ fed statute must use fed statute definitions. or statute of limitations has run (6 yrs generally). Did not think it through so there’s a ton of problems in it.) Every state has an office where fed tax liens are filed. Manufactured Homes Seller Association. but we won’t have to address them on the exam. Tax Liens Trustee in bankruptcy is biggest and baddest creditor. all rights to prop. wanted A9 remedies. But there’s one bigger---tax person (IRS) .
Smiles Motors failed to pay its fed taxes. you have to be perfected under A9. and chattel paper. generating chattel paper and accounts receivable.Looking at feds definition of SI---must be in existence---after acquired collateral was not in existence. The one situation that the feds never thought about is presented in problem 126: Problem 106 page 234: Six months after the IRS filed a tax lien against her. Then on 10/1. Oct. but what about SI in collateral from after acquired clause---is that cut off by intervening tax lien---does tax lien have priority? . Most problematic requirement: the later acquired collateral has to be obtained by the debtor w/n 45 days of the tax lien filing a. instruments. and the IRS filed a tax lien in the proper place on 10/1. accounts receivable. Will PMSI beat the tax lien? o The tax lien and PMSI get to fire extinguisher at the same time---feds say if the PMSI perfects before turning over possession of collateral to the debtor PMSI wins. accounts. then you don’t have a SI at all according to IRS. .Remember that a tax lien only covers prop that tax payer owns. (3) value has to have been given---creditor has to have given the value. Nov. On the first days of November and December new shipments of cars arrived at Smiles’ lot. The SP must have made the loan in ordinary course of biz 4. o So exception---6323(c) look at the reqs on page 2 1. The SI is perfected before the tax lien is filed 3. A written SA exists a. So that means here that all the collateral coming in during Oct and first half of November—that acquired SI takes priority over tax lien and then the tax lien comes in and takes priority. Dec dealership gets new collateral. Bank takes SI in auto dealerships inventory. and chattel paper of an automobile dealership named Smiles Motors. o These 3 reqs present problems PROBLEM 105 pg 227: ONB had a perfected SI in the inventory.Tax lien is filed covering all debtors prop but debtor goes and buys fire extinguisher that has PMSI. Bank did this 2. and all during the yr Smiles continued to sell cars on credit. feds file a tax claim against dealership. Charlene McGee bought a fire extinguisher system for her horse stables. The loan on which the after acquired SI are based has to have been made before or w/n 45 days of the tax lien filing 6. instruments. She purchased the system on credit from King Protection Enterprises. If not perfected. Does the filing of the tax lien cut off ONB's floating lien in whole or in part? Is this issue in any way affected by the bank's knowledge of the tax lien filing? A9 SI w/ after acquired clause. to which the bank made periodic loans.This means. Collateral (feds call commercial financing security) must be acquired by tax payer in his ordinary course of biz 5. 83 • . Issue: know under priority rule of IRS that SI of bank will have priority over tax lien. Assume bank perfects. (difference b/t assessment and filing). which reserved a PMSI in itself and perfected it. Is the IRS's lien superior to King's PMSI? .
§6323(d). make sure you perfect before you turn the good over---if it was consumer good. and the bank agreed to loan her $ from time to time "as it thinks prudent. Answer these Qs: a. o What about 9-320(b)? Not a consumer good. Problem 107 pg 235 Marie Medici owned a hat factory.Bank is owed $11. On that date the United States filed a fed tax lien against all of Medici's prop. She financed her biz through a series of loans from the Richelieu State Bank pursuant to an agreement by which she gave the bank a SI in all of the factory's equipment. . o So are there any protections for the buyer? 9-323 deals w/ the priority of SI arising from future advances. 84 - . does the bank or the US have priority in the equip." A FS covering the equip was filed in the proper place.500 balance o Collateral: (1) $7k machine (2) $5k felt press 8/1: tax lien filed 8/31: $10k advance If you look up IRS definition of SI: value has to be given.o If you are PMSI creditor.500 after advance.Special rules for future advance and after acquired. and to what amount? See I. What if the bank did know? As of 8/1: $1. buyer in ordinary course of biz? No. don’t have to worry bc automatic perfection.Compromise enacted 6323(d). Here the advance.500 (having paid back most of the prior loans). but the $10k value was not given until after tax lien was filed. GR 6323(a) if you perfect your interest before tax lien is filed then you have priority. .C. but this was not consumer good here. Assuming the bank did not know of the tax lien on 8/31. collateral – $12k on 2 machines 8/15 w/o permission debtor sells 5k machine to buyer 8/31 bank makes advance of $10k Will the buyer be protected from the SI arising from the advance? . Rest of problem 107 moves away from tax liens and what happens instead is same situation: 8/1 debtor owes $1500 on loan. o If future advance must meet 4 reqs of 6323(d). . On August 1 she owed the bank $1. The equip consisted of two machines: the Habsburg Hat Blocker (worth $7k and the Huguenot Felt Press (worth $5k) . which is reprinted in handout: 4 reqs o (1) collateral has to be covered by written SA before tax lien filed o (2) the SI has to be perfected as of tax lien filing o (3) the advance must be made w/n 45 days of the tax lien filing and o (4) the SP better not have knowledge of the tax lien when it makes the pyt *It is either the expiration of 45 days or actual knowledge when tax lien has priority!!! Tax liens. o After acquired 6323(c) reqs must be met. so IRS says no SI in 10k.R. the bank loaned her another $10k. On 8/31.Priority battle b/t A9 creditor and buyer of goods---go to 9-320 o Does buyer qualify under 9-320(a). as far as initial SI value of the loan was given.
But if the secured creditor has made a promise before they knew about the lien then they will still win. Handout rewords the reqs of (b) and (d) from wk 11. the secured creditor will lose. Who has priority over the $10k advance? .9-323(b) LC v. or o (2) 45 days after the purchase Let’s assume that creditor does not have knowledge of the sale and makes the advance before 45 days---they will win bc 45 days have not expired and they did not have knowledge. so bankruptcy code gives them a way to get fresh start and provides a vehicle to give at least something to all unpaid creditors. VI. BANKRUPTCY: Look at debtors who are so insolvent that they’ll never be able to pay off creditors. . The only way the creditor can still be protected is under 9-323(e): if he makes advance pursuant to commitment w/o knowledge of sale and before expiration of 45 days---pursuant to commitment 9-102(68): means pursuant to secured parties obligation---they promised to make that advance. knowledge is irrelevant here! But if you exceed the 45 days then you still will win under (1) if you still don’t have knowledge of the lien. What if the creditor does have knowledge of the sale but the advance still is made w/n 45 days---then the buyer wins bc it is the earlier of----knowledge will kill the secured creditor---either knowledge or expiration of 45 days. 9-323(d) starts out by saying buyer takes free of SI but under (b) that secured creditor wins if they make advance ---w/n the 45 days. 85 . Another change. If instead on 8/15 the buyer buying collateral we have a LC.In the problem it says “as the bank deems appropriate”----this is not a commitment or a promise. Code Revisions: there was abuse of the bankruptcy act—so revised the code—but revisions were made by people w/ no expertise of bankruptcy law. while it does not affect protection w/n 45 days. But the buyer might still get protection from SI in the advance? • 9-323(d) Except as provided in (e) a buyer in goods other than ordinary course of biz will win and take free of a SI to the extent that it secures the advance made after the earlier of: o (1) the time the SP acquires knowledge of the buyers purchase. We know the bank will beat for the 8/1 $1500 but what about the advance on 8/31? It says that the advance was made w/ knowledge of the lien. future advance secured creditor----except as provided in (c) a secured creditor will lose but only to the extent that SI secures an advance made more than 45 days after the person becomes a LC unless the advance is made w/o knowledge of the lien or pursuant to commitment entered into w/o knowledge of the lien.Most prevalent is “liquidation bankruptcy” covered by Chapter 7. it will affect you if you make an advance after 45 days---after 45 days and knowing about lien. Usually will find this or lack of this right in the SA but sometimes on a separate piece of paper. so revisions are bad and do put some major restrictions on consumers to file for bankruptcy. but if you have knowledge. Many types of bankruptcies: . 9-323(a) and (b) does not protect the buyer.
and get full obligation out of the pot and w/o sharing i. Bankruptcy code gives the trustee special weapons to attack secured creditor. The plan is the debtor’s proposal on paying something to all of his creditors from postbankruptcy earnings. rather than individual o Propose reorg plan to the court and discharged from bankruptcy once they fulfill that plan Chapter 12: farmer bankruptcy---rehabilitation for family farmer *We’re concerned w/ the powers the code gives the trustee to attack claims of creditors bc the trustee’s goal is to destroy A9 creditors The rules we will learn are for all types of bankruptcies. There are some creditors who are preferred. Plan usually runs from 3-5 yrs.(instead of it getting repossessed) continues biz. and once debtor complies. can come in. and if meet all reqs. But the debtor is given these powers---DIP---debtor in possession of his prop. debtor is discharged from all bankruptcy debt o No trustee o The powers normally given to trustee to attack the claims. and debtor receives full discharge on all debts Rehabilitation bankruptcy: o Do not liquidate debtor’s prop o Debtor keeps prop. so if the SP goofs up then the trustee can take away from secured creditor. debtor can’t grant any SI on the prop or get judicial lien on prop c. Trustee’s 1st Weapon: 86 . Chapter 13: Rehabilitation bankruptcy used by individual debtor o Only way to rehabilitate. if they do everything correctly o Most creditors are not paid in full. Trustee’s goal is to destroy A9 secured creditors. Fling of bankruptcy petition: (DOB) date of bankruptcy a. d. have to owe under certain amount and must have minimum income. Some are forced though by creditors but mostly voluntary b. come up w/ pyt plan approved by court. which means debtor can’t pay any unpaid creditors. Trustee is an advocate for all of the general creditors. he gathers up all non-exempt prop and sells it. no one can touch it. and trustee’s job is to get as much $ in the pot as possible and distribute it on equitable basis to all the creditors f. sells them off and w/ that $ gives a little bit of something to all unpaid creditors—pro rata equitable distributions. and enters into pyt plan. once you comply w/ the plan. Once trustee is elected. so have a lot of $ in the bankruptcy pot. US Trustee will appoint an interim trustee to look over the prop & make sure no one touches it. Anything after date of filing is free and clear. o Some creditors will be able to take full obligation off the top before anyone else shares it. One is the A9 secured creditor who has done everything correctly. In the meantime creditor’s meeting—in the meeting they make their claims and select a permanent trustee e. But 362 is automatic stay on prop. 1. Chapter 7 is 99% are voluntary. then your discharged from bankruptcy Chapter 11: rehabilitation plan entered into by biz. Steps of bankruptcy: 1. in liquidation bankruptcy.- - - o Trustee is appointed and then goes in and gets all non-exempt assets. § 362 kicks in & everything that debtor owns is frozen.
