UCC Secured Problems

Prob 4.2(b): -Facts: If the house is worth more than D's unpaid loan

i. Danger that D will lose her equity in the home (equity = $170k). If the house sold below its true value at the foreclosure sale, this will wipe out D's equity. ii. D could try to sell the house in a non-foreclosure sale within the 4 weeks before the foreclosure sale in the hope that it would bring a higher amount and she can retain the equity (it probably would bring a higher

Prob. 15.5: -Issue: What interest rate paid on outstanding balance? 1. Go through the docs and try to decipher what are the exact business terms (standard/default interest rates, etc.)

i. NOTE: Agreement reading problems i. Bonnie WOULD violate her agreement is she allowed a customer to take a demo ride without permission (her agreement is very restrictive re: her use of the boats b/c bank doesn't want the collateral to depreciate)

Prob. 4.2 (a): -Facts: House worth less than D's unpaid loan a. House has FMV = $400-450k i. Loan = $530k ii. Law = deficiency judgment at the discretion of the court b. Issue: Should Sallie (D) do anything to prepare for the sale?

i. Sallie's primary incentive should be to get more people to the sale b/c the SC's incentive is to get their bid as low as possible (b/c they know they can get a deficiency judgment). Sallie should solicit bids to get a higher value for her home at the foreclosure sale. Pressure the bank to bid up to the $530k loan amount.

Prob. 15.1: -Facts: Floor checking procedures for a loan that is secured by oil in tanks 1. Field warehousing refers to the situation where the D is in possession of the collateral, but the SC has the right to stop by and check the collateral at any time 2. Process: the floor checker arrives unannounced, climbs the tank, puts the pole in the oil to test its depth, tastes the oil and then moves on to the next tank

ii. This problem is based on a real case of fraud 1. D had tanks of oil as collateral. D floated a thin layer of oil on top of water AND had an underground pumping system that would move the oil ahead of the checker. iii. The problem for the SC is that if the collateral disappear and the SC is not paid the proceeds, the SC has a valueless SI

Prob. 16.4: -Issue: classify collateral and determine which filing system you would use for that particular type of collateral

(a) Collateral = tools that are used in a service station that the debtor operates [in the context of an ordinary consumer loan] a. This is equipment per § 9-102(a)(33) i. To perfect an SI in equipment, use the UCC filing system [§ 9-310- general filing requirement] 1. "financing statement must be filed to perfect all SIs" ii. § 9-501(a): general filing requirement that says "that except as otherwise provided, if the local law of this state governs perfection, the office in which to file a fin. statement is ..." 1. States shall designate the filing office where the brackets appear in the rule - every state adopting Art. 9 gets to choose the home of its ONE UCC filing system (look to SoS website)

Prob. 10.2: -Facts: description of security agreement is same as above (a) Money now in debtor's bank account (b) Parrot taken in payment of an overdue account (d) Myna bird taken in exchange for plumbing work

(a) Money now in debtor's bank account a. NOT covered by terms "accounts" as collateral i. § 9-102(a)(2): account is a right to payment of a monetary obligation; does not cover money sitting in bank accounts 1. Money sitting in bank accounts would be covered by words "deposit account" per § 9-102(a)(29) (b) Parrot taken in payment of an overdue account a. YES, subject to SI b/c parrot is proceeds of the A/R (d) Myna bird taken in exchange for plumbing work a. This may not be covered b/c there never was an account i. Account = right to payment of a monetary obligation 1. If NO monetary obligation ever came into being via intention of the parties, then bird can't be proceeds of an account

Prob 9.1: -Issue: Sufficient description of collateral under § 9-108? (a) "All equipment and inventory"; see § 9-102(a)(33) & (48) definitions (b) skip (c) "Restaurant equipment located at 123 Main Street"

