Commercial Law

Problem 125: After Lorenzo (from last problem) acquired the note, he sold it for $1,800 to Portia, a local attorney. She had no notice of problems with the instrument. When she presented it to Manny for payment, he refused to pay and instead filed for bankruptcy. May she recover from Alfred? If she does & prevails, Alfred will reacquire the instrument (he must get it back otherwise he cant sue and doesn't get back original HIDC rights). Does the shelter rule give him Portia's HIDC rights? Does Alfred reacquire his HIDC status when he gets the instrument back? Could he sue Jessica or Lorenzo?

Problem 125: After Lorenzo (from last problem) acquired the note, he sold it for $1,800 to Portia, a local attorney. She had no notice of problems with the instrument. When she presented it to Manny for payment, he refused to pay and instead filed for bankruptcy. May she recover from Alfred? Yes. When he indorses is, he is providing warranties. Portia is a HIDC against both Manny & Alfred; Alfred would have to pay her & get back the note. If she does & prevails, Alfred will reacquire the instrument (he must get it back otherwise he cant sue and doesn't get back original HIDC rights). Does the shelter rule give him Portia's HIDC rights? No, he is HIDC but not against the subsequent assignees like Jessica, Lorenzo, and Portia. Does Alfred reacquire his HIDC status when he gets the instrument back? Yes. Could he sue Jessica or Lorenzo? No. He could probs be able to sue HJ because they warrantied when they sold the note to alfred

Problem 317: When you sign up for a credit card the agreement will often have this clause: "Cardholder hereby grants the issuer a security interest in all goods purchased on your account." Does this sufficiently describe the law books you subsequently buy with the card?

Problem 317: When you sign up for a credit card the agreement will often have this clause: "Cardholder hereby grants the issuer a security interest in all goods purchased on your account." Does this sufficiently describe the law books you subsequently buy with the card? NPA, Murphy says yes because the credit card records could identify the goods; Cunningham said no because those records were not part of the security agreement.

Problem 319: The SA & the FS both described the collateral as "inventory." Does this limit the SI to existing inventory only, or does the SI extend to replacement for the original collateral? If the SA had said "inventory now owned or after acquired" but the FS simply mentioned "inventory" does this perfect an SI in after-acquired inventory?

Problem 319: The SA & the FS both described the collateral as "inventory." Does this limit the SI to existing inventory only, or does the SI extend to replacement for the original collateral? Extends to the replacement. If the SA had said "inventory now owned or after acquired" but the FS simply mentioned "inventory" does this perfect an SI in after-acquired inventory? Yes, but only an idiot would not also include after-acquired in FS.

Problem 338: When attorney Sam Ambulance handled a divorce for a client, he incurred the wrath of her ex-husband, Andrew Anarchist, president of the Freeman Common Law Movement, a group that did not recognize the authority of the state or federal government. The irate ex-spouse filed 42 phony financing statement in the public records to show that all of Sam's assets were security for various non-existent loans in favor of Anarchist, the secured party of record. What can Sam do to clear up these clouds on his title to his property (which the common law would have regarded as defamation)?

Problem 338: When attorney Sam Ambulance handled a divorce for a client, he incurred the wrath of her ex-husband, Andrew Anarchist, president of the Freeman Common Law Movement, a group that did not recognize the authority of the state or federal government. The irate ex-spouse filed 42 phony financing statement in the public records to show that all of Sam's assets were security for various non-existent loans in favor of Anarchist, the secured party of record. What can Sam do to clear up these clouds on his title to his property (which the common law would have regarded as defamation)? Sam can file a correction statement explaining his side of things and put them in the record 9-518.

Problem 401: When Rosetta Stone bought a new car from Champollion Motors, Inc., she traded in her 5-year-old car, made a $200 down payment by giving the dealer her check, and signed a promissory note for the balance payable to the dealership. Rameses National Bank had a perfected security interest in Champollion Motors' inventory. Does that security interest continue in the car once it is delivered to Ms. Stone? §9-320(A). Under §9-315(a) the bank's security interest will continue in proceeds, as defined in subsection (1). What are the proceeds of the car sale? Is the attachment of the creditor's security interest in the proceeds automatic, or must they be claimed in the original security agreement? See §9-320(f). If this question were about perfection: §9-315: a perfected SI in proceeds becomes unperfected on the 21st day after the SI attaches to the proceeds unless the (1) following conditions are satisfied: A filed financing statement covers the original collateral The proceeds are collateral in which a security interest may be perfected by filing in the office in which the financing statement has been filed and The proceeds are not acquired with cash proceeds (2) the proceeds are identifiable cash proceeds [the check] or The security interest in the proceeds is perfected when the SI attaches to the proceeds or within 20 days thereafter.

Problem 401: When Rosetta Stone bought a new car from Champollion Motors, Inc., she traded in her 5-year-old car, made a $200 down payment by giving the dealer her check, and signed a promissory note for the balance payable to the dealership. Rameses National Bank had a perfected security interest in Champollion Motors' inventory. Does that security interest continue in the car once it is delivered to Ms. Stone? §9-320(A). No, she is a buyer in the ordinary course of business under 9-320(a). Under §9-315(a) the bank's security interest will continue in proceeds, as defined in subsection (1). What are the proceeds of the car sale? The proceeds are the car, the $200 down payment, the promissory note making the balance payable to the dealership, the check, the paper the note is written on. Is the attachment of the creditor's security interest in the proceeds automatic, or must they be claimed in the original security agreement? See §9-320(f). It is automatic, but for non-cash proceeds, lapses after 20 days if the bank has not filed a financing statement covering the original collateral. If this question were about perfection: §9-315: a perfected SI in proceeds becomes unperfected on the 21st day after the SI attaches to the proceeds unless the (1) following conditions are satisfied: A filed financing statement covers the original collateral The proceeds are collateral in which a security interest may be perfected by filing in the office in which the financing statement has been filed and The proceeds are not acquired with cash proceeds (2) the proceeds are identifiable cash proceeds [the check] or The security interest in the proceeds is perfected when the SI attaches to the proceeds or within 20 days thereafter.

Problem 101: Do the following clauses in a promissory note create bearer paper? "theif paper" where anyone can cash it. (a) "Pay to John Smith." (b) "Pay to the order of John Smith or bearer." (c) "Pay to bearer." (d) "Pay to the order of Cash." (e) "Pay to a Merry Christmas."

a. No. because it's a specific person and not everyone can cash it and also is dors not say "I promise to pay" which is needed for a promisory note. b. Yes. Because it says both and bearer instrument always overrides the specific promisorry note. If stated and both are on there its bearer. c. Yes. d. Yes. Statutue says 3-109 "if it states is is payable to or to the order of cash" e. Yes, 3-109(a): it is not payable to an identified person.

Problem 3: Are the following persons merchants? (a) Amanda, who quit her teaching job on Friday and on Monday opened a hat store? Tom Tiller, a farmer selling his produce to a wholesaler?

a. Yes, you are a merchant even 1st day, whether or not you know anything. Not clear if farmer counts. Depends on amount and frequency, but likely yes

Problem 261: Titanic Telephone Company (TTC), Inc. called up the Pronto Printing Corporation (PPC) and asked Felix Pronto (founder & president) if PPC would run off 100 more of the $100 TTC bearer bonds PPC had printed in the past. PPC had previously printed 1,000 of these bonds and still had the plates. The bonds had the facsimile signatures of the TTC president, secretary, and authenticating trustee already printed on them. Felix agreed & called up Happy Clatter, the chief printer, and told him to run off 100 more of the bonds and send them by messenger to TTC. Happy ran off 200 of the bonds. He sent 100 by messenger to the offices of TTC, and he sent the other 100 as a Christmas present to his mother in Twin Falls, Idaho. Eventually the latter bonds turned up as the property of Bing, Bong, & Bell Brokerage, a purchaser for value without notice of anything unusual, which presented the bonds to TTC for payment of the interest due that year. Titanic Telephone comes to you for advice. It doesn't know whether it should treat the bonds as valid or not and is afraid that if it pays the interest, TTC's stockholders will bring suit agst TTC's officers for misusing corporate funds. Give TTC your opinion as to whether the law requires TTC to honor the bonds.

Problem 261: Titanic Telephone Company (TTC), Inc. called up the Pronto Printing Corporation (PPC) and asked Felix Pronto (founder & president) if PPC would run off 100 more of the $100 TTC bearer bonds PPC had printed in the past. PPC had previously printed 1,000 of these bonds and still had the plates. The bonds had the facsimile signatures of the TTC president, secretary, and authenticating trustee already printed on them. Felix agreed & called up Happy Clatter, the chief printer, and told him to run off 100 more of the bonds and send them by messenger to TTC. Happy ran off 200 of the bonds. He sent 100 by messenger to the offices of TTC, and he sent the other 100 as a Christmas present to his mother in Twin Falls, Idaho. Eventually the latter bonds turned up as the property of Bing, Bong, & Bell Brokerage, a purchaser for value without notice of anything unusual, which presented the bonds to TTC for payment of the interest due that year. Titanic Telephone comes to you for advice. It doesn't know whether it should treat the bonds as valid or not and is afraid that if it pays the interest, TTC's stockholders will bring suit agst TTC's officers for misusing corporate funds. Give TTC your opinion as to whether the law requires TTC to honor the bonds. Yes, TTC must honor the bonds. (8-205)

Problem 306: The state of Montana has enacted a statute giving unpaid crop dusters a lien on the crops of the farmer. This is a statutory lien. Is this an Art. 9 transaction requiring compliance with the usual Art. 9 rules?

Problem 306: The state of Montana has enacted a statute giving unpaid crop dusters a lien on the crops of the farmer. This is a statutory lien. Is this an Art. 9 transaction requiring compliance with the usual Art. 9 rules? Yes, it is an agricultural lien.

Problem 316: Sale of 20 cows. Each certificate stated the name of the cow, and included a sketch of the cow with distinctive markings. In the FS, only defined cows by ear tag ID numbers, but the tags were mismatched and not marked correctly. Did the financing statement sufficiently describe the 20 cows?

Problem 316: Sale of 20 cows. Each certificate stated the name of the cow, and included a sketch of the cow with distinctive markings. In the FS, only defined cows by ear tag ID numbers, but the tags were mismatched and not marked correctly. Did the financing statement sufficiently describe the 20 cows? Baker says yes. Because of the industry standard and the fact that there was enough information to positively identify the cows.

Problem 96: The promissory note contained this clause: "The collateral for this note is a security interest in the maker's art collection; for rights and duties on default, see the security agreement signed this day creating the security interest." Does this clause destroy negotiability?

No. Security & acceleration is ok bc it cant hurt the holder; the rights & duties only affects the parties to the original , the note isn't saying its subject to the rights & duties. - Promise to pay is unconditional and there is collateral for security interest that in the event there is default. - It does not destroy negotiability a security interest does not destroy but it still shouldn't be on the same note but can. Although there are other reasons you don't ant not have it all in the same document "not"

Problem 320: The FS's description said "various equipment, see attached list." No list was attached. Is the FS sufficient to perfect the SI in the debtor's equipment?

Problem 320: The FS's description said "various equipment, see attached list." No list was attached. Is the FS sufficient to perfect the SI in the debtor's equipment? Chase said no.

Problem 321: The SA stated that the collateral was "machinery, equipment, furniture, & fixtures." To this list the FS added "inventory & accounts receivable." The parties are all willing to testify that the loan was intended to be secured by inventory & accounts receivable as well as by the items listed in the SA. Other creditors object. Does the secured party's interest reach inventory & accounts receivable?

Problem 321: The SA stated that the collateral was "machinery, equipment, furniture, & fixtures." To this list the FS added "inventory & accounts receivable." The parties are all willing to testify that the loan was intended to be secured by inventory & accounts receivable as well as by the items listed in the SA. Other creditors object. Does the secured party's interest reach inventory & accounts receivable? No, in Martin the bank lost $233K. Prof put NPA; it's a policy discussion. 2 arg: argument is easy to comply; that's close enough, the new creditors were on notice, debtor would say the SA includes the FS.

Problem 349: Jay Eastriver ran a clothing store and needed money. He went to 2 banks, the First National Bank and the Second State Bank, and asked each to loan him money using his inventory as collateral. They each made him sign a security agreement. First National Bank filed its financing statement first, on Sept. 25, but did not loan Eastriver any money (nor did it make any commitment to do so) until Nov. 10. On Oct. 2, Second State both loaned Eastriver the money and filed its financing statement. Eastriver paid neither bank. Answer these Qs: Did both banks have a perfected SI, assuming they filed in the proper place? That is, is it possible for 2 creditors to have perfected SIs in the same collateral? Remembering that attachment is a prerequisite to perfection, §9-308, and that attachment cannot occur until the creditor gives value, decide which bank has the superior right to the inventory. If Second State Bank had knowledge of the transaction btwn Eastriver & First National at the time it perfected, does that affect its priority? Suppose First National bank had filed its financing statement before the debtor signed the SA. Then Second National Bank filed an authorized financing statement. Next, the debtor signed its SA with First National Bank, which authorized FNB to file a financing statement against the debtor's property. Which bank would have priority?

Problem 349: Jay Eastriver ran a clothing store and needed money. He went to 2 banks, the First National Bank and the Second State Bank, and asked each to loan him money using his inventory as collateral. They each made him sign a security agreement. First National Bank filed its financing statement first, on Sept. 25, but did not loan Eastriver any money (nor did it make any commitment to do so) until Nov. 10. On Oct. 2, Second State both loaned Eastriver the money and filed its financing statement. Eastriver paid neither bank. Answer these Qs: Did both banks have a perfected SI, assuming they filed in the proper place? That is, is it possible for 2 creditors to have perfected SIs in the same collateral? Yes. We would look at the filing to see who did it first. Its possible you had a perfection by possession but that makes it complicated. Remembering that attachment is a prerequisite to perfection, §9-308, and that attachment cannot occur until the creditor gives value, decide which bank has the superior right to the inventory. First National Bank. Priority is determined by either perfection OR filing - 9-322(a)(1). If Second State Bank had knowledge of the transaction btwn Eastriver & First National at the time it perfected, does that affect its priority? No. we don't really care about knowledge we care about looking at financing statement and look to see order of filing, (who filed first) Suppose First National bank had filed its financing statement before the debtor signed the SA. Then Second National Bank filed an authorized financing statement. Next, the debtor signed its SA with First National Bank, which authorized FNB to file a financing statement against the debtor's property. Which bank would have priority? FNB.

Problem 419: Mr. and Mrs. Miller decided to open a restaurant, for which purpose they needed $80,000. They went to Apocalypse National Bank, which agreed to loan them the money if they (1) got a surety, (2) signed an agreement giving the bank a SI in the restaurant's equipment and inventory, and (3) pledged to the bank additional collateral having a value of $20,000 or more. The Millers got Mrs. Miller's father (Mr. Stuhldreher) to sign a surety; they signed the SA; and they borrowed $20,000 worth of stock from Mr. Miller's cousin, Mr. Layden. The stock was registered in Layden's name at the time it was pledged to the bank, but the bank had it registered in the bank's name so that it cold be sold easily in the event of default. The bank did, however, file its financing statement in the appropriate office. Subsequently, the Millers borrowed another $5,000 from Northbend Credit Union, which also took a security interest in the restaurant's equipment, and filed a financing statement. The restaurant then became involved in an unfortunate food poisoning incident, and business fell off dramatically. The Millers (who were in the midst of a divorce) missed two payments on the loan. The bank sent its collection agent, Mr. Crowley, out to the restaurant, and he repossessed the assets he found there. Mr. Crowley sent a written notice to Mr. Miller (who he knew was now living in a hotel), telling him that the stock would be sold on the open market (no specific date given) and that the restaurant equipment would be sold at public auction on December 1 at the offices of the Crowley Collection Agency. Crowley phoned Mr. Stuhldreher (the surety) and told him the same thing. He sent a written notice to Mr. Layden (the stock owner), but the letter came back marked "Moved—No Forwarding Address." If asked, either Mr. or Mrs. Miller would have supplied Crowley with Layden's new address. Crowley sold the stock for $10,000 on the open market (that was its current selling price) and auctioned off the restaurant equipment on December 1 for $500 (only one bid was received—Crowley himself was the bidder; he later resold the equipment to other restaurants for $10,000). Crowley turned over the proceeds from the two sales ($10,500 total) to Apocalypse National Bank, which then brought suit against the Millers and Mr. Stuhldreher for the deficiency. Answer these questions: Is a surety entitled to notice under 9-611? That is, is he a debtor? Was Mr. Layden a debtor too? Does the oral notice to Mr. Stuhldreher satisfy 9-611(b)? Were any parties entitled to notice of the stock sale? See 9-611(d). How about the sale of equipment? See 9-611(c). If no notice was sent to Northbend Credit Union before the equipment was sold, did Mr. Crowley himself take free of its SI when he bought the equipment at the foreclosure sale? See 9-617. Is notice sent to Mr. Miller sufficient as to Ms. Miller? Does 9-611 require the creditor, to whom a notice is returned by the post office, to take further steps to notify the debtor? Statute doesn't provide for additional notice but If the restaurant equipment also is named as collateral in a junior filed financing statement, must the bank notify that secured party of the resale? Who has the burden of proof as to the commercial reasonableness of the sales? If Crowley had given the equipment sale no publicity, was it commercially reasonable? When a secured party repossesses goods and sells them at a foreclosure sale, will this give rise to the Art. 2 sales warranties being made to the purchaser at the sale?

Problem 419: Mr. and Mrs. Miller decided to open a restaurant, for which purpose they needed $80,000. They went to Apocalypse National Bank, which agreed to loan them the money if they (1) got a surety, (2) signed an agreement giving the bank a SI in the restaurant's equipment and inventory, and (3) pledged to the bank additional collateral having a value of $20,000 or more. The Millers got Mrs. Miller's father (Mr. Stuhldreher) to sign a surety; they signed the SA; and they borrowed $20,000 worth of stock from Mr. Miller's cousin, Mr. Layden. The stock was registered in Layden's name at the time it was pledged to the bank, but the bank had it registered in the bank's name so that it cold be sold easily in the event of default. The bank did, however, file its financing statement in the appropriate office. Subsequently, the Millers borrowed another $5,000 from Northbend Credit Union, which also took a security interest in the restaurant's equipment, and filed a financing statement. The restaurant then became involved in an unfortunate food poisoning incident, and business fell off dramatically. The Millers (who were in the midst of a divorce) missed two payments on the loan. The bank sent its collection agent, Mr. Crowley, out to the restaurant, and he repossessed the assets he found there. Mr. Crowley sent a written notice to Mr. Miller (who he knew was now living in a hotel), telling him that the stock would be sold on the open market (no specific date given) and that the restaurant equipment would be sold at public auction on December 1 at the offices of the Crowley Collection Agency. Crowley phoned Mr. Stuhldreher (the surety) and told him the same thing. He sent a written notice to Mr. Layden (the stock owner), but the letter came back marked "Moved—No Forwarding Address." If asked, either Mr. or Mrs. Miller would have supplied Crowley with Layden's new address. Crowley sold the stock for $10,000 on the open market (that was its current selling price) and auctioned off the restaurant equipment on December 1 for $500 (only one bid was received—Crowley himself was the bidder; he later resold the equipment to other restaurants for $10,000). Crowley turned over the proceeds from the two sales ($10,500 total) to Apocalypse National Bank, which then brought suit against the Millers and Mr. Stuhldreher for the deficiency. Answer these questions: Is a surety entitled to notice under 9-611? Yes. That is, is he a debtor? No, he is a secondary obligor. He is an insured Was Mr. Layden a debtor too? Yes, not with respect to inventory and equipment but as to the stock. Does the oral notice to Mr. Stuhldreher satisfy 9-611(b)? No, the SP needs to send written notice. Oral notice does not work. Were any parties entitled to notice of the stock sale? See 9-611(d). Yes, assuming the stock is of a type customarily sold on a recognized market. How about the sale of equipment? See 9-611(c). Yes, to the debtor and the secured parties. An authenticated notice needs to be sent to another secured party if the collateral is other than consumer good. Here there is equipment. If no notice was sent to Northbend Credit Union before the equipment was sold, did Mr. Crowley himself take free of its SI when he bought the equipment at the foreclosure sale? See 9-617. Probably not, because not in good faith—cannot profit from his own wrong in not sending the notice out. Is notice sent to Mr. Miller sufficient as to Ms. Miller? Not commercially reasonable. Does 9-611 require the creditor, to whom a notice is returned by the post office, to take further steps to notify the debtor? Statute doesn't provide for additional notice but Yes, it is "commercially reasonable" to do so does in fact require it. If the restaurant equipment also is named as collateral in a junior filed financing statement, must the bank notify that secured party of the resale? Yes. "any other secured party" could be part of will or anyone who is intereste and you have to notify any potential creditors. Who has the burden of proof as to the commercial reasonableness of the sales? The creditor. The creditor is going to be the one who has all the information. If Crowley had given the equipment sale no publicity, was it commercially reasonable? No. When a secured party repossesses goods and sells them at a foreclosure sale, will this give rise to the Art. 2 sales warranties being made to the purchaser at the sale? Yes. The warranty of title is made, unless disclaimed in a written record. Also a car dealer selling a repossessed car. Fitness for particular purpose make a warranty when you sell goods they don't have a interest in them but now because of 2-314 the answer is porabably yes. We have "title Notes: the perfecting the the SI doesn't really matter here but it is still helpful.

Question on page 1395:

no and no

Problem 93: Walter Capitalist is the sole proprietor of the Capitalist Company. He signs all of the store's checks by writing "Capitalist Company" on the drawer's line, but the checks are drawn on his personal checking account at the ONB. Can the bank treat the check as if Walter has signed his own name?

yes.

Problem 272: Wonder Warehouse issued a negotiable warehouse receipt to "bearer" that covered 40 drums of oil. The bailor was Bonanza Petroleum Company. The receipt was pledged (turn over the document to hold and give back) by Bonanza to the Octopus National Bank as collateral for a $5,000 loan. While in the bank's possession, the receipt was stolen by the bank's credit manager, Claude McStuffy, who gave it to his cousin Al McStuffy, a disreputable oil products salesman. Al presented the receipt at the warehouse, and the new agent on duty delivered the drums to him. The agent, however, also stupidly returned the receipt to Al. Al sold the drums through his business. He then took the old warehouse receipt to the Antitrust National Bank, where he pledged it as collateral for a $5,000 loan. Al & Claude then skipped town. When both banks make demand on the warehouse for the goods, does the warehouse have any defenses?

Problem 272: Wonder Warehouse issued a negotiable warehouse receipt to "bearer" that covered 40 drums of oil. The bailor was Bonanza Petroleum Company. The receipt was pledged (turn over the document to hold and give back) by Bonanza to the Octopus National Bank as collateral for a $5,000 loan. While in the bank's possession, the receipt was stolen by the bank's credit manager, Claude McStuffy, who gave it to his cousin Al McStuffy, a disreputable oil products salesman. Al presented the receipt at the warehouse, and the new agent on duty delivered the drums to him. The agent, however, also stupidly returned the receipt to Al. Al sold the drums through his business. He then took the old warehouse receipt to the Antitrust National Bank, where he pledged it as collateral for a $5,000 loan. Al & Claude then skipped town. When both banks make demand on the warehouse for the goods, does the warehouse have any defenses? No, warehouse & ONB will lose. Antitrust national bank probably qualifies as a holder & entitled to the protection of 7-403(3). Warehouse receipt, which means not being moved. This is a bearer instrument and anyone who has possession must be given the goods when receipt is presented to the warehouse. Pledge: you give the person possession of actual goods; (1) make sure you read the filings & check that there are no outstanding SI against the collateral & you (2) need to know where the collateral is. Warehouse should have gotten its document back once it surrendered the goods. ONB is responsible for its employee. ANB wins here.

Problem 265: Assume in the last problem that Maude Raisin realizes that the stock had been taken & immediately contacts the issuer of the stock & alerts the issuer to the theft. When the stock is presented to the issuer later in the week, what duties does it have?

Problem 265: Assume in the last problem that Maude Raisin realizes that the stock had been taken & immediately contacts the issuer of the stock & alerts the issuer to the theft. When the stock is presented to the issuer later in the week, what duties does it have? Alert Maude to the presentment, giving her opportunity to get a court order stopping the registration.

Problem 267: Fred Bandanna, a farmer, took 2 truckloads of his cotton to Rural Warehouse for storage. The first truckload of 80 bales he stored under a negotiable warehouse receipt issued by Rural. For the second truckload of 80 bales, he obtained a non-negotiable warehouse receipt. Fred took the documents to the officers of Harold Fastbuck, a commodity merchant. Harold bought both the negotiable receipt covering the first truckload & the non-negotiable receipt covering the second from Fred. Harold asked, however, that Fred divide the 80 bales represented by the non-negotiable receipt into 2 equal lots so that Harold could resell them more easily. Fred sat down & wrote out 2 delivery orders addressed to Rural, each requiring the warehouse to turn over 40 delivery orders to another commodity merchant, Sue Fourthparty. He endorsed on the back of the delivery order "Deliver to Sue Fourthparty or Order, (signed) Harold Fastbuck" Sue phoned Rural Warehouse and said that she was the owner of the 40 bales of the Fred Bandanna cotton under a delivery note. The warehouse agent agreed that sue could pick up the bales the next day. That night lightning struck the warehouse & all of the cotton burned. Who took the risk of loss as to each segment of the cotton?

Problem 267: Fred Bandanna, a farmer, took 2 truckloads of his cotton to Rural Warehouse for storage. The first truckload of 80 bales he stored under a negotiable warehouse receipt issued by Rural. For the second truckload of 80 bales, he obtained a non-negotiable warehouse receipt. Fred took the documents to the officers of Harold Fastbuck, a commodity merchant. Harold bought both the negotiable receipt covering the first truckload & the non-negotiable receipt covering the second from Fred. Harold asked, however, that Fred divide the 80 bales represented by the non-negotiable receipt into 2 equal lots so that Harold could resell them more easily. Fred sat down & wrote out 2 delivery orders addressed to Rural, each requiring the warehouse to turn over 40 delivery orders to another commodity merchant, Sue Fourthparty. He endorsed on the back of the delivery order "Deliver to Sue Fourthparty or Order, (signed) Harold Fastbuck" Sue phoned Rural Warehouse and said that she was the owner of the 40 bales of the Fred Bandanna cotton under a delivery note. The warehouse agent agreed that sue could pick up the bales the next day. That night lightning struck the warehouse & all of the cotton burned. Who took the risk of loss as to each segment of the cotton? Harold Fastbuck on the negotiable warehouse cotton; Fred Bandanna as to all the other non-negotiable receipt cotton. Note 7-502 holds bailee is not liable on a negotiable delivery order until bailee has accepted it. This question is on the edge because we are nsure as to twether the bailee has accepted. See 2-509, 2-503 (4)(b) 7-502(a)(4) Possible to say the delivery order was a document of title under 2-509(a) When the wherehouse said "come pick it up it is probably not achnowledgement under 2-509(b) Doesn't seem like we fit in 2-509(c) therefore we turn to 2-503 Was there reasonable time to present the check? Probs not

Problem 289: When Luke Skywalker, an artisan who handcrafted his wares, finished creating a large jeweled sword, he took it down to Weapons of the World (WOW), a large gun & weapon dealer, which mostly sold items that it either manufactures itself or bought from other dealers around the globe. The sword was appraised as being worth over $25,000. Luke asked WOW to sell the sword for him. Is this an Art. 9 consignment so that Luke needs to take Art. 9 steps to protect himself from Wow's other creditors who have an interest in the store's inventory?

Problem 289: When Luke Skywalker, an artisan who handcrafted his wares, finished creating a large jeweled sword, he took it down to Weapons of the World (WOW), a large gun & weapon dealer, which mostly sold items that it either manufactures itself or bought from other dealers around the globe. The sword was appraised as being worth over $25,000. Luke asked WOW to sell the sword for him. Is this an Art. 9 consignment so that Luke needs to take Art. 9 steps to protect himself from Wow's other creditors who have an interest in the store's inventory? Yes. Here, good is given to be sold, merchant deals in goods of that kind, it's not an auctioneer, and its not well known to sell the goods of others. It buys goods first & sells them; not on someone's behalf.

Problem 337: When Portia Moot paid off her debt to Last National Bank, which had loaned her $3,000 to buy a computer for her law office (& had taken a PMSI therein, for which it had duly filed a financing statement), she wanted the bank to clear up the records down at the filing office. Does she have this right? See 9-513. What can she do if they stiff-arm her? See 9-509(d)(2), 9-625(b) and (e)(4).

Problem 337: When Portia Moot paid off her debt to Last National Bank, which had loaned her $3,000 to buy a computer for her law office (& had taken a PMSI therein, for which it had duly filed a financing statement), she wanted the bank to clear up the records down at the filing office. Does she have this right? See 9-513. Yes, there is not obligation secured by collateral anymore. What can she do if they stiff-arm her? See 9-509(d)(2), 9-625(b) and (e)(4). Portia herself may file as the debtor taking advantage of 9-509(d)(2). Damages under 9-625; actual damages under (b) and $500 punitive damages under (e)(4).

Problem 354: When Paramount Homes finished building "Utopia, Ltd.," its newest fancy apartment complex, it had to furnish the clubhouse, so it sent its construction manager, Bill Gilbert, to Sophy's Interiors, a furniture store, where he made $2,000 worth of credit purchases and signed a SA on behalf of Paramount Homes in favor of the seller. The agreement was signed on June 8; the goods were delivered that same day. Bill failed to mention that all his employer's equipment was designated as collateral on an existing SA and financing statement in favor of Sullivan National Bank. This agreement contained an "after-acquired property" clause, which stated that later similar collateral coming into the buyer's estate would automatically fall under the bank's SI (See 9-204(a)). The policy of Sophy's Interiors was not to file financing statements for its creditor furniture sales. Why might it have such a policy? Is it wise here? On June 10, which creditor will have priority in the furniture? On June 30?

Problem 354: When Paramount Homes finished building "Utopia, Ltd.," its newest fancy apartment complex, it had to furnish the clubhouse, so it sent its construction manager, Bill Gilbert, to Sophy's Interiors, a furniture store, where he made $2,000 worth of credit purchases and signed a SA on behalf of Paramount Homes in favor of the seller. The agreement was signed on June 8; the goods were delivered that same day. Bill failed to mention that all his employer's equipment was designated as collateral on an existing SA and financing statement in favor of Sullivan National Bank. This agreement contained an "after-acquired property" clause, which stated that later similar collateral coming into the buyer's estate would automatically fall under the bank's SI (See 9-204(a)). The policy of Sophy's Interiors was not to file financing statements for its creditor furniture sales. Why might it have such a policy? The policy reflect's the furniture's usual use, consumer goods, when to perfect filing is not necessary. Is it wise here? No. The purchase of "equipment" furniture happens often enough that Sophy's should at least ask buyers the intended use of the goods. We care about consumer goods because it would be automatically perfected. This is why they normally don't file a financing statement. On June 10, which creditor will have priority in the furniture? Sophy's is temporarily protected for 20 days to allow Sophy's to file. On June 30? SNB. See 9-317 You have 20 days before or after debtor receives delivery of collateral to perfect a SI in non-consumer goods. The SI takes priority over the rights of buyer lessee or lien creditor. Eseentially even though they have both perfected sophy's would not get priority because they are second in line. Unless there are leftovers.

Problem 416: ONB declares default on the Napoleon's car loan, and Napoleon shows up at ONB to surrender the vehicle. May ONB decline to take it and instead Napoleon for the debt?

Problem 416: ONB declares default on the Napoleon's car loan, and Napoleon shows up at ONB to surrender the vehicle. May ONB decline to take it and instead Napoleon for the debt? Yes, ONB has the right to repossess the car, but it doesn't have to take it.

Problem 92: Texas millionaire Howard Chaps signs all of his checks with a small branding iron that prints a fancy "X" on the signature line. Are his checks negotiable?

Yes. If he intends it to be good

Problem 94: Are the following notes negotiable? (a) "(Date), I promise to pay bearer $500, subject to the contract I signed with Honest John today, (signature)." (b) "(Date), I promise to pay bearer $500 as per contract I signed today with Honest John, (signature)." (c) "(Date), I promise to pay bearer $500 on January 1, 2016. For rights as prepayment and acceleration, see the contract signed on September 25, 2016, btwn the maker & the payee (signature)."

a. No its not negotiable because you have to look at the contract. b. Yes (references K, but doesn't say its subject to it). c. Yes (holder can only be benefited by acceleration). As long as you have a date certain. Also it cant hurt the holder

Problem 106: When Portia Moot received her first paycheck from the law firm that recently hired her, she was annoyed to discover that it was made out to "Portia Mort." When she took the check to her bank to cash it, she mentioned the problem to the bank clerk, who promptly called you, the bank's attorney. What steps would you suggest the bank follow in this situation?

Problem 106: When Portia Moot received her first paycheck from the law firm that recently hired her, she was annoyed to discover that it was made out to "Portia Mort." When she took the check to her bank to cash it, she mentioned the problem to the bank clerk, who promptly called you, the bank's attorney. What steps would you suggest the bank follow in this situation? Have her sign both names. Her own name is ok, but the bank may want her to indorse with various spellings so the instrument doesn't raise questions with later takers.

Problem 2: Portia Moot, a third-year law student, sold her car to a fellow student. Does Art. 2 of the UCC apply to this transaction?

Yes. Would 2-314? No, bc she is not a merchant. However, if she assures that it will drive & provides details on performance she may be liable as a merchant.

Problem 4: BIG Machines, Inc., leased a computer to Helen's Flower Shoppe for a five-yr pd. The machine was new and had cost BIG Machines $10,000. Helen's Flower Shoppe promised to pay $225 a month as rent. Is this a lease or a disguised sale? Not enough information. Is you answer affected by the following considerations? (a) The lease provided that the lessee could terminate the lease at any time and return the computer to the lessor. (b) Assume there was no such option as described in (a), but the good has no value at the end of the five-year period. (c) Assume instead that the rental amount is only $150 a month and the computer will be worth $3,500 at the end of the 5-yr pd. The lease has a clause giving Helen's Flower Shoppe the option to purchase the computer for that amount at that time. Is this a true lease? What if the lease requires the lessee to renew this lease at the end of the 5-yr period for another 5 years?

a. Lease. b. Sale (full economic life of the goods). c. Yes (because not required to exercise the option, & $3,500 is some value at end of lease). Sale. If lease require lessee to have it for 10 years, more like a sale.

Problem 91: When the law student Portia Moot went to buy a used car from a man who sold it through the newspaper, the seller told her he refused to take her personal check, demanding instead a cashier's check payable to his order. Portia went to ONB & paid the amt required, and the bank then issued the cashier's check, w/ Portia's car seller being named as payee. The bank gave the check to Portia, & she in turn handed it over to the payee. What is the name that the Code gives to Portia in this situation? - Bank is both the drawer and drawee of the draft - If not a bank article 3 still applies but may not meet the technical definition of a check which requires the bank to be the drawee

3-103(a)(15): "Remitter" means a person who purchases an instrument from its issuer if the instrument is payable to an identified person other than the purchaser.

Problem 284: Honest John sold Nancy Debts a used car for $900, to be paid off in 3 payments of $300 each. Contract was oral. Nancy missed the 2nd payment, & one of John's employees repossessed the car & returned it to the seller. Nancy sued John for conversion. Who should win?

Problem 284: Honest John sold Nancy Debts a used car for $900, to be paid off in 3 payments of $300 each. Contract was oral. Nancy missed the 2nd payment, & one of John's employees repossessed the car & returned it to the seller. Nancy sued John for conversion. Who should win? Nancy should win because Nancy hasn't granted him a security interest in the car, so he would have to sue under breach of K, then get a judgment against her & then sue on it in order to get it back. Also may be statute of frauds issue here bc its an oral contract for over $500.

Problem 329: Octopus National Bank (ONB) makes a loan to Pi Solutions, secured by Pi's patent on a solar powered night light. ONB learns that it is unsettled whether a security interest is perfected by filing in the state UCC office or the federal patent and trademark office. ONB has a brainwave. Rather than filing, can ONB perfect with a pledge—taking possession of Pi's patent certificate?

Problem 329: Octopus National Bank (ONB) makes a loan to Pi Solutions, secured by Pi's patent on a solar powered night light. ONB learns that it is unsettled whether a security interest is perfected by filing in the state UCC office or the federal patent and trademark office. ONB has a brainwave. Rather than filing, can ONB perfect with a pledge—taking possession of Pi's patent certificate? No.

Problem 369: Andy Audio bought a stereo receiver on credit from Voice of Japan, Inc., an electronics store, giving it a PMSI in the receiver. Voice of Japan did not file a financing statement. Six months later, when Andy still owed Voice of Japan $300, he held a garage sale and sold the receiver to Nancy Neighbor for $200 cash. If Andy stops making payments to Voice of Japan, can it repossess the receiver from Nancy? See 9-320(b) & its Official Comment 5.