the trustee needs legal interest in prop and 544(a) gives the interest —upon the filing.) 544(a) says that if the LC has priority over unperfected secured creditor. If no new general creditors came into existence b/t the loan on 4/17 and the petition filing on April 18. the trustee takes the status of a hypothetical Judicial LC (LC). he applied to the International State Bank for a loan of $10k. General creditors are on the bottom of the totem poll. The unperfected secured creditor now becomes a run of the mill general creditor for $500. .Debtor owes grocery store $100---general creditor. On 4/18. Problem 108 pg.LC gets judgment for $300 and has sheriff seize $300 worth of prop . secured by an interest in Sun's equip.). Sun filed a bankruptcy petition in the fed court. unless the code says otherwise (fall back rule) o General creditor will come last. e." He had many unsecured creditors (food sellers. 544(a) is called the Strong Arm Statute bc the trustee will hunt down secured creditor who did not properly file its SI and destroy it. moved to Chicago and opened a Korean restaurant called "Seoul Food. 9-201 says that secured creditor wins even if unperfected.All want a piece of prop.544(a) of bankruptcy code (strong arm statute): all it says is at the moment the bankruptcy petition is filed. it destroys the SI..Whenever you use 544(a) 2 step process: o (1) Go to 544(a). . which gives trustees status of LC o (2) See what the powers are for LC bc state law shows this State law involving priority b/t A9 secured creditor and LC • Priority rule is 9-317(a)(2): says LC beats unperfected secured creditor. Difference b/t real life LC and trustee: Ex. who takes first? o LC bc of 9-317(a)(2) – LC beats unperfected secured creditor o Unperfected secured creditor. So in the example above the unperfected secured creditor’s SI is destroyed and becomes a general creditor.. and. On 4/17. the trustee can step in debtor’s shoes & exercise that defense 544(b): says that trustee also has the power to step into the shoes of any of the debtor’s general creditors and exercise whatever rights those general creditors would have had to destroy other creditors’ claims.g. signing a SA and a FS in favor of the bank. so unperfected . we know the trustee wants to grab up prop. 558: gives trustee the benefit of defenses that the debtor will have against claims of other creditors.secured creditor gets thrown into the pool (need to be perfected before bankruptcy Is filed. employees. • 9-102(52) definition for LC states that trustee is LC. one hr before the bank filed the FS. Trustee strong arms unperfected SIs into oblivion. . But there are a few instances where they can do this & § 558 allows it. 239 Lew Sun. thus a secured creditor beats a LC. can the trustee avoid the bank's SI under §544(a) of the Code? 87 . etc.Debtor has prop worth $1k .: . it doesn’t merely subordinate secured creditor taking second.This power is not used much by the trustee bc it is worthless. if creditor’s claim is barred by SoL. a. a Korean.Debtor grants SI to bank for $500 loan but the bank forgets to file. linen services.
Classify the parties: o 544(a) says trustee gets status of hypothetical LC . all debtor’s prop up to the date of filing is frozen. Bankruptcy REVIEW: . one hr before filing FS. such as state law grace period.Bankruptcy code gives the trustee special powers (more than general LC): o Strong Arm Statute: if you are unperfected secured creditor. If the bank had PMSI . If you are a secured creditor. Section 547 of the Bankruptcy code ii. and falls below a perfected SP who filed before the bankruptcy. Trustee’s other weapons: a.546(b) says if you have generally applicable state law. 88 .can only use it because federal law says you can use it. and at some pt debtor knows it will have to file for bankruptcy. debtor files for bankruptcy. SI in equip and signs FS 4/18.4/17.One of the claimants is a bankruptcy trustee who is classified as a LC. For a transfer to seem preferential have to look to 547(b)Background: once bankruptcy petition is filed. So what will prevent the debtor from paying off some creditors in full and then filing for bankruptcy and leaving all other creditors to have less $. Preferential Transfers: pg 239 i.9-317(e) as long as PMSI filed w/n 20 days of turning the goods over to debtor. perfect SI as soon as possible. But debtors see bankruptcy coming bc it is a gradual deterioration. o Bankruptcy trustee can also step into shoes of the debtor and raise the debtor’s defenses on his behalf 2. trustee can turn you into a general creditor. bc if you are perfected = protected against 544(a).5/3 bankruptcy petition is filed .5/4 PMSI perfected by filing Under 544(a) trustee becomes a LC . which means before petition is filed it isn’t frozen and debtor can transfer it to anyone who wants it and trustee has no power to undue those transfers.Look to state law to see the powers o 544(a) trustee wins over unsecured creditor bank o If the bank had filed 2 seconds before bankruptcy then the A9 creditor goes into bankruptcy being perfected and would have been protected against trustee’s powers under 544. – allows you to use the state law grace period to use against trustees power under 544. Who would win under strong arm statute? . you never know when debtor will file for bankruptcy. will beat intervening LC Fed law supersedes state law so the only way the state law will win is if the fed law allows it: . .Suppose on 5/1 debtor takes loan and grants creditor PMSI in equip . can use it against trustee’s powers under 544.
(b)(2) to or for the benefit of a creditor/claimant a. and preventing fraud. A debtor makes a transfer to anyone who has a right to pyt 3. It is presumed that the debtor was insolvent w/n the 90 days before filing [547(f)] b. Trustee is worried every time something goes out of the estate. the amount to creditors gets smaller. but 1 general creditor decides enough and runs to court and gets a judicial lien. during slide under.Or suppose during gradual slide under. Perfects just before bankruptcy just above the top of all the other general creditors. Elements of a Preferential Transfer § 547(b): 1. Exception if you are an insider the trustee can go back 1 yr. (b)(4) w/n 90 days of filing (DOB). .Want creditors in the same position on the day of bankruptcy as they were 90 days before it . (b)(2) for a debt incurred before the transfer a. i.Recognize that the debtor might want to favor certain creditors and try to pay them off before bankruptcy which is why they cannot do this 90 days before the bankruptcy. ii. Trustee has the power to undo transfers if certain reqs are met. Want the amount in the estate to be more than at the time of bankruptcy or at least the same as at the time of bankruptcy. Insiders: someone close to the debtor 89 . If you want the creditor to get the $ and keep it.Transfer §101(54) every mode of disposing of or parting w/ prop or an interest in prop.Preventing debtor from. This is the only element where the burden of proof is not w/ the trustee 5. the first to get the lien wins. (b)(3) while debtor was insolvent a. All of the above examples were transfers. Now we have real life LC v. Burden on debtor to prove that it was solvent i. debtor might be going under & 1 of the general creditors realizes this & persuades him to grant a SI before filing for bankruptcy. trustee (hypothetical LC)—b/t 2 creditors. o Types of transfers: SI Gift Judicial lien . . i. Not a contemporaneous debt: when paid on the same day as you incur a debt. but to be preferential transfer must meet all 6 reqs of preferential transfer in 547(b) Trustee’s ability to avoid preferential transfer: . all of the general creditors are working w/ debtor to help keep above water. Antecedent (pre-existing) debt a transfer made during the 90 day period before bankruptcy was filed for a debt that arose before the transfer. you must pay them before 90 days before filing for bankruptcy. Transfer was made as a result of a debt that incurred before the transfer. The drafters of the code enacted §s to allow trustee to undo certain pre-petition transfers bc of this unfairness. 4. favoring certain creditors over others in a certain manner.Debtors typically don’t decide to file bankruptcy and usually try to avoid it. . and a. (b)(1) the debtor transfers prop OUT of the estate 2.Power we are concerned w/ is trustee’s power to undo preferential transfers---pre-petition preferential transfers---transfers that prefer one creditor over others before the estate goes bankrupt---Trustee has the power to UNDO pre-petition preferential transfers. Also.
but the bank doesn’t file a FS = doesn’t perfect its SI . 2 step process: i. pay $900 2.. Presume insolvency 5. a general creditor ii. b. and a. Transfer made on 2/7 and bankrupt on 2/12 90 .2/1 a bank makes a $5k loan to the debtor .6. pay to bank 3. (b)(5) the creditor received “more than” going through bankruptcy having received the transfer than it would’ve received in bankruptcy w/o the transfer a. For a debt incurred before the transfer a. Transfer not until 2/7 4. any pyts made to the creditor will not impact final result. While it was insolvent (presumed for 90 days before filing) a. (1) how much would he have received w/o transfer? Usually pennies on the dollar if unsecured creditor. Yes. . Yes. The debtor transfers prop a. To a creditor/claimant a. The debtor transfers prop out of the estate a. Presume the debtor was insolvent 5. debt on 3/1 4. Creditors want to be as collateralized as possible. Yes. Made to the bank 3. i.2/6 the parties enter into a SA. Yes.10/1 debtor pays back $900 [not in the ordinary course] . therefore. Hypo 1: basic preferential transfer. Yes. While it was insolvent (presumed for 90 days before filing) a. For a debt incurred before the transfer a. paid on 10/1 bankrupt on 10/15 6.10/15 debtor files for bankruptcy protection Does this satisfy all the reqs of preferential transfer? 1. W/n 90 days of filing.e. (2) how much w/ transfer? Usually more b. debt was $5k and incurred on 2/1.2/12 the debtor files for bankruptcy protection 1.2/7 the SI attaches when the debtor gets rights in the collateral . Creditor received it all here Hypo 2: Debtor transfers a SI to a creditor . The only time this won’t be true is if the creditor is fully collateralized (collateral is worth the amount owed or more).3/1 a bank makes $1k unsecured loan to debtor . SI transfer complete on 2/7 when debtor received rights in collateral 2. To a creditor/claimant a. How much would this creditor have gotten in bankruptcy cents on the dollar. W/n 90 days of filing. The creditor received “more than” going through bankruptcy having received the transfer than it would’ve received in bankruptcy w/o the transfer a. and a. i.
Is it a preferential transfer? 1. transfer on 2/4 b. Transfer of prop — transfer of a SI on Monday 2. But. SI on 2/1 2.. The creditor received “more than” going through bankruptcy having received the transfer than it would’ve received in bankruptcy w/o the transfer a.b/t loan and attachment/perfection] . you may want to finishing going through preferential transfer elements but here there is no voidable preference bc everything happened on the same day. Yes.2/4 (Monday) the bank’s SI attaches and is perfected . To a creditor/claimant a. The collateral was equal to the amount of the loan so it does not affect the amount of $ in the estate.2/1 bank makes a loan and perfects its SI . YOU’LL NEVER GET TO PREFENETIAL TRANSFER Qs BC THE STRONG ARM STATUTE WILL APPLY! i.6. IN THIS SITUATION. so it is not an avoidable preference bc it all happened on the same day. Debt on 2/1. To the bank 3. BUT i. Preferential transfer? 1. Always start by asking if the strong arm statute would apply. same day that the transfer went out of the circle a loan went back into the circle. For a debt incurred before the transfer a. Hypo 3: . In bankruptcy the creditor would have gotten strong armed into being general creditor.2/1 (Friday) bank makes a $50k loan to the debtor o [Gap 1. To a creditor/claimant a. On the exam. Creditor received more than would have under normal bankruptcy situation. HAVE UNPERFECTED CREDITOR. what if party intended for everything to happen on Friday but didn’t finalize paperwork until late Friday after everything was closed. The debtor transfers prop a. b. Yes to the bank 3.2/10 debtor files for bankruptcy Can the trustee avoid this under the strong arm statute? .e. The loan was the same day that SI went out. For a debt incurred before the transfer a.No. Debt and transfer on the same day.2/12 the debtor files for bankruptcy Can the trustee avoid this under the strong arm statute? . Is that fair? 91 . The debtor transfers prop a.No. AND WHENEVER YOU HAVE UNPERFECTED CREDITOR. i. so no. bc perfected SP. Hypo 4: . b. bc perfected SP.
but here. substantially and contemporaneously. transfer on 5/5 4. Presume insolvent 5. bankrupt on 2/12 = less than 90 days 6. Don’t want the debtor to have ability to defraud other creditors. and a. Loan made on Friday.5/5 bank perfects SI . there is no evidence of the loan in the public records and concerned that debtor and creditor are working together fraudulently. then the transfer date moves to the date of attachment. c. Only applies if: 2.1/5 bank makes a loan and SI attaches o [Gap 2—b/t attachment and perfection] . in fact.No. The creditor received “more than” going through bankruptcy having received the transfer than it would’ve received in bankruptcy w/o the transfer a. Transfer on 5/5 2. Date of transfer is very important! 92 . Debt on 1/5. if perfection is more than 30 days from attachment = transfer is the date of perfection 1. For a debt incurred before the transfer a. Preferential Transfer? 1.i. therefore. Here we’ll assume that no intent for same day exchange 4. The debtor transfers prop a. Debtor says they need $ bc in trouble and if they file bankruptcy they will let the bank know so they can file and become perfected. W/n 90 days of filing. To a creditor/claimant a. Which would make this a preferential transfer bc the date of transfer is shifted to 5/5 creating a preferential transfer. creating pre-existing debt and allows the trustee to avoid the transfer. Normally this is not a preferential transfer. Transfer to bank 3. and a. c. (2) the debt was created and SI was transferred. GR: 547(e)(2) transfer is when the creditor perfects. While it was insolvent (presumed for 90 days before filing) a.5/7 debtor files for bankruptcy Can the trustee avoid this under the strong arm statute? . unless perfection is w/n 30 days of attachment. transfer & perfection on Monday all w/n 90 days of bankruptcy = yes they would get more bc perfected Hypo 5: . (1) the parties intend for the loan and the SI to be exchanged at the same time 3. more than 90 days b. Presume insolvency 5. i. bc perfected SP. No. While it was insolvent (presumed for 90 days before filing) a. W/n 90 days of filing. 547(c)(1) Substantially Contemporaneous Doctrine (weekend exception): closes gap 1 from when the loan was made and the prop transfer was made 1. Transfer on 2/4.