(a) YES—"All equipment and inventory"; see § 9-102(a)(33) & (48) definitions a. Per § 9-108, if description of collateral is by "type as defined in the UCC," it is sufficient (b) skip (c) YES—"Restaurant equipment located at 123 Main Street" a. Equipment alone is a sufficient category, and this is even more specific i. But potential ambiguity added by saying "located at" this address? 1. Ordinarily look for description of the collateral at the time the SI is granted. Does this mean we are granting the SI in whatever equipment was at the location the day of the signing of the SI, or are we saying whatever pool of restaurant equipment ever happens to be at that location? a. PROF: but courts approve this type of description all the time & interpret it to mean that it covers whatever is in the location at whatever time the SC is trying to enforce its SI (could be a little bit of a floating category in that way) b. § 9-108: When you use the "equipment" category, have to go by that definition in the UCC [everything failing within this UCC definition is then covered by the SI] c. PROF: Surprised to see SCs taking SIs in equipment by location when the restaurant is a chain

Prob 9.1 (cont): (d) " All the debtor's consumer goods" as collateral to borrow money to buy a cruise ticket (e) "All goods other than consumer goods"

(d) NO—" All the debtor's consumer goods" as collateral to borrow money to buy a cruise ticket a. § 9-108(b)(2) i. Description only by type of collateral is an insufficient description of consumer goods if you are in a consumer transaction ii. Sophistication problem: this is not ok b/c in consumer transactions, may have an unsophisticated D that does not realize that if they don't repay the loan that they used to buy the tickets, the SC can foreclose on ALL of their consumer goods [potentially huge category of D's personal property] b. IF the provision said that collateral is "all the D's assets," it would be super-generic [and not acceptable] -- § 9-108(c) prohibits this for consumer and business lending i. The description here is NOT super generic b/c it specifies "consumer goods" (e) NO - "All goods other than consumer goods" a. Feels like a super-generic i. Pulls one category out, but it isn't a helpful, specific description of the collateral b. PROF: lawyer could argue that this is NOT super generic under § 9-1089(c), but (c) does also include "words of similar import"

Prob. 8.2: -Issue: exactly when did the SI attach to the restaurant? -Facts: a. 1st element: Value was given when Friedman (bank EE) delivered bank (SC)'s 1st check for $388,390 [1st time SC parted with some money] i. This check went to the bank that held the 1st SI [NOT the debtor] b. 2nd element: Debtor retained rights in the restaurant/collateral when the seller delivered a bill of sale, keys to the restaurant, and assignment of her rights under the lease c. 3rd element: Somewhere, when they are completing the transaction, debtor must be required to execute the security agreement. He signed the promissory note AND a security agreement before the value was given. i. Promissory note - D is saying that he agrees to repay the $600k before the money has even been dispersed [this is not value given b/c it is an obligation of the D]

-Answer: the giving of value was the latest event, so that is when the SI attaches a. Argument that moment of attachment is a different time? i. Argument that SI attaches when the closing has been successfully completed 1. Most closings are conducted on the implicit understanding that no exchanges of documents have effect unless they ALL happen b. Time of attachment becomes more important when you have competing creditors in the picture i. Creditor priority can sometimes relate back to the moment of you SI attaching

Prob. 15.3: -Issue: Why do lenders insist in personal guarantees when they make business loans to certain companies?

1. When most judgments on personal guarantees are uncollectible b/c of BK a. If an individual owns a small biz that is in trouble such that it can't repay its loans and lender is going after personal guarantor, likely that the owner/guarantor is in financial difficult as well i. Owner who plows his own personal wealth into a small biz that he is going to try to get up and running (doesn't mean that the owner is more financially secure) 1. BUT although many judgments on personal guarantees may be uncollectible, not ALL of them are a. Some guarantors may be independently wealthy 2. Even if a judgment is not collectible, guarantee can still be useful for behavior-shaping a. If borrower gives a personal guarantee, the guarantor will act more efficiently/responsibly to the lender while the biz is going under i. Intermediate phase: borrower will pay the lenders that have a personal guarantee first ii. Archer (lender) insists on personal guarantees from owners of private businesses that are being financed

Prob. 9.2: -Facts: client = a dept store who takes a SI in everything that its credit card holders buy on account. Uses language on the credit card application that says that every time a customer uses the car, customers are granting a SI in all items purchased on the account. Client is worried that this doesn't work per the Shirel case. Client wants to take a SI in everything the client buys on credit.