Problem 369: Andy Audio bought a stereo receiver on credit from Voice of Japan, Inc., an electronics store, giving it a PMSI in the receiver. Voice of Japan did not file a financing statement. Six months later, when Andy still owed Voice of Japan $300, he held a garage sale and sold the receiver to Nancy Neighbor for $200 cash. If Andy stops making payments to Voice of Japan, can it repossess the receiver from Nancy? See 9-320(b) & its Official Comment 5. No.

Problem 404: The Aquarius Auto Audio Shop (AAAS) sold and installed stereo systems in cars. Its inventory was financed by the Canis Major Bank and Trust Co., which had a perfected SI in present and after-acquired inventory. When Aquarius sold the systems, it sometimes was paid in cash, sometimes extended credit without signed contracts (accounts receivable), and sometimes made credit customers sign contracts promising payment and granting AAAS a security interest in the systems (chattel paper). When Aquarius needed further financing, it took a later loan from the Cassiopeia Finance Company, granting the lender a security interest in its accounts receivable and its chattel paper. Cassiopeia knew all about the prior loan and inventory security interest of the Canis Major Bank at the time it filed its financing statement in the proper place. Aquarius defaulted on both loans, and both secured parties claimed the accounts and chattel paper (only Canis Major claimed the inventory). Canis Major's theory was that the account's and chattel paper were proceeds of the inventory. The chattel paper was in Cassiopeia's possession; it had not yet collected on any of the accounts receivable. Who should prevail? What result where the accounts receivable financer filed first?

Problem 404: The Aquarius Auto Audio Shop (AAAS) sold and installed stereo systems in cars. Its inventory was financed by the Canis Major Bank and Trust Co., which had a perfected SI in present and after-acquired inventory. When Aquarius sold the systems, it sometimes was paid in cash, sometimes extended credit without signed contracts (accounts receivable), and sometimes made credit customers sign contracts promising payment and granting AAAS a security interest in the systems (chattel paper). When Aquarius needed further financing, it took a later loan from the Cassiopeia Finance Company, granting the lender a security interest in its accounts receivable and its chattel paper. Cassiopeia knew all about the prior loan and inventory security interest of the Canis Major Bank at the time it filed its financing statement in the proper place. Aquarius defaulted on both loans, and both secured parties claimed the accounts and chattel paper (only Canis Major claimed the inventory). Canis Major's theory was that the account's and chattel paper were proceeds of the inventory. The chattel paper was in Cassiopeia's possession; it had not yet collected on any of the accounts receivable. Who should prevail? Inventory & cash proceeds: Canis (no dispute). Accounts receivable: Canis. First-to-file wins with accounts receivable, as long as it re-files within 20 days. Thus, Canis wins if it files within 20 days, unless it automatically re-perfected. Chattel paper: Cassiopeia wins. For chattel paper, under 9-330 a purchaser of chattel paper has priority over a SI in the chattel paper which is claimed merely as proceeds of inventory subject to a Si. However, Cassiopeia didn't buy the chattel paper. But, we have a priority contest between 2 perfected SIs in chattel paper. For chattel paper, the person in possession has priority. Thus, Cassiopeia wins, even if Canis was the first to file. (note: secured party 1 can protect itself by taking possession or control; it cant do this with paperless accounts, thus a different rule.) What result where the accounts receivable financer filed first? Inventory & cash proceeds: same as preceding question; Accounts receivable: first-to-file rule, now Cassiopeia wins; Chattel paper: same as preceding question.

Problem 97: The promissory note stated that the rate of interest was "2% above the prime rate as of the date of maturity." The prime rate is the interest charged by banks to their best customer & can be ascertained by reference to financial publications. Does the fact that the holder of the note has to consult sources outside of the instrument in order to calculate the interest due destroy negotiability?

- : no because it may require reference to information outside. - See 3-112. You need to be able to tell on its face how much to pay. - If a country does not have a currency can you have negotiability? No it needs to have money cant be cigs or teeth.

Problem 115: Same situation as the last problem except that when Tom deposits the $1,000 check in his account, the account contains $500. Later that afternoon, he withdraws $500. Is the bank a HIDC for any amount?What result if he withdraws $750?

Problem 115: Same situation as the last problem except that when Tom deposits the $1,000 check in his account, the account contains $500. Later that afternoon, he withdraws $500. Is the bank a HIDC for any amount? No (there is a "first in, first out" rule in Art. 4: thus it's the first $500 he put in originally that he is withdrawing). What result if he withdraws $750? Yes, to the extent of the $250 paid out. The first $500 was already his.

Problem 281: Just as Octopus Bank was about to honor a draft drawn on it by the beneficiary of its letter of credit, the bank's applicant called & demanded that the bank dishonor the draft bc the beneficiary was guilty of "out-and-out" fraud on the underlying transaction btwn them. The bank calls you for advice. The documents presented along with the draft exactly match the terms of the credit, & the bank officials are sure that there is no fraud in the documents. Tell bank what you think they should do. If ONB dishonors the draft & this causes beneficiary to lose millions of dollars on the underlying transaction, is ONB ever liable for more than the amount of the letter of credit?

Problem 281: Just as Octopus Bank was about to honor a draft drawn on it by the beneficiary of its letter of credit, the bank's applicant called & demanded that the bank dishonor the draft bc the beneficiary was guilty of "out-and-out" fraud on the underlying transaction btwn them. The bank calls you for advice. The documents presented along with the draft exactly match the terms of the credit, & the bank officials are sure that there is no fraud in the documents. Tell bank what you think they should do. Honor, unless bank's customer (the applicant) obtains an injunction. If ONB dishonors the draft & this causes beneficiary to lose millions of dollars on the underlying transaction, is ONB ever liable for more than the amount of the letter of credit? Yes: actual damages, incidental damages, interest, & attorney's fees & other expenses of litigation, but not consequential damages.

Problem 347: Epstein's Bookstore borrowed $10,000 from ONB(valid SI but still takes second), signing a SA giving the bank a floating lien over the store's inventory. ONB, due to negligence, never got around to filing the financing statement. Martin's Travel Service was an unpaid creditor of the bookstore that sued on the debt & recovered a judgment against the store. It then had the sheriff levy on the inventory. ONB learned of this and calls you, ONB's attorney. Does ONB or Martin's Travel Service get paid first when the inventory was sold? See 9-317(a)(2) and the definition of lien creditor 9-105(a)(52). If, instead of a judgment creditor seizing the goods, Epstein's Bookstore had filed a bankruptcy petition while ONB's lien was still unperfected, what result? What if, instead, Epstein's Bookstore had sold the inventory to a good faith buyer? See 9-317(b).

Problem 347: Epstein's Bookstore borrowed $10,000 from ONB(valid SI but still takes second), signing a SA giving the bank a floating lien over the store's inventory. ONB, due to negligence, never got around to filing the financing statement. Martin's Travel Service was an unpaid creditor of the bookstore that sued on the debt & recovered a judgment against the store. It then had the sheriff levy on the inventory. ONB learned of this and calls you, ONB's attorney. Does ONB or Martin's Travel Service get paid first when the inventory was sold? See 9-317(a)(2) and the definition of lien creditor 9-105(a)(52). Martin's Travel Service gets paid first since lien-creditors have priority over unperfected SIs. 9-317(a)(2): a SI is subordinate to the rights of... a person that becomes a lien creditor before the SI is perfected as to that item of property. If, instead of a judgment creditor seizing the goods, Epstein's Bookstore had filed a bankruptcy petition while ONB's lien was still unperfected, what result? ONB is still out of luck since it never filed the SI. The trustee's status as a lien creditor cuts off all unperfected interests & turns the lenders involved into general creditors. 9-102(a)(52) - Lien creditor means: (a) a creditor that has acquired a lien on the property involved by attachment, levy, or the like; or...(c) a trustee in bankruptcy from the date of filing of the petition. What if, instead, Epstein's Bookstore had sold the inventory to a good faith buyer? See 9-317(b). The buyer would have priority if it gave value & received delivery of the collateral without knowledge of the security interest before it is perfected.

Problem 373: Farmer Bean borrowed money from ONB which had him sign a security agreement covering his crops. The SA forbade him the right to sell his crops without the written consent of the bank. It also required him to give the bank a list of potential buyers of the crop. Farmer Bean did so. The list was of the 5 buyers to whom he had sold his crop (or parts thereof) in the past. The bank sent a written notice complying with §1631(e)(1) to each of the listed buyers, telling them that all payments for Farmer Bean's crops should be by check made payable to ONB. One buyer not on the list was Rural Silo, Inc., a grain merchant that contracted to buy all of Farmer Bean's 2016 wheat crop. Rural Silo knew that Farmer Bean had borrowed money from ONB and that ONB had filed a financing statement to perfect its SI (the state had not created an FSA central filing system). It bought the crop from Farmer Bean & paid him cash for it at his request. Is Rural Silo, which after all knew all about ONB's SI, a buyer in the ordinary course as defined in §1631(c)(1)? Does Rural Silo take free of the bank's SI? Does the bank have any other remedy here?

Problem 373: Farmer Bean borrowed money from ONB which had him sign a security agreement covering his crops. The SA forbade him the right to sell his crops without the written consent of the bank. It also required him to give the bank a list of potential buyers of the crop. Farmer Bean did so. The list was of the 5 buyers to whom he had sold his crop (or parts thereof) in the past. The bank sent a written notice complying with §1631(e)(1) to each of the listed buyers, telling them that all payments for Farmer Bean's crops should be by check made payable to ONB. One buyer not on the list was Rural Silo, Inc., a grain merchant that contracted to buy all of Farmer Bean's 2016 wheat crop. Rural Silo knew that Farmer Bean had borrowed money from ONB and that ONB had filed a financing statement to perfect its SI (the state had not created an FSA central filing system). It bought the crop from Farmer Bean & paid him cash for it at his request. Is Rural Silo, which after all knew all about ONB's SI, a buyer in the ordinary course as defined in §1631(c)(1)? Yes. 1631(c)(1): "buyer in the ordinary course of business" means a person who, in the ordinary course of business, buys farm products from a person engaged in farming operations who is in the business of selling farm products. Does Rural Silo take free of the bank's SI? Yes (1631(d): buyer in ordinary course takes free even if SI is perfected & buyer knows of the SI). Does the bank have any other remedy here? Yes, the bank can fine Farmer Bean the greater of $5,000 or 15% of the sale because Farmer violated the SA by selling to a buyer not on the list of potential buyers given to ONB. §1631(h)(3): a person violating (2) shall be fined $5,000 or 15% of the value or benefit received for such farm product described in the SA, whichever is greater.

Problem 402: Octopus National Bank (ONB) makes a loan to Dairy, secured by Dairy's equipment. The equipment is then sold to Cheeseworks, which later sells the equipment to Buttercups. Is the money that Cheeseworks receives as proceeds of the sale subject to ONB's security interest?

Problem 402: Octopus National Bank (ONB) makes a loan to Dairy, secured by Dairy's equipment. The equipment is then sold to Cheeseworks, which later sells the equipment to Buttercups. Is the money that Cheeseworks receives as proceeds of the sale subject to ONB's security interest? Yes.

Problem 413: Don Jose was in charge of repossession for Carmen Motors. One Monday morning the dealership told him that cars owned by four debtors (Escamillo, Micaela, Zuniga, and Morales) were to be picked up because the buyers had missed payments. Look 9-609, and answer this question: is Carmen Motors required to give the debtors notice that they are in default before repossessing? Don Jose visited each of the debtors with the following results: Don Jose found Escamillo's car parked in his driveway at 2:00 a.m. he broke a car window, hot-wired the car, and drove it away. Has a breach of the peace occurred? What if Escamillo heard the window break, rushed out, and began yelling? May Don Jose continue the repossession, or must he quit? If he goes away, may he try again later that night? Don Jose showed up at Micaela's house accompanied by his brother (an off-duty sheriff who was wearing his sheriff's uniform). Don Jose told Micaela that he was repossessing the car, and she said nothing. Has a breach of the peace occurred? When no one was at home, Don Jose broke into Zuniga's garage through the use of the services of a locksmith. The garage lock and door were undamaged. A clause in the contract provided that the secured party had the right to enter the debtor's premises to remove the property. Does the repossession comply with 9-609? Don Jose phoned Morales and said that the car was being recalled because of an unsafe engine mount. Morales brought the car in that morning. When the time came to pick up the car, Don Jose simply smiled, said "April Fool; its been repossessed!"' and refused to return it. Is the repossession valid?

Problem 413: Don Jose was in charge of repossession for Carmen Motors. One Monday morning the dealership told him that cars owned by four debtors (Escamillo, Micaela, Zuniga, and Morales) were to be picked up because the buyers had missed payments. Look 9-609, and answer this question: is Carmen Motors required to give the debtors notice that they are in default before repossessing? No, under 9-609, a secured party may take possession of the collateral without notice that they are repossessing. Don Jose visited each of the debtors with the following results: Don Jose found Escamillo's car parked in his driveway at 2:00 a.m. he broke a car window, hot-wired the car, and drove it away. Has a breach of the peace occurred? Probably not. What if Escamillo heard the window break, rushed out, and began yelling? This probably would be a breach of the peace because of the yelling. May Don Jose continue the repossession, or must he quit? He must quit. If he goes away, may he try again later that night? Yes. Don Jose showed up at Micaela's house accompanied by his brother (an off-duty sheriff who was wearing his sheriff's uniform). Don Jose told Micaela that he was repossessing the car, and she said nothing. Has a breach of the peace occurred? Yes, through constructive force, which is automatically a breach of the peace—do not want to put the debtor in a position where he has to object to the police. When no one was at home, Don Jose broke into Zuniga's garage through the use of the services of a locksmith. The garage lock and door were undamaged. A clause in the contract provided that the secured party had the right to enter the debtor's premises to remove the property. Does the repossession comply with 9-609? No, because neighbors are not part of the agreement (don't want the neighbor to come out and try to protect your property. But this might be ok if it was in a farm with no neighbors around). Don Jose phoned Morales and said that the car was being recalled because of an unsafe engine mount. Morales brought the car in that morning. When the time came to pick up the car, Don Jose simply smiled, said "April Fool; its been repossessed!"' and refused to return it. Is the repossession valid? Yes, but not in Alabama under Ford.

Problem 420: answers look at book.

Problem 420: answers look at book.yes it is 9615 the secured party shall pay a debtor for any surplus and the onligor is liable for any deficiency. In theory its covered under article 9 and how often is this actually going to happen tho. Its hard to do this because of arbitration clauses now and cant form a class action. But you be able to sue for a remedy because you have that right.

Problem 118: Fred wrote a check on Jan. 5, 2015, but mistakenly put down "2014" as the year. He saw his error, crossed out the last digit, and wrote "5" above it. Can anyone become a HIDC of this instrument?

Problem 118: Fred wrote a check on Jan. 5, 2015, but mistakenly put down "2014" as the year. He saw his error, crossed out the last digit, and wrote "5" above it. Can anyone become a HIDC of this instrument? Yes, because alteration was not fraudulent.

Problem 100: A paragraph in a promissory note required the maker to give the written notice to the holder of the note in the event that the maker wanted to make a pre payment of the principal amount before the scheduled date of maturity of the loan. Is this note payable at a definite time, in your opinion? In addition to the issue discussed in problem 98(d) consider whether such an onligation makes the payment pf the note less certain and note 3-108(b) sin in re Steinberg,

Probably yes because this is a minor promise closely related to the note - 3-1-8b often if the holder of extension. Does not make it less certain but good argument that the clause doesn't satisfy 3-108(b)(iV)

Question: How does it help the creditor with the prior perfected interest in the inventory to get notice that creditor still ends up junior to PM creditor?

Question: How does it help the creditor with the prior perfected interest in the inventory to get notice that creditor still ends up junior to PM creditor? If you're an inventory financer, you will put in your SA that if the debtor grants a PMSI in inventory, that's an event of default that allows you to collect their unadulterated collateral. SO if there's notice, the inventory financer can protect itself by beforehand including that in the agreement.

Problem 303: Fill in the blanks with the proper collateral classifications: Milk in the hands of the farmer: In the hands of the grocery store: In the hands of the grocery store's customer who is buying for consumption: Would your answer to the second question change if "restaurant" were used in place of "grocery store?" A certificate of deposit issued by a bank: Would it make a difference if the certificate of deposit was transferable? An airbill issued by an airline as a receipt for frozen shrimp shipped by air? The receipt given to a farmer by a silo operator when the farmer stored grain there? Rare coins bought by a hobbyist for addition to his collection: A tax refund: A debenture bond issued by a corporation: A right to 100 shares of stock recorded on the books of the debtor's stockbroker: The checking account you have at your bank: A computer program: The monthly rental obligation owed to a landlord, who wants to use these obligations as collateral for a loan: The promissory notes signed for the tenants to pay their rent:

Problem 303: Fill in the blanks with the proper collateral classifications: Milk in the hands of the farmer: Farm good In the hands of the grocery store: Inventory In the hands of the grocery store's customer who is buying for consumption: Consumer good Would your answer to the second question change if "restaurant" were used in place of "grocery store?" No A certificate of deposit issued by a bank: Instrument Would it make a difference if the certificate of deposit was transferable? No An airbill issued by an airline as a receipt for frozen shrimp shipped by air? Document The receipt given to a farmer by a silo operator when the farmer stored grain there? Document (warehouse receipt) Rare coins bought by a hobbyist for addition to his collection: Consumer good A tax refund: General intangible A debenture bond issued by a corporation: Investment property A right to 100 shares of stock recorded on the books of the debtor's stockbroker: Investment property The checking account you have at your bank: Deposit account A computer program: General intangible; if embedded in the good it is made part of the good. The monthly rental obligation owed to a landlord, who wants to use these obligations as collateral for a loan: Excluded under 9-109(d)(11) The promissory notes signed for the tenants to pay their rent: Instrument.

Problem 305: How would you categorize the car lease contracts that Dime-A-Minute Rental Cars uses as collateral when it borrows money from a bank? If Dime moves into the computer age & stops using paper entirely, can the electronic version of this paperwork be used as collateral? Art. 9 provides that a secured party will be protected as to such electronic chattel paper if it has "control" over the paper, but given that there is no actual writing, how could this possibly be done?

Problem 305: How would you categorize the car lease contracts that Dime-A-Minute Rental Cars uses as collateral when it borrows money from a bank? Chattel paper, even if the records creating it are electronic, not paper. If Dime moves into the computer age & stops using paper entirely, can the electronic version of this paperwork be used as collateral? Yes, provided an authoritative copy can be created. Art. 9 provides that a secured party will be protected as to such electronic chattel paper if it has "control" over the paper, but given that there is no actual writing, how could this possibly be done? NPA, see §9-105.

Problem 314: When Robin Oakapple found he could not get a loan unless he had collateral, he got permission from his foster brother, Richard Dauntless, to use Richard's yacht as collateral. Should the lender make both sign the security agreement (only Robin signed the promissory note)? Which of these parties is the "debtor" and which is the "obligor"? Under whose name should the financing statement be filed?

Problem 314: When Robin Oakapple found he could not get a loan unless he had collateral, he got permission from his foster brother, Richard Dauntless, to use Richard's yacht as collateral. Should the lender make both sign the security agreement (only Robin signed the promissory note)? Yes. Richard must definitely sign. Which of these parties is the "debtor" and which is the "obligor"? Richard is the debtor and Robin is the obligor. Under whose name should the financing statement be filed? Richard

Problem 315: Peter Poor signed a SA & FS in favor of the Total Finance Co., giving the company a SI in "all personal property debtor now owns or ever owns or even hopes to own between now & the end of the world or his death, whichever is first." Does this perfect an interest in his guitar? No. Why would the drafters have drawn this distinction btwn the description in the SA & that in the FS?

Problem 315: Peter Poor signed a SA & FS in favor of the Total Finance Co., giving the company a SI in "all personal property debtor now owns or ever owns or even hopes to own between now & the end of the world or his death, whichever is first." Does this perfect an interest in his guitar? No. Why would the drafters have drawn this distinction btwn the description in the SA & that in the FS? Here, the FS would be ok; it notifies later searchers that something is afoot. But the SA is not ok. Super generic descriptions of the collateral do not tell the debtor which pieces of his collateral are on the line. SA to pick up goods & FS for perfection and to defeat bankruptcy trustee. "All equipment" or "all inventory" is ok, but not "all property."

Problem 293: Pollution Solutions took a loan from ONB, putting up as collateral its copyright, patents, & trademarks. Where should ONB file to be sure it has a perfected SI? No one know where ONB must file to protect its SI.

Problem 293: Pollution Solutions took a loan from ONB, putting up as collateral its copyright, patents, & trademarks. Where should ONB file to be sure it has a perfected SI? No one know where ONB must file to protect its SI. Everywhere, both at the state level & federal level (the patent, copyright, & trademark offices).

PROBLEM 279 At the request of its applicant, Octopus Bank (ONB) issued an irrevocable letter of credit to Warren Crook, the beneficiary. The credit's terms required a bill of lading showing that the goods were loaded on board the SS Titanic by April 1, 2014. Crook cleverly drew up a phony bill of lading supposedly issued by the Titanic & presented it along with a draft on the bank to the issuer. ONB paid the draft. Can it collect from its applicant? Could the applicant use the 5-110 warranties to sue the beneficiary?

PROBLEM 279 At the request of its applicant, Octopus Bank (ONB) issued an irrevocable letter of credit to Warren Crook, the beneficiary. The credit's terms required a bill of lading showing that the goods were loaded on board the SS Titanic by April 1, 2014. Crook cleverly drew up a phony bill of lading supposedly issued by the Titanic & presented it along with a draft on the bank to the issuer. ONB paid the draft. Can it collect from its applicant? Yes, if the forgery was good. Could the applicant use the 5-110 warranties to sue the beneficiary? Yes.

Problem 102: Do the following clauses create order or bearer paper, or do they make the instrument non-negotiable for failure to create either? "Pay to the order of (blank)." "Pay to the order of President of the US." The drawer of a check drew a line through the words "the order of" that were printed on the check prior to the space for the payee's name. Is the check, as altered, negotiable? If the drawer of a check or the maker of a promissory note wants to destroy negotiability, what should be done? Why would this ever be desirable? It preserves the maker/drawers non-real defenses agst a HIDC. Reserves rights of a "bad car" and negotiability.

Problem 102: Do the following clauses create order or bearer paper, or do they make the instrument non-negotiable for failure to create either? "Pay to the order of (blank)." Bearer paper, unless holder fills in blank, whereupon it becomes order paper. 3.115 A promissory note w/ this language: "Pay to John Doe's estate." Non-negotiable because no "order" "or "Promise" language. See 3.115 Person means an indiv. Corp. business trust, estate, trust, partnership...association. Or any other legal or commercial entity. So if they said to the order it would have been ok because an estate is a person. "Pay to the order of President of the US." Yes its negotiable Order paper. 3110(c). you can have it be kind of broad just need to be the person who is currently president. The drawer of a check drew a line through the words "the order of" that were printed on the check prior to the space for the payee's name. Is the check, as altered, negotiable? Yes, negotiable bearer paper (bc check doesn't need the word order). If the drawer of a check or the maker of a promissory note wants to destroy negotiability, what should be done? For notes, should leave out "order" or bearer language. For checks, throw in an extra promise. You don't want the check to be negotiable and you might want to destroy the negotiability. Just say and "when x happens I promise y will happen" Why would this ever be desirable? It preserves the maker/drawers non-real defenses agst a HIDC. Reserves rights of a "bad car" and negotiability.

Problem 103: Sonata, about to take music lessons, purchased a violin on credit from Barenboim Music, which negotiated the note to Titolare Finance Co. The note bore the above FTC legend. When the note came due, Sonata refused to pay the Titolare Finance bc the violin fell apart after 3 lessons. Can Titolare Finance claim it is a HIDC & thus entitled to enforce the note in spite of her defense? No, even though value given, the notice destroys claim of being HIDC. What if the note had failed to contain the FTC notice? No, no one can be a HIDC of any consumer notes. Would we reach the same result if Sonata were a professional musician? No, if he were a professional musician, it's not a consumer transaction, and therefore the result is different: if there is (1) a negotiable instrument & (2) properly negotiated & the holder had no knowledge of the underlying transaction, TF's claim would be good.

Problem 103: Sonata, about to take music lessons, purchased a violin on credit from Barenboim Music, which negotiated the note to Titolare Finance Co. The note bore the above FTC legend. When the note came due, Sonata refused to pay the Titolare Finance bc the violin fell apart after 3 lessons. Can Titolare Finance claim it is a HIDC & thus entitled to enforce the note in spite of her defense? What if the note had failed to contain the FTC notice?Would we reach the same result if Sonata were a professional musician?

Problem 104: David Hanson banked with the Mechanical National Bank. Hanson owed $50 to William Egger and decided to pay him by writing out a check for $50, using one of the checks Mechanical furnished him when he opened his account. He gave the check to Egger, who wrote his name on the back of the check. Egger gave the check to his wife, Cynthia, who took it down to the Cornucopia Grocery and asked the manager to cash it. The manager paid Cynthia $50 and then took the check and wrote "Pay to the Cornucopia Grocery" just above William Egger's signature. When Billy Speed, the Check Collection Service's messenger, came by, the manager gave the check to him for delivery to the Octopus National Bank, where the grocery had an account. Speed delivered the check to ONB, where the bank's check processing machine merely stamped the words "ONB" on the back of the check. ONB then forwarded the check to Mechanical National Bank. Answer the following questions: To which parties should the following labels be attached: Drawer: Drawee: Payee: Depositary Bank: Did the following people qualify as holders? Hansen: William Egger: Cynthia Egger: The Manager: Cornucopia Grocery: Billy Speed: ONB: MNB: If William Egger had failed to endorse the check, but simply deposited it in his account with ONB, would the bank have been a holder? What was the legal effect of the language written on the check by the grocery store manager? Which of the parties are properly called endorsers? See 3-204

Problem 104: David Hanson banked with the Mechanical National Bank. Hanson owed $50 to William Egger and decided to pay him by writing out a check for $50, using one of the checks Mechanical furnished him when he opened his account. He gave the check to Egger, who wrote his name on the back of the check. Egger gave the check to his wife, Cynthia, who took it down to the Cornucopia Grocery and asked the manager to cash it. The manager paid Cynthia $50 and then took the check and wrote "Pay to the Cornucopia Grocery" just above William Egger's signature. When Billy Speed, the Check Collection Service's messenger, came by, the manager gave the check to him for delivery to the Octopus National Bank, where the grocery had an account. Speed delivered the check to ONB, where the bank's check processing machine merely stamped the words "ONB" on the back of the check. ONB then forwarded the check to Mechanical National Bank. Answer the following questions: To which parties should the following labels be attached: Drawer: Hansen Drawee: Mechanical National Bank Payee: William Egger Depositary Bank: Octopus National Bank Did the following people qualify as holders? Hansen: No because he is the issuer of the check (except for bearer instruments, drawer isn't a holder) William Egger: Yes- wouldn't be a holder in due course but he does count as a holder. Cynthia Egger: Yes because it's bearer paper when she has it (HIDC? No, paid no value) The Manager: Yes because its bearer instrument when he gets it, until he converts the bearer paper back to order paper by writing "pay to grocery". Could argue that he is not a holder in due course because he hasn't gotten his money. Could also says that both him and the grocery are holders. However he would probs be a holder in due course. Cornucopia Grocery: Yes because it's order paper & its named on the instrument when its in possession of it (HIDC? Yes) Billy Speed: No bc its order paper when he has it & its not indorsed to him. If it was bearer paper then It would be ok but its not. It is now order paper. ONB: Yes (if it's deposited in the bank, it's a holder, even if it's order paper); (HIDC? Yes) Article 4. MNB: No because like a maker of a note, presentment of an instrument for final payment is "surrender," not "negotiation" If William Egger had failed to endorse the check, but simply deposited it in his account with ONB, would the bank have been a holder? Yes. If bank is in possession of order paper that's not made out to them, it is still a holder & thus can be HIDC. 4-205: If a customer delivers an item to a depositary bank for collection: (1) the depositary bank becomes a holder of the item at the time it receives the item for collection if the customer at the time of delivery was a holder of the item, whether or not the customer indorses the item, and, if the bank satisfies the other requirements of §3-302, it is a HIDC; and... What was the legal effect of the language written on the check by the grocery store manager? Converts bearer paper to order paper. Can go back and fourth form both bearer paper and order paper. Which of the parties are properly called endorsers? See 3-204 Egger; ONB; Cornucopia Grocery Note: ONB stamping it is an indorsement, but it doesn't convert it to bearer paper bc ONB is not the payee. Under article 4 There is only one payee when it is converted into order paper the payee is no longer but the person who is the named person can be the holder.

Problem 105: A check was made payable to "Mary and Donald Colpitts." Must both payees indorse it in order to negotiate the instrument? What if the check were payable to "Mary or Donald Colpitts"? Must both payees indorse it now? What if it simply is payable to "Mary Colpitts, Donald Colpitts" with no connecting word? Are two indorsements needed here? What result where the payees names are "stacked" like this: Mary Colpitts Donald Colpitts Pay to the order of Façade Motor Company

Problem 105: A check was made payable to "Mary and Donald Colpitts." Must both payees indorse it in order to negotiate the instrument? Yes What if the check were payable to "Mary or Donald Colpitts"? Must both payees indorse it now? No What if it simply is payable to "Mary Colpitts, Donald Colpitts" with no connecting word? Are two indorsements needed here? No What result where the payees names are "stacked" like this: Mary Colpitts Donald Colpitts Pay to the order of Façade Motor Company No, ambiguous; any payee can indorse & negotiate

Problem 107: Desert Paradise, Inc., initiated a scam in which hundreds of middle-class people signed promissory notes in order to invest in the supposed development of a retirement community to be built in the Southwest. Desert Paradise, the payee on all these notes, sold them in bulk to ONB. Rather than indorsing its name hundreds of time on each of the notes, Desert Paradise had its indorsement printed on a separate sheet of paper(does not count as an endorsement), which it folded into each promissory note not connecting it in any way other than the fold. Desert Paradise's officials then absconded with the money & left the desert land untouched. ONB demanded payment from the makers of the notes, and when they tried to raise defenses of breach of contract and fraud, ONB claimed to be a HIDC, so as to take free of these defenses. Is ONB even a holder? What does "affixed" mean? Would a paper clip do the trick? A staple?

Problem 107: Desert Paradise, Inc., initiated a scam in which hundreds of middle-class people signed promissory notes in order to invest in the supposed development of a retirement community to be built in the Southwest. Desert Paradise, the payee on all these notes, sold them in bulk to ONB. Rather than indorsing its name hundreds of time on each of the notes, Desert Paradise had its indorsement printed on a separate sheet of paper(does not count as an endorsement), which it folded into each promissory note not connecting it in any way other than the fold. Desert Paradise's officials then absconded with the money & left the desert land untouched. ONB demanded payment from the makers of the notes, and when they tried to raise defenses of breach of contract and fraud, ONB claimed to be a HIDC, so as to take free of these defenses. Is ONB even a holder? No bc its order paper made out to "desert paradise," not ONB. ONB is not a holder because it was never indorsed to them (not affixed). Not a holder yet. 3-204 must be affixed to an instrument. Whether you fold it in qualifies which it doesn't. What does "affixed" mean? NPA. Would a paper clip do the trick? No. A staple? Yes.

Problem 108: When Laura Lawyer's briefcase was stolen, it contained her monthly paycheck from the law firm from which she worked, made payable to her order. She had not indorsed it. The thief who stole the briefcase forged her name to the back of the paycheck & transferred it to an innocent party, Cornucopia Grocery. When the latter tried to cash the check at the drawee bank, the bank alerted Laura, and she arrived at the bank immediately. Can she retrieve the check from Cornucopia Grocery?

Problem 108: When Laura Lawyer's briefcase was stolen, it contained her monthly paycheck from the law firm from which she worked, made payable to her order. She had not indorsed it. The thief who stole the briefcase forged her name to the back of the paycheck & transferred it to an innocent party, Cornucopia Grocery. When the latter tried to cash the check at the drawee bank, the bank alerted Laura, and she arrived at the bank immediately. Can she retrieve the check from Cornucopia Grocery? Yes.

Problem 109: Assume that on receiving her paycheck, Laura Lawyer had signed her name to the back of the instrument, which then was blown out a window and landed at the feet of criminal, Harry Thief. Harry took the check down to Cornucopia Grocery & told the manager that he was Lance Lawyer, Laura's father, and asked the manager to cash it for him. The manager made Harry indorse the instrument, so he wrote "Lance Lawyer" under Laura's indorsement. Is Cornucopia Grocery a holder?

Problem 109: Assume that on receiving her paycheck, Laura Lawyer had signed her name to the back of the instrument, which then was blown out a window and landed at the feet of criminal, Harry Thief. Harry took the check down to Cornucopia Grocery & told the manager that he was Lance Lawyer, Laura's father, and asked the manager to cash it for him. The manager made Harry indorse the instrument, so he wrote "Lance Lawyer" under Laura's indorsement. Is Cornucopia Grocery a holder? Yes (in possession of bearer instrument). HIDC? Yes. Criminal is a holder but cannot be HIDC bc he did not give value.

Problem 110: Assume that Laura wanted to indorse the instrument over to her mother, so on the back she wrote "Pay to Lilly Lawyer" and then signed her own name. Thus indorsed, the instrument was blown out a window, and Harry Thief found it. He indorsed "Lilly Lawyer" under Laura's name & Transferred the check to Cornucopia Grocery. Is Cornucopia Grocery now a holder?

Problem 110: Assume that Laura wanted to indorse the instrument over to her mother, so on the back she wrote "Pay to Lilly Lawyer" and then signed her own name. Thus indorsed, the instrument was blown out a window, and Harry Thief found it. He indorsed "Lilly Lawyer" under Laura's name & Transferred the check to Cornucopia Grocery. Is Cornucopia Grocery now a holder? No, because its order paper & the criminal is no longer a proper holder. Theif can not cash it they can not cash it nobody down the line. Can only be negotiated by the names person. The important rule to follow here is that any unauthorizes signature of person does not make any other person a holder no matte rhow incocent they may be and how removed from the forgery they may be. Anyone who follows is not a holder. However if it was bearer paper this problem wouldn't be an issue.

Problem 111: Laura never had a course in commercial paper, so when she received her paycheck, she simply wrote her name on the back & mailed the check to her mother. Her mother needed some reason to hold onto the check for a week before cashing it, so she wrote "Pay to Lilly Lawyer" above Laura's indorsement. has the check now become order paper requiring the mother's indorsement for future negotiation?

Problem 111: Laura never had a course in commercial paper, so when she received her paycheck, she simply wrote her name on the back & mailed the check to her mother. Her mother needed some reason to hold onto the check for a week before cashing it, so she wrote "Pay to Lilly Lawyer" above Laura's indorsement. has the check now become order paper requiring the mother's indorsement for future negotiation? Yes.

Problem 112: Joe Lunchpail arrived home one day to file a note from his wife stating that she was divorcing him and that he should get a lawyer. Since he had just been paid that day, he took his paycheck down to the law office of Nathan Novice and indorsed it over to Nathan in return for the latter's promise to represent Joe in his divorce. Later that evening, Joe's wife sent the sheriff to seize his paycheck. Joe laughingly referred the sheriff to his attorney. Can the sheriff succeed in wresting the check from Nathan's hands?

Problem 112: Joe Lunchpail arrived home one day to file a note from his wife stating that she was divorcing him and that he should get a lawyer. Since he had just been paid that day, he took his paycheck down to the law office of Nathan Novice and indorsed it over to Nathan in return for the latter's promise to represent Joe in his divorce. Later that evening, Joe's wife sent the sheriff to seize his paycheck. Joe laughingly referred the sheriff to his attorney. Can the sheriff succeed in wresting the check from Nathan's hands? NPA. Depends on the retainer agreement; has L begun performance & thus given value? It's a draft & a specific instrument from a bank. One must be in possession. Nathan is a holder. Has he given value? The attorney would be giving value in the form of services. But, has he begun to perform the services? This would change the answer, if he didn't begin performing, then yes, the sheriff would be able to take it from him. What if attorney started performing to represent client on his divorce proceeding & did research only? Hourly vs retainer: he will only be a HIDC to the portion of money he worked on. We don't know if the attorney has given value here. But as shown above it depends on the retainer agreement so that value is given. If the retainer agreement is held to be only an executory promise, Novice has not given value. The cited case held that a law firm was a HIDC only to the extent that it had performed under the retainer agreement. But if the retainer is vidwed as a binding commitment to keep Novice's services availale, he may argue he has begun performance and has thus earned the entire amount. Read Case No. 2 in Official Comment 1 to 3-303. The policy here is that holder in due course status is not necessary to protect someone who has yet to part with anything and who has such an easy out: nonperformance

Problem 113: Zach Taylor bought a car for his business from Fillmore Motors, signing a promissory note for $23,000 payable to Fillmore. Fillmore sold the note to the Pierce Finance Company for $22,800, a $200 discount. The car fell apart, and Zach refused to pay. Is the financing company (assuming good faith & lack of notice) a HIDC for $23,000 or $22,800? If Millard Fillmore, the owner of Fillmore Motors, owed his mother $21,000 and gave her the note with the understanding that the extra $2,000 was a Mother's Day gift, would the mother be a HIDC for the full amount?