B/t transfer and perfection? o No. it was w/n 30 days so date of transfer is 8/1. b/t attachment and perfection) Hypo 6: . Hypo 7: 3/5 (Friday) bank makes a loan 3/8 (Monday) SI attaches 5/28 bank perfects SI 6/30 debtor files bankruptcy Have both gaps here! Can we close gap 1 from when debt was incurred and prop was transferred? .8/6 debtor files for bankruptcy Who has priority? .So move date of transfer to May 28 and re-creates the pre-existing debt. While substantially contemporaneous can close gap 1. B/t when transfer is made and when debt is incurred 2.4/1 debtor files for bankruptcy 93 . . Then bank waited over 2 months to perfect. Hypo 8: .8/1 bank makes loan.2/1 bank makes $3k loan that it secures w/ $6k collateral and then it perfects its SI.8/24 debtor files for bankruptcy Gap 1? .Strong arm statute applies unperfected creditor so the trustee can turn them into a general creditor. B/t when transfer is made and perfection occurs (i. Yes Two diff gaps: 1.. The creditor received “more than” going through bankruptcy having received the transfer than it would’ve received in bankruptcy w/o the transfer a.8/1 bank makes a loan and its SI attaches .6. it opens gap 2 and trustee can avoid it.e. . bc the bank waited 30 days to perfect.B/t when transfer is made and when the debt is incurred? o Both happened on 8/1 Gap 2? . argue weekend transfer—substantially contemporaneous doctrine should be able to close the gap eliminating pre-existing debt.8/22 bank perfects SI . Hypo 9: .Yes. SI attaches but does not perfect .3/1 debtor makes unscheduled $1k pyt [not in ordinary course] .
If we switch around collateral and loan number. (2) w/ transfer creditor would get 2k (what debtor owes after the 3k) Fully (over) collateralized here: when trustee sells collateral get $6k. If pyt is in ordinary course of biz (in terms of parties’ agreement) OR if you make pyt consistent w/n industry practice. SI – no (but keep going w/ the reqs) b. then it is preferential transfer bc then the creditor is undercollateralized. Black Letter Rule #1: if perfected secured creditor is fully collateralized. Pyt – yes 4. every month you make a rent pyt . pyts w/n 90 days make it better off and the transfer (pyt) is preferential 547(c)(2) exception to 547(b) requirement: creditor can receive conventional debt pyts and they are not preferential. 94 . Debtor is making 2 transfers: 1.yes 3. To a creditor/claimant a. The creditor received “more than” going through bankruptcy having received the transfer than it would’ve received in bankruptcy w/o the transfer a. 2nd when makes $1k pyt---could be contemporaneous. Pyt – no i. e. Bank will get $3k total.This is debt you incur in ordinary course of biz. SI .yes b.No bc perfected SI Preferential Transfer? 1.If you own your biz and need to get truck fixed. SI – yes b. $6k loan and $3k in collateral. then it is not preferential.. For a debt incurred before the transfer a. and gives creditor $2k. The debtor transfers prop a. While it was insolvent (presumed for 90 days before filing) 5. SI – yes b. Pyt – yes 2. and a. (1) w/o transfer creditor would get 3k bc he is a secured creditor and fully collateralized ii. W/n 90 days of filing. a pyt on the debt made w/n 90 days before the date of bankruptcy will not be preferential = it will not make it better off. it is not preferential to make the pyt to get the truck repaired. .g. SI – no b. 1st giving SI which is contemporaneous w/ the loan 2. Black Letter Rule #2: if perfected secured creditor is undercollateralized (if the collateral has less value then the amount of debt). since the bank already received $1k on 3/1. even if made w/n last 90 days. the trustee will give them $2k more. Pyt . Pyt – yes 6.Does strong arm statute apply? .
1k pyt supposed to be made on 1st of every month. and a. if-under collateralized then they won’t be. they will be. No Black Letter Rule # 1 – over collateralized so it can’t be preferential. so that is a pyt not in ordinary course of biz = 1k creditor keeps and 7k is returned Gap 1 eliminates preferential transfers: saying the parties wanted to do it at the same time and basically did it at the same time Gap 2 creates preferential transfers: if the creditor waits 30 days before perfection then move the date of transfer to the date of perfection Problem 109 pg. The creditor received “more than” going through bankruptcy having received the transfer than it would’ve received in bankruptcy w/o the transfer a. so the date of transfer will be moved to date of perfection. debtor makes 4 payments. The next day. On 7/18. If ONB had perfected on 6/8 but the debtor made some extraordinary pyts to ONB in the 90-day period before the filing of the petition. SI 2. 242-43: On 6/8. Presume insolvent 5. Yes 4. want to make sure that immediately perfect. Biz Corp filed its bankruptcy petition. bank gets scared about debtor’s finances and makes debtor pay 8k. For a debt incurred before the transfer a.- Ex. Yes. could the trustee use §547 to make ONB pay that $ back into the estate? Does strong arm statute apply? . Could try & argue that substantially contemporaneous: it is over collateralized! Obviously we intended to perfect on the same day. Biz Corp borrowed $80k from ONB and gave the bank a SI in its equip (worth $100k). Or if paid in ordinary course. pyts on long term debt are in ordinary course and cannot be preferential (SC case cited in problem). Not going to get $100k of collateral for $80k debt. 7/19. Yes 6. Can the trustee destroy ONB's secured position and turn it into a general creditor under the theory that the delayed perfection is a preference? Yes. To a creditor/claimant a. 95 . Yes to bank 3. While it was insolvent (presumed for 90 days before filing) a. Changing facts of the problem: If collateral only worth $60k instead of $100k you’d have a diff story. W/n 90 days of filing. b. then diff story. ONB filed a valid FS in the proper place. The debtor transfers prop a. If over-collateralized. In the scheme of the T 30 days was not a lot of time. Bank waited more than 30 days to perfect SI. bc of Gap 2---shift date of transfer to date of perfection—date of perfection is 7/18.No bc perfected SI Preferential transfer? 1. that doesn’t meet reqs – debt to bank. We want all creditors on date of bankruptcy to be in same position as they were in 90 days before bankruptcy.
and agreement. W/ SI – creditor will get all 1k Preferential transfer in this case. On Sept 25. 243: On 11/1 the Piggy Nat’l Bank loaned Kermit $1k to buy a banjo he wanted for his nightclub act. it was a signature loan (i. giving it a SI in his sword collection. to a bank 3. Kermit filed his bankruptcy petition the next day. PM creditor beats LC (trustee) o So even the bankruptcy code favors PMSI lenders Problem 111 pg 243: In early 2013 John Carter borrowed $1k from the Barsoom World Bank. W/n 90 days of filing. 96 . How much.11/1 Piggy Nat’l Bank loaned Kermit $1k to buy banjo . Assume insolvency 5. . Does strong arm statute apply? . Yes 6.. The debtor transfers prop a. BUT PMSI exception: . While it was insolvent (presumed for 90 days before filing) a. value.12/6 Kermit filed bankruptcy Piggy’s SI attaches on 15th---need rights. John made a $500 pyt to the bank (assume that this pyt is not in the ordinary course). 2) enable Kermit to acquire collateral.e. and John filed a bankruptcy petition on Nov 8. To a creditor/claimant a. Debt incurred on 11/1 4. can his bankruptcy trustee recover from the bank? See §544(a)(2). and the bank filed the FS in the proper place on 11/20.547(c)(3) asks if it is PMSI and perfected w/n 30 days of the date debtor receives possession of the collateral. Yes. and a. and 3) Kermit did acquire the collateral. W/o SI – creditor will get pennies on the dollar b. if anything.12/5 Piggy filed FS . but on Oct 4 he borrowed $300 more from the bank.Problem 110 pg. 547(c)(4). He bought the banjo on 11/15.No bc perfected SI Preferential transfer? 1. Is the transfer of the SI in his banjo a preference? See §547(c)(3). For a debt incurred before the transfer a. no collateral). The bank never filed a FS. and o (B) the bank perfected in 30 days . 2013. Transfer on 11/15 2. The creditor received “more than” going through bankruptcy having received the transfer than it would’ve received in bankruptcy w/o the transfer a. 2013. making him sign a SA and a FS.11/15 Kermit bought banjo .547(c)(3) trustee cannot void transfer that creates SI in prop that Kermit acquires o (A) to the extent that SI gives new value 1) the bank has a SA describing collateral.
the creditor was in certain position that was better than position in on bankruptcy. so it would be voided by strong arm statute. trustee has to go through each inventory shipment and test each one. Transfer made to creditor 2. To the extent the creditor gave new value to debtor after the transfer 3.Almost all SAs have after-acquired clauses. . but bc the party from who the trustee can collect the $ from already returned $300. the new shipments of inventory received. if you get a loan from the bank it is standard form language in the agreements that you sign. He made $500 preferential pyt that would otherwise be voidable by the trustee. Want him in same position on the day of bankruptcy as he was in on 90th day. otherwise there would never be financing for inventory.collateralization 97 . made pyt. .Net result is the same on 90th day before bankruptcy. under 547(c)(5) trustee should check the position of each creditor w/ afteracquired clause at 2 pts in time.Net Effect on Estate: estate is depleted by only $200 so trustee can only void $200 of the $500 loan repyt. bc did not get any gain to all after acquired prop. Did Carter give new value for $300 loan? He gave SI in sword collection. but it was unperfected. or proceeds of either. . . then paid $500 (preferential pyt) then borrowed $300 more so now owes $800. All transfers w/n last 90 days and all fail preferential transfer Congress added special provision 547(c)(5): bottom line is that a trustee can’t void a transfer resulting from after-acquired prop clause if these reqs are met: o Exception applies only when collateral consists of inventory. Debtor did not give creditor anything (solid SI or anything else of value) in return for new value Here Carter borrowed $1k. and filing June 2001: debtor acquires new inventory July 2001: debtor files bankruptcy W/o any special rule.Normally $500 pyt would be a preference under the 6 reqs. o It says that if on the 90th day before filing bankruptcy. BUT . Hypo: Feb 2001: loan. But if they are in better position on date of bankruptcy (under. he owes $1k so only make the bank return $200. 547(c)(4) exception Net Result Rule: transfer can’t be avoided as a preference if 3 reqs are met: 1. Idea is that the net result would be the same. it will be a credit. or accounts. Each time you get inventory shipment. These transfers in the last 90 days.Trick to remember: anytime you find a preferential transfer (meets all 6 reqs). On 90th day he owes $1k.Bankruptcy has to give special treatment. after pyt Carter borrowed $300 more (he received new value w/n 90 day period). Carter owed $1k to bank. are all preferential transfers. . later (w/n the 90 days) that same creditor gives debtor more value – think about 547(c)(4)! 3. It is not possible to do this. debtor is transferring prop bc SI goes out SA automatically attaches when they get new inventory. sometimes see equipment o Want each creditor to be in same position on bankruptcy that they were in 90 days before bankruptcy. then this is ok. . On date of bankruptcy give the trustee the same ability to return to the same position. 90th day before bankruptcy and the date of bankruptcy bc worried about some under-collateralized creditor will pressure debtor to increase the inventory or accounts receivable outside the ordinary course. we are giving credit for the $300 that came back into the estate. SA w/ after-acquired prop clause. FLOATING LIENS: NOT TESTED ON 547(c)(5)!! .