2. Could look at the items the store sells that they really care about a. Ie. don't include shoes but include refrigerators, washer/dryers [narrow it by type of asset and insert this language into the agreement] 3. Many stores have used technology and put this language on the receipt instead of the credit card application a. Ie. if you buy something at Target on your Target credit card, the back of the receipt says you are granting a SI on the item described on the front of the receipt

Prob. 8.3: -Facts: you represent SC and come to closing with SI. Description of collateral says "see attached list" but there is no attached list. You don't have a description b/c the list was forgotten. -Issue: does the bank, at that moment, have an enforceable SI i. At that moment, § 9-203(b)(3)(A) has not been satisfied b/c there is no description at all [no SI]

2. If the list is later stapled to the security agreement, could argue that the SI would be enforceable b/c of the reference to the list a. But could also argue that the D's signature doesn't reach this list b/c it wasn't attached when D signed i. Courts are divided on this timing issue b. PROF: this is questionable 3. If TWO years later the list is attached, the argument for enforceability would be even more tenuous a. PROF: technically, don't know why 2 years would be different than 2 weeks [but it makes it more difficult to prove intention] i. Time span would make courts less comfortable saying there is a valid SI 4. If you discover this after your client has filed for BK a. You can't attempt to bring a valid SI against property after the auto stay is in place b. NO SI here

Prob 15.2: (PT. II)

3. Dealer told customers to bring their cars in for servicing and took off their license plats, so when the checker came in they looked like they were unsold a. PROF: checker should check VIN number on his own schedule, notice signs of use 4. Dealer would make up a customer with fake purchase order, falsify the sales contracts and financial contracts. This is wholesale, document-based fraud. a. PROF: have to know something about the real/fictitious customer - aka know your borrower i. It makes this situation hard for the bank b/c only the D deals with the retail customer iv. General SI would cover the whole pool of cars in inventory, but dealer would have to send a notice of transaction to the lender re: that specific car that it wanted to buy (so lender would eventually have a list of the cars that had specifically been financed)

Prob. 16.1: (cont.)

6. NOTE: Perfection doesn't affect the possibility that the D will illegitimately dispose of the collateral before perfected SC gets his hands on it. 7. → Look to § 9-317 to determine who wins [competition b/w a lien creditor and a secured creditor] a. A SI is only subordinate to the rights of a person that becomes a lien creditor BEFORE the SI is perfected i. If F had levied and therefore become a lien creditor before B's interest had perfected, B's interest would be subordinate to F's [but this didn't happen] b. F gets NOTHING due to priority

Prob 16.3: (cont.)

Analysis #2: a. Assume now that the bank has repossessed 3 vending carts in the past 12 months, each time from a defrauded buyer like S i. Argue that the bank should have realized that the way they are taking SIs is not adequately protecting third party buyers (should put a SI plaque on the carts?) 1. But a bad faith argument against bank would be a stretch even on these facts ii. Practice of fraud in this cart sector that the bank has become aware of that puts a heightened duty on them to be aware of it? Tough argument to make. 6. Art. 9 can work really harsh against people who don't know about it a. PROF: why do we put up with his? Esp. as against less sophisticated parties? i. This is what we give up to get certainty and predictability in commercial transactions generally? ii. Small fry getting lost in the shuffle is the price we pay to have a low transaction cost system 7. Advise S to use state's SoS UCC search to look for previous fin statements on the cart

Prob. 13.3: -Facts: Client is thinking of pulling the plug on a customer who owes $600k on an inventory loan. Note is payable on demand. If client forecloses, it will take a $200k loss on its loan and wants to know what to do.