Problem 113: Zach Taylor bought a car for his business from Fillmore Motors, signing a promissory note for $23,000 payable to Fillmore. Fillmore sold the note to the Pierce Finance Company for $22,800, a $200 discount. The car fell apart, and Zach refused to pay. Is the financing company (assuming good faith & lack of notice) a HIDC for $23,000 or $22,800? $23,000 HDIC value doesn't change its just value; see 3-303. The promise was performed & whatever you promise to pay must be paid, it doesn't matter if later parties discounted the instrument to new holder. If Millard Fillmore, the owner of Fillmore Motors, owed his mother $21,000 and gave her the note with the understanding that the extra $2,000 was a Mother's Day gift, would the mother be a HIDC for the full amount? No, she would be HIDC for $21,000 only, bc the other $2,000 is a gift. She does not take shelter in Fillmore's HIDC status because he had knowledge of car breaking down.

Problem 114: Tom Winker tricked old Mrs. Nodding into writing a check payable to Tom (she thought he was the agent for a local charity). The check for $1,000 was drawn on her bank, the First County Bank. Tom took the check to his bank, the Last National Bank and after indorsing it, put it in his checking account. Last National Bank sent the check to the First County Bank for payment, but by the time it got there Mrs. Nodding had stopped payment so that the check was dishonored and returned to Last National. Is Last National Bank a HIDC? The question will be important if Tom has skipped town and Last National decides to sue Mrs. Nodding under 3-414.

Problem 114: Tom Winker tricked old Mrs. Nodding into writing a check payable to Tom (she thought he was the agent for a local charity). The check for $1,000 was drawn on her bank, the First County Bank. Tom took the check to his bank, the Last National Bank and after indorsing it, put it in his checking account. Last National Bank sent the check to the First County Bank for payment, but by the time it got there Mrs. Nodding had stopped payment so that the check was dishonored and returned to Last National. Is Last National Bank a HIDC? The question will be important if Tom has skipped town and Last National decides to sue Mrs. Nodding under 3-414. Yes, if it paid value by letting Tom have the $1,000 before the check cleared. Otherwise, it hasn't lost anything.

Problem 116: Dubious Mortgage Lender convinced a 91-year-old widower to refinance his home by granting him an adjustable rate mortgage, along with bountiful fees, after making fraudulent promises galore to him about the benefits of the new mortgage. Dubious kept the promissory note in a safe deposit box at its own bank, where it remains to this day. Shortly after the mortgage was given and the mortgage deed recorded in the mortgage records, Dubious sold the note & the mortgage contract to Investment National Bank, which paid good value but did not bother to take possession of the note. When the widower learned he had been defrauded, he stopped making payments on the note and Investment National Bank filed a foreclosure action against him. Is the bank a HIDC?

Problem 116: Dubious Mortgage Lender convinced a 91-year-old widower to refinance his home by granting him an adjustable rate mortgage, along with bountiful fees, after making fraudulent promises galore to him about the benefits of the new mortgage. Dubious kept the promissory note in a safe deposit box at its own bank, where it remains to this day. Shortly after the mortgage was given and the mortgage deed recorded in the mortgage records, Dubious sold the note & the mortgage contract to Investment National Bank, which paid good value but did not bother to take possession of the note. When the widower learned he had been defrauded, he stopped making payments on the note and Investment National Bank filed a foreclosure action against him. Is the bank a HIDC? No, because it did not take possession of the note (& thus is not a holder). You need to be in possession. You have to be a holder first.

Problem 117: The corporate treasurer of the Business Corporation was having major troubles paying his personal bills, so finally he decided to embark on a life of crime. He used a corporate check to pay his American Express bill, making the check out to "Amerex Corp., 770 Browdway, NY" (the address of American Express). On the corporate check requisition form he wrote a phony explanation that this check represented shipping expenses. This caused no suspicions at Business Corporation and, thus encouraged, he did it every month for 2 years. When Business Corporation finally figured out what happened, it sued American Express in quasi-contract for all the money it had received in this fashion. American Express replied that it was a HIDC of these checks and, as such, it was not amenable to this suit. Business Corporation pointed to the suspicious circumstances & UCC 3-302(a) & 3-307. How should this be resolved? Is American Express on notice for these suspicious circumstances?

Problem 117: The corporate treasurer of the Business Corporation was having major troubles paying his personal bills, so finally he decided to embark on a life of crime. He used a corporate check to pay his American Express bill, making the check out to "Amerex Corp., 770 Browdway, NY" (the address of American Express). On the corporate check requisition form he wrote a phony explanation that this check represented shipping expenses. This caused no suspicions at Business Corporation and, thus encouraged, he did it every month for 2 years. When Business Corporation finally figured out what happened, it sued American Express in quasi-contract for all the money it had received in this fashion. American Express replied that it was a HIDC of these checks and, as such, it was not amenable to this suit. Business Corporation pointed to the suspicious circumstances & UCC 3-302(a) & 3-307. How should this be resolved? Amex wins. Is American Express on notice for these suspicious circumstances? No. Cases have said must have actual knowledge or when there is a high degree of suspicion.

Problem 119: Ace Finance Company was the payee on a promissory note signed by John Maker. On its face, the note calls for John to make 12 monthly interest payments before the note matures. Ace sold the note at a discount to Big Town Bank (BTB). If the note has written on it, in big letters, a penciled notation, "Missed Paying First Installment," can BTB ever qualify as a HIDC?

Problem 119: Ace Finance Company was the payee on a promissory note signed by John Maker. On its face, the note calls for John to make 12 monthly interest payments before the note matures. Ace sold the note at a discount to Big Town Bank (BTB). If the note has written on it, in big letters, a penciled notation, "Missed Paying First Installment," can BTB ever qualify as a HIDC? Yes because this is notice of a missed interest payment, not a principal payment.

Problem 120: Dan Drawer wrote a check dated April 30 to Dr. Paine, his dentist, for $80, in payment for services rendered. Dr. Paine was not aware that the check fell to the floor behind his desk, where it lay until the end of August, when the janitor found it. Dr. Paine then deposited the check in his bank or on Aug. 31, and it bounced on Sept. 3, when the drawee bank informed the depositary bank that Dan had stopped payment because the dental work had been done badly. Is the depositary bank a HIDC?

Problem 120: Dan Drawer wrote a check dated April 30 to Dr. Paine, his dentist, for $80, in payment for services rendered. Dr. Paine was not aware that the check fell to the floor behind his desk, where it lay until the end of August, when the janitor found it. Dr. Paine then deposited the check in his bank or on Aug. 31, and it bounced on Sept. 3, when the drawee bank informed the depositary bank that Dan had stopped payment because the dental work had been done badly. Is the depositary bank a HIDC? No, because the check is now overdue. A holder cannot have knowledge that the instrument is overdue to be a HIDC.

Problem 122: Giant Earthmovers bought some machinery from Tractors, Inc., and in payment executed a promissory note payable to the order of Tractors for $2,000. Tractors sold the note without indorsement to the Friendly Finance Company for $1,500. The maker of the note refused to pay the note when it matured, stating that the machinery did not operate properly. Friendly decided to sue Giant Earthmovers, and the day before the lawsuit was filed, Friendly's lawyer noticed that the note had never been indorsed by Tractors, Inc. He had Tractors' president specially indorse the note over to Friendly right away, and then the suit was filed. Is Friendly a HIDC?

Problem 122: Giant Earthmovers bought some machinery from Tractors, Inc., and in payment executed a promissory note payable to the order of Tractors for $2,000. Tractors sold the note without indorsement to the Friendly Finance Company for $1,500. The maker of the note refused to pay the note when it matured, stating that the machinery did not operate properly. Friendly decided to sue Giant Earthmovers, and the day before the lawsuit was filed, Friendly's lawyer noticed that the note had never been indorsed by Tractors, Inc. He had Tractors' president specially indorse the note over to Friendly right away, and then the suit was filed. Is Friendly a HIDC? No, because by the time it was indorsed over to him (making him a holder), he had knowledge of the underlying transactions. Tractors is a HDIC and Frindly isn't because its not endorsed. Could be yes for everything except for the defenses. Because they had knowledge of the underlying defense at that point. No, see 3-203(c) and its official comments 3 and 4 (Case 4). Until there is a valid negotiation, one cannot be a holder in due course and any knowledge of problems with the underlying transaction arising before the negotiation is accomplished would defeat that status. Normally, the momment of giving value is the point when we judge holder in due course status, but if at that time a valid negotiation has not yet taken place, the judgment is postponed until that occurs.

Problem 130: When she heard her creditors fighting over priorities on her doorstep, Elsie Maynard knew that she had no choice but bankruptcy. Among the debts that she reported to the bankruptcy court was the loan she had taken from Point National Bank, which was evidenced by a promissory note she had singed. In due course the bankruptcy proceeding culminated in the judge's ordering that Elsie be discharged from all her scheduled debts. Two years later, the promissory note surfaced in the possession of Shadbolt State Bank, which claimed quite convincingly to be a HIDC. Must Elsie Pay?

Problem 130: When she heard her creditors fighting over priorities on her doorstep, Elsie Maynard knew that she had no choice but bankruptcy. Among the debts that she reported to the bankruptcy court was the loan she had taken from Point National Bank, which was evidenced by a promissory note she had singed. In due course the bankruptcy proceeding culminated in the judge's ordering that Elsie be discharged from all her scheduled debts. Two years later, the promissory note surfaced in the possession of Shadbolt State Bank, which claimed quite convincingly to be a HIDC. Must Elsie Pay? No, because debt was discharged in bankruptcy, a real defense against any holder & HIDC. See 3-3-5(a)(1) and(b)

Problem 123: Happy Jack, the used car salesman, sold Manny a lemon car for his business, taking in payment a promissory note for $2,000 made payable to the order of Happy Jack. Jack discounted the note with Alfred, a local licensed money broker, who paid him $1,700 and took the note without knowledge of the underlying transaction. Alfred's daughter Jessica had a birthday shortly thereafter, so Alfred indorsed the note in blank and gave it to her as a present. When the note matured, Manny refused to pay it to Jessica - the car had fallen apart, and he felt that he shouldn't have to pay for a pile of junk. Is Jessica a HIDC?

Problem 123: Happy Jack, the used car salesman, sold Manny a lemon car for his business, taking in payment a promissory note for $2,000 made payable to the order of Happy Jack. Jack discounted the note with Alfred, a local licensed money broker, who paid him $1,700 and took the note without knowledge of the underlying transaction. Alfred's daughter Jessica had a birthday shortly thereafter, so Alfred indorsed the note in blank and gave it to her as a present. When the note matured, Manny refused to pay it to Jessica - the car had fallen apart, and he felt that he shouldn't have to pay for a pile of junk. Is Jessica a HIDC? No (bc she doesn't give value) it's a gift, but she takes shelter in Alfred's HIDC rights. Under the shelter doctorine. Promisory note has 2 parties drafts have 3 Is happy jack a HIDC? No b/c he had knowledge about bad car but he is a holder Alfred HIDC?- he is a HIDC. has given value and has no knowledge of bad car.

Problem 124: If in the above Problem Jessica had thereafter made a gift of the note to her husband, Lorenzo, would Lorenzo have HIDC rights? But not HIDC. Does it matter if Lorenzo, prior to the gift, knows of Manny's problems with the car? If Manny wont pay, is Alfred liable to Lorenzo?

Problem 124: If in the above Problem Jessica had thereafter made a gift of the note to her husband, Lorenzo, would Lorenzo have HIDC rights? Yes, he has the rights because Jessica Transferred Alfred's rights to him. But not HIDC. Does it matter if Lorenzo, prior to the gift, knows of Manny's problems with the car? No.bc he takes shelter If Manny wont pay, is Alfred liable to Lorenzo? No, because Lorenzo is not a HIDC and he cant go back against Alfred because he has no rights of his own; he has Alfred's HIDC rights so he can claim them only against Manny.

Problem 126: Stephen Maturin bought a sailboat from Jack Aubrey, paying $500 down and signing a $1,000 promissory note for the balance due. Maturin loved everything about the boat except its color, and he promptly repainted it his favorite color, black. Prior to the sale Aubrey had told Maturin that the boat was constructed so that it wouldn't sink even in the roughest weather. This proved to be untrue when the sailboat went down in the first storm that came along, and it cost Maturin $300 to have it dredged from the bottom and restored. In the meantime, Aubrey had given the promissory note to his father as a birthday gift, and the father presented it to Maturin for payment at maturity. May Maturin assert his damages against the father's demand for payment?

Problem 126: Stephen Maturin bought a sailboat from Jack Aubrey, paying $500 down and signing a $1,000 promissory note for the balance due. Maturin loved everything about the boat except its color, and he promptly repainted it his favorite color, black. Prior to the sale Aubrey had told Maturin that the boat was constructed so that it wouldn't sink even in the roughest weather. This proved to be untrue when the sailboat went down in the first storm that came along, and it cost Maturin $300 to have it dredged from the bottom and restored. In the meantime, Aubrey had given the promissory note to his father as a birthday gift, and the father presented it to Maturin for payment at maturity. May Maturin assert his damages against the father's demand for payment? Yes because the father is not a HIDC because he did not give value. Once he exercised control over the boat you cant contractually take it back so when he painted it black this was that exercised right.

Problem 127: When Ronald Rube, newly rich, moved to NYC, he was impressed by the Brooklyn Bridge when he first saw it. Simon Mustache, a con man, told Rube that he was the owner of the bridge (a lie), and offered to sell it to Rube for $2,000,000 (described as "a bargain"). Rube paid $20,000 cash as a down-payment and signed a promissory note, payable to the order of Mustache, for the rest. Mustache negotiated the note to a finance company, which claimed to be a HIDC. When Rube discovered that Mustache lacked title to the bridge, he refused to pay the note. Does he have a real defense of fraud here?

Problem 127: When Ronald Rube, newly rich, moved to NYC, he was impressed by the Brooklyn Bridge when he first saw it. Simon Mustache, a con man, told Rube that he was the owner of the bridge (a lie), and offered to sell it to Rube for $2,000,000 (described as "a bargain"). Rube paid $20,000 cash as a down-payment and signed a promissory note, payable to the order of Mustache, for the rest. Mustache negotiated the note to a finance company, which claimed to be a HIDC. When Rube discovered that Mustache lacked title to the bridge, he refused to pay the note. Does he have a real defense of fraud here? No because this is fraud in the inducement (not a real defense), not fraud in factum. Ex: Shrek could claim fraud in factum if he married the ugly sister under the understanding he was marrying Fiona. But if ugly sister says marry me because I have a lot of money (& she really doesn't), this would be fraud in the inducement and not a real defense that could be claimed agst a HIDC.

Problem 128: A child prodigy, Thomas Minor, had been paying the piano since he was 3 years' old and making professional tours of the world since he was 12. He looked much older than his 17 years. He singed a promissory note for $800 payable to the order of Merry Music Company as payment for a piano, planning to tour with it. The company was unaware of Minor's age. The payee indorsed the note over to the Big National Bank for $725. When the first payment came due, Minor refused to pay. He told the bank to come pick up the piano—he was disaffirming the sale. Who wins?

Problem 128: A child prodigy, Thomas Minor, had been paying the piano since he was 3 years' old and making professional tours of the world since he was 12. He looked much older than his 17 years. He singed a promissory note for $800 payable to the order of Merry Music Company as payment for a piano, planning to tour with it. The company was unaware of Minor's age. The payee indorsed the note over to the Big National Bank for $725. When the first payment came due, Minor refused to pay. He told the bank to come pick up the piano—he was disaffirming the sale. Who wins? Minor, on real defense of infancy & illegality.

Problem 131: Malvolio, a traveling salesman, bought a new car from Valentine Auto Sales, signing a note for $18,000. The payee discounted the note for $16,800 to the Orsino Finance Company, which notified Malvolio that he should make all future payments to them. Malvolio immediately sent them a check for the outstanding balance (he had come into some money when his aunt died). He asked for the note back, but Orsino was evasive. A week later Malvolio received a note from the Olivia Finance Company saying that his note had been assigned to them and that he should direct his payments to their office. When Malvolio protested, they made HIDC noises & became quite nasty ( they probs are HIDC)(he would probs have to pay twice that is why you don't want them to get loose). Malvolio, worried, comes to you for advice. What should he do? Does Malvolio have remedies outside the Code?

Problem 131: Malvolio, a traveling salesman, bought a new car from Valentine Auto Sales, signing a note for $18,000. The payee discounted the note for $16,800 to the Orsino Finance Company, which notified Malvolio that he should make all future payments to them. Malvolio immediately sent them a check for the outstanding balance (he had come into some money when his aunt died). He asked for the note back, but Orsino was evasive. A week later Malvolio received a note from the Olivia Finance Company saying that his note had been assigned to them and that he should direct his payments to their office. When Malvolio protested, they made HIDC noises & became quite nasty ( they probs are HIDC)(he would probs have to pay twice that is why you don't want them to get loose). Malvolio, worried, comes to you for advice. What should he do? M should have demanded getting the note back before paying, but 3-501 and 3-602 saves him. Does Malvolio have remedies outside the Code? Yes. All sorts of remedies: Conversion, breach of contract (or quasi-contract), unjust enrichment. 3-501 says you must sign a receipt on the instrument for any payment made or surrender the instrument if full payment is made. This puts any holders of instrument to be on notice. 3-602- talks about not adequate notification and may possibly save the person.

Problem 132: Jimmy Slick, an expert con man, went into John's Jewelers and told John, the owner, that he was Milton Money, the richest man in town. John was too awed to ask for identification. Slick then picked out several very expensive pieces of jewelry and signed Money's name to a promissory note to pay for them. Slick skipped town with the jewelry. When the note matured, the Tenth National Bank (a HIDC to whom John has negotiated the paper) presented it to Milton Money for payment. May Money refuse to pay a HIDC?

Problem 132: Jimmy Slick, an expert con man, went into John's Jewelers and told John, the owner, that he was Milton Money, the richest man in town. John was too awed to ask for identification. Slick then picked out several very expensive pieces of jewelry and signed Money's name to a promissory note to pay for them. Slick skipped town with the jewelry. When the note matured, the Tenth National Bank (a HIDC to whom John has negotiated the paper) presented it to Milton Money for payment. May Money refuse to pay a HIDC? Yes, his signature is ineffective; he is not a party to the instrument, fraudulent signature. Slick is responsible for the note. Under 3-401: a person is not liable on an instrument unless (i) the person signed the instrument.

Problem 134: Craig Covey was the maker of the following promissory note, which he signed in order to buy a computer: "I, Craig Covey, promise to pay bearer the sum of $5,000, on demand. I also promise to buy the bearer lunch on the date of presentment." The note was given to his uncle, who had loaned him the money for the purchase. The uncle sold the note to Stonewall Finance Company in return for a check for $4,500. Stonewall Finance Company's check bounced, and the uncle was very angry. He went down to the finance company's office and found that there was a sign on the door saying "GONE OUT OF BUSINESS." The next day the note was stolen from the office of the Stonewall Finance Company and later surfaced in the hands of Jane Eleanor, an innocent purchaser for vale, who presented it to Craig for payment. In the meantime both his uncle and the Stonewall Finance Company had contacted Craig and asked him to refrain from paying the instrument, the uncle pointing to the bounced check & Stonewall to the fact that the note had been stolen from it. Is Jane a HIDC? If not, can Craig raise the suggested jus tertii against her? If Craig wants to pay Jane, can his uncle stop him? What would happen if dfense council is cocaine dealer

Problem 134: Craig Covey was the maker of the following promissory note, which he signed in order to buy a computer: "I, Craig Covey, promise to pay bearer the sum of $5,000, on demand. I also promise to buy the bearer lunch on the date of presentment." The note was given to his uncle, who had loaned him the money for the purchase. The uncle sold the note to Stonewall Finance Company in return for a check for $4,500. Stonewall Finance Company's check bounced, and the uncle was very angry. He went down to the finance company's office and found that there was a sign on the door saying "GONE OUT OF BUSINESS." The next day the note was stolen from the office of the Stonewall Finance Company and later surfaced in the hands of Jane Eleanor, an innocent purchaser for vale, who presented it to Craig for payment. In the meantime both his uncle and the Stonewall Finance Company had contacted Craig and asked him to refrain from paying the instrument, the uncle pointing to the bounced check & Stonewall to the fact that the note had been stolen from it. Is Jane a HIDC? No, because this is a non-negotiable instrument (bc it promises to buy lunch(there is an extra promise to buy lunch destroys negotiability). Therefore, Cannot be any holder of a non-negotiable instrument). If not, can Craig raise the suggested jus tertii against her? Yes, but only if the others are joined in the suit (otherwise, he can only raise his defenses, and these are his uncle's & Stonewall's defenses). However, he probably can raise the defense that the instrument has been stolen bc of 3-305("stolen instruments"). If Craig wants to pay Jane, can his uncle stop him? Perhaps, unclear. Stone & uncle will want to get an injunction to keep Craig from paying. What would happen if dfense council is cocaine dealer

Problem 260: Colossus Corporation was authorized to issue 100,000 shares of stock at a par value of $1; it had 150,000 printed up, and the extra 50,000 were saved for the purpose of replacing the old pieces of paper as they became worn. The company sold 100,000 shares. The extra 50,000 shares were stolen by a clever thief, who negotiated them to a bona fide purchaser (BFP). Can the BFP require the corporation to recognize the 50,000 shares as valid? What remedy does 8-210 give to the BFP?

Problem 260: Colossus Corporation was authorized to issue 100,000 shares of stock at a par value of $1; it had 150,000 printed up, and the extra 50,000 were saved for the purpose of replacing the old pieces of paper as they became worn. The company sold 100,000 shares. The extra 50,000 shares were stolen by a clever thief, who negotiated them to a bona fide purchaser (BFP). Can the BFP require the corporation to recognize the 50,000 shares as valid? No, because it would affect the value of the other shares. What remedy does 8-210 give to the BFP? To require Colossus to buy equivalent shares on the market and give them to her. If the price climbs astronomically, the company can argue the securities are "not reasonably available for purchase." (i.e.: if BFP had paid $50/share, and it will cost $300/share if Colossus has to go into open market, under 8-210(d) they'll only have to pay $50/share + a little interest, which is going to be better for them).

Problem 264: Maude Raisin was 80 years old and the registered owner of 100 shares of IBM stock. Her faithful companion of 15 years was Charleyne Rikki, who, one day after being turned down for a raise, took the stock & forged Ms. Raisin's signature to it. she took the stock to Bing, Bong, & Bell stockbrokers, & asked them to sell it. BB&B did so, guaranteeing the Raising signature as a part of the registration process. Maude discovered the loss, Charleyne went to jail, and Maude sued BB&B on their signature guarantee. Should she prevail? Would a common law suit for conversion prevail? Who should she sue?

Problem 264: Maude Raisin was 80 years old and the registered owner of 100 shares of IBM stock. Her faithful companion of 15 years was Charleyne Rikki, who, one day after being turned down for a raise, took the stock & forged Ms. Raisin's signature to it. she took the stock to Bing, Bong, & Bell stockbrokers, & asked them to sell it. BB&B did so, guaranteeing the Raising signature as a part of the registration process. Maude discovered the loss, Charleyne went to jail, and Maude sued BB&B on their signature guarantee. Should she prevail? No, she is not the person it was guaranteed to, she never relied on the guarantee. Would a common law suit for conversion prevail? Perhaps, conversion depends on state law. Who should she sue? Issuer for wrongful registration; broker not liable.

Problem 278: Assume in the last problem that the letter of credit issued by Last National had required that the bill of lading representing the goods be given not to Greenbaum, the applicant, but represented to the bank itself. Assume also that Latek had completely complied with all the terms of the credit, but Last National, knowing of the applicant's bankruptcy, wrongfully refused to pay the credit as agreed. VP for Latek calls you with questions. The market for steel is falling rapidly. Must Latek Steel resell the steel involved in this transaction immediately, or may it wait, hoping the bank will change its mind & pay what it owes? If it does resell, does that reduce the amount it can claim from Last National?

Problem 278: Assume in the last problem that the letter of credit issued by Last National had required that the bill of lading representing the goods be given not to Greenbaum, the applicant, but represented to the bank itself. Assume also that Latek had completely complied with all the terms of the credit, but Last National, knowing of the applicant's bankruptcy, wrongfully refused to pay the credit as agreed. VP for Latek calls you with questions. The market for steel is falling rapidly. Must Latek Steel resell the steel involved in this transaction immediately, or may it wait, hoping the bank will change its mind & pay what it owes? No, it need not resell because the issuer should not be given any incentive to dishonor.( we want to make it clear the issuer must pay. We don't want to give wiggle room.)(claimant is not obligated to mitigate damages. ) If it does resell, does that reduce the amount it can claim from Last National? Yes.

Problem 265: The shipping agent for the King Cotton Company wrongfully took for himself 90 bales of cotton that had come under his control & stored them in the Rural Warehouse, which issued him a negotiable warehouse receipt. This receipt he took to Octopus National Bank (ONB) & gave as security for a loan. He indorsed the receipt over to ONB. King Cotton discovered the bales were missing & investigated; the shipping agent was arrested. Shortly thereafter, ONB sold the warehouse receipt to Antitrust Bank (ANB), which bought the document w/ full knowledge of the above facts. Both ANB & King Cotton made a demand on Rural Warehouse for the cotton. Rural calls for your advice. What do you say? Is ONB HIDC? Is ANB HIDC?

Problem 265: The shipping agent for the King Cotton Company wrongfully took for himself 90 bales of cotton that had come under his control & stored them in the Rural Warehouse, which issued him a negotiable warehouse receipt. This receipt he took to Octopus National Bank (ONB) & gave as security for a loan. He indorsed the receipt over to ONB. King Cotton discovered the bales were missing & investigated; the shipping agent was arrested. Shortly thereafter, ONB sold the warehouse receipt to Antitrust Bank (ANB), which bought the document w/ full knowledge of the above facts. Both ANB & King Cotton made a demand on Rural Warehouse for the cotton. Rural calls for your advice. What do you say? Rural should bring a 7-603 interpleader action to ascertain the validity of claims. King Cotton will lose to a 7-502 holder bc its agent entrusted the goods over to the warehouse & is liable for its agent's actions (otherwise, if it wasn't King's agent, & it was stolen, King would get it back). Is ONB HIDC? Yes, negotiable receipt given to it, paid value & had no notice of theft. Is ANB HIDC? ANB isnt a 7-502 holder in its own right bc it bought w/ knowledge of theft, but it takes shelter in ONB's 7-502 HIDC status.

Problem 266: Goldbury, an investor, told his broker BBB to buy him 100 shares of Utopia stock. The broker placed the order by having this number of shares transferred to the account it carried with Clearing Corp. BBB then marked its books to reflect that Mr. Goldbury owned 100 shares of Utopia. Who are the entitlement holder [] & the securities intermediary [] & what is the security entitlement? Who has a security account? If the former owner of the 100 shares Goldbury purchased claims that they were stolen from her & somehow traces them to the account BBB has with Clearing Corp., will she succeed in reclaiming the stock? If Goldbury decides to sell his stock, can the former owner announce her ownership rights to the world & thereby give such notice that no one could be free from her adverse claim?

Problem 266: Goldbury, an investor, told his broker BBB to buy him 100 shares of Utopia stock. The broker placed the order by having this number of shares transferred to the account it carried with Clearing Corp. BBB then marked its books to reflect that Mr. Goldbury owned 100 shares of Utopia. Who are the entitlement holder [Goldbury] & the securities intermediary [BBB] & what is the security entitlement? Shares Goldbury has on BBB's books. Who has a security account? Goldbury. If the former owner of the 100 shares Goldbury purchased claims that they were stolen from her & somehow traces them to the account BBB has with Clearing Corp., will she succeed in reclaiming the stock? No, needs of the stock market override the adverse claim. If Goldbury decides to sell his stock, can the former owner announce her ownership rights to the world & thereby give such notice that no one could be free from her adverse claim? No, systems cant handle it. As trustee you are the legal owner of a trust account, if you don't co-mingle your funds with you client's funds, creditor cannot touch the account.

Problem 268: ( the author has deliberately made this problem intrastate to keep article 7 relevant) Homer Widget, of South Bend, Indiana, the inventor of the three-dimensional widget, contracted to sell 5,000 widgets to Ned's Novelty Store in Evansville, Indiana. Homer delivered the goods to the Overnight Trucking Company(carrier), consigning the goods to himself but writing "Notify Ned's Novelty Store on arrival" on the straight bill of lading. The carrier keeps a duplicate copy of the bill of lading with the goods; the original is, of course, turned over to the consignor(homer). Homer mailed the original bill to his cousin Wilbur Widget, who lived in Evansville. Along with the bill he sent a delivery order signed by himself and addressed to the trucking company telling the company to deliver the goods to Ned's Novelty Store. Homer's cover letter to his cousin stated that Wilbur should take the delivery order down to Ned at the store and turn it over to Ned only if Ned pay Wilbur cash for the goods. Wilbur did present the delivery order as Homer directed, but Ned was short on funds and could not pay. Wilbur, confused, mailed all the documents back to Homer with a letter saying Ned would not pay. Meanwhile, the goods arrived at Evansville, and John ("Slow") Burly, the company's truck driver, had to decide what to do with the widgets. Reading the bill of lading, he discovered that consignee lived in South Bend. By checking the phone book, he learned that Homer Widget had no address in Evansville. Then the truck driver noticed he was to notify Ned's Novelty Store, which did have an Evansville address, so he delivered the widgets to Ned. Was the carrier's delivery to Ned improper? If the widgets were destroyed in an auto accident prior to Ned's refusal to pay, who would have the risk of loss if the contract was "F.O.B. truck South Bend?"

Problem 268: ( the author has deliberately made this problem intrastate to keep article 7 relevant) Homer Widget, of South Bend, Indiana, the inventor of the three-dimensional widget, contracted to sell 5,000 widgets to Ned's Novelty Store in Evansville, Indiana. Homer delivered the goods to the Overnight Trucking Company(carrier), consigning the goods to himself but writing "Notify Ned's Novelty Store on arrival" on the straight bill of lading. The carrier keeps a duplicate copy of the bill of lading with the goods; the original is, of course, turned over to the consignor(homer). Homer mailed the original bill to his cousin Wilbur Widget, who lived in Evansville. Along with the bill he sent a delivery order signed by himself and addressed to the trucking company telling the company to deliver the goods to Ned's Novelty Store. Homer's cover letter to his cousin stated that Wilbur should take the delivery order down to Ned at the store and turn it over to Ned only if Ned pay Wilbur cash for the goods. Wilbur did present the delivery order as Homer directed, but Ned was short on funds and could not pay. Wilbur, confused, mailed all the documents back to Homer with a letter saying Ned would not pay. Meanwhile, the goods arrived at Evansville, and John ("Slow") Burly, the company's truck driver, had to decide what to do with the widgets. Reading the bill of lading, he discovered that consignee lived in South Bend. By checking the phone book, he learned that Homer Widget had no address in Evansville. Then the truck driver noticed he was to notify Ned's Novelty Store, which did have an Evansville address, so he delivered the widgets to Ned. Was the carrier's delivery to Ned improper? Yes, because homer Widget was the consignee & entitled on the document of title 7-403. This is both a breach of contract and conversion. See 7-403)(1), 7-404,601(2) If the widgets were destroyed in an auto accident prior to Ned's refusal to pay, who would have the risk of loss if the contract was "F.O.B. truck South Bend?" Ned. Risk of loss is on the buyer, not seller, when it turns out their destroyed because risk of loss passes when the goods are on the truck. FOB (free on board) - means risk of loss passes when the goods pass on to the ship/carrier/truck. (if buyer correctly refuses delivery, risk of loss goes back to seller). FAS (free along side) - risk of loss passes when you get to wharf next to the ship. Once the product get to ship for delivery risk goes to buyer. Buyer is responsible for loading the goods on the ship.

Problem 270: Jane Pitchfork, a southern Iowa farmer, had an excellent pumpkin crop (1,700) pumpkins this year. She stored 1,000 pumpkins with the Pumpkin Warehouse, Inc., located in Des Moines, taking a negotiable warehouse receipt for 500 and a non-negotiable receipt for the other 500. She also contracted to sell 700 other pumpkins to Peter P. Pumpkineater, who lived in Sioux City, Iowa. The terms of the contract required her to ship Pumpkineater 700 stem-less pumpkins "FOB railroad car Fort Madison, Iowa." Jane was too lazy to cut off the stems, but she thought Pumpkineater really would not care, so she loaded 700 pumpkins on board an Iowa Pacific Railroad car at Fort Madison, Iowa. She received a negotiable bill of lading consigned to her own order and made a proper contract for carriage of the pumpkins to Sioux City. She sold the 1,000 warehouse pumpkins to Mom's Pies, Inc. of Cedar Rapids. She indorsed the negotiable warehouse receipt over to Mom's Pies for the first 500 stored pumpkins and gave them a non-negotiable delivery order for the other 500 stored pumpkins. Before Mom's Pies could contact the warehouse, the Iowa Pacific Railroad carrying the pumpkins passed through Des Moines and derailed (due to negligence of the train's engineer). The train ran off the track and went through the center of Pumpkin Warehouse, destroying all 1,700 pumpkins. Jane Pitchfork, a dejected woman, comes to you. The railroad is, of course, going to be liable to whoever took the risk of loss as to the pumpkins. Advise Jane as to where the risk of loss is placed for each of the pumpkin transactions. Jane → Peter (700): Jane → Mom's Pies (negotiable 500): Jane → Mom's Pies (non-negotiable 500):

Problem 270: Jane Pitchfork, a southern Iowa farmer, had an excellent pumpkin crop (1,700) pumpkins this year. She stored 1,000 pumpkins with the Pumpkin Warehouse, Inc., located in Des Moines, taking a negotiable warehouse receipt for 500 and a non-negotiable receipt for the other 500. She also contracted to sell 700 other pumpkins to Peter P. Pumpkineater, who lived in Sioux City, Iowa. The terms of the contract required her to ship Pumpkineater 700 stem-less pumpkins "FOB railroad car Fort Madison, Iowa." Jane was too lazy to cut off the stems, but she thought Pumpkineater really would not care, so she loaded 700 pumpkins on board an Iowa Pacific Railroad car at Fort Madison, Iowa. She received a negotiable bill of lading consigned to her own order and made a proper contract for carriage of the pumpkins to Sioux City. She sold the 1,000 warehouse pumpkins to Mom's Pies, Inc. of Cedar Rapids. She indorsed the negotiable warehouse receipt over to Mom's Pies for the first 500 stored pumpkins and gave them a non-negotiable delivery order for the other 500 stored pumpkins. Before Mom's Pies could contact the warehouse, the Iowa Pacific Railroad carrying the pumpkins passed through Des Moines and derailed (due to negligence of the train's engineer). The train ran off the track and went through the center of Pumpkin Warehouse, destroying all 1,700 pumpkins. Jane Pitchfork, a dejected woman, comes to you. The railroad is, of course, going to be liable to whoever took the risk of loss as to the pumpkins. Advise Jane as to where the risk of loss is placed for each of the pumpkin transactions. Jane → Peter (700): Risk of loss is on Jane. If stem problem was serious enough to violate the perfect tender rule & give Peter a right of rejection, then the risk of loss remained on Jane (pitchfork) in spite of the FOB delivery term. Jane → Mom's Pies (negotiable 500): Risk of loss is on Mom's. When Jane indorsed the negotiable warehouse receipt over to Mom's Pies, risk of loss transfers to Mom's bc Mom's now has the negotiable warehouse receipt & risk of loss for goods held by a warehouse passes to buyer on buyer's receipt of possession/control of negotiable doc. Jane → Mom's Pies (non-negotiable 500): Risk of loss is on Jane. Risk of loss remains on seller [Jane] until the buyer [Mom's] has had a reasonable time to present the document to bailee. (this is also before Moms Pies could contact the warehouse, so warehouse has not accepted the delivery order, meaning risk of loss has not passed). Unless the perfect tender rule applies

Problem 271: Harry Thief went to the office of Monopoly Railroad to see his old prison cellmate, Phillip ("Forger") Copy. Copy, under an assumed name, was currently employed by Monopoly as chief shipping clerk. Harry asked Phillip to make out some phony negotiable bills of lading representing non-existent shipments by Harry to a buyer in CA. Harry wanted to sell the bills to a bank and split the money with Phillip. Phillip made out the bills, which Harry discounted at the Octopus National Bank, & the 2 of them left town. When the bank sued the railroad, the latter defended on the grounds that the phony bills contained the words "Shipper's weight, load, and count." Is this defense good?

Problem 271: Harry Thief went to the office of Monopoly Railroad to see his old prison cellmate, Phillip ("Forger") Copy. Copy, under an assumed name, was currently employed by Monopoly as chief shipping clerk. Harry asked Phillip to make out some phony negotiable bills of lading representing non-existent shipments by Harry to a buyer in CA. Harry wanted to sell the bills to a bank and split the money with Phillip. Phillip made out the bills, which Harry discounted at the Octopus National Bank, & the 2 of them left town. When the bank sued the railroad, the latter defended on the grounds that the phony bills contained the words "Shipper's weight, load, and count." Is this defense good? "Shipper's weight, load, and count" is the magic language, but it is no here bc Monopoly's agent Copy knows abt the midescription & consequently, Monopoly also knows.