- on date of bankruptcy than on 90th day) then bankruptcy can void those transfers. Trustee looks at the debt collateral ratio on the 90th day before and on date of bankruptcy o Ex. so bank will get the $12k and lose the $8k as general creditor. • If on date of bankruptcy they would end up w/ 177.50 + 25% as general creditor. On May 28. $175 worth of collateral Is creditor in better or worse position? • Better position bc how much is creditor going to get if bankruptcy occurred on 90th day? $110.: 90th of before bankruptcy • $100 debt • $200 collateral on date of bankruptcy • $100 debt • $300 in collateral Here creditor is fully collateralized. Trustee can distribute only $8k to the bank and other $12k will be treated as general creditor. If bankruptcy occurred on the 90th day. So if instead at 90 days $12k---preferential buildup is $8k. Problem 112 pg. Black Letter Rule #3: If there is full collateralization on 90th day (if the debt is equal to or less than collateral) then trustee cannot void transfer of the SI during those 90 days which results in equitable of collateral. they would have gotten $100. They are the same. when Epstein filed for bankruptcy. the inventory was worth $20k bc the store had purchased several new shipments for cash in the interim. As trustee. Fully collateralized on both pts in time. What can the trustee do about the bank’s claim? In last 90 days. Rule is worried about under-collateralized parties.e. FRAUDULENT TRANSFERS: 98 . Bank has gained $12k over 90 day period. Trustee can avoid bank’s interest w/ respect to the buildup.. which owed the bank $20k. Creditor will get in bankruptcy $100. Diff hypo 90th day: $200 debt. $100 collateral Bankruptcy day: $200 debt. On March 1. fully collateralized and in a better position. if you have enough collateral to satisfy debt before 90th day then the trustee cannot void anything bc you can’t get anything better than fully collateralized. value of inventory went way up. we want to put creditor in same position as creditor was in 90 days before. 245: LNB had a perfected SI in the inventory of Epstein Bookstore. preferential buildup of $12k in the last 90 days. Better off in 2nd situation bc they have more collateral. the inventory was worth $8k. May 28. I. 4.
2 most common types: . 547(c)(6) exempts statutory liens b. He decided to make $ by writing his memoirs.” and she filed a FS in the proper place 5 months before Arnold filed his bankruptcy petition. Statutory Liens: a.548 of Bankruptcy Code lists conveyances that the code considers fraudulent and trustee can avoid any of the transfer made w/n 1 yr before date of bankruptcy.” . LC on 6/1.These 2 are factual inquiries and trustee initiates the action Most states have adopted Uniform Fraudulent Transfer Act (UFTA) and the trustee can use this to supplement bankruptcy code the effect of this is that it extends SoL from 1 yr to 4 yrs. which were certainly best-seller material. He gave a SI in the right to receive royalty pyts from his publisher to his wife as collateral for “the many debts I owe her. Problem 113 pg. exempt from strong arm statue b.(1) transfers that the debtor makes w/ actual intent to defraud creditors o Hard to prove bc have to show actual intent .(2) presumed fraudulent transfers—trustee must show: o (a) lack of reasonable consideration o (b) debtor made transfer while it was insolvent or transfer made debtor insolvent Trustee has to prove insolvency o Presume bad intent here. 253: When Arnold Austin retired as an international diplomat. was it w/ lack of consideration? How much effort she made might be considered consideration? Could also attack it as preferential transfer if there were actual debts owed Could look to 544(b) and see if any state conveyance statutes help you This problem is just trying to get us to look at fraudulent transfers. Can the trustee avoid this SI? .: “during the last yr you sold this painting for $5k while you were insolvent and the painting is actually worth $5M. Preferential transfer reqs are met so 6/1 LC is struck down 2. c.At CL. he was famous but much in debt. STATUTORY LIEN IS NOT SUBJECT TO PREFERENTIAL TRANSFER bc it would discourage repairs c. Can the trustee avoid the SI? Look to 548: is this a presumed fraudulent transfer? He was insolvent when made it. one of the “badges of fraud”---situations in which fraud is presumed---was a voluntary transfer made by the debtor to a family member. Safe. just has to show that the transfer actually took place: Ex. 6/3 DOB i. Judicial Liens: a. If can show that judicial lien occurred w/n 90 days prior to bankruptcy. then it will be preferential transfer and trustee can avoid it. Subject to preferential transfer act i. Under state law liens are good against bona fide purchaser 99 . All that is required is that: i. Nonconsensual lien: 2 types 1. trustee doesn’t have to show bad intent. judgment on 5/1. 5. Ex.
If attaches then secured creditor 2. o Non-cash proceeds: proceeds that are not cash proceeds If you are a SP. o If collateral is damaged and debtor gets insurance pyt. if buyer in ordinary course buys something. no right to the proceeds as a secured creditor. Hypo 1: • Creditor 1 has perfected SI in inventory • Creditor 2 perfected SI in accounts receivable o Debtor sells inventory on credit 100 .ii. your SI is gone in the collateral but still have SI in the proceeds. disposes of collateral. then that is a proceed) . deposit accounts. If it is perfected then perfected secured creditor 3. 547(c)(7) alimony and support pyts w/n the 90 days will not be subject to being avoided 4. or trades for furniture. do you have a right in the proceeds? 1. then the pyt is a proceed. Not the type of lien that arises only when debtor is insolvent 3.If put up piece of machinery for sale. checks. you want to know if debtor sells your collateral for cash. Does a SI attach in proceeds? a. $ you receive is proceeds. is the SI perfected? a. “Cash proceeds” is a term of art not a classification of collateral. If no SI attaches. etc. but still have a general creditor right to proceeds b. 9-315 governs proceeds: • (a)(1) deals w/ collateral • (a)(2) deals w/ proceeds (SI attaches to any identifiable proceeds of the collateral) Proceeds are whatever replaces the economic value of the collateral 2 types of proceeds o Cash proceeds: $. .. How does it impact your priority? Does the SP have right in proceeds? Go to: • 203(f) proceeds and supporting obligations: o 9-315(a) SI continues notwithstanding 9-315(a)(2) SI attaches to any identifiable proceeds of collateral • States that SI automatically attaches even if the SI goes out of the collateral o I.e. 547(c)(9) same as (c)(8) but for businesses and the amount is $5k instead of $600 VII. anything the debtor gets in return for collateral is a proceed (if takes proceed and dispenses w/ it. If yes. PROCEEDS Proceeds 9-102(64): GR in (a) if the debtor distributes. 547(c)(8) consumer transfers under $600 w/n the 90 day period are not subject to being avoided bc not worth the trustee’s time/hassle 5.(b)-(e) address particular types of proceeds.
a.Under (d)(3) it is only continuous perfection if the description in FS would cover the old and new collateral. checks. made a $200 down pyt by giving the dealer her check.: Cash. a) Does that SI continue in the car once it is delivered to Ms. promissory note. Proceeds: old car (trade-in). she traded in her five-year-old car. so can require distinct account.. Rameses National Bank had a perfected SI in Champollion Motors' inventory. o (3) cash phase rule SI in proceeds is perfected other than under sub§ (c) when SI attaches to proceeds or w/n 20 days thereafter Basically if original FS covers it and it was obtained by identifiable cash proceeds.• • o The sale generates accounts receivable Creditor 1 claims an interest in account receivable as proceeds of inventory Creditor 2 claims interest in the accounts as accounts How do we classify creditors? Does first creditor’s perfection continue in proceeds? Perfecting SI in proceeds • 9-315(c) automatic perfection in proceeds if you have perfected SI in the collateral • 9-315(d) automatically perfected but only lasts 20 days unless you satisfy one of these: o (1) same filing office rule (A) Filed FS covering original collateral (B) SI in proceeds can be perfected by filing FS in same office (C) Didn’t receive cash proceeds for the collateral o (2) identifiable cash proceeds rule Ex. If original FS doesn’t cover it. Have a special bank account just for those proceeds. NO. a. then have to file another FS w/n 20 days Difference b/t (d)(1) same filing office rule and (d)(3) cash phase rule: . and signed a promissory note for the balance payable to the dealership. and $200. b. 261: When Rosetta Stone bought a new car from Champollion Motors.(d)(1) original FS doesn’t have to cover same collateral. Attachment is automatic under 9-203(f) 1. she is the buyer in the ordinary course (9-320(a)). 2 step process i. as defined in sub§ (1). She buys the car free of the SI---can probably rely on 9-315(a)(1) as long as the SP authorized the dispo—as a GR. . deposit accounts Arises when receives cash or check for inventory problem is it is hard to track. c) Is the attachment of the creditor's SI in the proceeds automatic. or must they be claimed in the original SA? See §9-203(f). Problem 114 pg. 9-203(f) says that attachment of SI in collateral gives to the SP rights to the proceeds in 9-315. Inc. But only relates to proceeds that are identifiable – 9-315 101 . Depends on how broad the scope of original FS is. Stone? See §9-320(a). car dealer financers authorize them to sell cars free of SI b) Under 9-315(a) the bank's SI will continue in proceeds. What are the proceeds of the car sale? a.
• 9-315(d)(1) o (a) met bc original file o (b) could file in same office o (c) instrument not for cash proceeds acquired for original collateral • 9-315(d)(2) the proceeds are identifiable cash proceeds o 9-102(a)(5) cash proceeds are either cash or substitutes for cash A check is substitute for cash---so can go to (d)(2) here bc check is identifiable cash proceed Promissory note instrument so (d)(1) will be met here. • 9-315(d) says that automatic perfection will only continue for 20 days and will not go any longer unless you meet (1). it was acquired for the new car. which means you need to file. • Car is inventory so no cert of title is needed. (c). o (C) proceeds not acquired w/ cash proceeds. are met. attachment is automatic. this is met bc traded-in car was not acquired for cash. (d)(2) doesn’t work for promissory note.c. What about perfection? • 9-315(c) deals w/ initial perfection in proceeds—secured creditor in good shape if properly perfected in original collateral then that perfection is automatic in proceeds. In this instance. As long as attachment to original collateral is identifiable. (b). Here SI automatically attaches in all 3 of those. just promise to pay. (2). $200 check (down pyt) this is a negotiable instrument. or (3) First consider traded-in car: to continue perfection under 9-315(d) perfected SI in proceeds will be unperfected in 20 days unless • 9-315(d)(1) the following conditions are satisfied o (A) filed FS covers the original collateral o (B) proceeds are collateral in which SI MAY be perfected by filing in office in which FS has been filed 2 parts: • (1) proceeds are collateral may perfected proceed is type of collateral where if you were to perfect you would do so by filing FS • (2) filing would be in the same office where the original filing for the collateral was made. v. so you can file or possess. Farmers’ Cooperative Elevator Co. i. Debtor sells the collateral and gets cash and uses the cash to get something else. Union State Bank – pg 262 102 . 9-315(d)(3) default provisions---says that if your perfection is not continued under 1 or 2 then you have to take necessary action to continue your perfection beyond those 20 days. Bc (1)(a). it is not cash proceed. the bank’s perfection is continued beyond 20 days.