Analysis: a. Do NOT give a notice of acceleration—from the creditor's POV, we don't want the D to sell the inventory and not apply the proceeds of the sales to your loan, abscond with or dissipate the collateral, etc. b. If you know your client is going to take a loss anyway, the incentive it to NOT give notice. Pull the plug in the fastest and safest way for your client. 3. This difficulty is that this can put Ds in a horrible position. If the creditor calls a note or accelerates a loan, it deprives them of capital they need to operate. May not be able to find funds elsewhere. Even if D is teetering, may push them into BK a. Think about this balance of power b/w borrowers and lenders i. Do lenders owe good faith/fair dealing? Should borrowers have protection b/w arbitrary/overly cautious action on behalf of lenders? 1. Lender liability actions

Prob. 13.1: -Facts: Pat misses two payments on her auto loan a. Contract says "missing two payments is a default ..." with acceleration clause b. Pat sent a check for the overdue payments and bank sent check back, saying it has accelerated the loan i.Pat wants to know if bank can do this

Analysis: a. If would be a question of whether the bank declared or not [didn't have to give notice to Pat] i. The bank has to declare the full loan amount due and payable (per the K), but we don't know if they did this before they got her check ii. If the bank got the check before they declared this, then Pat cured the default b. If bank had exercised its right to accelerate before Pat sent in her checks, Pat is out of luck (she would have to pay the whole amount due to avoid default) 3. CB references that some courts require notification to the D re: acceleration even if the K doesn't call for it a. PROF: this is NOT the maj. rule. The maj. rule is only to require actual notification to the D if the instrument calls for it.

Prob. 13.4: -Issue: what if the SC had accepted check for 2 back payments and then still accelerated the rest of the balance [ie. can bank keep Pat's payment of the arrearages AND accelerate?]

Analysis: a. SC would argue that these checks were just payments towards her owing of the full amount b. Pat could argue that the bank waived the right to accelerate when they accepted her payment of the arrearages i. PROF: on the facts, this does NOT look like a waiver 1. SC is retaining the check and accelerating at the same time—a waiver is the intentional relinquishment of the right, so it is hard to see how they are doing this while they are saying expressly that they are accelerating 3. In practice, many banks won't accept payment on loans that are in default (other than a total payment) so they can avoid this type of argument a. If they take a monthly check, D may argue that bank waived right to claim payment in full b. Even if bank accepted a check that said it was in "partial satisfaction of debt," it may not alter the rules on the rights of the debtor, so banks are careful 4. If bank says that notice of acceleration was in the mail to Pay when they got and cashed the check from Pat, bank should still be able to keep the check and accelerate 5. § 9-623: Right to Redeem a. (b) to redeem collateral (ie. if Pat wants her truck back), has to tender all obligations secured by the collateral plus expenses (whole accelerated amount) b. Comment 2: if the entire balance of a secured obligation has been accelerated, the entire balance has to be paid to get the collateral back

Prob. 16.1: -Facts: Debtor has a car worth $30k as his only asset. Our client, F, is owed $30k for alimony and child support from D. 3rd party, B is owed $36k for money loaned to D. a. F has obtained a judgment on the debt that D owes F -Issue #1: Where does F stand?

Analysis: i. Look to state law to determine F's status ii. She is unsecured/subordinate b/c she doesn't have a writ of execution to levy on the car (not yet perfected; she is not a lien creditor yet b/c has not levied) 1. For judgment liens, it is the levy that creates the lien AND perfects it [this is under state law, NOT UCC]

Prob. 16.1: (cont.) -Issue #2: Where does B stand?

Analysis: i. Per Uniform Certificate of Titles Act, have to deliver to the BMV the existing certificate of title, the required fee, etc., THEN the BMV will note the lienholder on the certificate of title and the lien will be perfected. 1. This Act is where we look for B's status ii. Bernie IS perfected (his $36k lien on the car)

Prob. 16.2: -Issue: If you buy an $8k used set of books from someone, is there anything you should do before buying them?