Problem 273: Albert Collector took his favorite antique grandfather clock down to the Antique Clock Store to be cleaned. The proprietor assured him that it would be ready on Friday. On Thursday, Betty Shopper wandered into the store, saw the clock, & became entranced by it. She made the proprietor an offer he couldn't refuse, so he sold her the clock & she took it home. Albert Collector was furious & consults you. Can he replevy the clock from Betty? Can he sue the proprietor? Using what theories? If the proprietor had stored the clock in a warehouse, received a negotiable warehouse receipt therefor, & pledged the receipt to Last National Bank in return for a loan, could Albert retrieve the clock from the warehouse?

Problem 273: Albert Collector took his favorite antique grandfather clock down to the Antique Clock Store to be cleaned. The proprietor assured him that it would be ready on Friday. On Thursday, Betty Shopper wandered into the store, saw the clock, & became entranced by it. She made the proprietor an offer he couldn't refuse, so he sold her the clock & she took it home. Albert Collector was furious & consults you. Can he replevy the clock from Betty? No [Albert entrusted the clock to the antique dealer, & Betty is a BFP]. Can he sue the proprietor? Yes. Using what theories? Common law: breach of bailment, contract, conversion, quasi-contract, etc. If the proprietor had stored the clock in a warehouse, received a negotiable warehouse receipt therefor, & pledged the receipt to Last National Bank in return for a loan, could Albert retrieve the clock from the warehouse? No, he entrusted the goods to the bailor & cannot get the goods back. If it was stolen from him & then someone sold it in the store, then he could get it back bc he did not entrust it to the storeowner.

Problem 275: Sam Seller in Dallas signed a sales contract to sell one ton of tennis balls to Beth Buyer in Indianapolis, "FOB truck in Dallas," $800 to be paid by a 60-day time draft on the buyer. Sam boxed the tennis balls and filled out a packaging invoice describing the goods. He drew a draft as follows: To: Beth Buyer Sixty days after sight pay to the order of Sam Seller $800. (Signed) Sam Seller Banks don't need order to. He took the tennis balls down to the Texas Trucking Company and asked for a negotiable bill of lading consigned to his own order, with instructions "notify Beth Buyer on arrival." The trucking company issued the negotiable ("order" this would be Yellow) bill to Sam. Sam then took the bill of lading, the invoice describing the goods, and the draft on Buyer down to his local bank, the Lone Star National Bank. He asked Lone Star to collect the draft. On agreeing to the bank's collection charge, Sam indorsed both the draft & the bill of lading over to the bank. Lone Star Bank then forwarded the draft and the documents to the Indianapolis State Hoosier Bank for collection. The Hoosier Bank called Beth Buyer and told her to come by the bank and get the papers. Buyer came down that afternoon, wrote her name diagonally on the draft (which the bank dated & kept), and received the other documents. Two days later the Texas Trucking Company showed up with the goods and promptly notified buyer of their arrival. Buyer went down to the truck depot and surrendered the bill of lading, whereupon she received the tennis balls. Now, to see how Art. 2 and Art. 7 fit together, answer the following questions: Can Beth Buyer inspect the goods? If so, when? If the tennis balls are defective (Seller has breached one of his Art. 2 warranties), can Buyer reject or revoke her acceptance and refuse to pay? If the cartons are empty (Sam is a crook), can Buyer sue the Texas Trucking Company, since the bill of lading states that the goods shipped are "ONE TON TENNIS BALLS"? Can Buyer sue the collecting bank because the documents did not conform ot the goods shipped?

Problem 275: Sam Seller in Dallas signed a sales contract to sell one ton of tennis balls to Beth Buyer in Indianapolis, "FOB truck in Dallas," $800 to be paid by a 60-day time draft on the buyer. Sam boxed the tennis balls and filled out a packaging invoice describing the goods. He drew a draft as follows: To: Beth Buyer Sixty days after sight pay to the order of Sam Seller $800. (Signed) Sam Seller Banks don't need order to. He took the tennis balls down to the Texas Trucking Company and asked for a negotiable bill of lading consigned to his own order, with instructions "notify Beth Buyer on arrival." The trucking company issued the negotiable ("order" this would be Yellow) bill to Sam. Sam then took the bill of lading, the invoice describing the goods, and the draft on Buyer down to his local bank, the Lone Star National Bank. He asked Lone Star to collect the draft. On agreeing to the bank's collection charge, Sam indorsed both the draft & the bill of lading over to the bank. Lone Star Bank then forwarded the draft and the documents to the Indianapolis State Hoosier Bank for collection. The Hoosier Bank called Beth Buyer and told her to come by the bank and get the papers. Buyer came down that afternoon, wrote her name diagonally on the draft (which the bank dated & kept), and received the other documents. Two days later the Texas Trucking Company showed up with the goods and promptly notified buyer of their arrival. Buyer went down to the truck depot and surrendered the bill of lading, whereupon she received the tennis balls. Now, to see how Art. 2 and Art. 7 fit together, answer the following questions: Can Beth Buyer inspect the goods? Yes, but only after payment or acceptance of the goods. If so, when? Upon payment of the tennis balls, when she accepted the draft. If the tennis balls are defective (Seller has breached one of his Art. 2 warranties), can Buyer reject or revoke her acceptance and refuse to pay? Yes, accepting the documents & the draft is not the same as accepting the goods. If something went wrong with insepection you would have breach of k claim and a claim possibly against the inspector. If the cartons are empty (Sam is a crook), can Buyer sue the Texas Trucking Company, since the bill of lading states that the goods shipped are "ONE TON TENNIS BALLS"? Yes, unless they used the permissible exculpatory language of 7-301(1): "shipper's weight, load, and count..." Can Buyer sue the collecting bank because the documents did not conform ot the goods shipped? No. Collecting bank entrusted with docs of title on behalf of another or with collection of a draft....warrants only its own good faith & authority.

Problem 276: The US Army wanted to order uniforms for its soldiers from Khaki Clothing Inc., agreeing to pay a set amount on delivery. The Army, however, had major problems in the past dealing with Khaki, which was always very late at the meeting delivery schedules. The purchasing officer for the Army asked the Army's attorney if the contract could contain a penalty clause, imposing a huge penalty on Khaki if it did not deliver the uniforms by the required date. The attorney, mindful of basic contracts law, opined that the penalty clauses, (even if disguised as liquidated damages clauses)(can do this) are invalid as a matter of common law, but then he had an idea. He put a clause in the purchasing contract requiring Khaki to get a standby letter of credit in favor of the Army & requiring the issuing bank to pay a huge penalty sum to the Army in the event that Khaki did not deliver the uniforms on time. Octopus Bank issued such a credit, but when Khaki missed the delivery deadline & the Army tried to collect the penalty specified in the credit, the bank balked & in its defense pointed to the common law rule forbidding penalty clauses in contracts. Will this succeed?

Problem 276: The US Army wanted to order uniforms for its soldiers from Khaki Clothing Inc., agreeing to pay a set amount on delivery. The Army, however, had major problems in the past dealing with Khaki, which was always very late at the meeting delivery schedules. The purchasing officer for the Army asked the Army's attorney if the contract could contain a penalty clause, imposing a huge penalty on Khaki if it did not deliver the uniforms by the required date. The attorney, mindful of basic contracts law, opined that the penalty clauses, (even if disguised as liquidated damages clauses)(can do this) are invalid as a matter of common law, but then he had an idea. He put a clause in the purchasing contract requiring Khaki to get a standby letter of credit in favor of the Army & requiring the issuing bank to pay a huge penalty sum to the Army in the event that Khaki did not deliver the uniforms on time. Octopus Bank issued such a credit, but when Khaki missed the delivery deadline & the Army tried to collect the penalty specified in the credit, the bank balked & in its defense pointed to the common law rule forbidding penalty clauses in contracts. Will this succeed? Properly drafted, the letter of credit approach should work. Bank will have to go back against Khaki.

Problem 277: At the request of its applicant, Greenbaum Construction Co., Last National Bank (LNB) issued a letter of credit to Latek Steel Co. obligating itself to pay drafts drawn against it, reflecting steel shipped to Greenbaum under "Invoice #0046." Two weeks after the letter of credit was issued, the buyer & seller changed the shipment dates on the underlying contract & issued a new invoice, #0060. Latek Steel shipped the steel to Greenbaum as agreed & was disturbed to learn that the buyer had filed for bankruptcy 2 days later. However, it was reassured by the terms of the letter of credit. On Friday, March 27, it submitted a draft to Last National, accompanied by Invoice #0060, & was turned down for payment on April 1. Label the parties: who is the issuer? Beneficiary? Applicant? SKIP- no since Saturday and Sunday were not banking days (april 1 would be the third banking day following presentment. The bank is ok here. Remembering doctrine of de minimus non curat lex ("the law does not notice small defects") the attorney for Latek Steel argued that it had substantially complied w/ the letter of credit so the bank was guilty of wrongful dishonor & ought to respond in damages under 5-111. Is this right? Does the seller have any other remedy? What should Latek have done to avoid all this?

Problem 277: At the request of its applicant, Greenbaum Construction Co., Last National Bank (LNB) issued a letter of credit to Latek Steel Co. obligating itself to pay drafts drawn against it, reflecting steel shipped to Greenbaum under "Invoice #0046." Two weeks after the letter of credit was issued, the buyer & seller changed the shipment dates on the underlying contract & issued a new invoice, #0060. Latek Steel shipped the steel to Greenbaum as agreed & was disturbed to learn that the buyer had filed for bankruptcy 2 days later. However, it was reassured by the terms of the letter of credit. On Friday, March 27, it submitted a draft to Last National, accompanied by Invoice #0060, & was turned down for payment on April 1. Label the parties: who is the issuer? LNB. Beneficiary? Latek. Applicant? Greenbaum. SKIP- no since Saturday and Sunday were not banking days (april 1 would be the third banking day following presentment. The bank is ok here. Remembering doctrine of de minimus non curat lex ("the law does not notice small defects") the attorney for Latek Steel argued that it had substantially complied w/ the letter of credit so the bank was guilty of wrongful dishonor & ought to respond in damages under 5-111. Is this right? No. the documents must be exact; the numbers are different. How is the bank to know the differently numbered invoice is the same as that called for in the letter of credit? The parties should have amended the letter of credit when the invoice number changed. Does the seller have any other remedy? Seller can reclaim the goods from an insolvent buyer who has ordered them on credit, upon demand made within 10 days after buyer's receipt. What should Latek have done to avoid all this? Amend the letter of credit w/ new #.

Problem 280: Luddite Technologies wanted to build a new company headquarters. It hired Weekend Construction for the job, requiring a standby letter of credit of $80k to be paid if Weekend failed to keep the required schedule for completion of the bldg. At Weekend's request, Last National Bank issued such a credit in favor of Luddite, payable, according to the terms of the credit, "on default by Weekend in meeting the attached completion schedule & the beneficiary's presentation of an affidavit to that effect along with a draft drawn on us for $80k." Weekend dutifully performed its contractual duties, but the president Luddite, needing money, sent the required draft & affidavit to Last National, wrongfully asserting that Weekend had missed timely completion of a part of the project. Last National paid the draft w/o investigating the truth of the assertions in the affidavit & now seeks reimbursement from the applicant, Weekend. Can Weekend resist paying under the theory that Last National did not verify the default as the letter of credit required? "Where the documents commit the issuer to assess facts & events outside the document presented, they disable the independence principle & topple the wall that separates presented documents from beneficiary-applicant disputes"; if Weekend has gone bankrupt since the bank honored the draft, can Last National pursue Luddite Technologies to get its money back? see 5-109 How quickly must it act?

Problem 280: Luddite Technologies wanted to build a new company headquarters. It hired Weekend Construction for the job, requiring a standby letter of credit of $80k to be paid if Weekend failed to keep the required schedule for completion of the bldg. At Weekend's request, Last National Bank issued such a credit in favor of Luddite, payable, according to the terms of the credit, "on default by Weekend in meeting the attached completion schedule & the beneficiary's presentation of an affidavit to that effect along with a draft drawn on us for $80k." Weekend dutifully performed its contractual duties, but the president Luddite, needing money, sent the required draft & affidavit to Last National, wrongfully asserting that Weekend had missed timely completion of a part of the project. Last National paid the draft w/o investigating the truth of the assertions in the affidavit & now seeks reimbursement from the applicant, Weekend. Can Weekend resist paying under the theory that Last National did not verify the default as the letter of credit required? No, separation clause/independence principal; it did not have to. Discrepancy must have been apparent on the face of the presentation and can rely on the affidavit.( 5-108 g if an undertaking constituting a later of credit contains nondocumentary conditions, an issuer shall 1) disregard the nondocumentary conditions and treat them as if they were not stated.) "Where the documents commit the issuer to assess facts & events outside the document presented, they disable the independence principle & topple the wall that separates presented documents from beneficiary-applicant disputes"; if Weekend has gone bankrupt since the bank honored the draft, can Last National pursue Luddite Technologies to get its money back? see 5-109 Yes, bc it warranted to issuer & applicant that there is no fraud or forgery. How quickly must it act? Within 1 year after the actual breach or within 1 year after the expiration of the letter of credit. 5-115

Problem 282: ONB issued a $50k letter of credit to Grey Goods of NY, payable to Grey Goods on presentation of a draft & certain documents demonstrating shipment of clothing to Ohio Wholesalers, the bank's applicant. Grey Goods needed money to finance its operations, so it borrowed $30k from the Midwest State Bank, giving MSB a security interest in the proceeds of the letter of credit & assigning the right to those proceeds to MSB, which promptly notified ONB of the assignment. Grey Goods had trouble filling the Ohio Wholesalers order, so those 2 parties agreed to lower the amount shipped & the price to $10k worth of clothing, & the letter of credit was amended to reflect this lower amount. When the clothing was shipped & the draft presented under the letter of credit, ONB was only willing to pay $10k to MSB. MSB wants to know what are its rights here?

Problem 282: ONB issued a $50k letter of credit to Grey Goods of NY, payable to Grey Goods on presentation of a draft & certain documents demonstrating shipment of clothing to Ohio Wholesalers, the bank's applicant. Grey Goods needed money to finance its operations, so it borrowed $30k from the Midwest State Bank, giving MSB a security interest in the proceeds of the letter of credit & assigning the right to those proceeds to MSB, which promptly notified ONB of the assignment. Grey Goods had trouble filling the Ohio Wholesalers order, so those 2 parties agreed to lower the amount shipped & the price to $10k worth of clothing, & the letter of credit was amended to reflect this lower amount. When the clothing was shipped & the draft presented under the letter of credit, ONB was only willing to pay $10k to MSB. MSB wants to know what are its rights here? The assignment is ok, but MSB must live with the amendment; ONB did not consent to the assignment. MSB is the assignee. All that's happened here is that the collateral is not what MSB thought it would be worth; Grey still owes the deficiency to MSB. So Grey borrowed $30k providing MSB collateral in security interest in the proceeds of the letter of credit. It is a consensual lien; I have to grant the power on default to allow creditor to recover goods without judicial process. Can Grey use proceeds as collateral? Yes. Does MSB have a right to $30K? Yes, from the borrower, but cannot levy more than $10k bc collateral lost value. It did not consent here.

Problem 283: Ebenezer Scrooge was the sole shareholder of Scrooge & Marley Inc. a corporation that sold coal. In early 2016, the corporation signed a $2 million contract to buy mineral rights in a new coal tract in PA from Frederick Bean, the owner of the land, agreeing that he would allow Scrooge & Marley to mine in the summer of 2009, sell it to others, and then pay the $2 million to Bean. In the meantime Scrooge & Marley signed a promissory note for this amount payable to Bean, guaranteed personally by Ebenezer Scrooge only, due June 1, 2016. Bean also required Scrooge & Marley to get a standby letter of credit in his favor for the amount of $2 million, payable if the corporation defaulted on its promissory note. The corporation had Dickens National Bank issue such a letter of credit, with Bean as the beneficiary. The transaction went as planned until the market for coal collapsed after Scrooge & Marley had mined the Bean tract & found itself unable to sell that coal at a profit. When the promissory note was not paid when it came due in 2016, Bean drew a draft on the bank under the letter of credit. Dickens Bank has this draft in hand & calls you. Scrooge & Marley has just filed for bankruptcy & has no assets. Must it pay the letter of credit? If it does, can it subrogate itself to Bean's rights against Ebenezer Scrooge? Can it go after Scrooge before it pays Bean's draft? Can it take bean's rights/does the bank step into Bean's shoes? Pay before?

Problem 283: Ebenezer Scrooge was the sole shareholder of Scrooge & Marley Inc. a corporation that sold coal. In early 2016, the corporation signed a $2 million contract to buy mineral rights in a new coal tract in PA from Frederick Bean, the owner of the land, agreeing that he would allow Scrooge & Marley to mine in the summer of 2009, sell it to others, and then pay the $2 million to Bean. In the meantime Scrooge & Marley signed a promissory note for this amount payable to Bean, guaranteed personally by Ebenezer Scrooge only, due June 1, 2016. Bean also required Scrooge & Marley to get a standby letter of credit in his favor for the amount of $2 million, payable if the corporation defaulted on its promissory note. The corporation had Dickens National Bank issue such a letter of credit, with Bean as the beneficiary. The transaction went as planned until the market for coal collapsed after Scrooge & Marley had mined the Bean tract & found itself unable to sell that coal at a profit. When the promissory note was not paid when it came due in 2016, Bean drew a draft on the bank under the letter of credit. Dickens Bank has this draft in hand & calls you. Scrooge & Marley has just filed for bankruptcy & has no assets. Must it pay the letter of credit? Yes. if it does, can it subrogate itself to Bean's rights against Ebenezer Scrooge? Yes. Can it go after Scrooge before it pays Bean's draft? No. Can it take bean's rights/does the bank step into Bean's shoes? Yes. Pay before? Must look to Art. 5, No. Even fi the parties put in the contract that bank could recover without.

Problem 283: When Mercy Hospital's administrators decided to build a new addition, they hired a general contractor named Crash Construction Co. & required it to get a surety to guaranty the performance of the construction job & the payment of all the workers & material suppliers (to avoid a mechanic's lien on the hospital). Standard Surety issued such a performance & payment bond covering Crash's obligation to Mercy Hospital. To finance the construction, Crash borrowed money from ONB & gave as collateral the right to collect the progress payments from Mercy Hospital as they became due. ONB duly filed an Art. 9 financial statement. Halfway through the job, Crash went bankrupt, & Standard Surety had to finish & pay off the employees & suppliers. At this point, by virtue of common law right to subrogation, Standard Surety claimed a superior right to unpaid monies retained by Mercy Hospital, which were to be paid to Crash. ONB claimed this fund, pointed to its filed security interest, & stated that Standard Surety's subrogation right was only an unfiled Art. 9 security interest. Who should win?

Problem 283: When Mercy Hospital's administrators decided to build a new addition, they hired a general contractor named Crash Construction Co. & required it to get a surety to guaranty the performance of the construction job & the payment of all the workers & material suppliers (to avoid a mechanic's lien on the hospital). Standard Surety issued such a performance & payment bond covering Crash's obligation to Mercy Hospital. To finance the construction, Crash borrowed money from ONB & gave as collateral the right to collect the progress payments from Mercy Hospital as they became due. ONB duly filed an Art. 9 financial statement. Halfway through the job, Crash went bankrupt, & Standard Surety had to finish & pay off the employees & suppliers. At this point, by virtue of common law right to subrogation, Standard Surety claimed a superior right to unpaid monies retained by Mercy Hospital, which were to be paid to Crash. ONB claimed this fund, pointed to its filed security interest, & stated that Standard Surety's subrogation right was only an unfiled Art. 9 security interest. Who should win? The Surety, even though it files nothing because the equitable right of subrogation arises as a matter of law & not by consent of the parties and thus is not a security interest.

Problem 285: Assume that a state statute gives someone doing repairs a possessory artisan's lien on the property repaired. Mr. Banker took his car into Mack's Garage for repair but, being strapped for funds, couldn't pay the full bill, & Mack wouldn't let him have the car back. Is Mack's artisan's lien an Art. 9 SI? If, prior to the repair work, Mr. Baker signed a statement giving Mack a right to repossess the car if the bill wasn't paid, does this create a SI under the code?Negotiable instrument? Do we have two Liens? If Mack is no longer in possession of the car, does it destroy the artisan's lien? Can it pick up the car on the consensual lien?

Problem 285: Assume that a state statute gives someone doing repairs a possessory artisan's lien on the property repaired. Mr. Banker took his car into Mack's Garage for repair but, being strapped for funds, couldn't pay the full bill, & Mack wouldn't let him have the car back. Is Mack's artisan's lien an Art. 9 SI? No, statutory liens are not covered under Art. 9, but Art. 9 will apply to sort out priority. If, prior to the repair work, Mr. Baker signed a statement giving Mack a right to repossess the car if the bill wasn't paid, does this create a SI under the code? Yes. Negotiable instrument? Do we have order or promise? Do we have two Liens? Yes, the artisan's statutory lien and the Art. 9 SI lien. If SI is behind another SI (bc the bank already had a SI), the artisans' lien might allow me to defeat the banks consensual lien. Where if both only had consensual liens, the first one to have filed it prevails. If Mack is no longer in possession of the car, does it destroy the artisan's lien? Yes. Can it pick up the car on the consensual lien? Yes.

Problem 285:When Christopher Morley opened his bookshop the landlord wanted security for the rent. They signed a lease agreement providing that all of the inventory (the books) would be subject to a lien in the landlord's favor & could be seized & sold if Chris defaulted in the rent payments. Is the Landlord's lien required to be perfected under Article 9?

Problem 285:When Christopher Morley opened his bookshop the landlord wanted security for the rent. They signed a lease agreement providing that all of the inventory (the books) would be subject to a lien in the landlord's favor & could be seized & sold if Chris defaulted in the rent payments. Is the Landlord's lien required to be perfected under Article 9? Note that there are 2 liens: the landlord's lien which arises by operation of law; & a consensual lien created by contract. The landlord's lien is not governed by Art. 9, but the contractual lien is. The contractual lien is valid w/o perfection when the LL is in possession (the books are in the apt). But needs to be perfected to prevail over other later perfected creditors & survive bankruptcy trustee. i.e. If Chris moves the books, LL no longer in possession.

Problem 286: To raise money, Farmer Brown's Fresh Vegetables Roadside Stand sold all of its account receivable to Nightflyer Finance Co., which notified the customers that henceforth all payments should be made directly to Nightflyer. This is not a loan from the finance company to the farmer with the accounts receivable put up as collateral; its an outright sale. If it were a loan, & if the collectible accounts exceeded the amount of the loan, the excess would be returned to Farmer; in an actual sale, Nighflyer can keep the surplus. Is this sale nonetheless a "security interest"? Is it a consensual lien on the accounts receivable? No because I'm selling the accounts receivable. Is the sale an Art. 9 security interest? If so, even though Farmer has no further obligations to Nightflyer, he would of necessity be termed an Art. 9 "debtor." Then Nightflyer would have to file an Art. 9 financing statement to perfect its interest against later parties. Why would the code drafters have brought an out-right sale of accounts under the coverage of Art. 9? How can they seize an accounts receivable physically?

Problem 286: To raise money, Farmer Brown's Fresh Vegetables Roadside Stand sold all of its account receivable to Nightflyer Finance Co., which notified the customers that henceforth all payments should be made directly to Nightflyer. This is not a loan from the finance company to the farmer with the accounts receivable put up as collateral; its an outright sale. If it were a loan, & if the collectible accounts exceeded the amount of the loan, the excess would be returned to Farmer; in an actual sale, Nighflyer can keep the surplus. Is this sale nonetheless a "security interest"? Yes (Art. 9 applies to sale of accounts). Is it a consensual lien on the accounts receivable? No because I'm selling the accounts receivable. Is the sale an Art. 9 security interest? Yes, counts as an Art. 9 security interest but its not a lien, it's a sale. If so, even though Farmer has no further obligations to Nightflyer, he would of necessity be termed an Art. 9 "debtor." Then Nightflyer would have to file an Art. 9 financing statement to perfect its interest against later parties. Why would the code drafters have brought an out-right sale of accounts under the coverage of Art. 9? Because of the secret lien problem. Interests in accounts are hard to discover without a public notice procedure. To perfect, file a UCC 1 agst the seller with the Secretary of State. The bank trying to buy the lien would look to the sate's UCC filing system to make sure there is no other interest. How can they seize an accounts receivable physically? Debtor agrees all accounts receivable will go to a lockbox with the bank, usually in the bank's name.

Problem 287: The loan agreement between Dickens Publishing & Octopus Bank contains a negative pledge clause. Dickens agrees not to use any of its property as collateral for debt to other creditors. Is the transaction governed by Art. 9? Has there been a grant of right to come out and pick up the goods? Suppose Dickens had agreed "Dickens agrees to repay Lender the entire principal of $18k on or before 4/1/15. If Dickens cannot refinance its current debt to cover this amount or if another source of funds is unavailable, Dickens agrees to sell its inventory & equipment in order to repay Lender." Is the transaction governed by Art. 9? Again, is there a grant?

Problem 287: The loan agreement between Dickens Publishing & Octopus Bank contains a negative pledge clause. Dickens agrees not to use any of its property as collateral for debt to other creditors. Is the transaction governed by Art. 9? No, there's no security interest granted; its just a contractual obligation. Has there been a grant of right to come out and pick up the goods? No. Suppose Dickens had agreed "Dickens agrees to repay Lender the entire principal of $18k on or before 4/1/15. If Dickens cannot refinance its current debt to cover this amount or if another source of funds is unavailable, Dickens agrees to sell its inventory & equipment in order to repay Lender." Is the transaction governed by Art. 9? No, not an Art. 9 SI because its simply an agreement: Art. 9 interest is: "upon default, I grant you the creditor the right to come and take my __." Again, is there a grant? No.

Problem 288: Antiques R Us was the largest antiques store in the city, well known as a place where antique dealers could hire out space & exhibit their wares, with the store handling the sales & taking a commission on each one & returning to the dealers the items that remain unsold. When the store takes out a loan from ONB & uses as collateral "all its property" will the bank's security interest reach items in the store that belong to the dealers if the dealers have never taken steps required of consignors under Art. 9?

Problem 288: Antiques R Us was the largest antiques store in the city, well known as a place where antique dealers could hire out space & exhibit their wares, with the store handling the sales & taking a commission on each one & returning to the dealers the items that remain unsold. When the store takes out a loan from ONB & uses as collateral "all its property" will the bank's security interest reach items in the store that belong to the dealers if the dealers have never taken steps required of consignors under Art. 9? No, because Antiques R US is well known. They should be advised to file by their lawyer, but probably don't have to here. True consignment escape filing requirements. Consignments are included in Art. 9 because sometimes they are disguised as such but really are a sale on credit. Governed by Art. 9 bc of the secret lien problem. Here, although dealt in goods of the kind and are not auctioneers, they are well known for selling goods of others, so creditors know they sell goods of others.

Problem 290: Big Machines, Inc., leased a duplicating machine to Connie's Print Shop. The lease was for 5 years, and rental payments over this period exactly equaled the current market price of the machine. The lease contract further provided that at the end of the 5 years Connie's Shop could purchase the machine outright by paying Big $5. Big did not file an Art. 9 financial statement. Thereafter Connie's Shop borrowed money from ONB & signed a security agreement with the bank granting it an interest in all of the print shop's "equipment." ONB duly perfected its SI by filing a FS in the appropriate place. When Connie's Shop failed to repay the loan, ONB seized all the shop's equipment, including the duplicating machine. In the lawsuit ONB v. Big, who gets the machine?

Problem 290: Big Machines, Inc., leased a duplicating machine to Connie's Print Shop. The lease was for 5 years, and rental payments over this period exactly equaled the current market price of the machine. The lease contract further provided that at the end of the 5 years Connie's Shop could purchase the machine outright by paying Big $5. Big did not file an Art. 9 financial statement. Thereafter Connie's Shop borrowed money from ONB & signed a security agreement with the bank granting it an interest in all of the print shop's "equipment." ONB duly perfected its SI by filing a FS in the appropriate place. When Connie's Shop failed to repay the loan, ONB seized all the shop's equipment, including the duplicating machine. In the lawsuit ONB v. Big, who gets the machine? ONB (because this is a disguised sale, ONB has a perfected interest, & BIG didn't file). Lawyer should have advised Big to file.

Problem 291: Business Corp. leased a massive copier from Copies, Inc., for a 5 year period. At the outset of the lease of the copier had a fair market value of $300K & a predicted 10 year useful life. Over the course of the 5 year lease the rental payments would total $330,000. The lease provides that Business Corp. has the option to become the owner of the copier at the end of the 5 year period by paying Copies the amount of $10,000. Is this a true lease or a secured sale? Would we reach a different result if the copier's useful life were only 5 years?

Problem 291: Business Corp. leased a massive copier from Copies, Inc., for a 5 year period. At the outset of the lease of the copier had a fair market value of $300K & a predicted 10 year useful life. Over the course of the 5 year lease the rental payments would total $330,000. The lease provides that Business Corp. has the option to become the owner of the copier at the end of the 5 year period by paying Copies the amount of $10,000. Is this a true lease or a secured sale? NPA, because it is not determinative or a lease of sale of goods if lessee pays consideration equal or greater than the fair market value of the leased goods, as long as the lease doesn't cover the total economic life. Nor does the lessee's assumption of major duties (tax, risk of loss, etc.) necessarily indicate a lease or sale of goods. (But in close cases, should file). Would we reach a different result if the copier's useful life were only 5 years? Yes, because this would be a sale bc the useful life would be done.

Problem 295: Carl was an independent insurance agent who sold policies for many companies, though his primary sales were in the life & auto policies of Montana Insurance Associates (MIA). In order to float a loan to buy a car, Carl gave the lending bank a security interest in "all present & future commissions earned or to be earned" from the MIA. Does Art. 9 cover this assignment?

Problem 295: Carl was an independent insurance agent who sold policies for many companies, though his primary sales were in the life & auto policies of Montana Insurance Associates (MIA). In order to float a loan to buy a car, Carl gave the lending bank a security interest in "all present & future commissions earned or to be earned" from the MIA. Does Art. 9 cover this assignment? In Massachusetts, yes because the commissions were not exempt as "wages." Also note that Carl may not meet the test of employee bc he's an independent contractor.

Problem 296: When Dean Malone sold his lucrative art business to John Pivarski, he sold not only all the tangible assets but his outstanding accounts receivable as well. Must the buyer take the steps required by Art. 9 of a secured party? If Malone received a commission to paint the portrait of the city's mayor but decided he was too busy to perform the task & (with the mayor's permission) transferred the job & the right to the payment for it to another artist, must the new artist take Art. 9 steps? When one of Malone's clients refused to pay for a delivered painting, Malone sold the accounts to Trash Collection Agency. Must Trash comply with Art. 9? Finally, pressed up by his art supplies store for payment of his outstanding tab, Malone transferred to the store the money due him from a client whose portrait he had painted the month before. Must art supplies store take Art. 9 steps?

Problem 296: When Dean Malone sold his lucrative art business to John Pivarski, he sold not only all the tangible assets but his outstanding accounts receivable as well. Must the buyer take the steps required by Art. 9 of a secured party? No, under 9-109(d)(4) Art. 9 does not apply when its selling it along with a business. If Malone received a commission to paint the portrait of the city's mayor but decided he was too busy to perform the task & (with the mayor's permission) transferred the job & the right to the payment for it to another artist, must the new artist take Art. 9 steps? No, under 9-109(d)(6), Art. 9 does not apply to an assignment of a right to payment under a contract to an assignee that is also obligated to perform the contract. When one of Malone's clients refused to pay for a delivered painting, Malone sold the accounts to Trash Collection Agency. Must Trash comply with Art. 9? No, under 9-109(d)(5), Art. 9 does not apply to an assignment to a debt collector. Finally, pressed up by his art supplies store for payment of his outstanding tab, Malone transferred to the store the money due him from a client whose portrait he had painted the month before. Must art supplies store take Art. 9 steps? No, under 9-109(d)(7), Art. 9 does not apply to an assignment on an account to pay for a pre-existing debt.

Problem 296: When David Vargo sold his lucrative art business to Manny Flowers, he sold not only all the tangible assets but his outstanding accounts receivables as well. Must the buyer take the steps required by Article 9 of a secured party? If Vargo received a commission to paint the portrait of the city's mayor but decided he was too busy to perform the task and (with the mayor's permission) transferred the job (and the right to the payment for it) to another artist, must the new artist take Article 9 steps? No. See §9-109(d)(6). When one of Vargo's clients refused to pay for a delivered painting, Vargo sold the account to Trash Collection Agency. Must Trash comply with Article 9? Finally, pressed by his art supplies store for payment of his outstanding tab, Vargo transferred to the store the money due him from a client whose portrait he had painted the month before. Must the art supplies store take Article 9 steps?

Problem 296: When David Vargo sold his lucrative art business to Manny Flowers, he sold not only all the tangible assets but his outstanding accounts receivables as well. Must the buyer take the steps required by Article 9 of a secured party? No bc but as a careful lawyer you might want to take the steps to file a financing statement if there are any concerns of getting the moneySee §§9-102(a)(72)(D) and 9-109(d)(4). If Vargo received a commission to paint the portrait of the city's mayor but decided he was too busy to perform the task and (with the mayor's permission) transferred the job (and the right to the payment for it) to another artist, must the new artist take Article 9 steps? No. See §9-109(d)(6). When one of Vargo's clients refused to pay for a delivered painting, Vargo sold the account to Trash Collection Agency. Must Trash comply with Article 9? NO See §9-109(d)(5). Finally, pressed by his art supplies store for payment of his outstanding tab, Vargo transferred to the store the money due him from a client whose portrait he had painted the month before. Must the art supplies store take Article 9 steps? NO See §9-109(d)(7). (d) [Inapplicability of article.] This article does not apply to: (1) a landlord's lien, other than an agricultural lien; (2) a lien, other than an agricultural lien, given by statute or other rule of law for services or materials, but Section 9-333 applies with respect to priority of the lien; (3) an assignment of a claim for wages, salary, or other compensation of an employee; (4) a sale of accounts, chattel paper, payment intangibles, or promissory notes as part of a sale of the business out of which they arose; (5) an assignment of accounts, chattel paper, payment intangibles, or promissory notes which is for the purpose of collection only; (6) an assignment of a right to payment under a contract to an assignee that is also obligated to perform under the contract; (7) an assignment of a single account, payment intangible, or promissory note to an assignee in full or partial satisfaction of a preexisting indebtedness; (8) a transfer of an interest in or an assignment of a claim under a policy of insurance, 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, but Sections 9-315 and 9-322 apply with respect to proceeds and priorities in proceeds; (9) an assignment of a right represented by a judgment, other than a judgment taken on a right to payment that was collateral;

Problem 297: Local Loan Company (LLC) needed to borrow money, & ONB agreed to loan it the requisite amount, taking into ONB's possession as collateral the real property mortgages & accompanying promissory notes given to LLC by its borrower. Need ONB do anything either in the real property recording office or under Art. 9 to protect its interest in this collateral?

Problem 297: Local Loan Company (LLC) needed to borrow money, & ONB agreed to loan it the requisite amount, taking into ONB's possession as collateral the real property mortgages & accompanying promissory notes given to LLC by its borrower. Need ONB do anything either in the real property recording office or under Art. 9 to protect its interest in this collateral? Not if it takes possession of the promissory notes, but it should file everywhere for protection a fininacing statement therefore if it is determined that you should have done it you already have so there is no issue and your removed that risk.

Problem 298: ONB issues Connie a credit card. As collateral for the credit card debts, ONB took a security interest in all items she purchased using the card, as well as in her personal checking account with the bank. Does Art. 9 apply to the bank's rights in this account? (13) an assignment of a deposit account in a consumer transaction, but Sections 9-315 and 9-322 apply with respect to proceeds and priorities in proceeds. Would Art. 9 apply if she used her bank consumer account as collateral for a business loan?

Problem 298: ONB issues Connie a credit card. As collateral for the credit card debts, ONB took a security interest in all items she purchased using the card, as well as in her personal checking account with the bank. Does Art. 9 apply to the bank's rights in this account? No, because it's a consumer transaction. (13) an assignment of a deposit account in a consumer transaction, but Sections 9-315 and 9-322 apply with respect to proceeds and priorities in proceeds. Would Art. 9 apply if she used her bank consumer account as collateral for a business loan? Probably yes b/c this is not a consumer transaction. But you don'treally know which it is so the right thing to do to remove the risk would be to file the financing statement.

Problem 299: Debtors assign to ONB "all sums recovered by Debtors, directly or indirectly," from their lawsuit against Meep Corp. for breach of sales contract. Meep settles the lawsuit & agrees to pay the debtors the claimed amount. Is the assignment subject to Art. 9?