. Helms v Certified Packaging Corp: pg 265 GR: replacing a biz loss is not restoring the value of damage collateral GR: the claim of a secured creditor to the proceeds of collateral cannot exceed the value of the collateral Problem 116 pg. When Aquarius needed further financing. so farmer grants SI in feed and hogs.Get a subordination agreement from the bank. Cassiopeia knew all about the prior loan and inventory SI of the Canis Major Bank at the time it filed its FS in the proper place.Ask farmer to put up a diff type of collateral Problem 115 pg 265 ONB makes a loan to Dairy. it sometimes was paid cash. Aquarius defaulted on both loans. Its inventory was financed by the Canis Major Bank and Trust Co. 268 analyzed like exam The Aquarius Auto Audio Shop (AAAS) sold and installed stereo systems in cars. granting the lender a SI in its accounts receivable and its chattel paper. 267-68: Farmers' Friend Credit Ass’n loaned Farmer Bean $ secured by his crops. Co-op did not sell him the hogs. so this is a regular SI. it took a later loan from the Cassiopeia Finance Co. Canis Major's theory was that the accounts and chattel paper were proceeds of the inventory. it had not yet collected any of the accounts receivable.. The equip is then sold to Cheeseworks. CO-OP: says PMSI 9-324(a)—as long as file w/n 20 days of turning feed over to farmer they can get around the race rule. secured by Dairy’s equip. In 2011 the fed gov’t paid Farmer Bean not to grow any crops that year. which had a perfected SI in present and after-acquired inventory. 9-330(a). who later sells the equip to Buttercups. but this is unlikely unless Co-op says that if you don’t sign subordination then we will not sell the feed and then hogs get skinny and wouldn’t sell for much . Is the gov’t pyt the "proceeds" of the crop? . so the hogs are proceeds bc the feed fattens the hogs Court rejects the argument on all 4 hooves. Default by farmer and both bank and Co-Op go after feed and hogs. The chattel paper was in Cassiopeia's possession.Farmer grants SI in livestock and supplies. When Aquarius sold the systems.. and both secured parties claimed the accounts and chattel paper (only Canis Major claimed the inventory). Farmer buys feed from Co-op who wants collateral.Most courts stated that bc the pyt is basically a substitution of the collateral it could be deemed a proceed of the collateral---it is taking the place of the collateral (see cited case) Problem 117 pg. Who should prevail? See §§9315. Bank has perfected SI in these. sometimes extended credit w/o signed Ks. So bank would beat Co-op under race rule here o So Co-op says that proceeds from the feed ingested by the hogs. and sometimes made credit customers sign Ks promising pyt and granting AAAS a SI in the systems.Does this argument apply to hogs? o No. 9-322(a) and (b). Is the $ that Cheeseworks receives as proceeds of the sale subject to ONB’s SI? • Yes bc the cited case states whatever is acquired is still proceeds – see 535 F3d 779 Brenda P. This is priority battle: 103 . How could Co-Op structure the T so they would be protected? .
Also. has SI in accounts receivable and AAAS PMSI in loan Ks and SAs—which is chattel paper (monetary obligation and SA) finance co. and finance companies often take SI in chattel paper.Chattel paper must not indicate that it has already been assigned to someone else o If all are met then finance co. qualifies as a purchaser activating 9-330 . if the chattel paper is claimed by the bank merely as proceeds of inventory subject to SI.Take possession of chattel paper---they took possession .’s knowledge is irrelevant and has nothing to do whether they knew of SI. not for cash. so it was automatically perfected in proceeds. Classify the parties: . has SI in chattel paper perfected by possession and in accounts receivable. o 9-102(a)(64) definition of proceeds—explain what a proceed is and explain that accounts and chattel paper were proceeds from the inventory o Attachment of proceeds: 9-203 says you need a SA to have attachment. would be protected.Purchaser has to give new value---gave loan $ . 104 . So this is met. can you file in the same place as the original filing of the inventory 9-501 says yes. .They would have priority over SI in chattel paper. the chattel paper was acquired from inventory. o Chattel paper ---file or possess to be perfected---they possess o Accounts—filing so perfected Now Priority battle: 9-322 first to file rule: for proceeds 9-322(b)(1) if the bank properly perfected in the proceeds. (2). and bank did nothing to describe proceeds in SA. 9-315(d) puts 20 day period on auto perfection to remain perfected over 20 days you must meet either (d)(1). 9-315(a) says SI attaches to any identifiable proceeds of collateral and 9-203(f) says attachment in proceeds is automatic under 9-315.Purchase in the ordinary course of their own biz saying that normally purchase this type of thing in your biz. or (3) Chattel paper: • (d)(1)(A) filed FS covers original collateral—yes • (d)(1)(B) must decide if the proceed is a type that may be perfected by filing-chattel paper can perfect by either filing or possession. then that perfection will relate back to the perfection in the inventory. . o Was it in good faith---finance co. Accounts: • (d)(1) is also met so the bank’s perfection in the accounts is continuous beyond the 20 day period. yes.- Bank has SI in inventory and an after acquired clause Finance co. . file both in one central office---so this is met • (d)(1)(C) the proceeds are not acquired by cash proceeds.Purchase has to be in good faith---they had knowledge of the banks SI . which adds that proceeds have to be identifiable o Perfection: 9-315(c) auto perfection as long as properly perfected in original collateral— assume that bank was.Classify the Finance co.Bank: SI in inventory and SI attaches in proceeds from inventory. But 9-330---finance co.
A9 allows you to use tracing principles in trying to trace to the proceeds. 9-330 says must take possession of the chattel paper. 1/02 put $11k in proceeds making it equal $12k 1/02 $2k deposit now equal $14k 1/04 withdraw $2k so total is $12k Priority battle 11k proceeds are still in the commingled account 1/05 withdraw $10k and $2k is left 1/06 $6k deposit leaving $8k Now priority battle 105 .Cash proceeds that are commingled w/ other cash remain identifiable even in reality they are not: o Tracing fiction: fn 1 in HCC credit case if the creditor can prove that cash proceeds were wrongfully taken and can identify the particular commingled fund that they went into. has to show that chattel paper is merely proceeds of the inventory. How can bank protect itself in chattel paper: • Bank could take possession of the chattel paper & the finance co. . withdraws. they have to be identifiable. that is permitted under law other than this article with respect to commingled prop of the type involved.If the debtor sells the collateral. etc. o Lowest Intermediate Balance (LIB) Rule (another tracing rule): as long as the account balance does not drop below the amount of proceeds put into the account (deposited). Bank could also in original SA list inventory and accounts now own and later acquired---making it original collateral and not just proceeds. Does not protect accounts! A. tracing fiction is the debtor spends his own $ first. deposits. not usually o But tracing: a victim of fraud can go after and recover prop so CL developed tracing fictions to help the victim trace to his prop. will see the stamp that proceeds have been assigned to them. 9-320(a) buyer in ordinary course could still take free of SI even if they knew about SI so we encourage buying---that is the same idea here bc want to encourage purchase of chattel paper. Or the bank could stamp the chattel paper so then under 9-330(a)(2) finance co. . gets cash. including application of equitable principles. could never be perfected bc couldn’t have possession. 1/1 debtor has $1k in bank account. Tracing 9-315(b)(2): if the proceeds are not goods. are the proceeds identifiable? o No. then the proceeds are still considered to be identifiable so you have to prove a trail. 9-330 only protects purchasers of chattel paper & instruments.What happens when debtor withdraws $ and spends it. To qualify under 9-330 finance co. to the extent that the SP identifies the proceeds by a method of tracing. and the cash is deposited into bank account. . then we consider that all of the proceeds are w/n that balance. 9-315(a)(2) makes it clear that if you want SI to cover proceeds.
.$17k in proceeds leaving $17081 .LIB: once the balance in the account drops below the amount of proceeds deposited.040.999 leaving $1 SI in the $1 1/08 debtor deposits $5M leaving balance of $5M and 1 dollars so LIB is $1 The reason for this. o So here. Creditor gets the $2k. the SI drops w/ balance and is not increased by later deposits. o At no time did the balance drop below the amount of proceeds so the creditor will get all of his proceeds (17k) bc the balance did not drop below the amount of proceeds 106 . LIB doesn’t mean that creditor won’t get what he is still owed.Set up separate bank deposit account for cash proceeds only & then cash proceeds are never commingled . Inc.Withdraw $5040 leaving $17041 How much would creditor get out of account? . It is very difficult to trace and burden of proof sometimes dictates who wins. Thereafter.. it just means that he has to jump through the hoops like any other unpaid creditor. and this is their punishment for allowing the proceeds to be commingled. When one of its important clients needed an identical furnace in a hurry. is creditor is supposed to police the proceeds and not allow the debtor to commingle them. 1/07 debtor withdraws $7.$81 in account . the SI drops w/ the balance and does not increase w/ subsequent deposits. then give creditor that benefit of presumption that LIB is what is currently in the account and burden of proof shifts to the debtor to prove there was a LIB • How can creditors ensure that debtors will not commingle cash proceeds: . borrowed $15k from the Meshach Merchants Financing Ass’n (MMFA) in order to purchase a new furnace for its own home office. that would be $2k LIB. (a) Are proceeds from the furnace sale still in the bank accounts? Bank probably did not authorize the sale.00 w/ the Abednego State Bank. Shadrach made one further deposit of $5k. so the SI would continue in collateral and buyer would need protection in 9-320 buyer probably qualifies as buyer in ordinary course bc did buy from someone who sold furnaces and in the ordinary course for the buyer. once the balance in account drops below the amount of proceeds.Debtor puts the funds in a safe/strong box and creditor comes and picks it up a couple times a wk Problem 118 pg 268: Shadrach Heating and Air Conditioning. which it installed in the client's place of biz. Problem is that the $ was commingled. Here just $2k---second part of the rule. 1. Shadrach Heating sold it its own new furnace. so UCC will help the creditor but only LIB when commingling. followed a week later by a withdrawal of $5. the SI drops to that level too.$5k deposit leaving $22081 . Once the account dropped below the amount of proceeds. but for the other $9k you are owed you have to do what all the other general creditors have to do and go to court and get a judgment lien. The $17k check it received in pyt was put into Shadrach's checking account (balance prior to this deposit: $81. so courts says that secured creditor has the burden to prove that his proceeds were wrongfully taken and to identify the account that proceeds put in. If secured creditor can do this much.