Problem 299: Debtors assign to ONB "all sums recovered by Debtors, directly or indirectly," from their lawsuit against Meep Corp. for breach of sales contract. Meep settles the lawsuit & agrees to pay the debtors the claimed amount. Is the assignment subject to Art. 9? Yes, under 9-109(d)(9) because it's a non-consumer transaction & a business tort action. If it was a personal tort action, then cannot use it as collateral, but can use business proceeds as collateral. However here it was not a judgement it was a settlement outside of court and would not be excluded. This is not the assignment of a judgment, but the assignment of proceeds from a judgment. 9109 D (9) "an assignment of a right represented by a judgment, other than a judgment taken on a right to payment that was collateral"

Problem 300: Fill in the proper classifications of these items of collateral: A professional pianist's piano: Cattle fattened by a farmer for sale: The farmer's tractor: The farmer's chickens: Manure from the daily heard: A mobile home: A right to sue someone for breach of contract: A right to sue someone for negligence arising out of an automobile accident: A right to sue a trusted corporation for wooing away a trusted employee: A SI in a lawsuit ptf has already won & that has been reduced to a settlement agreement: Pencils & other stationary supplies used by Sears or similar large retailer in its credit offices: A liquor license: A right to the return of a security deposit held by a landlord: A newspaper carrier's right to payments for papers already delivered: A newspaper carrier's right to payments for paper to be delivered in the future: Curtains bought by lawyer for the office: What if after purchasing the curtains the lawyer decides to use them at home? Do they become consumer goods? Aunt Augusta loaned her nephew $5K with an oral agreement he would repay the money the following year. If she wants to use this agreement as collateral, how would it be classified? Patents, trademarks, & copyrights: Lottery winnings:

Problem 300: Fill in the proper classifications of these items of collateral: A professional pianist's piano: Equipment Cattle fattened by a farmer for sale: Farm goods The farmer's tractor: Equipment The farmer's chickens: Farm goods Manure from the daily heard: Farm goods A mobile home: Consumer good and if there is any doubt you should still file a finance statement. A right to sue someone for breach of contract: General intangible (could be an account, but probably not) A right to sue someone for negligence arising out of an automobile accident: Tort claims are not governed by Art. 9, but if commercial trucks then it's a general intangible (maybe a commercial tort, but only if no one was hurt & there is not a claim for personal injury damages). A right to sue a trusted corporation for wooing away a trusted employee: Commercial tort claim A SI in a lawsuit ptf has already won & that has been reduced to a settlement agreement: Payment intangible or could be general intangible. Pencils & other stationary supplies used by Sears or similar large retailer in its credit offices: Inventory bc pencils will be used up as an inventory. A liquor license: General intangible A right to the return of a security deposit held by a landlord: General intangible A newspaper carrier's right to payments for papers already delivered: Account "9-102 "for services rendered" A newspaper carrier's right to payments for paper to be delivered in the future: Account Curtains bought by lawyer for the office: Equipment What if after purchasing the curtains the lawyer decides to use them at home? Stays as equipment. There is one and only one category and they stay as equipment. Do they become consumer goods? No Aunt Augusta loaned her nephew $5K with an oral agreement he would repay the money the following year. If she wants to use this agreement as collateral, how would it be classified? There is no instrument, payment intangible (loan person owes is payment intangible) or maybe a general intangible Patents, trademarks, & copyrights: General intangible Lottery winnings: Account

Problem 301: EDM Corporation routinely did business as EDM Equipment, and was commonly known by that name, so when lender filed its FS it listed debtor as "EDM CORP D/B/A EDM EQUIPMENT." Does this correctly identify the debtor's name, and, to answer this question, is there something else you need to know?

Problem 301: EDM Corporation routinely did business as EDM Equipment, and was commonly known by that name, so when lender filed its FS it listed debtor as "EDM CORP D/B/A EDM EQUIPMENT." Does this correctly identify the debtor's name, and, to answer this question, is there something else you need to know? In re EMD said "no." The search query would not turn up the exact name. Need to know how the state filing office's search program functions.

Problem 301: Mercy Hospital needs financing & calls you, its attorney, with this question. Many of its patients are members of various health plans, & when they come in for treatment, they sign paperwork authorizing the hospital to seek payment from their health insurance coverage provider. The hospital always has a large number of such receivables in the process of collection. When the hospital borrows money, can it use the moneys due it form the various health plans as collateral?

Problem 301: Mercy Hospital needs financing & calls you, its attorney, with this question. Many of its patients are members of various health plans, & when they come in for treatment, they sign paperwork authorizing the hospital to seek payment from their health insurance coverage provider. The hospital always has a large number of such receivables in the process of collection. When the hospital borrows money, can it use the moneys due it form the various health plans as collateral? Yes, health care receivables are a type of account covered by Art. 9 (although, Art. 9 does not apply to a transfer of an interest or assignment of a claim under a policy of insurance, other than healthcare insurance receivable.)

Problem 302: Passport Credit Card Co. issued millions of credit cards internationally, sending them to cardholders, who then used them in millions of transactions with merchants. The merchants would then send the resulting paperwork to Passport for reimbursement (minus Passport's fee). You are the attorney for Passport. When Passport needs to borrow money, can it use these credit card transactions as collateral?

Problem 302: Passport Credit Card Co. issued millions of credit cards internationally, sending them to cardholders, who then used them in millions of transactions with merchants. The merchants would then send the resulting paperwork to Passport for reimbursement (minus Passport's fee). You are the attorney for Passport. When Passport needs to borrow money, can it use these credit card transactions as collateral? Yes, as an account. Remember that the outright sale of such property by Passport is also an Art. 9 transaction. Therefore you would have to file a financial statement or file in general.

Problem 304: Sam Ambulance was a lawyer who loved speculative investments. When Elvis Presley died, Ambulance managed to acquire one of the singer's guitars. He decided to keep it for years & let it appreciate in value (he did not himself play guitar). If Ambulance uses the guitar as collateral for a loan needed to run his law practice, how is the guitar classified?

Problem 304: Sam Ambulance was a lawyer who loved speculative investments. When Elvis Presley died, Ambulance managed to acquire one of the singer's guitars. He decided to keep it for years & let it appreciate in value (he did not himself play guitar). If Ambulance uses the guitar as collateral for a loan needed to run his law practice, how is the guitar classified? Hard to classify and probably default as equipment. The lending institution should perfect as both "consumer good" and as equipment. When in doubt, over-comply.

Problem 307: When Frederick Bean bought a new computer on credit from Centerboro Office Supply, before he could take it home the store made him sign a "conditional sale contract" by which he agreed that title to the computer would remain with the store until he had fully paid for his purchase. The contract described the computer, but nowhere did it mention a security interest. Does the contract qualify as a security agreement under 9-203?

Problem 307: When Frederick Bean bought a new computer on credit from Centerboro Office Supply, before he could take it home the store made him sign a "conditional sale contract" by which he agreed that title to the computer would remain with the store until he had fully paid for his purchase. The contract described the computer, but nowhere did it mention a security interest. Does the contract qualify as a security agreement under 9-203? Yes, he gave value, now has rights in the collateral & authenticated the agreement when he signed it. This is a purchase money security agreement. If he takes it home, it's consumer goods & no filing required. If he takes it to his office, he has to file.

Problem 308: Harry Felini ran a movie theater called "Felini's Art Theater," but because he was the sole proprietor, that was a trade name. He gave a security interest in the business's equipment to Sharkteeth Finance Co. The financing statement calls for a listing of the "debtor's name." Should the parties use the business name or an individual name? If the theater were run as a partnership, would the partnership's name me used as the debtor's name?

Problem 308: Harry Felini ran a movie theater called "Felini's Art Theater," but because he was the sole proprietor, that was a trade name. He gave a security interest in the business's equipment to Sharkteeth Finance Co. The financing statement calls for a listing of the "debtor's name." Should the parties use the business name or an individual name? Individual, debtor's trade name is insufficient. If the theater were run as a partnership, would the partnership's name me used as the debtor's name? Yes.

Problem 309: Bob Wolton had always used "Bob" as his first name although his name is really "Robert Edward Wolton." All of Bob's public records used "Bob Wolton" and that is the name on his drivers license. When Bob applied for a loan from the credit union, using his valuable comic book collection as collateral, will the credit union be perfected in an Alternative A state if its financing statement identifies him as "Bob Wolton"? In Alternative B State? If his driver's license expires and he fails to get another one?

Problem 309: Bob Wolton had always used "Bob" as his first name although his name is really "Robert Edward Wolton." All of Bob's public records used "Bob Wolton" and that is the name on his drivers license. When Bob applied for a loan from the credit union, using his valuable comic book collection as collateral, will the credit union be perfected in an Alternative A state if its financing statement identifies him as "Bob Wolton"? Yes, if the license is from "this state." In Alternative B State? No, because license not from this state. If his driver's license expires and he fails to get another one? No.

Problem 311: When World Wide Widgets was formed it filed a corporate name document with the State Corporate Registration Office, as required by law. That document identified the company as "World Wide Wigets, Inc." but the State's database correctly listed the company as "World Wide Widgets, Inc." and that was the name in the States Index of Registered Corporations. What is the name for Art. 9 filing purposes?

Problem 311: When World Wide Widgets was formed it filed a corporate name document with the State Corporate Registration Office, as required by law. That document identified the company as "World Wide Wigets, Inc." but the State's database correctly listed the company as "World Wide Widgets, Inc." and that was the name in the States Index of Registered Corporations. What is the name for Art. 9 filing purposes? Wiget (no D)

Problem 312: Barbara Song borrowed $50K from ONB in order to start a business called "Barb's Interiors," interior design being her specialty. ONB & Song signed a SA showing her as the debtor & giving ONB an interest in the inventory & equipment. ONB duly filed a FS. Subsequently, Song married Fred Dancer & she changed her name to Barbara Dancer. She borrowed another $50K from the Nighflyer Finance Co., which loaned her the money after searching the record under "Dancer" and finding no prior encumbrances on the business's inventory & equipment. Did ONB lose its security interest because it failed to refile when her name changed?

Problem 312: Barbara Song borrowed $50K from ONB in order to start a business called "Barb's Interiors," interior design being her specialty. ONB & Song signed a SA showing her as the debtor & giving ONB an interest in the inventory & equipment. ONB duly filed a FS. Subsequently, Song married Fred Dancer & she changed her name to Barbara Dancer. She borrowed another $50K from the Nighflyer Finance Co., which loaned her the money after searching the record under "Dancer" and finding no prior encumbrances on the business's inventory & equipment. Did ONB lose its security interest because it failed to refile when her name changed? No, except for new collateral first falling under the floating lien 4 months after the change. They lose the SI if they don't refile after the 4 months with her correct name. Her bldg. would not be included as a SI because it is a mortgage. Every quarter a creditor should check on his debtor for any changes.

Problem 313: LNB filed a financing statement in the proper place to perfect a SI in the accounts receivable of the American Elect. Store. When the latter ran into financial difficulty, its assets were sold to a new electronics store, Voice of Japan, which moved into the same retail location. Must LNB refile to keep its security interest perfected in the accounts actually transferred by American Elec. to Voice of Japan? Do we get the same result if American Elec. merges with Voice of Japan & the new entity is called "Voice of Elec."? What if the opposite happens & the debtor remains the same, but LNB assigns its interest in the debtor's accounts to ONB? Need the records be change? Is ONB's interest superior to that of LNB's creditors? Consider that the transfer of the security interest from LNB to ONB is itself the transfer of an account or chattel paper.

Problem 313: LNB filed a financing statement in the proper place to perfect a SI in the accounts receivable of the American Elect. Store. When the latter ran into financial difficulty, its assets were sold to a new electronics store, Voice of Japan, which moved into the same retail location. Must LNB refile to keep its security interest perfected in the accounts actually transferred by American Elec. to Voice of Japan? No, for 4 months. Do we get the same result if American Elec. merges with Voice of Japan & the new entity is called "Voice of Elec."? Yes, no refilling. However, changing the records would be wise. What if the opposite happens & the debtor remains the same, but LNB assigns its interest in the debtor's accounts to ONB? Need the records be change? No, the assignment itself is an Art. 9 transaction; LNB is selling an "account" to ONB. Is ONB's interest superior to that of LNB's creditors? Consider that the transfer of the security interest from LNB to ONB is itself the transfer of an account or chattel paper. Yes, if ONB perfects; ONB should perfect to protect itself from LNB's creditors. Were this chattel paper or instruments, possession would do it, otherwise a FS would have to be filed showing LNB as the debtor.

Problem 322: The loan officer at ONB has sent you, the bank's attorney, an email with a question. The bank is planning to make a loan to Luddite Tech & wants to take a SI in all of the equipment of the debtor. However, Luddite's most important piece is the very expensive Abacus. Should the SA be drafted to say that the debtor grants a SI in "the Abacus plus all other equipment," "all equipment, particularly the Abacus," or simply "all equipment"? Or is there a better phraseology?

Problem 322: The loan officer at ONB has sent you, the bank's attorney, an email with a question. The bank is planning to make a loan to Luddite Tech & wants to take a SI in all of the equipment of the debtor. However, Luddite's most important piece is the very expensive Abacus. Should the SA be drafted to say that the debtor grants a SI in "the Abacus plus all other equipment," "all equipment, particularly the Abacus," or simply "all equipment"? Or is there a better phraseology? NPA. Prof likes, "all equipment, particularly Abacus."

Problem 323: The SA stated that the tractor buyer granted a SI to "___" but the seller forgot to fill in his name. The seller later filed a FS showing he had a SI in the buyer's tractor. Is the purported document with the bank a §9-203 SA? What about he FS? What about both?

Problem 323: The SA stated that the tractor buyer granted a SI to "___" but the seller forgot to fill in his name. The seller later filed a FS showing he had a SI in the buyer's tractor. Is the purported document with the bank a §9-203 SA? Probably yes, §1-201 comment will save the secured party. What about he FS? The FS is ok if the SA is ok & probably even if the SA is not because if in the industry it was a course of dealing where we intended to include whatever is missing. If the SA is ok, the FS is ok. What about both? Bollinger read the 8 corners of the 2 documents together.

Problem 324: Roy Gabriel decided to go into the music business & borrowed $35k from ONB in order to open his shop, named Gabriel's Trumpets. On Jan. 6 he signed a SA with the bank, giving ONB an interest in all "existing & after-acquired inventory in the store." That same day he received the money. On Jan. 6 his inventory consisted of 4 guitars & a pitch pipe. Gabriel did have a contract with Triumphant Trumpet to sell him 40 trumpets, which he had paid for in advance of delivery (March 30). On March 15 TT packaged the 40 trumpets & marked them "for shipment to Gabriel's Store." On March 30 TT shipped them to Gabriel, who received them that day & displayed them in the store. On what day or days did the bank's SI attach (become effective) to the guitars, pitch pipe, and trumpet? Why is it relevant? Does your answer change if we add the fact that the bank filed a proper FS covering Gabriel's inventory on Jan. 7? Can a FS be filed before the SA is signed? Attached? Why would a creditor wish to file a FS before the SI has attached? If the bank did not advance any money until March 31 (the date the bank actually saw the trumpets in the store) & if the bank did not make any commitment to advance any money until that date, when did the SI attach?

Problem 324: Roy Gabriel decided to go into the music business & borrowed $35k from ONB in order to open his shop, named Gabriel's Trumpets. On Jan. 6 he signed a SA with the bank, giving ONB an interest in all "existing & after-acquired inventory in the store." That same day he received the money. On Jan. 6 his inventory consisted of 4 guitars & a pitch pipe. Gabriel did have a contract with Triumphant Trumpet to sell him 40 trumpets, which he had paid for in advance of delivery (March 30). On March 15 TT packaged the 40 trumpets & marked them "for shipment to Gabriel's Store." On March 30 TT shipped them to Gabriel, who received them that day & displayed them in the store. On what day or days did the bank's SI attach (become effective) to the guitars, pitch pipe, and trumpet? Guitars: Jan. 6; Pitch pipe: Jan. 6; Trumpet: March 15 (if future good, when they are identified seller marks/designates it for shipment)(this maybe would be ok usually this would be when they are in the store because the person could go bankrubt). Why is it relevant? Determines whether ONB can use SI as a remedy and prevail in bankruptcy Does your answer change if we add the fact that the bank filed a proper FS covering Gabriel's inventory on Jan. 7? No, it attaches; but perfection is delayed until Jan. 7.(will only make a difference if debtor goes bankrubt or there might have been an earlier security interest in the goods and you could lose out to that creditor) Can a FS be filed before the SA is signed? Yes. Usually the financing statement will happen first and then you will perfect it later value is given so that you can know if there are other SI out there) Attached? Yes, and frequently it is because you usually give value after which is the last step Why would a creditor wish to file a FS before the SI has attached? To get priority vs other secured creditors & note to be demoted by the trustee in bankruptcy. The trumpets' attachment & perfection occurred March 15. Although attachment & perfection occurred on 3/15, ONB has priority over other post-Jan. 7 secured creditors. See UCC 9-322 you don't always have to file FS you could actually take control of the collateral instead. If the bank did not advance any money until March 31 (the date the bank actually saw the trumpets in the store) & if the bank did not make any commitment to advance any money until that date, when did the SI attach? When bank gave value, March 31. SI attaches to collateral when it become enforceable against debtor only if value given, debtor has rights in collateral or power to transfer rights and one of the following conditions are met. 9-203 (a) [Attachment.] A security interest attaches to collateral when it becomes enforceable against the debtor with respect to the collateral, unless an agreement expressly postpones the time of attachment. (b) [Enforceability.] Except as otherwise provided in subsections (c) through (i), a security interest is enforceable against the debtorand third parties with respect to the collateral only if : (1) value has been given; (2) the debtor has rights in the collateral or the power to transfer rights in the collateral to a secured party; and (3) one of the following conditions is met: (A) the debtor has authenticated a security agreement that provides a description of the collateral and, if the security interest covers timber to be cut, a description of the land concerned; (B) the collateral is not a certificated security and is in the possession of the secured party under Section 9-313 pursuant to the debtor's security agreement; (C) the collateral is a certificated security in registered form and the security certificate has been delivered to the secured party under Section 8-301 pursuant to the debtor's security agreement; or (D) the collateral is deposit accounts, electronic chattel paper, investment property, or letter-of-credit rights, and the secured party has control under Section 9-104, 9-105, 9-106, or 9-107 pursuant to the debtor's security agreement. Notes: do we have an agreement being signed: yes Do we have value? How do we know? We would look at § 1-204. Value. Except as otherwise provided in Articles 3, 4, [and] 5, [and 6], a person gives value for rights if the person acquires them: (1) in return for a binding commitment to extend credit or for the extension of immediately available credit, whether or not drawn upon and whether or not a charge-back is provided for in the event of difficulties in collection; (2) as security for, or in total or partial satisfaction of, a preexisting claim; (3) by accepting delivery under a preexisting contract for purchase; or (4) in return for any consideration sufficient to support a simple contract. Then we need to make sure there are rights in collateral which you will see above,

Problem 325 : Daniel loaned Jennifer money to buy a car. They agreed over the phone that the car would be collateral for the debt. After Daniel sent a form to the Registry of Motor Vehicles, he was listed as a creditor on the car's certificate of title. Does he have a SI in the car? Why would the court conclude there is no SI?

Problem 325 : Daniel loaned Jennifer money to buy a car. They agreed over the phone that the car would be collateral for the debt. After Daniel sent a form to the Registry of Motor Vehicles, he was listed as a creditor on the car's certificate of title. Does he have a SI in the car? No, there must have been an authenticated SA giving him the grant of the SI in the car. Why would the court conclude there is no SI? Other potential creditors need notice; either by a filing or the creditor's possession of the collateral.

Problem 326: ACRO owes considerable funds to its bank. The bank happens to get possession of valuable promissory notes belonging to ACRO, because the transactions were closed in the bank's offices & the notes put in the vault. Do the notes become collateral for ACRO's debt to the bank?

Problem 326: ACRO owes considerable funds to its bank. The bank happens to get possession of valuable promissory notes belonging to ACRO, because the transactions were closed in the bank's offices & the notes put in the vault. Do the notes become collateral for ACRO's debt to the bank? No, because there is no security agreement where ACRO granted them this SI. They cannot just take something that was never given to them.

Problem 327: Your client, Archibald Gracie, owns The White Star of England, a famous large diamond currently on display at the Astor Museum in NY. Molly Brown, a wealthy Colorado investor, has agreed to buy the diamond from Gracie, and she has made a substantial down payment, with an agreement to make 3 more payments before she gets possession. Gracie & Brown have signed the purchase agreement, which contains a clause granting him a SI in his own diamond until she has made all the required payment. His question to you is this: Can he perfect a SI in the diamond by simply notifying Astor Museum of the sale and telling the museum to hold it for his benefit until she makes payment in full, thus creating an escrow arrangement in which possession is held by the escrow agent?

Problem 327: Your client, Archibald Gracie, owns The White Star of England, a famous large diamond currently on display at the Astor Museum in NY. Molly Brown, a wealthy Colorado investor, has agreed to buy the diamond from Gracie, and she has made a substantial down payment, with an agreement to make 3 more payments before she gets possession. Gracie & Brown have signed the purchase agreement, which contains a clause granting him a SI in his own diamond until she has made all the required payment. His question to you is this: Can he perfect a SI in the diamond by simply notifying Astor Museum of the sale and telling the museum to hold it for his benefit until she makes payment in full, thus creating an escrow arrangement in which possession is held by the escrow agent? No, not until the bailee acknowledged in an authenticated record that it holds for the secured party (9-313(c)).

Problem 328: Kiddie Delight, a manufacturer of toys, wanted to borrow money and use its inventory of toys as collateral. It called up Fred's Field Warehouse Company, and Fred's came to the plant, put the inventory in a locked room, and posted a sign on the door saying "Contents of Room Under Control of Fred's Field Warehouse." Fred's then issued a negotiable warehouse receipt deliverable to the order of Kiddie Delight. Fred's hired Mort Menial, the Kiddie Delight janitor, as their local warehouse custodian (Mort was paid $1.00 a week by Fred's to mind the goods; he continued to receive his normal paycheck from Kiddie Delight). KD then pledged the warehouse receipt (a document) to Mammon State Bank in return for a loan. KD went bankrupt shortly thereafter. By having possession of this document, did the bank have a perfected SI in the inventory? Assume the warehouse receipt is validly issued and effective. If the bank and KD signed a written security agreement covering the warehouse receipt & the inventory it represented & if the bank gave KD the money, does the bank have a perfected SI in the warehouse receipt even before the bank gets possession of it? See 9-312(e) (this is called temporary perfection). If KD (prior to bankruptcy) wanted to get the warehouse receipt back from the bank in order to present it to the warehouseman (Mort), get the goods, clean them, return them to the field warehouse, and get back the receipt for the rehypothecation to the bank, will the bank lose its perfection if it turns the document over to the debtor? See 9-312(f).

Problem 328: Kiddie Delight, a manufacturer of toys, wanted to borrow money and use its inventory of toys as collateral. It called up Fred's Field Warehouse Company, and Fred's came to the plant, put the inventory in a locked room, and posted a sign on the door saying "Contents of Room Under Control of Fred's Field Warehouse." Fred's then issued a negotiable warehouse receipt deliverable to the order of Kiddie Delight. Fred's hired Mort Menial, the Kiddie Delight janitor, as their local warehouse custodian (Mort was paid $1.00 a week by Fred's to mind the goods; he continued to receive his normal paycheck from Kiddie Delight). KD then pledged the warehouse receipt (a document) to Mammon State Bank in return for a loan. KD went bankrupt shortly thereafter. By having possession of this document, did the bank have a perfected SI in the inventory? If transaction taken at face value, there would be a perfected SI in the document, but probably not because this is a sham (the $1 & locked room makes it a sham). The warehouse receipt does not look to be legit. Had it been a sham, the bank would have a had a perfected SI in the inventory. But, the bank does have a perfected interest in the piece of (worthless) paper. Assume the warehouse receipt is validly issued and effective. If the bank and KD signed a written security agreement covering the warehouse receipt & the inventory it represented & if the bank gave KD the money, does the bank have a perfected SI in the warehouse receipt even before the bank gets possession of it? See 9-312(e) (this is called temporary perfection). Yes, if the possession problem is ignored or resolved in the bank's favor, from the date of attachment (when value is paid) for 20 days even without filing. If KD (prior to bankruptcy) wanted to get the warehouse receipt back from the bank in order to present it to the warehouseman (Mort), get the goods, clean them, return them to the field warehouse, and get back the receipt for the rehypothecation to the bank, will the bank lose its perfection if it turns the document over to the debtor? See 9-312(f). No, 9-312 allows the debtor to have some access to the goods to deal with them in some manner preliminary to their sale or exchange. Grace periods for possession; perfection remains during those times.

Problem 330: Karate, Inc., was a self-defense training school. It pledged 36 of the promissory notes given by its customers to Nightflyer Finance Company in return for a loan. The parties signed a security agreement, and the finance company took possession of the notes. A month later, Karate, Inc.'s president, Arnold Sun, asked Nightflyer to let him have back one of the notes so that he could present it to the customer for payment (an Art. 3 presentment). The finance company gave him the note on April 6. Sun put it in his desk at the school and forgot about it. On October 12 the karate school went bankrupt. Does the bank have a perfected SI in any or all of the promissory notes? See §9-312(g) and (h). Could the finance company have protected itself by filing a financing statement as to the promissory notes? See 9-312(a).

Problem 330: Karate, Inc., was a self-defense training school. It pledged 36 of the promissory notes given by its customers to Nightflyer Finance Company in return for a loan. The parties signed a security agreement, and the finance company took possession of the notes. A month later, Karate, Inc.'s president, Arnold Sun, asked Nightflyer to let him have back one of the notes so that he could present it to the customer for payment (an Art. 3 presentment). The finance company gave him the note on April 6. Sun put it in his desk at the school and forgot about it. On October 12 the karate school went bankrupt. Does the bank have a perfected SI in any or all of the promissory notes? See §9-312(g) and (h). No, the 20 days has lapsed and the bankruptcy trustee wins. Could the finance company have protected itself by filing a financing statement as to the promissory notes? See 9-312(a). Yes. A SI in chattel paper, negotiable documents, instruments, or investment property may be perfected by filing.

Problem 331: Bilko Siding, Inc., put aluminum siding on Mr. and Mrs. Brown's home. They signed a contract on August 4, giving the company a SI in all their currently owned consumer goods plus those acquired in the future. On Sept. 25 the Browns went to First Finance Company and borrowed $80 for the stated purpose of buying a sewing machine. They signed a security agreement with the finance company, granting it a SI in the machine. First Finance did not file any financing statement. The Browns bought the machine on Oct. 11. They filed for bankruptcy on Oct. 12. Bilko, First Finance, and their trustee all claim the machine. Did Bilko's SI attach to the sewing machine? Why would Bilko want a SI in a used sewing machine (which has little resale value)? Was the loan agreement a PMSI even though First Finance was a lender and not the seller of the machine? "if the value is so used"-9-103 Would it have been a PMSI if the Browns had used the $80 to pay a liquor ball & had used $80 from their savings account to buy the sewing machine? How can finance companies protect themselves from the debtor's misuse of the funds advanced? Assuming the $80 was used for the announced purpose, who gets the sewing machine?

Problem 331: Bilko Siding, Inc., put aluminum siding on Mr. and Mrs. Brown's home. They signed a contract on August 4, giving the company a SI in all their currently owned consumer goods plus those acquired in the future. On Sept. 25 the Browns went to First Finance Company and borrowed $80 for the stated purpose of buying a sewing machine. They signed a security agreement with the finance company, granting it a SI in the machine. First Finance did not file any financing statement. The Browns bought the machine on Oct. 11. They filed for bankruptcy on Oct. 12. Bilko, First Finance, and their trustee all claim the machine. Did Bilko's SI attach to the sewing machine? No, it's a consumer good acquired more than 10 days after Bilko gave value. 9-204: a SI does not attach under a term constituting an after-acquired property clause to consumer goods unless the debtor acquires rights within 10 days after the secured party gives value. Why would Bilko want a SI in a used sewing machine (which has little resale value)? Torch Fido in D's front yard as a lesson to other non-payers. Was the loan agreement a PMSI even though First Finance was a lender and not the seller of the machine? Yes, if the $80 is actually used to purchase the machine. "if the value is so used"-9-103 Would it have been a PMSI if the Browns had used the $80 to pay a liquor ball & had used $80 from their savings account to buy the sewing machine? No. How can finance companies protect themselves from the debtor's misuse of the funds advanced? Make the check payable to consumer and the seller sewing machine company as copayees. This ensures the check gets to the sewing machine company. "me and B" Assuming the $80 was used for the announced purpose, who gets the sewing machine? First Finance. They have a PSMI.] Notes: the court found the SA to be too broud. It cant cover goods over a lifetime.

Problem 332: Façade Motors decided to buy an expensive Oriental rug for its main office. It selected one from the stock of Treasures of Persia, Inc., which let Façade Motors take the rug back to the office to try it out to see if it wanted to buy the rug. All of the equipment of Façade Motors was covered by a perfected floating lien in favor of Octopus national Bank. As soon as Façade gets possession of the rug (& 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). Façade Motors did decide to purchase the rug, so it signed a contract to do so with Treasures of Persia, Inc., making a down payment at the time it did so. To finance the rest of the installment payments, Façade Motors borrowed the necessary amount from Nightflyer Savings & Loan, giving it a security interest in the rug. Does Nightflyer's SI qualify as a PMSI?

Problem 332: Façade Motors decided to buy an expensive Oriental rug for its main office. It selected one from the stock of Treasures of Persia, Inc., which let Façade Motors take the rug back to the office to try it out to see if it wanted to buy the rug. All of the equipment of Façade Motors was covered by a perfected floating lien in favor of Octopus national Bank. As soon as Façade gets possession of the rug (& 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). No, not until acceptance. This is a sale on approval and goods held on approval are not subject to such claims until acceptance by the buyer. Façade Motors did decide to purchase the rug, so it signed a contract to do so with Treasures of Persia, Inc., making a down payment at the time it did so. To finance the rest of the installment payments, Façade Motors borrowed the necessary amount from Nightflyer Savings & Loan, giving it a security interest in the rug. Does Nightflyer's SI qualify as a PMSI? Probably not, but is this proper? 9-103: PMSI means 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 the collateral if the value is in fact so used. If it had given the money then purchased the rug then yes. This is equipment and not inventory so don't need to notify lender. See article 2-326

Problem 333: Octopus National Bank sold all the promissory notes it was holding in its vault to Last National Bank. Remember that the sale of promissory notes is an Art. 9 transaction (with the seller being the "debtor" and the buyer being the "secured party"). Must Last National file a financing statement or make sure it has possession in order to perfect it's SI in the notes?

Problem 333: Octopus National Bank sold all the promissory notes it was holding in its vault to Last National Bank. Remember that the sale of promissory notes is an Art. 9 transaction (with the seller being the "debtor" and the buyer being the "secured party"). Must Last National file a financing statement or make sure it has possession in order to perfect it's SI in the notes? No, there is automatic perfection for sale of promissory notes 9-309(4).

Problem 334: When Nightflyer Finance Company (NFC) loaned $20,000 to Portia Moot to enable her to expand her law practice, she gave the finance company a SI in her accounts receivable (the monies her client owed her), which NFC promptly perfected by filing a financing statement 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 her client did not. What must NFC do to perfects its interest in the surety obligation of the mother? Note the same rules for automatic perfection extends to letters of credit that support the original transaction.

Problem 334: When Nightflyer Finance Company (NFC) loaned $20,000 to Portia Moot to enable her to expand her law practice, she gave the finance company a SI in her accounts receivable (the monies her client owed her), which NFC promptly perfected by filing a financing statement 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 her client did not. What must NFC do to perfects its interest in the surety obligation of the mother? Note the same rules for automatic perfection extends to letters of credit that support the original transaction. Nothing, there is automatic perfection on attachment to the mother's suretyship promise because perfection of a SI in the accounts also perfects SI in supporting obligation.

Problem 335: Hamlet Corporation borrowed $100,000 from the Elsinore Finance Company and gave it a security interest in the corporation's equipment. The parties properly filled out a financing statement; W. Shakespeare was mentioned on the financing statement as the president of Hamlet Corporation. Elsinore gave the financing statement 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 financing statement under "Shakespeare" instead of "Hamlet." One year later, another finance company loaned Hamlet Corporation more money, taking a SI in the same equipment (the second finance company had checked the records and discovered nothing under "Hamlet Corp."). Since priority of creditors in this situation depends on order of filing, did Elsinore "file" first, or did it bear the risk of clerical error?

Problem 335: Hamlet Corporation borrowed $100,000 from the Elsinore Finance Company and gave it a security interest in the corporation's equipment. The parties properly filled out a financing statement; W. Shakespeare was mentioned on the financing statement as the president of Hamlet Corporation. Elsinore gave the financing statement 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 financing statement under "Shakespeare" instead of "Hamlet." One year later, another finance company loaned Hamlet Corporation more money, taking a SI in the same equipment (the second finance company had checked the records and discovered nothing under "Hamlet Corp."). Since priority of creditors in this situation depends on order of filing, did Elsinore "file" first, or did it bear the risk of clerical error? Esinore wins. Whichever creditor loses should sue the state for negligence. Some states have set aside a fund from the filing fees with which to pay judgments against the filing officer.

Problem 367: Arthur Greenbaum bought a new car on credit from Lorri's Car City, which took a PMSI in the vehicle, perfecting same by notation of its lien interest on the certificate of title, as required by state law. Arthur was a used car dealer by profession, but he had purchased the car for his own private use. Nonetheless he frequently parked the car on his lot, and one day sold it for cash to Ann Matheson, a customer in search of a good used car. Arthur did not mention to her that it was his personal car. When everyone learned what had happened, Ann sued Lorri's Car City, demanding that it release the title. What result?

Problem 367: Arthur Greenbaum bought a new car on credit from Lorri's Car City, which took a PMSI in the vehicle, perfecting same by notation of its lien interest on the certificate of title, as required by state law. Arthur was a used car dealer by profession, but he had purchased the car for his own private use. Nonetheless he frequently parked the car on his lot, and one day sold it for cash to Ann Matheson, a customer in search of a good used car. Arthur did not mention to her that it was his personal car. When everyone learned what had happened, Ann sued Lorri's Car City, demanding that it release the title. What result? Ann wins. Ann is a buyer in the ordinary course of business who takes free of SI under 9-320(a).

Problem 336: Octopus National Bank (ONB) had a SI in the equipment of the Weekend Construction Company for which it filed a financing statement in the proper place on May 1, 2016. Antirust National Bank (ANB) took a SI in the same collateral and filed its financing statement on May 2, 2016, in the same place. How long is a financing statement effective? See 9-515(a). If ONB files a continuation statement on May 1, 2020, is its perfected position continued? Pre-revision decisions called this the problem of "premature renewal." If ONB never files a continuation statement in time, so that its perfection lapses, but a week later it files another financing statement, is it still senior to ANB? If ONB fails to file a continuation statement in time, so that its perfection lapses, but a week later it files another financing statement, is it still senior to ANB? Is an attorney who fails to file a continuation statement guilty of malpractice?

Problem 336: Octopus National Bank (ONB) had a SI in the equipment of the Weekend Construction Company for which it filed a financing statement in the proper place on May 1, 2016. Antirust National Bank (ANB) took a SI in the same collateral and filed its financing statement on May 2, 2016, in the same place. How long is a financing statement effective? See 9-515(a). 5 yrs after the date of filing. If ONB files a continuation statement on May 1, 2020, is its perfected position continued? No. The continuation statement is only timely filed if it is within 6 months of the expiration of the 5 year period. Pre-revision decisions called this the problem of "premature renewal." If ONB never files a continuation statement in time, so that its perfection lapses, but a week later it files another financing statement, is it still senior to ANB? No. The security interest is deemed to have never been perfected as against a purchaser of the collateral for value. ANB wins. If ONB fails to file a continuation statement in time, so that its perfection lapses, but a week later it files another financing statement, is it still senior to ANB? No, it's behind ANB - if it files a second before the FS it's ok; if it files a second after lapse, it's not. Is an attorney who fails to file a continuation statement guilty of malpractice? Barnes says "yes," if it could reasonably understood by the client that the lawyer would do so.

Problem 339: Mary Bush lived in a home she owned in Cheyenne, Wyoming, but she also wanted to buy a large sailboat in Cleveland, Ohio, and planned to keep the boat there after the purchase for use in her fishing charter business. Ohio law provides that whenever a buyer has paid more than 75% of a debt secured by a boat, the creditor's security interest automatically is stripped from the boat. Wyoming has no such rule. If a creditor loans Mary money to buy the sailboat and takes a SI in it, where should the creditor file the financing statement? When Mary has paid 75% of the debt, with the creditor's SI still be attached to the boat?

Problem 339: Mary Bush lived in a home she owned in Cheyenne, Wyoming, but she also wanted to buy a large sailboat in Cleveland, Ohio, and planned to keep the boat there after the purchase for use in her fishing charter business. Ohio law provides that whenever a buyer has paid more than 75% of a debt secured by a boat, the creditor's security interest automatically is stripped from the boat. Wyoming has no such rule. If a creditor loans Mary money to buy the sailboat and takes a SI in it, where should the creditor file the financing statement? The creditor should file in Wyoming (debtor's location, bc creditor does not have possession). When Mary has paid 75% of the debt, with the creditor's SI still be attached to the boat? No. Because the collateral is a good, under 9-301(3) the law of the location of the collateral (Ohio) governs the effect of perfection.