Problem 121 pg. What if SA said “all equipment” and painting was going to be hung in office = it is equipment i. If the bank can trace the $ can they take it from the bar? a. ii. Debtor sold a calculator to a friend for cash and used the cash to buy a painting that same day proceeds are identifiable but bank will have to take action before 8/22 bc 9-315(d)(1)(C) and (d)(2) are not met. that bank exercised its right of set-off against the account bank would have to take action in the form of getting a SI in and taking control of the deposit account – see 9-340 f. 279 On 8/2. But instead of putting in bank debtor pays off a supplier who uses the $ to pay off manufacturer who goes to bar. Trade comp for a painting to be hung in the office bank is ok under 9-315(d)(1) c. they can go to your account and take $ from it b. can the bank exercise its CL right of setoff and pay itself out of the checking account. So identifiable cash proceeds that creditor can go for.” the debtor engaged in the Ts listed below.- If the debtor tries to argue that he withdrew from the proceeds. on 8/2. Decide for each T if the bank should take action before 8/22 or if the FS is sufficient as filed: a. Comment 3 we place high value on finality of cash Ts. Trade duplicating machine for a used car (State law requires notation on cert of title) Bank must take action under 9-315(d)(3) bc (d)(1)(B) & (2) are not met = you have to put interest on cert of title before 20 days are up d. CL Set-Off Rule: if you owe bank $ and don’t pay them back when it is due. a. Debtor sold an adding machine for $500 and put the cash in a bank account at a diff bank. disrupting the economy. Otherwise many Ts would have to be undone.. W/o permission of the bank.e. when the filed FS in favor of LNB covered “all biz machines. HCC case which we did not read. or is its setoff right junior to MMFA's SI in the proceeds? See §9-340. 9-340(a) bank can set-off the account to the prejudice of the secured creditor bc at the point of set-off bank might not know about secured proceeds. 9-332(a) says a transferee of $ (supplier or Kelly’s) takes $ free of SI unless transferee acts in collusion w/ debtor. amend FS to include painting a. Absent fraud the transfer of $ of proceeds cuts off SA. problem: debtor who takes proceeds and debtor is a factory and grants bank SI in all of equip and bank perfects. bc to not do so means they would all have to be undone. (d)(1) & (2) wouldn’t work = under (d)(3) you will be good bc the “all equipment” will save you e. factory sells equip and gets cash proceeds. so under (d)(3) you would have to file on the painting. What if bank wants to set-off the account but the secured creditor has perfected SI in the proceeds in that same account? i. Trade comp for comp LNB is ok under 9-315(d)(1) b. i. Debtor sold coffee maker for $200 and gave the $ to salvation army volunteer that same day bank would have to take action but it still wouldn’t help – see 9-332(a) transferee of $ takes the $ free of a SI unless the transferee acts in collusion w/ the debtor in violating the rights of the SP (see comment 3 for policy reason behind this) 107 . then go to the rule that debtor spends his own $ first 2. (b) If Shadrach Heating defaults on its loan repyt to MMFA and also on an unsecured promissory note currently held by the Abednego State Bank.
Does Andy have a cause of action under 9-207? i. Damage to biz is actual damages---giving the wrong info when ask for list of stock violates duty of reasonable care in 9-210 and so go after lost profits under 9-625 (actual damages) 9-207(b) sets forth the list of responsibilities and duties of parties when the creditor is physically possessing the collateral. it actually held 150). offered a stock split option that had to be exercised by 12/31. then good faith duty of care that bank must allow debtor to do this. Andy's stocks in 5 diff companies. the duty of reasonable care cannot be waived by the parties. The SA was oral. explaining that his records had become confused. Duties a SP takes on when it has physical possession of collateral through a pledge or after there is a default. (a) If the stock began to fall in value and if on 11/4. Andy tendered 50 shares of equivalent stock to the bank in exchange for a return of 50 shares of Lusitania Foundry. Andy called the bank and told the bank to sell. as pledgee. and the bank filed no FS. a. 281 Andy Doria was the owner of 100 shares of Titanic Telephone. 9-210 – debtor can request certain info from the creditor to help his potential lenders ii. One of these. the stock was selling for $100 a share. What damages can he recover? See §9-625(b) and (f). so Andy wrote the Morro Castle National Bank and. o But if the debtor goes to the bank and asks them to give him the stock so he can sell it before it drops more. 9-625 says debtor can get actual damages and punitive damages.VIII. No. Andy learned he owned 100 more shares that the bank held but it was too late to take the stock option on these shares. If creditor does not reply accurately w/n 14 days then debtor can sue for any actual damages ii. i.Is the bank under a duty to sell and if they don’t. on which he then exercised the stock option. At the time of the pledge. On 1/3. which proved very profitable. (b) Can bank avoid duty by putting exculpatory clause in its agreement? a. a. So if the stock goes down in value. The bank replied that it possessed 50 shares (this was a typographical error.50 a share? Read §9-207. 108 . should they be held liable for damages? o 9-207 says all creditor has to do is take physical care of prop pledged to them. List of collateral c. and eventually the bank held. 1-302(b) says that in any T under the entire UCC. 3. Doubtful. Debtor can make written request to creditor for: a. (c) Andy's dealings w/ the bank became more complicated. Lusitania Foundry. only extends to duty of reasonable care in custody & preservation of the collateral b. What about 9-210? i. Amount he owes on a certain T c. 1. §9-207 sets forth the duties: Problem 123 pg. which he pledged to the Morro Castle National Bank as collateral for a $10k loan. Default: We were not tested on default. . Comment 3 suggests that courts don’t require a secured creditor to give out biz details to anyone who asks for them (like other lenders). asked the bank how many shares of Lusitania Foundry it held. is the bank responsible if it does not and the stock bottoms out at $1. not another lender iii. so the debtor has to request it from the creditor. when it was selling at $80 a share. the bank has no duty to not sell it. 2. How much he owes on everything b.
insurance co takes this risk through policy Default is governed by the 9-600’s State Bank of Piper v. debtor loses stamp collection but $2k obligation is discharged. the bank.Bankruptcy . those remedies provided in agreement by parties. If you pursue one remedy and it doesn’t work out. Define default as: .9-601: overrules CL election of remedies doctrine. you must pick one and if you don’t win. In proceeding to collect on judgment. Need she pay? See §9-207(b)(2).. paid the bank $2k for the loss of the stamp collection. However: . or otherwise enforce the claim under any remedy written into SA.141 bushels in grain and instead asks for 5. was destroyed in an earthquake.Moving the collateral out of state . then you can’t ever bring anything again.Change of location .Judicial lien on collateral . as collateral. which. think about any event or action/conduct by the debtor that might jeopardize your client’s interest.9-601(c) – rights under (a) are cumulative.Granting another SI in same collateral . While she was away. pledged to the bank her stamp collection (valued at $2k).9-207(b)(2) – risk of accidental loss/damage is on debtor but only to extent of deficiency of any insurance coverage. She used the $ for a South American vacation. which was using the doctrine of subrogation to step into the shoes of the bank. Code leaves it to secured creditor and debtor to define it. 1. So bank is reimbursed by insurance co. The stamp collection went w/ it.Destruction/sale of collateral . & banks out $2k. Debtor defaulted. foreclose. Gibbons then notified Mazie that she should pay the $2k debt to the insurance co. 282 Bank took SI in grain held by bailee A-Way.. A9 does not have a definition of what constitutes a default. SP has rights provided in A9 and except as otherwise provides." or words of similar import. the bank was fully insured by a policy w/ the Gibbons Insurance Co.Problem 124 pg.141 dollars! A-way says ok. • A term providing that one party or that party's successor in interest may accelerate payment or performance or require collateral or additional collateral "at will" or when the party "deems itself insecure. which was located in an unstable geological area. sues in K and gets judgment in amount that is owed. . If sue in K and lose then can sue under A9. 282: Mazie Minkus borrowed $2k from the Mount Brown State Bank and. then you can pursue other remedies – this gets you around res judicata and merger. After a default. If they forget to do it then the courts only make failure to pay on time as a default.Name change . means that the party has power to do so only if that party in good 109 . SP may reduce claim to judgment. Fortunately. inter alia. entitled to ask for 5. Bank realizes in audit their mistake. A-Way: pg. . and instead of exercising A9 remedies. CL Election of Remedies doctrine: if you have several remedies to pursue. no deficiency here.Death of debtor § 1-309 Option to Accelerate at Will.
in your opinion. creditor could not simply go in and repossess. (b) A serious drop in the state of the economy? No 3. Bankruptcy have been talking to a layer? Depends on the circumstances of speaking w/ a lawyer. Under A9 no duty at all for creditor to notify debtor of default and repossession. Bankruptcy bought a mobile home from Nervous Motors (NM). in the agreement. Court said repossession was wrongful and gave actual damages and punitive.faith believes that the prospect of payment or performance is impaired. Creditor was required to give notice. And the people did not do this. Which of the following events. See what your state says about it Klingbiel v. .Atty wrote to debtors that he had to make a demand. may require the debtor to furnish add’l collateral.(2) if creditor deems itself insecure So 3 weeks before first pyt due.(1) default or . is sufficient to trigger the proper use of the clause? 1. they signed a PM SA in favor of the seller that contained the following acceleration clause: • The parties agree that if at any time the SP deems itself insecure bc in good faith it believes the prospect of payment or perf is impaired it shall have the rights to declare a default & accelerate payment of all unpaid sums or perf or. 110 . Problem 126 pg. (c) Knowledge that the Mr. of late pyts was not a waiver of its right to repossess. Atty said acceleration (has right to go to debtor and say pay me full amount due or give collateral back (car)) was permitted w/o notice to the debtor on occurrence of 2 events: . but didn’t so the court took the debtor’s side and gave debtor actual & punitive damages Also. 288 Court went out of its way to help the debtor. creditor deemed itself insecure. But court looked at way atty drafted default clause. then may be sufficient a. Commercial Credit Corp. The burden of establishing lack of good faith is on the party against which the power has been exercised. atty did not define insecurity as a default. Could the seller here make use of 2-609? i. & Mrs. when decide insecure. One month Repossession Finance had had enough.: pg. and it sent a man out who took the car (using a duplicate set of keys) from the parking lot of the factory where Natty worked. had to accelerate but had to call the debtor and tell them that they have the option to return the full amount owed or give back car. (which perfected its interest in the car). 1-201(a)(20) Good Faith – honesty in fact and the observance of reasonable commercial standards of fair deal – objective standard Problem 125 pg 287 When Mr. The SA provided that "time was of the essence" (any type of late pyt is considered breach) and that the acceptance by the finance co. Natty always paid 10 to 15 days late. at its option. NM has the right to request adequate assurances if reasonable grounds for insecurity b. (a) A very bad financial quarter for NM? No 2. Has a default occurred? See §2208 • 1-103(b) says that CL applies unless code says otherwise. & Mrs. 292 Natty Birdwhistle bought a car w/ $ borrowed from Repossession Finance Co. accelerated and repossessed the car. well-known bankruptcy atty? If yes.