Problem 340: Peripatetic Corporation was organized under the laws of the State of Delaware but has its large retail store outlet in NJ. Further, the corporation was really a husband-and-wife type of business, and they did all the corporate paperwork at their home in Baltimore, MD (where they also kept the corporate records). Their corporate stationary used their home address. When the corporation borrows money against its account receivable, in what state should the financing statement be filed? See 9-307(b) and (e). If the corporation was registered and had its only place of business in Republic of Jahala, a Pacific Island nation, where should the financing statement be filed? See 9-307(c).

Problem 340: Peripatetic Corporation was organized under the laws of the State of Delaware but has its large retail store outlet in NJ. Further, the corporation was really a husband-and-wife type of business, and they did all the corporate paperwork at their home in Baltimore, MD (where they also kept the corporate records). Their corporate stationary used their home address. When the corporation borrows money against its account receivable, in what state should the financing statement be filed? See 9-307(b) and (e). Delaware. If the corporation was registered and had its only place of business in Republic of Jahala, a Pacific Island nation, where should the financing statement be filed? See 9-307(c). DC.

Problem 341: Factory, Factory & Money is a legal partnership that has its only place of business in Chicago, Illinois, where ONB, which has a security interest in the accounts receivable of the firm, had field its financing statement. If the law firm makes a permanent move to Washington DC on Jan. 1, 207, does the bank lose its perfection or does it have a grace period in which to refile in the new jurisdiction? Read 9-316(a). If the law firm merges with a law firm in DC with the new DC firm assuming all the debts of the former one, is the time period the same? See §9-316(a)(3). Is the creditor protected as to collateral debtor acquires between the move or merger & during the applicable time period? See 9-316(h) and (i).

Problem 341: Factory, Factory & Money is a legal partnership that has its only place of business in Chicago, Illinois, where ONB, which has a security interest in the accounts receivable of the firm, had field its financing statement. If the law firm makes a permanent move to Washington DC on Jan. 1, 207, does the bank lose its perfection or does it have a grace period in which to refile in the new jurisdiction? Read 9-316(a). Yes, it has a grace period of 4 months. If the law firm merges with a law firm in DC with the new DC firm assuming all the debts of the former one, is the time period the same? See §9-316(a)(3). No, the time period is now 1 year after the transfer of collateral to the DC firm. Is the creditor protected as to collateral debtor acquires between the move or merger & during the applicable time period? See 9-316(h) and (i). Yes, if the financing statement would have been effective to perfect a SI in the collateral had the collateral been acquired by the original debtor.

Problem 342: Suppose that Factory, Factory & Money, the Chicago law firm in the last problem, had 2 creditors before its permanent move to DC, both of which had a perfected SI in the firm's accounts receivable—ONB, which had filed its financing statement first, & Last National Bank, which had filed second, both creditors filing in Chicago early in the year 2016. When the move occurred on Jan. 1, 2017, Last National promptly refilled in DC before the end of March of that year, but Octopus National was careless and didn't realize that the firm had moved until that September. If it files in DC in September, will it retain its priority over Last National? See 9-316(b) and its Official Comment 3. Note the definitions of purchase and purchaser in 1-201(b)(29) and (30).

Problem 342: Suppose that Factory, Factory & Money, the Chicago law firm in the last problem, had 2 creditors before its permanent move to DC, both of which had a perfected SI in the firm's accounts receivable—ONB, which had filed its financing statement first, & Last National Bank, which had filed second, both creditors filing in Chicago early in the year 2016. When the move occurred on Jan. 1, 2017, Last National promptly refilled in DC before the end of March of that year, but Octopus National was careless and didn't realize that the firm had moved until that September. If it files in DC in September, will it retain its priority over Last National? See 9-316(b) and its Official Comment 3. Note the definitions of purchase and purchaser in 1-201(b)(29) and (30). No. If ONB's SI does not become perfected under the law of DC before the required time, then it becomes unperfected & is deemed never to have been perfected as against a purchaser of collateral for value (LNB).

Problem 343: Lyle Saylor was a trucker who lived and worked in the State of Michigan. When his old rig wore out and he decided to buy a completely new truck, he went to Pennsylvania and purchased a truck on credit from Ringer Truck City. Because the State of Indiana charged a great deal less for licenses & other registration fees, Saylor told the dealership that he lived in Indiana & the truck would be domiciled there. He gave Ringer Truck City the address of his sister, who did live in Indiana. Indiana law requires that lien interests be noted on the certificate of title, a step that Ringer Truck City duly took when it procured the Indiana certificate. When Saylor went bankrupt a year later, the trustee in bankruptcy argued that Ringer Truck City was unperfected bc it had not gotten a Michigan certificate of title & had its lien interest noted thereon, as Michigan law required. Ringer Truck City argued that it was entitled to believe the debtor when he told the company that he lived in Indiana. How should this come out?

Problem 343: Lyle Saylor was a trucker who lived and worked in the State of Michigan. When his old rig wore out and he decided to buy a completely new truck, he went to Pennsylvania and purchased a truck on credit from Ringer Truck City. Because the State of Indiana charged a great deal less for licenses & other registration fees, Saylor told the dealership that he lived in Indiana & the truck would be domiciled there. He gave Ringer Truck City the address of his sister, who did live in Indiana. Indiana law requires that lien interests be noted on the certificate of title, a step that Ringer Truck City duly took when it procured the Indiana certificate. When Saylor went bankrupt a year later, the trustee in bankruptcy argued that Ringer Truck City was unperfected bc it had not gotten a Michigan certificate of title & had its lien interest noted thereon, as Michigan law required. Ringer Truck City argued that it was entitled to believe the debtor when he told the company that he lived in Indiana. How should this come out? Ringer wins. §9-303. Laws governing perfection & priority of SI's in goods covered by a certificate of title: this section applies to goods covered by a certificate of title even if there is no other relationship btwn the jurisdiction whose certificate of title the goods are covered & the goods or the debtor.

Problem 344 When Nick Dunne bought his wife Amy a new car, he financed it thorugh Flynn Bank, which made sure its security interest in the car was noted on the certificate of title that Missouri issued with her name as the record owner. Before the loan was paid off, Amy forged a letter to Missouri DMV supposedly from Flynn stating that the loan had been repaid, after which the state issued her a new certificate of title showing no lien on the vehicle. Amy then left her husband, moved to NY and sold the car to Desi who knew nothing about th car. He obtained a clean certificate of title from the state of NY. When Flynn discovered what was going on it tracked down the care and repossessed it. When Desi pointed to the UCC the bank replied that it's just a basic rule of law that a thief cannot pass good title. How does it come out?

Problem 344 When Nick Dunne bought his wife Amy a new car, he financed it thorugh Flynn Bank, which made sure its security interest in the car was noted on the certificate of title that Missouri issued with her name as the record owner. Before the loan was paid off, Amy forged a letter to Missouri DMV supposedly from Flynn stating that the loan had been repaid, after which the state issued her a new certificate of title showing no lien on the vehicle. Amy then left her husband, moved to NY and sold the car to Desi who knew nothing about th car. He obtained a clean certificate of title from the state of NY. When Flynn discovered what was going on it tracked down the care and repossessed it. When Desi pointed to the UCC the bank replied that it's just a basic rule of law that a thief cannot pass good title. How does it come out? Unfortunately for the Creditor, say Powell, the fraudulent notice terminated the security interest and later BFP's take good title.

Problem 345: May 10, Holly Tourist, a resident of Dallas, Texas, bought a new car on credit while on vacation in Norman, Oklahoma, from Norman Car Sales (NCS), Inc. Oklahoma law required lien interests to be noted on the certificate of title as a condition of perfection, which NCS did on May 12. On May 14, Holly drove the car to Dallas, and that same day she re-registered the car there & received a Texas certificate. Somehow she was able to do this without surrendering the Oklahoma certificate (though Texas law apparently required her to turn in the old certificate before a new one should have been issued). Texas required lien interests to be noted on the certificate of title as a condition of perfection, but the Texas certificate showed no liens of any kind thereon. On May 26, Holly sold the car to her neighbor, William Innocent, who paid full value therefor without knowledge of the NCS's interest. On May 28, learning of the sale to William, NCS arranged for the car to be repossessed from in front of his house. Assuming that her resale of the car was a "default" so as to entitle NCS to repossess, decide which of them is entitled to the car. See §9-303 and its Official Comment 6, 9-316(d) and (e) and its Official Comment 5, and 9-337 and its Official Comment. Note that §9-337 favors non-business lawyers; a used car lot buying an out-of-state vehicle is not entitled to the same protection. Why would the drafters have made this distinction?

Problem 345: May 10, Holly Tourist, a resident of Dallas, Texas, bought a new car on credit while on vacation in Norman, Oklahoma, from Norman Car Sales (NCS), Inc. Oklahoma law required lien interests to be noted on the certificate of title as a condition of perfection, which NCS did on May 12. On May 14, Holly drove the car to Dallas, and that same day she re-registered the car there & received a Texas certificate. Somehow she was able to do this without surrendering the Oklahoma certificate (though Texas law apparently required her to turn in the old certificate before a new one should have been issued). Texas required lien interests to be noted on the certificate of title as a condition of perfection, but the Texas certificate showed no liens of any kind thereon. On May 26, Holly sold the car to her neighbor, William Innocent, who paid full value therefor without knowledge of the NCS's interest. On May 28, learning of the sale to William, NCS arranged for the car to be repossessed from in front of his house. Assuming that her resale of the car was a "default" so as to entitle NCS to repossess, decide which of them is entitled to the car. See §9-303 and its Official Comment 6, 9-316(d) and (e) and its Official Comment 5, and 9-337 and its Official Comment. William wins—he is entitled to rely on the Texas certificate. NCS entrusted the car to Holly. This is different than stolen property. William gave value for the car & was unaware of the SI. §3-337: If, while a SI in goods is perfected by any method under the law of another jurisdiction [OK], this state [TX] issues a certificate of title that does not show that the goods are subject to the SI.... A buyer of the goods, other than a person in the business of selling goods of that kind, takes free of the SI if the buyer gives value & receives delivery of the goods after issuance of the certificate & without knowledge of the SI. Note that §9-337 favors non-business lawyers; a used car lot buying an out-of-state vehicle is not entitled to the same protection. Why would the drafters have made this distinction? A more sophisticated buyer (i.e. the used car lot) is more likely to know of the rules.

Problem 346: Merchants Credit Association held a perfected SI in the inventory of Harold's Clothing Store. Harold went to a fashion showing in NY and contracted to buy $4,000 worth of new clothes for resale; the seller was to be Madame Belinda's Fashions, Inc., which took a PMSI in the clothes on Dec. 10, the date of sale. Madame Belinda herself wrote the Merchants Credit Association on Dec. 11 and informed the credit manager of the sale. He protested but did nothing. Madame Belinda filed on Dec. 11; the goods were delivered to the store on Dec. 12. Who has priority? If the notice was received on Dec. 11, as above, is it sufficient to permit Madame Belinda to keep selling goods to Harold for an indefinite period thereafter only for this one transaction? See §9-324(b)(3).

Problem 346: Merchants Credit Association held a perfected SI in the inventory of Harold's Clothing Store. Harold went to a fashion showing in NY and contracted to buy $4,000 worth of new clothes for resale; the seller was to be Madame Belinda's Fashions, Inc., which took a PMSI in the clothes on Dec. 10, the date of sale. Madame Belinda herself wrote the Merchants Credit Association on Dec. 11 and informed the credit manager of the sale. He protested but did nothing. Madame Belinda filed on Dec. 11; the goods were delivered to the store on Dec. 12. Who has priority? Madame Belinda, if she followed he rule of the statute. 9-324: Belinda's perfected PMSI in Hardold's inventory had priority over conflicting SI in the same inventory if: (1) Belinda's PMSI is perfected when Harold receives possession of the inventory; (2) the PM secured party (Belinda) sends an authenticated notification to the holder of the conflicting SI (Merchants); (3) The holder of conflicting SI [Merchants] receive her notification within 5 years before Harold's receives possession of the inventory; and (4) the notification states that Belinda's has or expects to acquire a PMSI in Harold's inventory & describes the inventory. If the notice was received on Dec. 11, as above, is it sufficient to permit Madame Belinda to keep selling goods to Harold for an indefinite period thereafter only for this one transaction? See §9-324(b)(3). Belinda can keep selling goods to Harold for a 5 year period (because the notice is good for 5 years).

Problem 348: Coke Travel Agency used its accounts receivable as collateral for a loan from the Mansfield State Bank, but the bank failed to file the financing statement that Coke Travel Agency had signed because the bank's attorney lost the statement in the maze of papers on her desk. Six months later, Coke Travel Agency needed another loan & applied for one from the Bentham National Bank, which searched the files, discovered there were no financing statements recorded for Coke Travel Agency as debtor, and took a SI in the agency's accounts receivable. Bentham National Bank did file a financing statement in the proper place. Which bank has the superior interest in the collateral? See 9-322(a)(2) & Official Comment 3 to 9-317.

Problem 348: Coke Travel Agency used its accounts receivable as collateral for a loan from the Mansfield State Bank, but the bank failed to file the financing statement that Coke Travel Agency had signed because the bank's attorney lost the statement in the maze of papers on her desk. Six months later, Coke Travel Agency needed another loan & applied for one from the Bentham National Bank, which searched the files, discovered there were no financing statements recorded for Coke Travel Agency as debtor, and took a SI in the agency's accounts receivable. Bentham National Bank did file a financing statement in the proper place. Which bank has the superior interest in the collateral? See 9-322(a)(2) & Official Comment 3 to 9-317. BNB's perfected SI has priority over MSB's unperfected SI. A perfected wins out over non perfected even if there is a bankrubtcy see 9-322

Problem 350: When FNB took a perfected SI in the inventory of Jay Eastriver's clothing store, the SA provided that the inventory would secure not only the current loan "but all future advances of whatever kind." Six months later, First National loaned Eastriver an additional $10,000 and had him sign a new promissory note for that amount. Do the existing filed financing statement & SA need to be altered in any way, or are they sufficient as is to protect the bank? Assume in the last Problem that after FNB made Eastriver the first loan & filed its financing statement, he then borrowed more money from Second State Bank, using the same inventory as collateral, and this lender also filed a financing statement in the correct place. Eastriver then paid off the loan to First National completely, but the bank never filed a termination statement. A month later, First National loaned Eastriver more money. The parties signed a new SA, but no new financing statement was filed. First National's attorney reasoned that the earlier financing statement would protect the later loan's priority, even though this loan was not contemplated when the first financing statement was filed. Is this right?

Problem 350: When FNB took a perfected SI in the inventory of Jay Eastriver's clothing store, the SA provided that the inventory would secure not only the current loan "but all future advances of whatever kind." Six months later, First National loaned Eastriver an additional $10,000 and had him sign a new promissory note for that amount. Do the existing filed financing statement & SA need to be altered in any way, or are they sufficient as is to protect the bank? They are OK as is (always include a future advances clause). Assume in the last Problem that after FNB made Eastriver the first loan & filed its financing statement, he then borrowed more money from Second State Bank, using the same inventory as collateral, and this lender also filed a financing statement in the correct place. Eastriver then paid off the loan to First National completely, but the bank never filed a termination statement. A month later, First National loaned Eastriver more money. The parties signed a new SA, but no new financing statement was filed. First National's attorney reasoned that the earlier financing statement would protect the later loan's priority, even though this loan was not contemplated when the first financing statement was filed. Is this right? Yes (when searching, check for a termination statement). You want to have some record that we can then look to. See 9-517

Problem 351: Phillip Philately pledged his valuable stamp collection to the Collectors National Bank (CNB) in return for a loan (he gave CNB an oral security interest in the collateral)(its ok for possession but if your going to file you need something in writing); no financing statement was signed. The bank put the stamp collection in its vault. Philately later borrowed money from his father, Filbert Philately, and gave him a signed SA in the same stamp collection. The father filed a financing statement in the proper place. Answer these questions: Who has priority btwn CNB & the father? If Phillip goes to the bank & takes the collection home so that he can add new stamps but does then return it, does the answer change? At common law, the pledge could return the collateral to the pledgor for a "temporary and limited purpose" w/o losing perfection. Has that doctrine survived the enactment of the Code? If CNB makes Phillip sign a SA and then turns the collection over to him but never files a financing statement, who wins? What should CNB have done?

Problem 351: Phillip Philately pledged his valuable stamp collection to the Collectors National Bank (CNB) in return for a loan (he gave CNB an oral security interest in the collateral)(its ok for possession but if your going to file you need something in writing); no financing statement was signed. The bank put the stamp collection in its vault. Philately later borrowed money from his father, Filbert Philately, and gave him a signed SA in the same stamp collection. The father filed a financing statement in the proper place. Answer these questions: Who has priority btwn CNB & the father? CNB, since it perfected its interest by possession. 9-322: priority dates from the earlier time of a filing covering the collateral is first made OR the SI is first perfected. (oral SA is ok) Bank perfects first so they take. If Phillip goes to the bank & takes the collection home so that he can add new stamps but does then return it, does the answer change? Yes. 9-313 "Perfection by possession continues only while the secured party retains possession". At common law, the pledge could return the collateral to the pledgor for a "temporary and limited purpose" w/o losing perfection. Has that doctrine survived the enactment of the Code? No. we don't want to have to worry about limited means. The 20 days is for a different issue. Is 9-312 relevant? Temp perfection ...20 days this does not apply because this is not a negotiable instrument. See below. (f) [Temporary perfection: goods or documents made available to debtor.] A perfected security interest in a negotiable document or goods in possession of a bailee, other than one that has issued a negotiable document for the goods, remains perfected for 20 days without filing if the secured party makes available to the debtor the goods or documents representing the goods for the purpose of: (1) ultimate sale or exchange; or (2) loading, unloading, storing, shipping, transshipping, manufacturing, processing, or otherwise dealing with them in a manner preliminary to their sale or exchange. If CNB makes Phillip sign a SA and then turns the collection over to him but never files a financing statement, who wins? Father.now there continues to be a valid SI in stamp collection but its still not valid perfection so father still wins. What should CNB have done? CNB should have filed a financing statement before turning over possession of the collateral.

Problem 365: Deering Milliken was a textile manufacturer. It routinely sold textiles on credit to Mill Fabrics, a firm that finished the textiles into dyed and patterned fabrics. It was Mill Fabrics' practice to resell the fabrics to Tanbro Fabrics, a wholesaler. While the textiles were still in Deering's warehouse, Mill Fabrics contracted to buy them from Deering, signing a SA to that effect and giving Deering a financing statement, which it duly filed. In turn, Mill Fabrics sold the textiles to Tanbro, which paid Mill Fabrics for them, but delayed taking delivery for a few weeks, so that the fabrics remained in Deering's possession. Deals of this kind were common in the textile industry, and all parties knew of the others' interest. Unfortunately, Mill Fabrics became insolvent and never paid Deering for the textiles, and Deering therefore refused to deliver them to Tanbro. The latter sued. Who should prevail?

Problem 365: Deering Milliken was a textile manufacturer. It routinely sold textiles on credit to Mill Fabrics, a firm that finished the textiles into dyed and patterned fabrics. It was Mill Fabrics' practice to resell the fabrics to Tanbro Fabrics, a wholesaler. While the textiles were still in Deering's warehouse, Mill Fabrics contracted to buy them from Deering, signing a SA to that effect and giving Deering a financing statement, which it duly filed. In turn, Mill Fabrics sold the textiles to Tanbro, which paid Mill Fabrics for them, but delayed taking delivery for a few weeks, so that the fabrics remained in Deering's possession. Deals of this kind were common in the textile industry, and all parties knew of the others' interest. Unfortunately, Mill Fabrics became insolvent and never paid Deering for the textiles, and Deering therefore refused to deliver them to Tanbro. The latter sued. Who should prevail? Deering (bc of the 9-320(e) exception). Tanbro would be left with causes of action against Mill for breach of contract & duty of good faith. If Tanbro is well advised, its lawyers will not allow the goods to stay with Deering. 9-320: A buyer in ordinary course of business [Tanbro] takes free of a SI created by the buyer's seller [Mill, & granted to Deering] even if the SI is perfected & the buyer knows of its existence. (e): This section does not affect a security interest in goods in the possession of the secured party [Deering].

Problem 352: Howard "Red" Poll decided to go into the cattle business & borrowed $65,000 from the Brangus National Bank to finance part of the purchase of the initial heard. Poll signed a SA using the cattle as collateral for this "and all other obligations now or hereafter owed to the bank." A financing statement covering t his transaction was filed in the appropriate place. Two years later, Poll received a charge from the same bank & used it to finance a trip to Australia to look over cattle ranching there. When he failed to pay the credit card bill, the bank repossessed the cattle (even though his payments on the cattle purchase loan were current). Did the bank's SI in the cattle encompass the credit card obligation? Would it make a difference if he had gone to Australia in search of the perfect wave for surfing?

Problem 352: Howard "Red" Poll decided to go into the cattle business & borrowed $65,000 from the Brangus National Bank to finance part of the purchase of the initial heard. Poll signed a SA using the cattle as collateral for this "and all other obligations now or hereafter owed to the bank." A financing statement covering t his transaction was filed in the appropriate place. Two years later, Poll received a charge from the same bank & used it to finance a trip to Australia to look over cattle ranching there. When he failed to pay the credit card bill, the bank repossessed the cattle (even though his payments on the cattle purchase loan were current). Did the bank's SI in the cattle encompass the credit card obligation? Not really sure—a close question because he used the card to finance a business trip. What he should do is keep things separate. Would it make a difference if he had gone to Australia in search of the perfect wave for surfing? Yes, because that would have been clearly a consumer use. It would be a consumer transaction. This is a business loan - cant pick up consumer expenses from a business loan. (the dragnet clause "and all other obligations now or hereafter owed to the bank" is interpreted to cover only business-related future expenses bc it looks like the agreement was to finance something business related: the initial heard).

Problem 353: Aware of difficulties with cross-collateralization clauses, rancher Howard Poll was always careful to keep his consumer obligations (from his Visa card, using the objects purchased as collateral) with a different bank than the one that financed his ranching operations (with a traditional loan, using his cattle as collateral). Both banks had him sign SAs that provided that the collateral nominated for each debt would also protect "any and all debts, now existing or after-acquired" owed to the same creditor. Howard was therefore distressed to learn that when the 2 banks merged, the new bank's loan officer now insisted that his cattle also protect the debts he owed on his Visa card. Is that right? No guarantees but a court might.

Problem 353: Aware of difficulties with cross-collateralization clauses, rancher Howard Poll was always careful to keep his consumer obligations (from his Visa card, using the objects purchased as collateral) with a different bank than the one that financed his ranching operations (with a traditional loan, using his cattle as collateral). Both banks had him sign SAs that provided that the collateral nominated for each debt would also protect "any and all debts, now existing or after-acquired" owed to the same creditor. Howard was therefore distressed to learn that when the 2 banks merged, the new bank's loan officer now insisted that his cattle also protect the debts he owed on his Visa card. Is that right? No guarantees but a court might. It's not clear, but you would probably have a good equity argument before the court that you didn't intend to do this.

Problem 355: Video Wonder, an electronics store, had granted a floating lien over its inventory & equipment to Last National Bank, which perfected its SI by filing a financing statement in the appropriate place. Needing a guard dog for the store, Video Wonder's manager responded to an ad in the newspaper placed by Agatha Shaw, who was selling her beloved German shepherd, Fang. She had bought him for protection when he was but a pup, but he had proven too much for her, having seriously injured a meter-reader & two mail cars. She checked out the store carefully before agreeing to sell Video Wonder the dog, saying she wanted a good home for Fang. He cost the store $1,200. The manager agreed to send her $100 a month until the dog was paid for, at which time she agreed in writing to sign over Fang's papers. Ms. Shaw & the manager agreed that the store would not get any title to Fang until all payments had been made. Fang proved to be a fine watchdog for the store, but when Video Wonder stopped making payments to all creditors 2 months later, Last National Bank seized all of the store's assets, including Fang. Agatha Shaw is upset. She calls you, her attorney. Is there any hope for her? Can she argue that the bank's SI only attached to Video Wonder's equity in the dog, or that until Video Wonder had paid the entire debt, it had no property interest to which the bank's floating lien could attach?

Problem 355: Video Wonder, an electronics store, had granted a floating lien over its inventory & equipment to Last National Bank, which perfected its SI by filing a financing statement in the appropriate place. Needing a guard dog for the store, Video Wonder's manager responded to an ad in the newspaper placed by Agatha Shaw, who was selling her beloved German shepherd, Fang. She had bought him for protection when he was but a pup, but he had proven too much for her, having seriously injured a meter-reader & two mail cars. She checked out the store carefully before agreeing to sell Video Wonder the dog, saying she wanted a good home for Fang. He cost the store $1,200. The manager agreed to send her $100 a month until the dog was paid for, at which time she agreed in writing to sign over Fang's papers. Ms. Shaw & the manager agreed that the store would not get any title to Fang until all payments had been made. Fang proved to be a fine watchdog for the store, but when Video Wonder stopped making payments to all creditors 2 months later, Last National Bank seized all of the store's assets, including Fang. Agatha Shaw is upset. She calls you, her attorney. Is there any hope for her? No. Can she argue that the bank's SI only attached to Video Wonder's equity in the dog, or that until Video Wonder had paid the entire debt, it had no property interest to which the bank's floating lien could attach? No. Need to take all of Fang or none of Fang (in FL cant take equity in a dog; can only take the dog itself). Here the dog would not be consumer good and would be equipment. Here there is a purchase money security interest.

Problem 356: Hart Farm Equipment leased a construction backhoe to Farmer Bean for a 6-month period with the understanding that farmer Bean would be given the option to purchase the backhoe at any time during that period, and, in fact, the lease at one point called his a "sale on approval." Farmer Bean's equipment was already subjected to a perfected floating lien in favor of ONB. 3 months after delivery of the backhoe, Farmer Bean agreed to buy the backhoe, and Hart Farm Equipment filed its financing statement the next day, claiming its PMSI. Who wins in the priority battle btwn Hart Farm Equipment & ONB?

Problem 356: Hart Farm Equipment leased a construction backhoe to Farmer Bean for a 6-month period with the understanding that farmer Bean would be given the option to purchase the backhoe at any time during that period, and, in fact, the lease at one point called his a "sale on approval." Farmer Bean's equipment was already subjected to a perfected floating lien in favor of ONB. 3 months after delivery of the backhoe, Farmer Bean agreed to buy the backhoe, and Hart Farm Equipment filed its financing statement the next day, claiming its PMSI. Who wins in the priority battle btwn Hart Farm Equipment & ONB? Hart Farm Equipment, as long as it filed its financing statement within 20 days following the exercise of the option. 2-326(2): goods held on approval are not subject to the claims fo the buyer's creditors until acceptance; goods held on sale or return are subject to such claims while in the buyer's possession. They have 2 arguments for the bank that they don't have priority: 1) in order to have a valid SI you need value, written security agreement and debtor has to have rights in the collateral. And here you could say the debtor doesn't have rights in the collateral until acceptance. "goods held on approval are not subject to clais of the buyers creditors until acceptance" 9-323. Could also say that the goods were delivered 3 months ago and therefore past 20 days.

Problem 357: Danica traded in her SUV for a hybrid Maxwell Demon at Cash For Clunkers at a time when she still owed Cash For Clunkers $15,000 on the SUV, which is now worth $10,000. To finance this transaction, Danica borrowed $25,000, secured by the Maxwell Demon, from ONB, which made her a hybrid loan of $20,000 to pay the price of the new Maxwell Demon and $5,000 to pay off her "negative equity" in the old SUV. Does ONB have a PMSI for the full amount?

Problem 357: Danica traded in her SUV for a hybrid Maxwell Demon at Cash For Clunkers at a time when she still owed Cash For Clunkers $15,000 on the SUV, which is now worth $10,000. To finance this transaction, Danica borrowed $25,000, secured by the Maxwell Demon, from ONB, which made her a hybrid loan of $20,000 to pay the price of the new Maxwell Demon and $5,000 to pay off her "negative equity" in the old SUV. Does ONB have a PMSI for the full amount? The issue is whether you have a PMSI when you pay off an old loan/ renegotiate an old loan - Most courts say yes. It still counts as a PMSI but the 5000 protion might be put at end of list because it wasn't used to buy the car and used to pay of old loan. Courts and UCCusually go all or in part of the entire transaction because it is necessary for the car transaction and therefore since you cant by it without paying off the remainder of the loan you have have to pay it of for the transaction fo the car to occur and therefor they take a PMSI in the whole 25k.

Problem 359: Hans Racing Equipment bought much of its inventory from Standard Auto Wholesalers, Inc., which always took a PMSI in the goods sold to Hans and which filed a financing statement on the same day. Hans also borrowed money 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. MDNB filed a financing statement, claiming a SI in Han's inventory. On March 28, Hans contracted to buy $3,000 in goods from Standard, making a down payment of $1,500 and giving Standard a PMSI in the goods for the rest. On that same day, he borrowed the $1,500 down payment from MDNB and also gave a PMSI in the same goods. Both creditors knew of the other, so they both sent written notice to each other. The goods were delivered to Hans on April 2. Which creditor has priority? Standard - 9-324(g).

Problem 359: Hans Racing Equipment bought much of its inventory from Standard Auto Wholesalers, Inc., which always took a PMSI in the goods sold to Hans and which filed a financing statement on the same day. Hans also borrowed money 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. MDNB filed a financing statement, claiming a SI in Han's inventory. On March 28, Hans contracted to buy $3,000 in goods from Standard, making a down payment of $1,500 and giving Standard a PMSI in the goods for the rest. On that same day, he borrowed the $1,500 down payment from MDNB and also gave a PMSI in the same goods. Both creditors knew of the other, so they both sent written notice to each other. The goods were delivered to Hans on April 2. Which creditor has priority?

Problem 360: Barbara Shipek was pleased & flattered when Tim Isle, owner of Isle's Fine Art Works, asked her if he could exhibit & sell some of her pottery. She gave him 5 of her favorite pieces. The next day she took a party of friends down to the store to see the display and was astounded to learn that ONB, which had a perfected floating lien on the store's inventory, had foreclosed & seized everything in the store, including Barb's pottery. Can ONB do this to her?

Problem 360: Barbara Shipek was pleased & flattered when Tim Isle, owner of Isle's Fine Art Works, asked her if he could exhibit & sell some of her pottery. She gave him 5 of her favorite pieces. The next day she took a party of friends down to the store to see the display and was astounded to learn that ONB, which had a perfected floating lien on the store's inventory, had foreclosed & seized everything in the store, including Barb's pottery. Can ONB do this to her? yes.

Problem 361: Mr. Goldbury instructed his stockbroker, Bing, Bong & Bell (BB&B) to buy 100 shares of Utopia, Ltd., stock & place it in his account at BB&B. Bing, Bong & Bell bought shares & kept them in the account it held at Clearing Corporation but marked its records to indicate that Mr. Goldbury was really the owner of this number of shares of the stock. In this case, Art. 8 would deem Mr. Goldbury an entitlement holder who has a securities entitlement in a security account with a securities intermediary; see 8-201, which defines all these terms (securities account in 8-501(a)). Mr. Goldbury went to ONB and asked to borrow money using the above 100 shares as collateral. You are counsel for ONB & are in charge of making sure that the bank's SI is perfected, which means getting "control" over the securities entitlement. Look at 8-106(d) and its Official Comment 4, and advise the bank. Which of the possible methods is safest for your client? If another creditor also gets control over the rights to the 100 shares, which has priority? See 9-328(2). If Mr. Goldbury borrows money from BB&B after ONB has control & grants BB&B a SI in all stocks held in his account with them, is BB&B's SI superior to ONB's? See 9-328(3) and Official Comment 4, ex. 5.

Problem 361: Mr. Goldbury instructed his stockbroker, Bing, Bong & Bell (BB&B) to buy 100 shares of Utopia, Ltd., stock & place it in his account at BB&B. Bing, Bong & Bell bought shares & kept them in the account it held at Clearing Corporation but marked its records to indicate that Mr. Goldbury was really the owner of this number of shares of the stock. In this case, Art. 8 would deem Mr. Goldbury an entitlement holder who has a securities entitlement in a security account with a securities intermediary; see 8-201, which defines all these terms (securities account in 8-501(a)). Mr. Goldbury went to ONB and asked to borrow money using the above 100 shares as collateral. You are counsel for ONB & are in charge of making sure that the bank's SI is perfected, which means getting "control" over the securities entitlement. Look at 8-106(d) and its Official Comment 4, and advise the bank. Which of the possible methods is safest for your client? Control beats filing & getting control by having the account changed to bank as owner of the account is better than reaching agreement with both Goldbury & BBB that BBB will follow any entitlement orders (like "sell now!") that the bank gives to BBB. If another creditor also gets control over the rights to the 100 shares, which has priority? See 9-328(2). Creditor first getting control: "a SI held by a secured party having control has priority over a SI held by a secured party that does not have control of the investment property." If Mr. Goldbury borrows money from BB&B after ONB has control & grants BB&B a SI in all stocks held in his account with them, is BB&B's SI superior to ONB's? See 9-328(3) and Official Comment 4, ex. 5. BBB has priority. "A security interest held by a securities intermediary [BBB] in a security entitlement or a securities account maintained with the securities intermediary has priority over a conflicting SI held by another secured party [ONB].

Problem 362: Computer World, Inc., desires to borrow money from Investment Bank of America, which will grant it a revolving line of credit, secured in part by the bank account that Computer World maintains at Last National Bank. You are the attorney for Investment Bank of America. 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. If Computer World later borrows money from Last National Bank & grants the bank a SI in the account carried there, would Last National have priority over your client? See 9-327(3) & (4).

Problem 362: Computer World, Inc., desires to borrow money from Investment Bank of America, which will grant it a revolving line of credit, secured in part by the bank account that Computer World maintains at Last National Bank. You are the attorney for Investment Bank of America. 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. Changing the account so that IBA is the account holder is safer than getting LNB to agree to follow its instructions. If Computer World later borrows money from Last National Bank & grants the bank a SI in the account carried there, would Last National have priority over your client? See 9-327(3) & (4). Not if IBA has the account changed so that it's the bank's customer. A secured party that perfected by becoming the bank's customer on the account has priority over a SI held by the bank with which the deposit account is maintained. This is different than for brokerage accounts - why? It's very important for brokerage companies to have 1st access to your account. But banks are in a different business: the business of loaning money. Cant have a bank where money is deposited trump other creditors later on (if bank is trying to get ppl to loan money). (Brokerage acct: brokerage has priority over you).

Problem 363: Computer World agreed to sell 10,000 computers to Football University for the sum of $25,000, with Football University agreeing to obtain a letter of credit for this amount in favor of the seller. Shortly thereafter Computer World received a letter of credit from ONB naming Computer World as the beneficiary and stating that it would honor drafts drawn on the bank in favor of Computer World for the amount of $25,000 on presentation of an invoice showing shipment of the computers to the university by Sept. 25 of that year. Computer World comes to you, its attorney, in February of the same year with the following problem. It needs to borrow $10,000 from some lender in order to finance the construction of the computers by the required deadline. It wants to use the letter of credit as collateral for this loan. How can the new lender obtain a perfected interest in the rights represented by the letter of credit? See 9-107. When Computer World asked ONB if it would agree to an assignment of the proceeds of the letter of credit to Computer World's lender, the bank not only refused but pointed to clauses in the letter of credit that provided a number of things: (1) the right of Computer World to draw drafts on the bank was not transferable; and (2) the letter of credit specifically forbade the beneficiary (Computer World) the right to make an assignment of the proceeds of the letter of credit & voided the letter of credit if the beneficiary made such an assignment without the bank's consent. What can Computer World tell potential lenders who might be willing to loan it money if the letter of credit rights could be used as collateral? Remember the obligation from Football University to Computer world is an account.

Problem 363: Computer World agreed to sell 10,000 computers to Football University for the sum of $25,000, with Football University agreeing to obtain a letter of credit for this amount in favor of the seller. Shortly thereafter Computer World received a letter of credit from ONB naming Computer World as the beneficiary and stating that it would honor drafts drawn on the bank in favor of Computer World for the amount of $25,000 on presentation of an invoice showing shipment of the computers to the university by Sept. 25 of that year. Computer World comes to you, its attorney, in February of the same year with the following problem. It needs to borrow $10,000 from some lender in order to finance the construction of the computers by the required deadline. It wants to use the letter of credit as collateral for this loan. How can the new lender obtain a perfected interest in the rights represented by the letter of credit? See 9-107. Not by filing, only control will do it: "a SI in letter-of-credit rights may be perfected only by control." (must tell other bank that it cannot perfect SA, as the issuing bank will not agree) - can get control by (1) getting the issuing bank of the letter of credit to identify you, the creditor, as the beneficiary, and not the seller; or (2) get the letter of credit issuer to follow your directions. When Computer World asked ONB if it would agree to an assignment of the proceeds of the letter of credit to Computer World's lender, the bank not only refused but pointed to clauses in the letter of credit that provided a number of things: (1) the right of Computer World to draw drafts on the bank was not transferable; and (2) the letter of credit specifically forbade the beneficiary (Computer World) the right to make an assignment of the proceeds of the letter of credit & voided the letter of credit if the beneficiary made such an assignment without the bank's consent. What can Computer World tell potential lenders who might be willing to loan it money if the letter of credit rights could be used as collateral? Remember the obligation from Football University to Computer world is an account. Lender could take a SI in the account that Football University owes Computer World; this would automatically perfect the lender's SI in the letter of credit, a supporting obligation. Perfection of the account would protect lender from the trustee in Computer World's bankruptcy.