Has a breach of the peace occurred? o No. here no confrontation.(b) Don showed up at M’s house accompanied by his brother (an off-duty sheriff who was wearing his Sheriff’s uniform).(a) Don Jose found E’s car parked in his driveway at 2:00 a. When the time came to pick up the car. 2d 557 (could be conversion) 111 .• • Courts will refuse to let creditors change conduct at will. which will undue the waiver. M brought the car in that morning. and drove it away. even when biz w/ sophisticated debtor (large business). Fowler Toyota. Don told M he was repossessing the car and she said nothing. he broke a car window. rushed out. and answer this question: Is Carmen Motors required to give the debtors notice that they are in default before repossessing? . creditor is liable for anyone it hires to repo) • Debtors can sue in tort for breach of the peace (here they sued for trespass) Problem 127 pg 299 Don Jose was in charge of repossession for Carmen Motors.m. and M) were to be picked up bc the buyers had missed payments. which courts hate) – see 463 P2d 651 (constructive force was used where officer actually participated in the repossession by saying “we come to repossess the tractor”) . debtor/obligor cannot waive the rule that creditor has the duty to exercise its right to self-help peaceably and this was probably a breach of the peace – see 872 NE2d 1039 o Courts say that entering a debtor’s structure is usually going too far = breaching the peace . late at night.e. 2-209(5) – make written demand saying no more late pyts. Don smiled and said “April Fool. you waive your right to repossess bc of that. The garage lock and door were undamaged. Don must quit bc he is breaching the peace but he may try again on another day – see 668 P2d 183 (coming back after a period of 1 month was ok when no breach of the peace occurred that time) . Is the repossession valid? See 213 SE2d 475 (lawful to use trickery in this case so no breach of the peace) and 351 So.(d) Don calls M and said that the car was being recalled bc of an unsafe engine mount. If you accept many late pyts. One Monday morning the dealership told him that cars owned by 4 debtors (E. Look at 9609. under 9-602(6).: pg 293 Repo man broke into debtor’s fenced in lot to repo his car breach of the peace! Rule: Creditor has a nondelegable duty to exercise its right to self-help by repossessing the secured collateral w/o breach of the peace (i. A clause in the K provided that the SP had the right to enter the debtor’s premises to remove the prop. Inc. no one tried to stop him from taking the car – see 560 SE2d 557 o What if E heard the window break. M. Don broke into Z’s garage through the use of the services of a locksmith. it’s been repossessed!” and refused to return it. and began yelling? May Don continue the repossession or must he quit? May he try again later if he goes away? Yes. Has a breach of the peace occurred? o Yes bc even though there was no evidence that the officer actually said or did anything he is still in uniform (fraudulent use of public official. Williamson v. look at the totality of the circumstances objectively to determine whether a breach of the peace has occurred. Does the repossession comply w/ 9-609? See 9-602(6).(c) When no one was at home.No notice is necessary unless you give debtor the right to the notice – 9-609(b)(2) Don Jose visited each of the debtors with the following results: . Z.. hot-wired the car. 872 NE2d 1039 o No..
disturbs the peace and quiet of the community • Only need a threat of altercation to breach the peace Court deemed the retaking of P’s cattle as a breach of the peace based on the facts listed on pg 303 in the 3rd to last paragraph of the case Problem 128 pg 303 ONB financed Melody’s purchase of a new car. in which it perfected its SI. Is Chambers in violation of A9? . or by any act likely to produce violence. When Wonder missed 2 payments in a row. and N shows up at ONB to surrender the vehicle. and ONB’s agent took the car in the dead of the night from its parking place in front of her home.o Answer: valid repossession (maybe) Hillman v Cobado: pg 300 Creditor seized the collateral (cattle) and did not listen to the debtor’s pleas or a Sheriff telling him to stop herding the cattle Rule: breach of the peace – it is a disturbance of public order by an act of violence. creditor does not have a duty to retake possession in lieu of other default remedies – see 490 F. May ONB decline to take it and instead sue N for the debt? . . so he rapidly and safely returns them and the vehicle to their parents. see 267 SW3d 386.”) See 9-404(a). or which by causing consternation and alarm. ONB defended on the basis of the SA’s exculpatory clause.Yes the bank may do this – comment 2 to 9-607 If the spa stops opening its doors. ONB looked there but couldn’t find the clubs. M missed a payment. ANB notified the spa’s customers that future payment should be made directly to the bank.Yes bc their obligations will not be discharged if they don’t pay ANB after they received the notification – 9-404(a) 112 . She protested the next day. the bank had all the rights listed in part 6 of A9 of the UCC and that the parties agreed that the bank would not be liable for conversion or otherwise if there were other items in the car at the time it was repossessed. When she sued.Yes. claim that the golf clubs were in the trunk. Does the bank have this right? Read 9-607 and its Official Comment 2. Less than 1 minute later. .No – see 324 F Supp 108 Problem 129 pg 303 Chambers quietly repossesses a Ford Expedition. Problem 130 pg 303 ONB declares default on N’s car loan. 2d 536 Problem 131 pg 304 Wonder Spa gave ANB a SI in its accounts receivable and chattel paper in return for a loan. need its former customers keep paying ANB? (The spa Ks did not mention the possibility that the Ks would be assigned.Yes. Supp. which was sitting w/ its motor running on the street.No – see 503 SW2d 853 If ONB finds the clubs and returns them promptly on her demand. is the bank still guilty of conversion? . Is it valid? . see 9-406(c). The loan agreement provided that on default. he realizes that there are two children in the backseat.
had repossessed Lynn’s car. the sale would have brought in enough to pay creditor off – presumption of no deficiency o Shifts burden of proof to the creditor • 9-625: entitles debtor to any actual damages that can be proved.9-610: Dispo of Collateral After Default After creditor repossesses.e. it must be a reasonable time. or o No partial satisfaction for consumer Ts o Can have partial satisfaction for non-consumer Ts o 60% . which is usually minimal o Punitive damage remedies: (c)(1): only for consumer debtors o (e) Auto $500 when creditor doesn’t comply w/ certain A9 rules Problem 132 pg 306 After Nightflyer Loan Co. but it needs to be more than 10 days – 9-612 What should the notice say? 113 .Public bc it was advertised in a medium that the public had access to – 9-610 Official Comment 7 How much in advance of the resale must she be given notice? 9-611 and 9-612 .anytime consumer has paid 60% or more of obligation = no strict foreclosure o Creditor has to notify the debtor and other creditors that would’ve received notice under 9-611 (other creditors/claimants that may have an interest) Creditor must then wait 20 days & if someone objects w/n that time = creditor has to sell • Sell the collateral and collect deficiency o Sale must be commercially reasonable – 9-610(b) Q of fact – 9-612 Creditor can do a public sale or private sale 9-611: Notice must be given to debtor regarding the sale • Need time and place of public sale • Private sale: creditor cannot buy from itself unless price is set by the market • Content of notice 9-613 for non-consumer Ts. Is this a private or a public sale? . such as rights to notice of the sale Damages: • 9-626: Rebuttable Presumption Rule o Presume that had creditor not committed the violation.. it can • Take the collateral in full satisfaction – strict foreclosure. waivers in the SA are not good). which is a Q of fact. it decided to advertise it for bids in a local newspaper. 9-614 for consumer Ts How $ is applied after sale – 9-615: • 1st – pay off expenses from the sale 9-627 how to do the sale right Waiver: • 9-602: rights that are not subject to waiver except for what is stated in 9-624 • 9-625: rights that can be waived by a writing and the waiver has to entered into after the default (i.Bc this is a consumer T.
The Millers got Mrs. S) to sign a surety. so bc the creditor did not give a calculation. The bank sent its collection agent. out to the restaurant. provides sufficient info After the resale. and filed a FS. He sent a written notice to Mr. Mr. Nightflyer simply sent her a statement saying that the amount she now owed was $3. C sent a written notice to Mr. the cited cases stated that that was sufficient even though debtor did not know the physical location of where the auction was conducted – see 903 NE2d 525 Problem 133 pg 306-07 Mr. Mr. however.Taken into consideration but not in and of itself enough to prove that the creditor’s collection. if she does recover under 9-626. Mr. which also took a SI in the restaurant’s equip.? . What are her rights here? . for advice. debtor can receive damages under 9-625(c) & (e) The price obtained at the resale seems suspiciously lower to her. C. L (the stock owner). can she also get actual damages for the harm they have caused her? . telling him that the stock would be sold on the open market (no specific date given) and that the restaurant equip would be sold at public auction on 12/1 at the offices of CCA. when completed. The bank did. Can they do that? . dispo.Yes. Miller’s cousin. Miller’s father (Mr. and (3) pledged to the bank add’l collateral having a value of 20k or more. L. they signed the SA. or acceptance was made in a commercially reasonable manner – 9-627(a) She suspects that the reason the sale brought so little is that the only bidder was Nightflyer itself. The restaurant then became involved in an unfortunate food poisoning incident. would it be sufficient to give notice of the Web address of the auction and the physical address of the action co. How relevant is that? . the Millers borrowed another 5k from NCU.200. enforcement. and a phone # or mailing address from which additional info concerning the dispo and the obligation secured is available o No particular phrasing in the notification is required – 9-614(2) o 9-614(3) example of a form of notification that.- Info from 9-613(1): description of any liability for a deficiency of the person to which the notification is sent. unless she recovers under 9-626 (action in which deficiency or surplus is in issue).Yes. Miller decided to open a restaurant. and he repossessed the assets he found there. The stock was registered in L’s name at the time it was pledged to the bank. and biz fell of dramatically. but the bank had it reregistered in the bank’s name so that it could be sold easily in the event of default. Subsequently. She is unsure how Nightflyer came up w/ this figure. Miller (who he knew was now living at a hotel). S (the surety) and told him the same thing. phone # from which the amount that must be paid to the SP to redeem the collateral under 9-623 is available. her atty/cousin. and they borrowed 20k worth of stock from Mr. so they went to ANB. and Mrs. Mr. file its FS in the appropriate office. C phone Mr. for which purpose they needed 80k. thereby not complying w/ A9. and comes to you. she cannot recover damages for noncompliance under 9-625(b) – see 9-625(d) If the car were to be sold in an Internet auction. which agreed to loan them $ if they (1) received a surety.Debtor should have been given an explanation of the calculation (9-616(a) & (b)).Debtor has the burden to show that what the SP bought it for was significantly below the range of prices that a complying dispo to a person other than the creditor would have brought – 9-626(a) If she succeeds in reducing the amount she owes. (2) signed an agreement giving the bank a SI in the restaurant’s equip and inventory. The Millers (who were in the midst of divorce) missed 2 payments on the loan. but the letter came back 114 .
9-611(d) o How about the sale of the equip? Yes notice was required . must be commercially reasonably • Good faith and commercially reasonable depend on the facts of each case • Burden: the SP has the burden of proving that the sale was commercially reasonable • Factors that may be measured when determining commercial reasonableness: o Type of collateral involved.(a) Is a surety entitled to a notice under 9-611? Yes bc he is a secondary obligor – 9-611(c).(c) Is the notice sent to Mr.9-611(c) o If no notice was sent to NCU before the equip was sold. Inc.(e) If the restaurant equip is also named as collateral in a junior filed FS. S for the deficiency. assume that he knew Mrs. time.(f) Who has the burden of proof as to the commercial reasonableness of the sales? SP – 9-626(a)(2) .(h) When a SP repossesses goods and sells them at a foreclosure sale.(d) Does 9-611 require the creditor to whom a notice is returned by the post office to take further steps to notify debtor? It is up to judicial resolution to decide whether. C? Yes – see 2-403(1). Miller. and the latter’s official comment 11 (to 9-610) R & J Tennessee. . o # of bids solicited. will this give rise to the A2 sales warranties being made to the purchaser at the sale? Yes – see 2-312. manner. must the bank notify that SP of the resale? Yes – see 9-611(c) and (e) . has a public sale occurred. based upon the facts of each case.: Issue of good faith disposition of collateral and what is “commercially reasonable. . Inc. Was Mr. did Mr. C w/ Mr.marked “Moved – No Forwarding Address. was it commercially reasonable? No public sale bc the public did not have a meaningful opportunity for competitive bidding – 9-610.500 total) to ANB. 9-102(a) (71). and 115 . Mr. L’s new address. o Condition of the collateral. Miller? No bc he knew that Mr. which then brought suit against the Millers and Mr. place. and other terms. either Mr. Layden a debtor too? Yes – comment 2 to 9-102. the requirement of reasonable notification requires a “second try” . o Purchase price received or the terms of the sale. Is he a debtor? No. v. 9-610(d) & (e). Stuhldreher satisfy 9-611(b)? No bc it was oral = cannot be authenticated. C himself take free of its SI when he bought the equip at the foreclosure sale? No he did not take free of the SI .9-617.” If asked. o Time & place of sale. Miller sufficient as to Mrs. Miller wouldn’t get notice – 291 NE2d 180 . including the method. and if so.(g) If Crowley had given the equip sale no publicity. Miller would’ve supplied Mr. therefore. C himself was the bidder. Did the buyer from Mr. or Mrs. C sold the stock for 10k on the open market (that was its current selling price) and auctioned off the restaurant equip on 12/1 for $500 (only one bid was received – Mr. C turned over the proceeds from the 2 sales (10. Official comment 7 .” Rules: • SP is not required to prove that the secondary obligor actually received the notice • Two standards for sales of collateral: o In exercising his rights upon default the SP is bound by the good faith requirement application throughout the UCC o Every aspect of a dispo of collateral. Answer these Qs: . Does the oral notice to Mr.(b) Were any parties entitled to notice of the stock sale? No bc stock is not the type of collateral requiring notice . he later resold the equip to other restaurants for 10k). Blankenship-Melton Real Estate. Mr. Miller lived in a hotel away from Mrs.