Problem 364: Betty Consumer bought a television set from Distortion TV, Inc., a retail store. A month later, Distortion went bankrupt, and a minor functionary from Octopus National Bank (ONB) showed up on her stoop & asked her to turn over the set. He explained that ONB held a perfected SI in all of Distortion's inventory & that since Distortion had not paid off its debts to ONB, the bank was repossessing. What should Ms. Consumer tell the bank's flunky? See 9-320(a). Would it matter if she had known that ONB had a perfected SI in Distortion's inventory? Would it matter if she bought at a "Liquidation Sale" and was informed by the store's owner that the store planned to file a bankruptcy petition the following week? What if Ms. Consumer had put the TV on a "layaway" and had paid 50% of the price but permitted Distortion to keep the TV (she signed a contract obligating herself to pay the balance), and then the store filed for bankruptcy? Read §2-502 & its Official Comments. The Bankruptcy Code also offers such consumers some relief in §507(a)(7), which gives layaway buyers a priority payment up to the amount of $2,425 per individual.

Problem 364: Betty Consumer bought a television set from Distortion TV, Inc., a retail store. A month later, Distortion went bankrupt, and a minor functionary from Octopus National Bank (ONB) showed up on her stoop & asked her to turn over the set. He explained that ONB held a perfected SI in all of Distortion's inventory & that since Distortion had not paid off its debts to ONB, the bank was repossessing. What should Ms. Consumer tell the bank's flunky? See 9-320(a). To go away because she took free (she's a buyer in the ordinary course of business). "this is " a buyer in a ordinary course of business" If its some private sign on the street then it wouldn't be in the ordinary course fo business. § 9-320. BUYER OF GOODS. (a) [Buyer in ordinary course of business.] Except as otherwise provided in subsection (e), a buyer in ordinary course of business, other than a person buying farm products from a person engaged in farming operations, takes free of a security interest created by the buyer's seller, even if the security interest is perfected and the buyer knows of its existence. (b) [Buyer of consumer goods.] Except as otherwise provided in subsection (e), a buyer of goods from a person who used or bought the goods for use primarily for personal, family, or household purposes takes free of a security interest, even if perfected, if the buyer buys: (1) without knowledge of the security interest; (2) for value; (3) primarily for the buyer's personal, family, or household purposes; and (4) before the filing of a financing statement covering the goods. Would it matter if she had known that ONB had a perfected SI in Distortion's inventory? No, not if she did not actually know the sale was in violation of the SA. Would it matter if she bought at a "Liquidation Sale" and was informed by the store's owner that the store planned to file a bankruptcy petition the following week? No. What if Ms. Consumer had put the TV on a "layaway" and had paid 50% of the price but permitted Distortion to keep the TV (she signed a contract obligating herself to pay the balance), and then the store filed for bankruptcy? Read §2-502 & its Official Comments. The Bankruptcy Code also offers such consumers some relief in §507(a)(7), which gives layaway buyers a priority payment up to the amount of $2,425 per individual. She can reclaim her layaway goods & she would have a priority claim in bankruptcy (from the bankruptcy trustee) of up to $2,600. §2-502(1): A buyer that has paid a part or all of the price of goods in which the buyer has a special property may on making a tender of any unpaid portion of their price recover them from the seller if: (a) bought for (by a consumer), the seller repudiates or fails to deliver...; or (b) the seller becomes insolvent within 10 days after receipt of the first installment on their price. Bankruptcy Code offers such consumers some relief under 507(a)(7), which gives layaway buyers a priority payment up to the amount of $2,850 per individual.

Problem 368: Wonder Spa, Inc. pledged 50 of its promissory notes to the Conservative State Bank & Trust Company (CSBTC) in return for a loan. The bank took possession of the notes. The spa asked to have 10 of the notes back for presentment to the makers for payment, and the bank duly turned over the notes, which Wonder Spa sold (discounted) to ONB, a bona fide purchaser without knowledge of CBSTC's interest. This resale was in direct violation of the spa's agreement with CSBTC. Which bank is entitled to the instrument? Is ONB one of the parties protected by §9-331?

Problem 368: Wonder Spa, Inc. pledged 50 of its promissory notes to the Conservative State Bank & Trust Company (CSBTC) in return for a loan. The bank took possession of the notes. The spa asked to have 10 of the notes back for presentment to the makers for payment, and the bank duly turned over the notes, which Wonder Spa sold (discounted) to ONB, a bona fide purchaser without knowledge of CBSTC's interest. This resale was in direct violation of the spa's agreement with CSBTC. Which bank is entitled to the instrument? ONB wins because it's a HIDC. 9-331: HIDCs take priority over an earlier SI, even if perfected. Is ONB one of the parties protected by §9-331? Yes because ONB is a HIDC.

Problem 370: The Repossession Finance Company had a perfected (filed) SI in the equipment of White Truck Ice Cream (WTIC), Inc. (the company sold ice cream from trucks that traveled through the city's neighborhoods). Though technically a corporation, WTIC was in actuality a family business, and Bill White-Truck himself frequently drove one of the trucks. One day while making his rounds, Bill met Frank Family, a consumer who asked about buying an ice-cream-making machine for his family. Bill promptly sold him one of the machines the company owned, for which Frank paid cash. When WTIC failed to make its payments, the finance company lived up to its name and repossessed all equipment. When Frank refused to turn over the ice cream machine, Repossession sued him for conversion (a tort that does not require a scienter or guilty knowledge for its commission). Answer these questions: Does he lose? Would we get a different result if the bank's interest were unperfected at the time of the sale? See 9-317(b). Would we get a different result if the bank knew & approved of the sale?

Problem 370: The Repossession Finance Company had a perfected (filed) SI in the equipment of White Truck Ice Cream (WTIC), Inc. (the company sold ice cream from trucks that traveled through the city's neighborhoods). Though technically a corporation, WTIC was in actuality a family business, and Bill White-Truck himself frequently drove one of the trucks. One day while making his rounds, Bill met Frank Family, a consumer who asked about buying an ice-cream-making machine for his family. Bill promptly sold him one of the machines the company owned, for which Frank paid cash. When WTIC failed to make its payments, the finance company lived up to its name and repossessed all equipment. When Frank refused to turn over the ice cream machine, Repossession sued him for conversion (a tort that does not require a scienter or guilty knowledge for its commission). Answer these questions: Does he lose? Yes, this is not a sale in the ordinary course of business so the SI continues after sale & Repossession can go pickup the ice cream machine. Would we get a different result if the bank's interest were unperfected at the time of the sale? See 9-317(b). Yes. Would we get a different result if the bank knew & approved of the sale? Yes. 9-315: "a SI continues in collateral notwithstanding sale unless the secured party authorized the disposition free of the SI." PMSI in consumer goods is automatically perfected.

Problem 371: Paul Pop was a rock singer to whom Octopus National Bank (ONB) loaned $8,000 so he could buy stereo equipment for his road show (not consumer goods, must file to perfect). On April 2, Paul purchased the equipment, and on April 10, ONB filed its financing statement in the proper place. However, in the interim, on April 8, Paul sold the equipment to Used Stereo Heaven, which bought with no knowledge of the bank's PMSI. Does ONB or Used Stereo Heaven have the superior claim to the equipment?

Problem 371: Paul Pop was a rock singer to whom Octopus National Bank (ONB) loaned $8,000 so he could buy stereo equipment for his road show (not consumer goods, must file to perfect). On April 2, Paul purchased the equipment, and on April 10, ONB filed its financing statement in the proper place. However, in the interim, on April 8, Paul sold the equipment to Used Stereo Heaven, which bought with no knowledge of the bank's PMSI. Does ONB or Used Stereo Heaven have the superior claim to the equipment? ONB—its protected for 20 days, even if the property is sold. 9-317(e): "if a person files a financing statement with respect to a PMSI before or within 20 days after the debtor receives delivery of the collateral, the SI takes priority over the rights of a buyer, which arise between the time of the SI attaches and the time of filing."

Problem 372 When Farmer Bean borrowed a large amount of money from Farmers' Friend Financing Company (FFFC), he was required to sign a security agreement by which he promised not to sell the crop that was the collateral for the loan without written consent of FFFC. Nonetheless, every year he sold the crop to the same buyer and remitted the proceeds to FFC without getting its written consent. Does the buyer take free of the security interest of the secured party under 9-320(a)? If FFFC never protested what was going on year after year as the security agreement was violated, can it be said to have waived its security interest?

Problem 372 When Farmer Bean borrowed a large amount of money from Farmers' Friend Financing Company (FFFC), he was required to sign a security agreement by which he promised not to sell the crop that was the collateral for the loan without written consent of FFFC. Nonetheless, every year he sold the crop to the same buyer and remitted the proceeds to FFC without getting its written consent. Does the buyer take free of the security interest of the secured party under 9-320(a)? No, because farm product. If FFFC never protested what was going on year after year as the security agreement was violated, can it be said to have waived its security interest? Yes. See the clovis case. This was not a case of dealing case this was a case of performance case.

Problem 374: Mr. and Mrs. Halyard purchased a large sailboat with money borrowed from the Boilerplate National Bank (BNB), which took a SI therein and promptly filed a financing statement in the proper place (this is a PMSI in consumer goods, don't need to file). The Halyards sold the boat to Oil Slick Boat Sales, Inc., a used boat concern, telling Oil Slick of the bank's interest & of the necessity of making monthly payments to the bank (Halyards are not in the ordinary course of selling sailboats, so SI of BNB will continue in the collateral). 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 (note: Oil Slick breached warranty of title by not telling them about the SI). When BNB did not receive its usual monthly payment, it investigated, found the boat, and repossessed it. Has the Blinks' property been converted, or don't they fit into §9-320(a)? What does "created by the buyer's seller" mean in §9-320(a)? Does Article 2's "entrusting" rule, §2-403, help the Blinks? What is 2-403's relationship with Article 9? The "created by the buyer's seller" language will often cause trouble for buyers buying goods from a used merchandise dealer. Why would the drafters have favored the original creditor in this situation over a buyer in the ordinary course? If the Blinks lose this lawsuit, whom should they sue, and what is their theory? See 2-312. Can Oil Slick use the same theory against the Halyards?

Problem 374: Mr. and Mrs. Halyard purchased a large sailboat with money borrowed from the Boilerplate National Bank (BNB), which took a SI therein and promptly filed a financing statement in the proper place (this is a PMSI in consumer goods, don't need to file). The Halyards sold the boat to Oil Slick Boat Sales, Inc., a used boat concern, telling Oil Slick of the bank's interest & of the necessity of making monthly payments to the bank (Halyards are not in the ordinary course of selling sailboats, so SI of BNB will continue in the collateral). 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 (note: Oil Slick breached warranty of title by not telling them about the SI). When BNB did not receive its usual monthly payment, it investigated, found the boat, and repossessed it. Has the Blinks' property been converted, or don't they fit into §9-320(a)? Technically 9-320(a) does not destroy BNB's right to repossess because the interest was not created by Oil Slick, the interest was created by the Halyards (although the Blinks would ordinarily be protected by 9-320(a), SI wasn't created by buyer's seller here). What does "created by the buyer's seller" mean in §9-320(a)? Not created by Oil Slick. Does Article 2's "entrusting" rule, §2-403, help the Blinks? No, "a purchaser of goods [Blink] acquires all title that the purchaser's transferor [Oil Slick] had." (this is like the shelter rule: buyer takes all title the purchaser had; but Oil Slick doesn't have good title -it had the SI. So doesn't help them). What is 2-403's relationship with Article 9? Art. 9 controls. The "created by the buyer's seller" language will often cause trouble for buyers buying goods from a used merchandise dealer. Why would the drafters have favored the original creditor in this situation over a buyer in the ordinary course? Favoring the "Secured Creditor" in the ordinary course helps the flow of credit. The "second sale" situation is an infrequent anomaly which would require undue creditor resources to police & perhaps a buyer from a dealer in used goods should be alert for possible SIs lurking therein. If the Blinks lose this lawsuit, whom should they sue, and what is their theory? See 2-312. Oil Slick for breach of warranty of title. Can Oil Slick use the same theory against the Halyards? No, Halyards told Oil Slick about the bank's SI. There is in a contract for sale a warranty by the seller that: (1) the title conveyed shall be good, and its transfer rightful; (2) & the goods shall be delivered free from any SI or other lien of which the buyer at the time of contracting has no knowledge.

Problem 375: The Highbid Construction Company gave a SI to ONB in all of its construction equipment "now owned or after-acquired." ONB filed a financing statement in the proper place. 2 years later, Highbid was in the middle of an enormous construction project at Football University when a number of its key employees quit, leaving it very short-staffed. To avoid breach of contract, it became necessary to farm out the project to someone else, though Highbid had never done this before. The president of Highbid reached an agreement with Newcomber Construction Company, one of its subcontractors on the Football University job, by which Highbid would lease all of its construction equipment to Newcomer for the length of the Football University project so that Newcomer could finish the job for Highbid. Use the rules of Art. 2A to answer the following question: is the lessee subject to ONB's existing SI in the equipment?

Problem 375: The Highbid Construction Company gave a SI to ONB in all of its construction equipment "now owned or after-acquired." ONB filed a financing statement in the proper place. 2 years later, Highbid was in the middle of an enormous construction project at Football University when a number of its key employees quit, leaving it very short-staffed. To avoid breach of contract, it became necessary to farm out the project to someone else, though Highbid had never done this before. The president of Highbid reached an agreement with Newcomber Construction Company, one of its subcontractors on the Football University job, by which Highbid would lease all of its construction equipment to Newcomer for the length of the Football University project so that Newcomer could finish the job for Highbid. Use the rules of Art. 2A to answer the following question: is the lessee subject to ONB's existing SI in the equipment? Yes. Had Highbid been in the in the leasing business, 9-321(c) would protect Newcomer, but because Highbid had never done this before, it's not a lessee in the ordinary course of business so Newcomb takes the leasehold subject to the SI (& there can be a repo).

Problem 376: When the Football University project was completed, the lease described in the last Problem ended, and the machinery was returned by the lessee to Highbid Construction Company. Things were going so well for Highbid that it was able to pay off all of its loans in full & free all of its assets from the security interests that had encumbered them (must assume a termination statement was filed here). Highbid's lawyer advised the company that for both tax and accounting reasons it would be better if Highbid released the new grading machine that it had recently purchased rather than owning it outright. To accomplish this, Highbid's attorney worked out a deal by which Octopus National Bank (ONB) would purchase the grading machine from Highbid and then lease it back to Highbid. The term of the lease was exactly equal to the useful life of the grading machine. Two months after this agreement had come into being, Highbid's president absconded with the company's liquid assets, leaving the company in bad financial shape and needing to borrow some money. ONB refused to advance further funds, so Highbid looked elsewhere. The new president of Highbid went to Antitrust National Bank (ANB) and sought a loan, offering the grading machine as collateral. He was able to produce a bill of sale showing that Highbid had purchased the grading machine a mere 3 months ago when it was involved in the Football University contract. He did not tell ANB about the subsequent sale and leaseback arrangement that Highbid had with ONB. After ANB checked the public records and found no evidence of a security interest in the grading machine, it had Highbid sign the necessary Art. 9 documents & a promissory note, loaned the money, & filed its financing statement in the appropriate place. When Highbid defaulted on its lease payments, ONB repossessed the grading machine, at which point ANB claimed the superior interest therein. ANB's attorney argued that ONB was a party to fraud in that the sale and leaseback helped HIghbid create the false appearance of assets (term of the lease is exactly equal to the useful life of the machine - thus, an Art. 2 sale, with a SI, disguised as a lease - ONB must therefore file a FS to perfect). How does this come out? Would you reach the same result if the lease agreement had been between Highbid & ONB provided the lessee with the right of termination at any time?

Problem 376: When the Football University project was completed, the lease described in the last Problem ended, and the machinery was returned by the lessee to Highbid Construction Company. Things were going so well for Highbid that it was able to pay off all of its loans in full & free all of its assets from the security interests that had encumbered them (must assume a termination statement was filed here). Highbid's lawyer advised the company that for both tax and accounting reasons it would be better if Highbid released the new grading machine that it had recently purchased rather than owning it outright. To accomplish this, Highbid's attorney worked out a deal by which Octopus National Bank (ONB) would purchase the grading machine from Highbid and then lease it back to Highbid. The term of the lease was exactly equal to the useful life of the grading machine. Two months after this agreement had come into being, Highbid's president absconded with the company's liquid assets, leaving the company in bad financial shape and needing to borrow some money. ONB refused to advance further funds, so Highbid looked elsewhere. The new president of Highbid went to Antitrust National Bank (ANB) and sought a loan, offering the grading machine as collateral. He was able to produce a bill of sale showing that Highbid had purchased the grading machine a mere 3 months ago when it was involved in the Football University contract. He did not tell ANB about the subsequent sale and leaseback arrangement that Highbid had with ONB. After ANB checked the public records and found no evidence of a security interest in the grading machine, it had Highbid sign the necessary Art. 9 documents & a promissory note, loaned the money, & filed its financing statement in the appropriate place. When Highbid defaulted on its lease payments, ONB repossessed the grading machine, at which point ANB claimed the superior interest therein. ANB's attorney argued that ONB was a party to fraud in that the sale and leaseback helped HIghbid create the false appearance of assets (term of the lease is exactly equal to the useful life of the machine - thus, an Art. 2 sale, with a SI, disguised as a lease - ONB must therefore file a FS to perfect). How does this come out? ANB wins (ONB rly has an unperfected SI).under 1-203 Would you reach the same result if the lease agreement had been between Highbid & ONB provided the lessee with the right of termination at any time? No, ONB wins (true lease under 2A).

Problem 377: Jack Gladhand was a traveling salesman dealing in many kinds of office supplies. He needed new luggage to carry his samples and bought a set from Alligator Fashions, which reserved a SI therein and filed a financing statement. A month later, in the middle of a hot sales deal, Jack sold all of his samples and the luggage to Mark Impulse, a compulsive buyer. Jack told Mark (who paid cash for the goods) that the luggage was genuine alligator (a lie—he knew it was lizard). When Mark discovered the truth, he revoked his acceptance of the goods pursuant to 2-608 & claimed a SI in the goods. Read §2-711(3). On learning of Jack's resale to Mark and of the later revocation of acceptance, Alligator Fashions decided to call the loan & repossess the luggage. Who is entitled to the luggage? See 9-110.

Problem 377: Jack Gladhand was a traveling salesman dealing in many kinds of office supplies. He needed new luggage to carry his samples and bought a set from Alligator Fashions, which reserved a SI therein and filed a financing statement. A month later, in the middle of a hot sales deal, Jack sold all of his samples and the luggage to Mark Impulse, a compulsive buyer. Jack told Mark (who paid cash for the goods) that the luggage was genuine alligator (a lie—he knew it was lizard). When Mark discovered the truth, he revoked his acceptance of the goods pursuant to 2-608 & claimed a SI in the goods. Read §2-711(3). On learning of Jack's resale to Mark and of the later revocation of acceptance, Alligator Fashions decided to call the loan & repossess the luggage. Who is entitled to the luggage? See 9-110. Mark (9-110). 2-711(3): On rightful rejection or justifiable revocation of acceptance, a buyer has a SI in the goods in the buyer's possession for any payment made on their price & any expenses reasonably incurred in their inspection, receipt, transportation, care, & custody. 9-110. SIs Arising Under Art. 2 or 2A: Until the debtor obtains possession of the goods, [Mark's] The SI is enforceable, Filing is not required to perfect the SI, The security interest has priority over a conflicting SI created by the debtor.

Problem 378: Guy Baldwin was a successful author who decided to self-publish his latest book and mark it directly to retailers. He received an order for 200 copies from Cowskin Book Chain, & he shipped off the books immediately, along with an invoice for their price. Two days later, he learned that Cowskin was hopelessly insolvent & unable to pay any creditors. What can he do? See 2-702. Suppose that 2 weeks before he shipped the books, Cowskin had send him a letter lying about its financial condition; now how long does he have to make his reclamation demand? If he gets the books back, can he sue Cowskin for the wasted shipping costs? See 2-702(3). If Cowskin's inventory was subject to a perfected SI in favor of a bank, which thereby had a floating lien on the inventory, could he still reclaim the books? Note that the definition of a purchaser includes any voluntary transferee, which would encompass secured parties. What should Baldwin have done? See 9-324(b).

Problem 378: Guy Baldwin was a successful author who decided to self-publish his latest book and mark it directly to retailers. He received an order for 200 copies from Cowskin Book Chain, & he shipped off the books immediately, along with an invoice for their price. Two days later, he learned that Cowskin was hopelessly insolvent & unable to pay any creditors. What can he do? See 2-702. Reclaim the books from an insolvent buyer if he makes demand for their return within a reasonable time after the buyer's receipt. (2-702(2): "if the seller discovers that the buyer has received goods on credit while insolvent the seller may reclaim the goods upon demand made within 10 days after the buyer's receipt of the goods.") Suppose that 2 weeks before he shipped the books, Cowskin had send him a letter lying about its financial condition; now how long does he have to make his reclamation demand? Unlimited if 2-702(2): but if misrepresentation of solvency has been made to the seller in writing within 3 months before delivery, of the 10 day limitation does not apply. If he gets the books back, can he sue Cowskin for the wasted shipping costs? See 2-702(3). No. 2-702(3): "successful reclamation of goods excludes all other remedies with respect to them." If Cowskin's inventory was subject to a perfected SI in favor of a bank, which thereby had a floating lien on the inventory, could he still reclaim the books? Note that the definition of a purchaser includes any voluntary transferee, which would encompass secured parties. No. they count as a purchase because it includes SI. The seller's right to reclaim is subject to the rights of... other good faith purchaser (bank is good faith purchaser). What should Baldwin have done? See 9-324(b). Claim a PMSI in the goods and perfect & notify the inventory financer of his interest before shipping the goods (supplying books to the buyer could have resulted in PMSI. Books are inventory not consumer goods, thus must file statemnt to perfect the SI) - would have won over an earlier floating lien on his inventory. Cow skin has to grant a SI so that you have a perfected floating lean over all the books coming in. by perfecting this you step ahead. But you have to do another step because this is inventory and you should in case of a default to make sure you maintain your priority. You have to notify inventory financer. Then you would not have to worry about others having a PMSI.

Problem 379: ONB held a perfected SI in all the cattle owned by Family Farms of Iowa, Inc. (a mom-and-pop operation). When it became obvious that the farm was failing financially, ONB decided to pull the plug. Before it did so, it wanted to make sure that the cattle were well-fed, so the ONB officer in charge of loan management called Cow Chow, Inc., and encouraged it to make another delivery of cattle feed to Family Farms, even though it had not been paid for its last 2 deliveries. ONB did not mention that it was about to foreclose on the fattened cattle, which it did so as soon as they had consumed most of the new delivery (for which Cow Chow billed Family Farms in the amount of $10,000). Cow Chow was an unsecured creditor, which ONB well knew. Is ONB required to give Cow Chow any of the money it realizes from the foreclosure sale?

Problem 379: ONB held a perfected SI in all the cattle owned by Family Farms of Iowa, Inc. (a mom-and-pop operation). When it became obvious that the farm was failing financially, ONB decided to pull the plug. Before it did so, it wanted to make sure that the cattle were well-fed, so the ONB officer in charge of loan management called Cow Chow, Inc., and encouraged it to make another delivery of cattle feed to Family Farms, even though it had not been paid for its last 2 deliveries. ONB did not mention that it was about to foreclose on the fattened cattle, which it did so as soon as they had consumed most of the new delivery (for which Cow Chow billed Family Farms in the amount of $10,000). Cow Chow was an unsecured creditor, which ONB well knew. Is ONB required to give Cow Chow any of the money it realizes from the foreclosure sale? Cow Chow will prevail here bc of the basic UCC requirements of good faith which alters the usual priorities.

Problem 379: Victor Valises was a traveling salesman. He owned a Ford in which the Salesmen's Credit Union held a perfected security interest, which was duly noted on the certificate of title. When the tired were worn out, he bought new ones from the Yeti Tire Company, which claimed a PMSI in the tires and filed a financing statement covering them in the appropriate place. Will the credit union or the tire company have priority in the tires?

Problem 379: Victor Valises was a traveling salesman. He owned a Ford in which the Salesmen's Credit Union held a perfected security interest, which was duly noted on the certificate of title. When the tired were worn out, he bought new ones from the Yeti Tire Company, which claimed a PMSI in the tires and filed a financing statement covering them in the appropriate place. Will the credit union or the tire company have priority in the tires? NPA: The comment seems to indicate the credit union takes over the tires; on the other hand, its easily removable. If this counts as an accession, the credit union will take it over (even though there's a PMSI in the tires); but its not clear if the SI attaches to the tires (can argue that if you took the tires off, the car becomes non-function, so tires must be part of the car & thus credit union will get it all).

Problem 380: The Repossession Finance Company (RFC) had a perfected SI in Hattie Mobile's car (RFC's lien was noted on the certificate 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 with 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. Which creditor has the superior interest in the car under 9-333? If the car had been in Mike's possession when the conflict arose, would it matter under 9-333 that the finance company never gave its consent to the repairs? Once Mike's released the care to Hattie, did its lien reattach whenever she returned it to the garage?

Problem 380: The Repossession Finance Company (RFC) had a perfected SI in Hattie Mobile's car (RFC's lien was noted on the certificate 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 with 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. Which creditor has the superior interest in the car under 9-333? RFC. Mike's garage will lose because the lien's effectiveness depends on the person's possession of the goods. Mike does not have possession as the car was in front of Hattie's office. If the car had been in Mike's possession when the conflict arose, would it matter under 9-333 that the finance company never gave its consent to the repairs? No, under 9-333 a possessory lien on goods has priority over a SI in the goods, effectiveness depending on the person's possession of the goods (here, Mike's possession). Once Mike's released the care to Hattie, did its lien reattach whenever she returned it to the garage? Unclear, probably not.

Problem 392: ONB had a perfected SI in the inventory, accounts receivable, instruments, and chattel paper of an automobile dealership named Smiles Motors, to which the bank made periodic loans. Smiles Motors failed to pay its federal taxes, and the IRS filed a tax lien in the proper place on Oct. 1. On the first days of November & December new shipments of cars arrived at Smiles's lot, and all during the year Smiles continued to sell cars on credit, generating chattel paper and accounts receivable. 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?

Problem 392: ONB had a perfected SI in the inventory, accounts receivable, instruments, and chattel paper of an automobile dealership named Smiles Motors, to which the bank made periodic loans. Smiles Motors failed to pay its federal taxes, and the IRS filed a tax lien in the proper place on Oct. 1. On the first days of November & December new shipments of cars arrived at Smiles's lot, and all during the year Smiles continued to sell cars on credit, generating chattel paper and accounts receivable. Does the filing of the tax lien cut off ONB's floating lien in whole or in part? "Superpriority" protects the bank until mid-November, so the bank will have priority until the November shipment, but the IRS has priority from mid-November on its inventory, accounts receivable, instruments, & chattel paper, including, of course, the December shipment. Is this issue in any way affected by the bank's knowledge of the tax lien filing? No, so long as the loan is made without knowledge (loan gets priority only to the extent that such loan is made before the 46th day after the date of tax lien filing or (if earlier) before the lender or purchaser had actual notice or knowledge of the tax lien filing). And if the knak finds out there is knowledge the bank can decide whether to go foreward. 2 ways to get a PMSI - go to bank or kind of collateral note and Security agreement equals chattel paper

Problem 393: Six months after the IRS filed a tax lien against her, Charlene McGee bought a fire extinguisher system for her horse stables. She purchased the system on credit from King Protection Enterprises, which reserved a PMSI in itself and perfected it. Is the IRS's lien superior to King's PMSI?

Problem 393: Six months after the IRS filed a tax lien against her, Charlene McGee bought a fire extinguisher system for her horse stables. She purchased the system on credit from King Protection Enterprises, which reserved a PMSI in itself and perfected it. Is the IRS's lien superior to King's PMSI? No, because the IRS said so. IRS techancally like capital gains can go foreward. Nothing in statute that says it but the regulations say they wont enforce this kind of lean and they could change it at anytime if needed.

Problem 394: Marie Medici owned a hat factory. She financed her business 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, and the bank agreed to loan her money from time to time "as it thinks prudent." A financing statement covering the equipment was filed in the proper place. On August 1, she owed the bank $1,500 (having paid back most of the prior loans). The equipment consisted of two machines: the Habsburg Hat Blocker (worth $7,000) and the Huguenot Felt Press (worth $5,000). On that date, the US filed a federal tax lien against all of Medici's property. On August 31, the bank loaned her another $10,000. Answer these questions: Assuming the bank did not know of the tax lien on August 31, does the bank or the US have priority in the equipment, and to what amount? What if the bank did know? Assume there is no tax lien, but on August 15 Louis Dupes paid Medici $5,000 cash for the Huguenot Felt Press, and on August 31 the bank loaned her the $10,000. Does the purchase cut off the bank's security interest? (here this took place 15 days after so its ok. Does it matter whether or not the bank knew of the sale prior to the August 31 loan? Instead of buying the machine, as in the last paragraph, assume that Dupes is another creditor of Medici. On August 15, he levied execution on the felt press pursuant to a judgment. If he did this with full knowledge of the bank's security interest & if with notice of his levy the bank still loans Medici the $10,000 on August 31, does Dupes or the Richelieu State Bank have the superior interest in the felt press as to the future advance? See 9-323(b). If the bank did not know of the levy by Dupes on August 15 but loaned Medici an additional $5,000 on October 15, who would have priority as to this advance?

Problem 394: Marie Medici owned a hat factory. She financed her business 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, and the bank agreed to loan her money from time to time "as it thinks prudent." A financing statement covering the equipment was filed in the proper place. On August 1, she owed the bank $1,500 (having paid back most of the prior loans). The equipment consisted of two machines: the Habsburg Hat Blocker (worth $7,000) and the Huguenot Felt Press (worth $5,000). On that date, the US filed a federal tax lien against all of Medici's property. On August 31, the bank loaned her another $10,000. Answer these questions: Assuming the bank did not know of the tax lien on August 31, does the bank or the US have priority in the equipment, and to what amount? The bank has priority in the equipment, in the amount of $11,500 [this is because the bank did not know, and it's within 45 days, so the bank gets back the amount it has loaned: $1,500 + $10,000]. (See §6323(d)). What if the bank did know? Then $1500 only (bc that's what they leant before the tax lien). Assume there is no tax lien, but on August 15 Louis Dupes paid Medici $5,000 cash for the Huguenot Felt Press, and on August 31 the bank loaned her the $10,000. Does the purchase cut off the bank's security interest? No. 6-323 [Buyer of goods.] Except as otherwise provided in subsection (e), a buyer of goods other than a buyer in ordinary course of business takes free of a security interest to the extent that it secures advances made after the earlier of:(1) the time the secured party acquires knowledge of the buyer's purchase; or(2) 45 days after the purchase . (here this took place 15 days after so its ok. Does it matter whether or not the bank knew of the sale prior to the August 31 loan? Yes. See above. You actually can have knowledge as long as you don't pass the 45 days. Prof. says you can flip what it says to say that. Instead of buying the machine, as in the last paragraph, assume that Dupes is another creditor of Medici. On August 15, he levied execution on the felt press pursuant to a judgment. If he did this with full knowledge of the bank's security interest & if with notice of his levy the bank still loans Medici the $10,000 on August 31, does Dupes or the Richelieu State Bank have the superior interest in the felt press as to the future advance? See 9-323(b). RSB (the bank). 9-323(b): SI wins over judicial lien even after 45 days after a judicial lien granted, if new loan was made without knowledge of the lien. SI not trumped by judicial lien if bank makes a new loan with knowledge within 45 days of the judicial lien, & will also be ok after the 45 days of the filing of judicial lien if it made new loan without knowledge of the judicial lien. If knowledge of lien, made loan within 45 days, bank wins in those 45 days; but if bank didn't know about lien, will still prevail over creditor after the 45 days. If the bank did not know of the levy by Dupes on August 15 but loaned Medici an additional $5,000 on October 15, who would have priority as to this advance? RSB because it acted without knowledge of the judicial lien (if you don't have knowledge, you can go beyond the 45 days).

Problem 395: Lew Sun, a Korean, moved to Chicago and opened a Korean restaurant called "Seoul Food." He had many unsecured creditors (food sellers, linen services, employees, etc.). On April 17, he applied to the International State Bank for a loan of $10,000, and signed a security agreement in favor of the bank, secured by an interest in Sun's equipment. On April1 8, one hour before the bank filed the financing statement, Sun filed a bankruptcy petition in the federal court. If no new general creditors came into existence between the loan on April 17 and the petition filing on April 18, can the trustee avoid the bank's security interest under §544(a) of the Code? What result if the bank had filed its financing statement two seconds before the bankruptcy petition was filed? If the bank's interest had been a purchase money security interest, would the filing of the bankruptcy petition have cut off the usual 20-day grace period?

Problem 395: Lew Sun, a Korean, moved to Chicago and opened a Korean restaurant called "Seoul Food." He had many unsecured creditors (food sellers, linen services, employees, etc.). On April 17, he applied to the International State Bank for a loan of $10,000, and signed a security agreement in favor of the bank, secured by an interest in Sun's equipment. On April1 8, one hour before the bank filed the financing statement, Sun filed a bankruptcy petition in the federal court. If no new general creditors came into existence between the loan on April 17 and the petition filing on April 18, can the trustee avoid the bank's security interest under §544(a) of the Code? Yes, the bank loses because the security interest has not yet been perfected. What result if the bank had filed its financing statement two seconds before the bankruptcy petition was filed? The bank is ok because the bankruptcy trustee cannot avoid interests perfected before the bankruptcy petition was filed. If the bank's interest had been a purchase money security interest, would the filing of the bankruptcy petition have cut off the usual 20-day grace period? No. 546(b)(1): the rights and powers of the trustee under §544 are subject to any generally applicable law that permits perfection... 9-317(e): if a person files a financing statement with respect to a PMSI within 20 days after the debtor receives delivery, the SI takes priority over the rights of a lien creditor which arise btwn the time the security interest attaches and the time of filing.

Problem 396: On June 8, Business Corporation borrowed $80,000 from Octopus National Bank (ONB) and gave the bank a security interest in its equipment (worth $100,000). On July 18, ONB filed a valid financing statement in the proper place. The next day, Business Corporation filed its bankruptcy petition. 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? If ONB had perfected on June 8 but the debtor made some extraordinary payments to ONB in the 90-day period before the filing of the petition, could the trustee use §547 to make ONB pay that money back into the estate?

Problem 396: On June 8, Business Corporation borrowed $80,000 from Octopus National Bank (ONB) and gave the bank a security interest in its equipment (worth $100,000). On July 18, ONB filed a valid financing statement in the proper place. The next day, Business Corporation filed its bankruptcy petition. 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, the financing statement was filed one day before Business Corporation filed for bankruptcy. (perfecting enables the creditor to receive more than it would receive if the transfer (perfection) had not been made. There is an exception if they filed substantially contemporaneously when they got the security interest; however, a month later is not "substantially contemporaneous"). If ONB had perfected on June 8 but the debtor made some extraordinary payments to ONB in the 90-day period before the filing of the petition, could the trustee use §547 to make ONB pay that money back into the estate? No because it is not enabling the creditor to receive more than it would receive if the transfer had nto been made (creditor has not received more than it otherwise would have because either way it would get §80,000; it's not taking anything out of the estate).

Problem 399: The Last National Bank had a perfected security interest in the inventory of the Epstein bookstore, which owed the bank $20,000. On March 1, the inventory was wroth $8,000. On May 28, when Epstein filed for bankruptcy, the inventory was worth $20,000 because the store had purchased several new shipments for cash in the interim. What can the trustee do about the bank's claim? What if the bank first loaned Epstein $20,000 on May 1, when the inventory was worth $12,000?

Problem 399: The Last National Bank had a perfected security interest in the inventory of the Epstein bookstore, which owed the bank $20,000. On March 1, the inventory was wroth $8,000. On May 28, when Epstein filed for bankruptcy, the inventory was worth $20,000 because the store had purchased several new shipments for cash in the interim. What can the trustee do about the bank's claim? Avoid $12,000 of it. The inventory increased $12,000 within 90 days before bankruptcy. The secured party is not entitled to that increase because that is more money than it would otherwise received has Epstein defaulted before. What if the bank first loaned Epstein $20,000 on May 1, when the inventory was worth $12,000? Avoid $8,000.

Problem 400: When Arnold Austin retired as an international diplomat, he was famous but much in debt. He decided to make money by writing his memoirs, which were certainly best-seller material. He gave a security interest in the right to receive royalty payments from his publisher to his wife as collateral for "the many debts I owe her," and she filed a financing statement in the proper place 5 months before Arnold filed his bankruptcy petition. Can the trustee avoid this security interest? (At common law, one of the badges of fraud—situations in which fraud is presumed—was a voluntary transfer made by the debtor to a family member).

Problem 400: When Arnold Austin retired as an international diplomat, he was famous but much in debt. He decided to make money by writing his memoirs, which were certainly best-seller material. He gave a security interest in the right to receive royalty payments from his publisher to his wife as collateral for "the many debts I owe her," and she filed a financing statement in the proper place 5 months before Arnold filed his bankruptcy petition. Can the trustee avoid this security interest? (At common law, one of the badges of fraud—situations in which fraud is presumed—was a voluntary transfer made by the debtor to a family member). Assuming an actual creditor is hurt, yes. In situations in which fraud is presumed, the trustee may avoid any transfer of an interest of the debtor in property made between 90 days and one year before the date of the filing of the petition if such creditor at the time of transfer was an insider. Under §101, an insider includes a relative of the debtor.

Problem 405: Shadrach Heating and Air Conditioning, Inc., borrowed $15,000 from the Meshach Merchants Financing Association (MMFA) in order to purchase a new furnace for its own home office. When one of its important clients needed an identical furnace in a hurry, Shadrach Heating sold its own new furnace, which it installed in the client's place of business. The $17,000 check it received in payment was put into Shadrach's checking account (balance prior to this deposit: $81) with the Abednego State Bank. Thereafter, Shadrach made one further deposit of $5,000, followed a week later by a withdrawal of $5,040. Are proceeds from the furnace sale still in the bank accounts? If Shadrach Heating defaults on its loan repayment to MMFA and also on an unsecured promissory note currently held by the Abednego State Bank, can the bank exercise its common law right of setoff and pay itself out of the checking account, or is its setoff right junior to MMFAs security interest in the proceeds? What can a creditor claiming an interest in proceeds do to protect itself from setoff by the debtor's bank? If the depositary bank has a security interest in proceeds deposited in the debtor's account, but honors a check that depletes the account, may it still recover the money as traceable and identifiable proceeds?

Problem 405: Shadrach Heating and Air Conditioning, Inc., borrowed $15,000 from the Meshach Merchants Financing Association (MMFA) in order to purchase a new furnace for its own home office. When one of its important clients needed an identical furnace in a hurry, Shadrach Heating sold its own new furnace, which it installed in the client's place of business. The $17,000 check it received in payment was put into Shadrach's checking account (balance prior to this deposit: $81) with the Abednego State Bank. Thereafter, Shadrach made one further deposit of $5,000, followed a week later by a withdrawal of $5,040. Are proceeds from the furnace sale still in the bank accounts? Yes. The general equity rule is funds that are unencumbered are withdrawn first, encumbered funds stay when you have encumbered funds to withdraw. If Shadrach Heating defaults on its loan repayment to MMFA and also on an unsecured promissory note currently held by the Abednego State Bank, can the bank exercise its common law right of setoff and pay itself out of the checking account, or is its setoff right junior to MMFAs security interest in the proceeds? The bank's right of setoff wins—the bank can go into the account to recover the proceeds. See 9-304 and 9-104. Better control would be if you put the accountin your name and you will have sharp edges so you could avoid set off. Make sure you make the debtor put it in a account with your name. so the bank doesn't have control of the proceeds account. What can a creditor claiming an interest in proceeds do to protect itself from setoff by the debtor's bank? Put the proceeds in the creditor's name. 9-340(c): the exercise by a bank of a setoff against a deposit account is ineffective against a secured party that holds a security interest in the deposit account which is perfected by control, if the setoff is based on a claim against the debtor. If the depositary bank has a security interest in proceeds deposited in the debtor's account, but honors a check that depletes the account, may it still recover the money as traceable and identifiable proceeds? No.

Problem 407: On August 2, when the filed financing statement in favor of the Last National Bank covered "all business machines," the debtor engaged in the transactions listed below. Decide for each transaction if the bank should take action before August 23 or if the financing statement is sufficient as filed: The debtor traded a computer for another computer. The debtor traded another computer for a painting to be hung in the office. The debtor traded a duplicating machine for a used car (and state law requires a lien interest in a vehicle to be noted on the certificate of title as the sole means of perfection). The debtor sold a calculator to a friend for cash and the used cash to buy a painting that same day. The debtor sold an adding machine for $500 and put the cash in a bank account at a different bank; on August 2, that bank exercised its right of setoff against the account. The debtor sold a coffee maker for $200 and gave the money to a Salvation Army volunteer the same day.

Problem 407: On August 2, when the filed financing statement in favor of the Last National Bank covered "all business machines," the debtor engaged in the transactions listed below. Decide for each transaction if the bank should take action before August 23 or if the financing statement is sufficient as filed: The debtor traded a computer for another computer. No further action needed. There is a floating lien over all business machines. Also the new computer is probs covered. Each creditor would have to take steps within 4 months take take priority over the floating lean. The debtor traded another computer for a painting to be hung in the office. No further action needed. Although the floating lien doesn't cover the painting, you would file the painting in the same place as you would for the business machines. The debtor traded a duplicating machine for a used car (and state law requires a lien interest in a vehicle to be noted on the certificate of title as the sole means of perfection). Must note lien on the certificate of title within 20 days. The debtor sold a calculator to a friend for cash and the used cash to buy a painting that same day. Must file within 20 days bc this is acquired with cash proceeds. The debtor sold an adding machine for $500 and put the cash in a bank account at a different bank; on August 2, that bank exercised its right of setoff against the account. The bank where the money is deposited will win its setoff. The debtor sold a coffee maker for $200 and gave the money to a Salvation Army volunteer the same day. Salvation Army keeps the money. 9-332 states that a transferee of money takes the money free of a SI unless the transferee acts in collusion with the debtor in violating the rights of the secured party (doesn't matter that Salvation Army gave no value).

Problem 409: Andy Doria was the owner of 100 shares of Titanic Telephone, which he pledged to the Morro Castle National Bank as collateral for a $10,000 loan. At the time of the pledge, the stock was selling for $100 a share. If the stock began to fall in value and if on November 4, when it was selling at $80 a share, Andy called the bank and told the bank to sell, is the bank responsible if it does not and the stock bottoms out at $1.50 a share? Would it help the bank's position if the pledge agreement contained a clause saying that the bank was not responsible for its own negligence in dealing with the stock? Andy's dealings with the bank became more complicated, and eventually the bank held, as pledgee, Andy's stocks in five different companies. One of these, Lusitania Foundry, offered a stock split option that had to be exercised by December 31, so Andy wrote the Morro Castle National Bank and, explaining that his records had become confused, asked the bank how many shares of Lusitania Foundry it held. The bank replied that it possessed 50 shares (this was a typographical error; it actually held 150). Andy tendered 50 shares of equivalent stock to the bank in exchange for a return of 50 shares of Lusitania Foundry, on which he then exercised the stock option, which proved very profitable. On January 3, Andy learned he owned 100 more shares that the bank held; it was too late to take the stock option on these shares. Does Andy have a cause of action against the bank under §9-207 ("A secured party shall use reasonable care in the custody and preservation of collateral in the secured party's possession")? Under §9-210 ("a secured party shall comply with a request, i.e. requesting that the recipient correct a list of what the debtor believes to be a collateral securing an obligation, with 14 days of receipt...by sending to the debtor an approval or correction.")? What damages can he recover? Ofcourse he has an action. May a creditor in possession sell the collateral, in the absence of default or authorization in the security agreement?

Problem 409: Andy Doria was the owner of 100 shares of Titanic Telephone, which he pledged to the Morro Castle National Bank as collateral for a $10,000 loan. At the time of the pledge, the stock was selling for $100 a share. If the stock began to fall in value and if on November 4, when it was selling at $80 a share, Andy called the bank and told the bank to sell, is the bank responsible if it does not and the stock bottoms out at $1.50 a share? No. If the secured party has possession of collateral, the risk of accidental loss or damage is on the debtor to the extent of a deficiency in any effective insurance coverage. Perhaps in some courts the bakk would be responsible. Case by case but not usually. Would it help the bank's position if the pledge agreement contained a clause saying that the bank was not responsible for its own negligence in dealing with the stock? Perhaps with some courts. The obligations of good faith, diligence, reasonableness, and care may not be disclaimed by agreement. The parties by agreement may determine the standards by which performance of those obligations is to be measured if those standards are not manifestly unreasonable. 1-302 cant take out good faith but you can determine standards Andy's dealings with the bank became more complicated, and eventually the bank held, as pledgee, Andy's stocks in five different companies. One of these, Lusitania Foundry, offered a stock split option that had to be exercised by December 31, so Andy wrote the Morro Castle National Bank and, explaining that his records had become confused, asked the bank how many shares of Lusitania Foundry it held. The bank replied that it possessed 50 shares (this was a typographical error; it actually held 150). Andy tendered 50 shares of equivalent stock to the bank in exchange for a return of 50 shares of Lusitania Foundry, on which he then exercised the stock option, which proved very profitable. On January 3, Andy learned he owned 100 more shares that the bank held; it was too late to take the stock option on these shares. Does Andy have a cause of action against the bank under §9-207 ("A secured party shall use reasonable care in the custody and preservation of collateral in the secured party's possession")? Under §9-210 ("a secured party shall comply with a request, i.e. requesting that the recipient correct a list of what the debtor believes to be a collateral securing an obligation, with 14 days of receipt...by sending to the debtor an approval or correction.")? What damages can he recover? Ofcourse he has an action. Both. See 9-207 and 9-210The debtor may recover actual and punitive damages of $500. §9-625 Remedies: (b) a person liable for damages in the amount of any loss caused by a failure to comply with article 9 but not including consequential, special, or penal damages, unless the conduct giving rise to the failure constitutes an independent claim under the laws of this state other than the laws of this chapter. (f) a debtor may recover damages under (b) and in addition, $500 in each case from a person who, without reasonable cause, fails to comply with a request. He had a right for accounting and the bank had to comply. May a creditor in possession sell the collateral, in the absence of default or authorization in the security agreement? No, violates statutory and contractual obligation to keep collateral as security during term of loan.

Problem 410: Mazie Minkus borrowed $2,000 from the Mount Brown State Bank and, as collateral, pledged to the bank her stamp collection (valued at $2,000). She used the money for a South American vacation. While she was away, the bank, which was located in an unstable geological area, was destroyed in an earthquake. The stamp collection went with it. Fortunately, the bank was fully insured by a policy with the Gibbons Insurance Company, which, inter alia, paid the bank $2,000 for the loss of the stamp collection. Gibbons then notified Mazie that she should pay the $2,000 debt to the insurance company, which was using the doctrine of subrogation to step into the shoes of the bank. Need she pay? See 9-207(b)(2) ("if a secured party has possession of collateral, the risk of accidental loss or damage is on the debtor to the extent of a deficiency in any effective insurance coverage").

Problem 410: Mazie Minkus borrowed $2,000 from the Mount Brown State Bank and, as collateral, pledged to the bank her stamp collection (valued at $2,000). She used the money for a South American vacation. While she was away, the bank, which was located in an unstable geological area, was destroyed in an earthquake. The stamp collection went with it. Fortunately, the bank was fully insured by a policy with the Gibbons Insurance Company, which, inter alia, paid the bank $2,000 for the loss of the stamp collection. Gibbons then notified Mazie that she should pay the $2,000 debt to the insurance company, which was using the doctrine of subrogation to step into the shoes of the bank. Need she pay? See 9-207(b)(2) ("if a secured party has possession of collateral, the risk of accidental loss or damage is on the debtor to the extent of a deficiency in any effective insurance coverage"). No, she need not pay. §9-207 does not answer the problem directly, but it suggests that if the insurance is not enough to take care of the debt, the debtor has to pay but if it is enough, the debtor doesn't have to pay. (subrogation: insurance company pays the bank, and then gets the bank's right against the debtor/steps into the shoes of the bank)

Problem 411: When Mr. and Mrs. Bankruptcy bought a mobile home from Nervous Motors, Inc., they signed a purchase money security agreement in favor of the seller that contained an acceleration clause identical to the one above [the parties agree that if at any time the secured party deems itself insecure because in good faith it believes the prospect of payment or performance is impaired, it shall have the right to declare a default and accelerate payment of all unpaid sums or performance or, at its option, may require the debtor to furnish additional collateral].(in its mind acceleration allows others to get there goods and conglomerate them. Which of the following events, in your opinion, is sufficient to trigger the proper use of the clause? A very bad financial quarter for Nervous Motors, Inc.? A serious drop in the state of the economy? Knowledge that the Bankruptcys have been talking to a lawyer (could the seller here make use of §2-609)? A report (which simple investigation would show to be false) that the Bankruptcys have failed to pay their grocery bills for the last two months? An anonymous phone call that states the Bankruptcys are getting ready to move the mobile home to Mexico? The confiscation of the mobile home and the arrest of the Bankruptcys for possessing marijuana? Would §1-309 be relevant at all if Mr. and Mrs. Bankruptcy had signed a demand promissory note (one that permits the creditor to call the loan anytime the creditor wishes)?

Problem 411: When Mr. and Mrs. Bankruptcy bought a mobile home from Nervous Motors, Inc., they signed a purchase money security agreement in favor of the seller that contained an acceleration clause identical to the one above [the parties agree that if at any time the secured party deems itself insecure because in good faith it believes the prospect of payment or performance is impaired, it shall have the right to declare a default and accelerate payment of all unpaid sums or performance or, at its option, may require the debtor to furnish additional collateral].(in its mind acceleration allows others to get there goods and conglomerate them. Which of the following events, in your opinion, is sufficient to trigger the proper use of the clause? A very bad financial quarter for Nervous Motors, Inc.? NPA- its hard to know what is in your mind. In fact it turns out that the critical term here is good faith. Does it in good faith believe this. Honesty in fact and observance of reasonable commercial standards of fair dealing. It could mean that they wont be able to pay but there is no evidence that they are still not going to be able to. A serious drop in the state of the economy? NPA- hard to say. Some people in bad economy can stil be able to pay. Knowledge that the Bankruptcys have been talking to a lawyer (could the seller here make use of §2-609)? NPA A report (which simple investigation would show to be false) that the Bankruptcys have failed to pay their grocery bills for the last two months? NPA An anonymous phone call that states the Bankruptcys are getting ready to move the mobile home to Mexico? NPA- more objective looks more likely The confiscation of the mobile home and the arrest of the Bankruptcys for possessing marijuana? NPA- probably not.(case awarded damages for bad faith in this scenereo) Would §1-309 be relevant at all if Mr. and Mrs. Bankruptcy had signed a demand promissory note (one that permits the creditor to call the loan anytime the creditor wishes)? No, holder can call the note for any reason at any time, but they would have to pay under Article 3, not Article 9. Just make sure its done in good faith.

Problem 412: Natty Birdwhistle bought a car with money borrowed from Carpe Diem Finance Company (which perfected its interest in the car). The security agreement provided that "time was of the essence" and that the acceptance by the finance company of late payments was not a waiver of its right to repossess. Natty always paid 10 to 15 days late. One month, Carpe Diem Finance had had enough, 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. Has a default occurred? If Carpe Diem's conduct has waived the right to repossess if Natty is late, what can it do to reinstate the "time is of the essence" clause?

Problem 412: Natty Birdwhistle bought a car with money borrowed from Carpe Diem Finance Company (which perfected its interest in the car). The security agreement provided that "time was of the essence" and that the acceptance by the finance company of late payments was not a waiver of its right to repossess. Natty always paid 10 to 15 days late. One month, Carpe Diem Finance had had enough, 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. Has a default occurred? No, Natty has always paid 10-15 days late. §1-103 takes into consideration the course of dealing of the partie(may retract waiver by reasonable notification unless it is difficult for you to do that)s (Courts pay little attention to clauses which appear to say that meaningful acts are meaningless and that the secured party can blow hot or cold as he chooses.) If Carpe Diem's conduct has waived the right to repossess if Natty is late, what can it do to reinstate the "time is of the essence" clause? Give fair & adequate notice that in the future it will insist on punctual payment.

Problem 414: ONB financed Mary Melody's purchase of a new car, in which it perfected its security interest. The loan agreement provided that on default, the bank had all the rights listed in Part 6 of Article 9 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. Mary missed a payment, and ONB's agent took the car in the dead of night from its parking place in front of her home. She protested the next day, claiming that her golf clubs were in the trunk. ONB looked there but couldn't find the clubs. When she sued, ONB defended on the basis of the security agreement's exculpatory clause. Is it valid? . If ONB finds the clubs and returns them promptly on her demand, is the bank guilty of conversion?

Problem 414: ONB financed Mary Melody's purchase of a new car, in which it perfected its security interest. The loan agreement provided that on default, the bank had all the rights listed in Part 6 of Article 9 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. Mary missed a payment, and ONB's agent took the car in the dead of night from its parking place in front of her home. She protested the next day, claiming that her golf clubs were in the trunk. ONB looked there but couldn't find the clubs. When she sued, ONB defended on the basis of the security agreement's exculpatory clause. Is it valid? NPA; make sure there are provisions to record everything in the car we don't know if it does or doesn't under 101. . If ONB finds the clubs and returns them promptly on her demand, is the bank guilty of conversion? Probably not. There will often be items in the back of the car, and the secured party has to return those.

Problem 415: Chambers quietly repossess a Ford Expedition, which was sitting with its motor running on the street. Less than a minute later, he realizes there are two children in the backseat, so he rapidly and safely returns them and the vehicle to their parents. Is Chambers in violation of Article 9?

Problem 415: Chambers quietly repossess a Ford Expedition, which was sitting with its motor running on the street. Less than a minute later, he realizes there are two children in the backseat, so he rapidly and safely returns them and the vehicle to their parents. Is Chambers in violation of Article 9? No, no breach of peace.

Problem 417: Wonder Spa gave Antitrust National Bank (ANB) a security interest in its accounts receivable and chattel paper in return for a loan. When Wonder Spa missed 2 payments in a row, ANB notified the spa's customers that future payments should be made directly to the bank. Does the bank have this right? If the spa stops opening its doors, need its former customers keep paying ANB? (the spa contracts did not mention the possibility that the contracts would be assigned).

Problem 417: Wonder Spa gave Antitrust National Bank (ANB) a security interest in its accounts receivable and chattel paper in return for a loan. When Wonder Spa missed 2 payments in a row, ANB notified the spa's customers that future payments should be made directly to the bank. Does the bank have this right? Yes. After default, a secured party may notify an account debtor or other person obligated on collateral to make payment or otherwise render performance to or for the benefit of the secured party (lockbox). 9-607(a)(1). If the spa stops opening its doors, need its former customers keep paying ANB? (the spa contracts did not mention the possibility that the contracts would be assigned). No, since the customers wouldn't have to pay the spa, they don't have to pay the creditor. 9-404 Rights Acquired by Assignee: "unless an account debtor [customers] has made an enforceable agreement not to assert defenses or claims, to the rights of the assignee [ANB] are subject to: (1) all terms of the agreement between the account debtor [customers] and assignor [Wonder Spa] and any defense arising from the transaction that gave rise to the contract; and (2) any other defense of the account debtor against the assignor which accrues before the account debtor receives a notification of the assignment.

Problem 418: After Nightflyer Loan Company had repossessed Lynn Brown's car, it decided to advertise it for bids in a local newspaper. Is this a private or public sale? How much in advance of the resale must she be given notice? What should the notice say? After the resale, Nightflyer simply sent her a statement saying that the amount she now owed was $3,200. She is unsure how Nightlfyer came up with this figure, and comes to you, her attorney/cousin for advice. What are her rights here? The price obtained at the resale seems suspiciously low to her. How relevant is that? She suspects that the reason the sale brought so little is that the only bidder was Nightflyer Loan Company itself. Can they do that? If she succeeds in reducing the amount she owes, can she also get actual damages for the harm they caused her?

Problem 418: After Nightflyer Loan Company had repossessed Lynn Brown's car, it decided to advertise it for bids in a local newspaper. Is this a private or public sale? Private, a public sale is an auction. How much in advance of the resale must she be given notice? NPA. She need not be given notice of the actual resale, the creditor must only inform her 10 days before the "bar date" after which the secured party will sell the car (notice says: you have 10 days to pay u before we decide to sell the car. In a private sale, need only tell the debtor what the bar date is (if you don't pay by the bar date, well sell it). What should the notice say? Name of parties, amount owed, how got to that amount and telephone and address of creditor. After the resale, Nightflyer simply sent her a statement saying that the amount she now owed was $3,200. She is unsure how Nightlfyer came up with this figure, and comes to you, her attorney/cousin for advice. What are her rights here? She has a right to get a §9-616 itemization explaining how the SP calculated the deficiency; if she doesn't get it, she gets 9-625 damages (actual, but not including consequential, special, or penal damages). And, but not in Florida, the 9-625(e) $500 in each case from a person that fails to comply with 9-616 itemization request. (9-616: right to explanation of how the deficiency was calculated). The price obtained at the resale seems suspiciously low to her. How relevant is that? She suspects that the reason the sale brought so little is that the only bidder was Nightflyer Loan Company itself. Can they do that? Yes, but if the debtor can prove the disposition to the creditor itself or a related party was suspiciously low and should have brought a higher amount, the higher amount is used to calculate a deficiency (or a surplus). Burden is on the debtor to show low price. (9-615: the deficiency following a disposition is calculated based on the amount of proceeds that would have been realized in a disposition complying with this part to a transferee other than the secured party is (a) the transferee in the disposition is the secured party; and (b) the amount of the proceeds of the disposition is significantly below the range of proceeds that a complying disposition to a person other than the secured party would have brought.) If she succeeds in reducing the amount she owes, can she also get actual damages for the harm they caused her? No. 9-625(d): a debtor whose deficiency is eliminated ay recover damages for the loss of any surplus. However, the debtor or secondary obligor whose deficiency is eliminated ore reduced... may not otherwise recover under (b) (i.e. cant get damages) for noncompliance with the provisions of this part relating to collection, enforcement, disposition, or acceptance.

Problem 421: The Bunyan State Bank held a perfected SI in the logging equipment of Blue Ox Timber Company. When Blue Ox defaulted on its loan repayment, Bunyan repossessed the equipment. The sale was held the next day in the middle of a snowstorm. The equipment sold for very little (there was only one bidder and he complained it was hard to know the condition of the equipment because it was so dirty, being covered with mud from the backwoods). Bunyan sued Blue Ox for the amount still due. Answer these questions: Was the notice period too short? Is the secured party required to wash the collateral prior to sale? Did it violate 9-610(b) to conduct the sale in the snowstorm?

Problem 421: The Bunyan State Bank held a perfected SI in the logging equipment of Blue Ox Timber Company. When Blue Ox defaulted on its loan repayment, Bunyan repossessed the equipment. The sale was held the next day in the middle of a snowstorm. The equipment sold for very little (there was only one bidder and he complained it was hard to know the condition of the equipment because it was so dirty, being covered with mud from the backwoods). Bunyan sued Blue Ox for the amount still due. Answer these questions: Was the notice period too short? Yes; notice must be sent at least 10 days or more before the earliest time of disposition. Is the secured party required to wash the collateral prior to sale? Yes, despite 9-610(a) courts have required reasonable, easily taken action to fix up the collateral prior to sale (i.e. washing it off, changing the oil). Did it violate 9-610(b) to conduct the sale in the snowstorm? Yes, not commercially reasonable.

Problem 422: When you explained to your client, Repossession Finance Company, all the rights that debtors have when the creditor seizes the collateral and resells it, the president of the company asked you to draft a clause in the security agreement waiving these rights. How should you do this?

Problem 422: When you explained to your client, Repossession Finance Company, all the rights that debtors have when the creditor seizes the collateral and resells it, the president of the company asked you to draft a clause in the security agreement waiving these rights. How should you do this? You cant do this; cant draft around it. Can guarantors (as opposed to the primary debtor) waive these rights? Perhaps, but only after default. 9-624: a debtor or secondary obligor may waive right to notification of disposition of collateral only by an agreement to that effect entered into and authenticated after default; a debtor may waive the right to require disposition of collateral only after default; except in a consumer-goods transaction, a debtor may waive the right to redeem collateral only by an agreement entered into and authenticated after default. 9-602 : Debtor may not waive or vary the rules states the the following listed section. You can waive after default but not before.

Problem 423: Façade Motors granted a security interest in its inventory to ONB, which duly perfected by filing a financing statement in the proper place. Subsequently Façade Motors granted an identical security interest to Nightflyer Finance Company to get short-term credit. When Façade failed to repay the second debt, Nightflyer repossessed the inventory and sold it. Must it somehow account to ONB for the proceeds of the resale? Does the buyer at the resale take free of the security interest of the senior creditor?

Problem 423: Façade Motors granted a security interest in its inventory to ONB, which duly perfected by filing a financing statement in the proper place. Subsequently Façade Motors granted an identical security interest to Nightflyer Finance Company to get short-term credit. When Façade failed to repay the second debt, Nightflyer repossessed the inventory and sold it. Must it somehow account to ONB for the proceeds of the resale? No, it all goes to the first priority. Does the buyer at the resale take free of the security interest of the senior creditor? No, the collateral is then sold subject to the senior security interest (affecting the sale price); the senior party is entitled to notice of the resale to protect its interest. (general rule is that the SI stays with the collateral when its sold; so the 2nd creditor gets the collateral & sells it, but the first creditor keeps the SI in it).

Problem 424: Façade Motors repossessed the car that Portia Moot used in her law practice but failed to send her any notice of the foreclosure sale, which brought only half the amount she still owed on the car. May it still sue her for the deficiency? 9-626 What are Portia's rights? If Portia had purchased the car for her personal use, what is the rule? Why would the drafters have done this?

Problem 424: Façade Motors repossessed the car that Portia Moot used in her law practice but failed to send her any notice of the foreclosure sale, which brought only half the amount she still owed on the car. May it still sue her for the deficiency? 9-626 Yes, but it must show it was commercially reasonable. What are Portia's rights? If the SP cant prove the disposition was done in accordance with 9-626, we presume the resale would have brought enough to pay off the debt, putting the burden on the SP to rebut. If Portia had purchased the car for her personal use, what is the rule? There isnt one. Code drafters left it open bc they knew it wouldn't all 50 states. Cts look to pre-Code rule (it's an absolute bar; you cant go after the debtors because you did not proceed in a commercially reasonable manner). Why would the drafters have done this? Politically to get the rule passed over special interests. If she can show what the value of the goods were than she can use that in this case.

Problem 425: When Paul Morphy Borrowed $2,000 from the Lasker State Bank in order to finance a trip to Iceland, the bank made him sign an agreement giving the bank a security interest in Paul's private yacht. He agreed to repay the loan at the rate of $200 a month. He took the trip and on his return made the first payment on time. He failed to make the second payment on the due date, and on the next day the bank reposed the yacht. Paul raced to the bank with the late payment. He had $200 in cash, which he tendered. The bank refused to take the money. The bank's loan officer, a Mr. Anderson, pointed to an acceleration clause in the security agreement that made the entire amount due if a payment was missed. Anderson demanded the total unpaid balance. Need Paul pay off everything?

Problem 425: When Paul Morphy Borrowed $2,000 from the Lasker State Bank in order to finance a trip to Iceland, the bank made him sign an agreement giving the bank a security interest in Paul's private yacht. He agreed to repay the loan at the rate of $200 a month. He took the trip and on his return made the first payment on time. He failed to make the second payment on the due date, and on the next day the bank reposed the yacht. Paul raced to the bank with the late payment. He had $200 in cash, which he tendered. The bank refused to take the money. The bank's loan officer, a Mr. Anderson, pointed to an acceleration clause in the security agreement that made the entire amount due if a payment was missed. Anderson demanded the total unpaid balance. Need Paul pay off everything? Yes, after a default, a secured party may notify an account debtor or other person obligated on collateral to make payment or otherwise render performance to or for the benefit of the secured party. 9-623.

Problem 426: Art Auctions, Inc. (AAI), sold Dudley Collector a $5,000 painting by Smock Pallet, a famous artist. Dudley paid $1,000 down and agreed to pay over $1,000 a month thereafter. The finance charge was $151.20; the annual percentage rate was 18%. The contract contained a clause saying that in the event of default, AAI could repossess the painting and keep it without reselling it or, at its option, could resell it and sue for the deficiency. Dudley made 3 more payments and then missed the last one, being temporarily short of funds. AAI, without notice, sent one of its agents to Dudley's home. Dudley's teenage son let the agent in, and he simply removed the painting from the wall and walked out, saying, "Thank you." Dudley immediately tendered $1,000 to AAI and demanded the painting. AAI refused (the painting is now worth $7,000). Four months later, Dudley filed suit. What is the basis of his cause of action, and to what relief is he entitled? If Dudley had made only one payment and then defaulted, causing AAI to repossess, could AAI have sent him a proposal that it would keep the painting and forgive half the remaining debt only?

Problem 426: Art Auctions, Inc. (AAI), sold Dudley Collector a $5,000 painting by Smock Pallet, a famous artist. Dudley paid $1,000 down and agreed to pay over $1,000 a month thereafter. The finance charge was $151.20; the annual percentage rate was 18%. The contract contained a clause saying that in the event of default, AAI could repossess the painting and keep it without reselling it or, at its option, could resell it and sue for the deficiency. Dudley made 3 more payments and then missed the last one, being temporarily short of funds. AAI, without notice, sent one of its agents to Dudley's home. Dudley's teenage son let the agent in, and he simply removed the painting from the wall and walked out, saying, "Thank you." Dudley immediately tendered $1,000 to AAI and demanded the painting. AAI refused (the painting is now worth $7,000). Four months later, Dudley filed suit. What is the basis of his cause of action, and to what relief is he entitled? Strict foreclosure is forbidden when a consumer debtor has paid off 60% of the debt and resale is required. Relief includes actual damages of all the finance charges plus 10% of the original price. 9-620(e): a secured party shall dispose of the collateral within 90 days after taking possession if: 60% of cash price has been paid in the case of a PMSI in consumer goods; or 60% of the principal amount of the obligation secured has been paid in the case of a non-PMSI in consumer goods. If Dudley had made only one payment and then defaulted, causing AAI to repossess, could AAI have sent him a proposal that it would keep the painting and forgive half the remaining debt only? No. 9-620: in a consumer transaction, a SP may not accept collateral in partial satisfaction of the obligation it secures. 9-620 60 percent of cash price has been paid in the case for consumer goods (e) [Mandatory disposition of consumer goods.] A secured party that has taken possession of collateral shall dispose of the collateral pursuant to Section 9-610within the time specified in subsection (f) if: (1) 60 percent of the cash price has been paid in the case of a purchase-money security interest in consumer goods; or (2) 60 percent of the principal amount of the obligation secured has been paid in the case of a non-purchase-money security interest in consumer goods. (f) [Compliance with mandatory disposition requirement.] To comply with subsection (e), the secured party shall dispose of the collateral: (1) within 90 days after taking possession; or (2) within any longer period to which the debtor and all secondary obligors have agreed in an agreement to that effect entered into and authenticated after default. (g) [No partial satisfaction in consumer transaction.] In a consumer transaction, a secured party may not accept collateral in partial satisfaction of the obligation it secures.

Questions: What will be the result where a car buyer tells the seller he wants the car for personal family use, but is lying & really plans to resell it to his own lot? Some creditors contemplating a loan to the debtor require that the debtor fill out an application that explains the intended use of the collateral. Is this legally wise from the creditor's point of view?

Questions: What will be the result where a car buyer tells the seller he wants the car for personal family use, but is lying & really plans to resell it to his own lot? Consumer good, unless seller has reason to know the buyer is lying. Some creditors contemplating a loan to the debtor require that the debtor fill out an application that explains the intended use of the collateral. Is this legally wise from the creditor's point of view? Probably yes. In letter of credit, if we have a really good liar, he wins. Here, we have a PMSI. The seller can rely on the buyer's statement, unless he knows he is lying. Remember you should always file a financing statement to help with this risk.

Problem 1: Whether Art. 2 applies may determine the outcome of a case. If Art. 2 applies, its rules may favor one party (such as the implied warranty of merchantability that automatically is given to many buyers). Does Art. 2 of the Code apply to the following matters? (a) The sale of an insurance policy? (b) The sale of real property? (c) The sale of bldg. materials as part of a construction project? (d) The sale of standing timber? (e) A defective spinal plate given a patient in a hospital operating room? i. The preparation of false teeth by a dentist? ii. The injection of a drug (for which the patient was separately billed) into a patient's eye as part of an operation? (f) The sale of membership in a health spa? (g) The sale of electricity? (h) Devices signed a distribution agreement giving Detail Retail the exclusive right to sell Gooseberry phones in the Mid-West. Is this an Art. 2 transaction? i. If Detail Retail also agreed to buy one million Gooseberry phones directly from Devices?

a. No (it's a chose in action. C/a is brought on the K, value of K not moveable). b. No. What about the sale of a house apart from the realty? If you are selling the house separately from the property (if it's severable), it can be moveable - but seller must sever it (2-107). c. NPA. If mixed services & goods, whichever is the more dominant will govern. If more goods, then UCC applies, but if more service, not governed by UCC, but by torts. d. Yes. Crops? Yes (2-107: whether severed or not). e. NPA: depends whether goods/services prevail. When dr embeds it in a patient, primarily service. i. Probably not. ii. Probably not. f. No, service. g. Majority of states say it's a good, but can go either way. h. No. i. Yes (goods).

Problem 99: Do the following clauses in a promissory note destroy negotiability? (a) "Payable 30 days after sight." (b) "Payable in 11 successive monthly installments of $2,414.92 each & in a final payment of $2,415.03 thereafter. The first installment being payable on the ___ day of ___ 20__, and the remaining installments on the same day of the month thereafter until paid." The blanks were not filled in. (c) "Payable on November 8, 2016, but the holder may demand payment at any time prior thereto if he deems himself insecure." No, as long as the holder deems himself insecure in good faith. (d) "Payable when the sun comes up tomorrow." (e) "Payable on November 8, 2016, but if my potato crop fails that year, payment shall be extended until November 8 of the following year." (f) "Payable on November 8, 2016, but the maker hereby reserves the option to extend the time of payment until he can pay w/o serious financial hardship." Yes, but extension to another definite time would have been ok. Just not indefinite. (g) "Payable 120 days after my rich Uncle Al dies." (h) "Payable 100 years from today, but if my rich Uncle Al dies before this note is due, it shall become payable 10 days after his death." (i) "Payable on my next birthday."

a. No. 3-108 saus that a promise is payable at a definite time after sight or acceptance. b. NPA. The UCC requires strict compliance. The note is neither payable on demand nor at a definite time, but we have 3-108Aii for when its not payable at a definite time, & 3- 115 which says you can fill it in if it was intended to be filled in and incomplete in terms of words and numbers. c. Acceleration at will: one party may require collateral or additional collateral "at will" when the party deems itself insecure (when the party in good faith believes the prospect of payment or performance is impaired). d. No, if the note is dated. e. No, specified act or event is ok. f. Yes, but extension to another definite time would have been ok. Just not indefinite. g. Yes, unless Al is on death row w/ a non-appealable death warrant date. h. No, there is a definite time but if uncle dies, that's acceleration, which is ok. i. Probably ok, if the birthdate were specified on the note it would be ok.

Problem 98: Do the following clauses in an otherwise negotiable promissory note destroy negotiability? (a) "Maker agrees that signing this note also indicates acceptance of the contract of sale for which it is given." (b) "Maker agrees and promises that if the holder of this note deems himself insecure at any time, he may so inform the maker, who will then supply additional collateral in an amount and kind to be specified by the holder." (c) "Maker agrees to let the holder select an attorney for the maker; at any time the holder directs, said attorney is hereby given the authority to confess judgment agst the maker in any appropriate court." (d) The promissory note contained the following clause: "I have the right to make payments of principle at any time before they are due. A payment of Principal is only known as a 'Prepayment.' When I make a Prepayment, I will tell the Note Holder in writing that I am doing so. I may not designate a payment as a Prepayment if I have not made all the monthly payments due under this Note. Does it destroy negotiability? (e) "Maker hereby grants the payee a security interest in the collateral described below."

a. Yes. b. No. it helpful "may contain a ___ to protect collateral" see 3.104 c. No because it's authorizing the holder to confess judgment. d. NPA Probably no (it's a waiver of a benefit of law intended for advantage or protection of obligor). e. No because it's given to secure payment. But putting the security agreement in the note is not a bad idea for other reasons.

Problem 5: Hegemony Enterprises, headquartered in NY, is abt to sign a K for the sale of men's clothing to Cosas Americana, a retailer in Mexico City. You are the lawyer for Hegemony Enterprises, and a company official calls you with the following questions: (a) Will the CISG apply to this transaction? (b) If Hegemony Enterprises wants the law of NY to apply, can the parties stipulate in the contract & avoid the CISG? (c) If Hegemony Enterprises were selling toys to Cosas Americana, would the CISG apply?

a. Yes. b. Yes. c. Yes. Although the CISG does not apply to household goods, this is inventory to be sold btwn merchants, so even if selling toys, it's not a consumer transaction.