Answer these Qs: • (a) Was the notice period too short? Yes bc it was the next day instead of 10 days or more afterwards – 9-612 • (b) Is the SP required to wash the collateral prior to sale? May not be required to wash it if it was in that condition when the SP repossessed it. Also. May it still sue her for the deficiency? 116 . Can guarantors (as opposed to the primary debtor) waive these rights? • Debtor’s waiver restrictions also apply to obligors – see 9-602 and official comment 4 Problem 136 pg 324: Façade Motors (FM) granted a SI in its inventory to ONB. the sale was conducted in a snowstorm in an inconvenient place using methods not designed to produce the best results. all the rights that debtors have when the creditor seizes the collateral and resells it. How should you do this? • You shouldn’t – see 9-602(6). & (9) and its official comment 2. Must Nightflyer somehow account to ONB for the proceeds of the resale? • No – see 9-608 and its official comment 5. the senior likewise may recover the collateral from the transferee – see official comment 5 to 9-610. 9-610(d) & (e) – regarding warranties in dispo and disclaiming them Problem 137 pg 325: Façade Motors repossessed the car that Portia Moot used in her law practice but failed to send her any notice of the foreclosure sale. its SI ordinarily will survive the dispo by the junior and continue under 9-315. (8). which duly perfected by filing a FS in the proper place.o Any special circumstances involved. The equip sold for very little (there was only one bidder. to get short-term credit. 343 • (c) Did it violate 9-610(b) to conduct the sale in the snowstorm? Depends. BSB sued BO for the amount still due. (7). which brought only half the amount she still owed on the car. the snowstorm is a relevant factor but may not be enough in and of itself to violation 9-610(b) – see 540 F2d 1375 (The trial court found that it was not commercially reasonable in this instance to proceed to sell it as one unit. official comment 5 to 9-610 Does the buyer at the resale take free of the SI of the senior creditor? • No. and he complained that it was hard to know the condition of the equip bc it was so dirty. unless the senior SP has authorized the dispo free and clear of its SI.) Problem 135 pg 324: When you explained to your client. note 9-617 – good faith purchaser takes free. asked you to draft a clause in the SA waiving these rights.. The sale was held the next day in the middle of a snowstorm. Nightflyer repossessed the inventory and sold it. the president of the co. being covered w/ mud from the backwoods). if the senior enjoys the right to repossess the collateral from the debtor. the fact that they did not wash it is evidence relevant to commercial reasonableness – see 274 Or. Subsequently FM granted an identical SI to Nightflyer Finance Co. Problem 134 pg 324: The Bunyan State Bank (BSB) held a perfected SI in the logging equip of the Blue Ox Timber Co. When FM failed to repay the 2nd debt. BSB repossessed the equip. When BO defaulted on its loan repayment. Repossession Finance Co.
• Yes but it will have to prove that the dispo complied w/ the rules if debtor brings a notice issue (which it should). or to interest potential purchasers in the sale.: D repossessed P’s car and requested a deficiency to be paid. to challenge any aspect of the dispo before it is made. if unable to meet this burden. the deficiency will be calculated under 9-626(a)(3) – see 9-626(a) and its Official Comments What are Portia’s rights? • 9-625(a) – seek a judicial restraint on the disposition o (b) receive damages o (c) look to (b) o (d) other statutory damages – doesn’t apply here o (e) doesn’t apply here If Portia had purchased the car for her personal use. what is the rule? • It is up to the courts to determine the proper rules in consumer Ts – see 9-626(b) • Why would the drafters have done this? o Coxall v Clover Commercial Corp. Rules: SP who chooses to sell the collateral must meet 2 overriding reqs: • A reasonable authenticated notification o Purpose is to give the debtor an opportunity to protect his interest in the collateral by exercising any right of redemption or by bidding at the sale. Court looked at reasonable notice and commercial reasonableness. all to the end that the merchandise not be sacrificed by a sale at less than the true value o Timeliness: 9-612 Question of fact Can be only 10 days before dispo if non-consumer T Here – consumer T & notice was sent on 2/20 for dispo on 3/3 • 11 days wasn’t timely w/ no evidence that required a prompt sale Post Office-Stamped Certificates of Mailing are sufficient to establish that the notice is sent First Class w/ Cert of Mailing is a manner of service that is “commercially reasonable” o Contents of notification: Consumer T – a notification that lacks any of the prescribed info is insufficient as a matter of law Non-Consumer T – a notice that does not include all the prescribed info may still be found sufficient as a matter of law • The sale must be commercially reasonable (CR) o Fact intensive inquiry and D did not present any evidence of commercial reasonableness o Private dispos are encouraged bc they bring higher sales – Comment 2 to 9-610 o Dipso of collateral is made in a CR manner if it is made in conformity w/ reasonable commercial practices among dealers of the type of prop that was the subject of the dispo – 9-627(b) o NY courts – need to act in good faith and to the parties’ best advantage 117 .
He took the trip and on his return made the 1st payment on time. and the next day the bank repossessed the yacht. which he tendered. • Need P pay off everything? o If they are letting him redeem even though they have already collected the collateral (yacht) then yes – 9-623 and its comment 2 Problem 139 pg 338: Art Auctions.o SP has the burden of proving commercial reasonableness when seeking a deficiency from the debtor o A low price by itself is not sufficient to establish that the dispo was not CR. P raced to the bank w/ the late payment. A. a famous artist. the annual percentage rate was 18%. the statute is silent as to whether double recovery or other overcompensation is possible in consumer Ts o See 9-625 Comments (3) & (4) • P/debtor may be entitled to the value of the personal prop that was contained in the vehicle when it was possessed if debtor introduces admissible evidence regarding that prop Holding: court found for P in this case bc the notification was not reasonable and the sale was not CR Problem 138 pg 337-38: When Paul Morphy (P) borrowed $2k from the Lasker State Bank (LSB) in order to finance a trip to Iceland. pointed to an acceleration clause in the SA that made the entire amount due if a payment was missed. could resell it and sue for the deficiency. the bank made him sign an agreement giving the bank a SI in P’s private yacht. at its option. He failed to make the 2nd payment on the due date. The bank refused to take the $. The bank’s loan officer. (AAI). but the court will scrutinize the dispo more carefully – Comment 9-627 • Deficiency: o 3 Approaches: Absolute Bar: no recovery of deficiency where noncompliance by the SP • Adopted by A9 for consumer Ts Offset: debtor can offset against a claim to a deficiency all damages recoverable under former 9-507 resulting from the SP’s noncompliance Rebuttable Presumption: noncomplying SP is barred from recovering a deficiency unless it overcomes a “rebuttable presumption” that compliance would have yielded an amount sufficient to satisfy the secured debt • Adopted by A9 for non-consumer Ts • Damages: o Damages for violation of the reqs of the statute are those reasonably calculated to put an eligible claimant in the position that it would’ve occupied had no violation occurred – comment 3 to 9625 o Exceptions/Limitations: A debtor whose deficiency is eliminated or reduced under 9-626 may not otherwise recover for noncompliance w/ the provisions relating to enforcement • Eliminates double recovery or other overcompensation • Bc 9-626 doesn’t apply to consumer Ts. Dudley made 3 118 . He had $200 in cash. Inc. The K contained a clause saying that in the event of default. He agreed to repay the loan at the rate of $200 a month. sold Dudley Collector a $5k painting by Smock Pallet. The finance charge was $151. A demanded the total unpaid balance.20. Dudley paid $1k down and agreed to pay over $1k a month thereafter. AAI could repossess the painting and keep it w/o reselling it or.
in a consumer T. must sell the collateral in its regular course of biz in compliance 9-610 (Dispo of collateral after default rules) • SP in possession has 2 options upon the default of the debtor: o SP may sell the collateral but if the SI secures any indebtedness. w/o notice.” Dudley immediately tendered the $1k to AAI and demanded the painting. being temporarily short of funds. though debtors said they didn’t get any notices but the case assumed proper notice was given and neither objected w/n 30 days. could AAI have sent him a proposal that it would keep the painting and forgive half the remaining debt only? • No. in conformance w/ 9-620. then did nothing w/ the collateral except let it sit in a storage room for 17 months. (RFC) declared a default and repossessed all the office equip of atty Moot. “thank you. What is the basis of his cause of action? • Failure to comply w/ 9-620(e) & (f) by not disposing of the prop w/n 90 days after taking position bc 60% of the cash price had been paid – see 9-620(e) & (f) • What relief is he entitled to? o Damages for any loss suffered for noncompliance w/ A9 – see 9-625(b) o Damages under (b) and may recover for that failure in any event an amount not less than the credit service charge plus 10% of the principal amount of the obligation or the time-price differential plus 10% of the cash price – see 9-625(c) If Dudley had made only one payment and then defaulted. Foutz & Tanner. 4 months later. Dudley’s teenage son let the agent in. Inc. Finally.more payments and then missed the last one. Dudley filed suit. and he simply removed the painting from the wall and walked out saying. the co. Rules: • SP who sends a notice of intent to retain collateral. sent one of its agents to Dudley’s home. RFC had constructively elected strict foreclosure and had forfeited any right to a deficiency. causing AAI to repossess.: Debtors received a loan and put up collateral that was for 3x the amount of the loan (over-collateralized). Is this correct? • No. AAI. She defended by arguing that actions speak louder than words and that. SP must consent to the acceptance in an authenticated record or send a proposal to the debtor. as allowed by the SA. and meet the conditions of 9-620 – see 9-620(b) and comment 5 o Delay only relates to whether the SP acted in a commercially reasonable manner for purposes of 9-607 and 9-610 – see Official Comment 5 to 9-620 Reeves v. Creditor sold the jewelry but gave no account to Ps of any surplus. Creditor took possession of the collateral. in effect. Debtors defaulted and creditor sent out notices of intent to retain the collateral. a SP may not accept collateral in partial satisfaction of the obligation it secures – see 9-620(g) Problem 140 pg 338-39: When Repossession Finance Co. by doing nothing for such a long period. it conducted a resale w/ appropriate notices and then sued Moot for the deficiency. AAI refused (the painting is now worth $7k). he must account to the debtor for any surplus in conformity w/ 9-610 (and debtor must account for any deficiency) This case – creditor should have given an accounting for the surplus! o SP can retain the collateral in satisfaction of the obligation Must give written notice to debtor if intends to keep the collateral in satisfaction of debt • Debtor is then given 30 days to object to the proposed retention and require sale of the prop according to 9-610 119 .
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