Analysis: Search the UCC filing system to see whether a fin statement has been filed in the name of this D reflecting a SI in this particular collateral a. Shouldn't be different if you on e-Bay i. To avoid the risk of being subjected to an unexpected repossession 3. Reality: people don't so this a. Maybe if you buy a $250k used piece of equipment, people may search - but most people don't know to search and are thus taking the risk

Prob. 13.2: -Facts: X missed a mortgage payment. a. Default provision: an event of default is debtor misses more than one whole payment -Issue: X wants to know how much longer until he is in default

Analysis: X is NOT in default today a. Won't be in default until Nov. 12 i. He needs to have more than one whole payment outstanding & needs to have been unpaid for more than ten days 1. This is helpful b/c X gets two months before default b. Being in default in and of itself is not a big problem for X. i. The problem is if the bank accelerates. Until acceleration, X can just cure by paying the arrearages. 1. The issue comes if bank accelerates, b/c then X would have to pay the entire balance of the loan plus fees/expenses that the bank incurred in initiating the foreclosure case [attorney fees can be extensive] 2. Even if X has a statutory right to redeem, he is going to be paying a lot of money a. The statutory right is helpful to debtors, but it is not free c. But X can always remain one payment behind

Prob. 15.2: (PT. I) -Facts: Ford dealer in IL who is defrauding 5 banks that provided him with inventor financing. 1. Dealer double collateralized the vehicles—used the cars as collateral on two or more floor plan loans ii. Issue: how should the banks have caught this?

Analysis: the 1st time a certificate of title will be issued is when a customer buys the car [SO no cert. of title when held as inventory] 1. Lenders who wish to take a SI in inventory should be filing public notice of that interest in the form of a financing interest. So before lending against inventory, lender should check the records and make sure that no one else is lending against that inventory. a. PROF: bank should then call the other lenders to check which cars are still free to be lent against (cross check the list) 2. When floor checkers came out with a list and realized that cars were missing, the dealer told the checkers that the missing vehicles were out on test drives or were out on loan to a customer whose vehicle was being serviced [even though dealer had really already sold them and hadn't remitted the proceeds] a. PROF: checker should make dealer call them back in or wait until they come back; go vehicle by vehicle [find them immediately or repeat the entire floor check]

Prob 4.2(c): -Facts: When the house is worth less than the mortgage

If the brother-in-law is involved → when the house is worth less than the mortgage, he could let the SC buy it, then try to buy it from SC at FMV at the subsequent sale. Brother in law doesn't want to try to outbid SC's likely credit bid of $530k, b/c the house isn't worth that much. a. If the brother in law is involved when the house is worth more than the unpaid lien, he could participate in the auction and outbid the SC b. Think about other solutions too - brother-in-law pay off the D's mortgage? i. If D's house is worth less than the mortgage, this would be an expensive thing to do. If the house is worth more than the mortgage, the sister now owns the house free and clear [but if she has other creditors, they can get after D's new equity in the house]

Prob. 4.3: -Issue: thinking about buying a property at foreclosure

Step through the various challenges a. Lack of info re: title/condition, no right of inspection b. PROF: the real consequence of these limitations is that for one individual buyer who is looking to buy one individual home at a foreclosure sale, the risks are extraordinary i. It is businesses/investors with diversified foreclosure properties who are doing this (they spread the risk of problematic foreclosure properties) ii. Not a great idea for an individual

Prob. 2.2: -Facts: Car dealer (creditor) wants to avoid having to repossess a lot of cars, so leases cars for the monthly value of the car + option to buy a. Upon default, lease gives C the right to get the car back and terminate the lease

This will not circumvent the Art. 9 process b/c even though it is called a lease, it is really a SI a. UCC provisions say that it doesn't matter what the interest is called i. If the structure of the transaction is designed to grant security rights that are contingent on the non-payment of an underlying debt, it is a SI and have to follow the UCC process in order to foreclose.

Prob. 3.2: -Facts: Self-help repo of equipment from building construction sites a. Collateral is a bulldozer owned by a sub-contractor. Site is owned by a developer. Fence and security guard provided by general contractor.

a. (a) No guard/no fence i. Advise C to go under the cover of darkness b/c if the site is in active use, likely to be a BoP ii. Note: Trespass in itself does not make a repo a BoP 1. A trespass for the purpose of engaging in an authorized repo is ok a. Trespassing onto residential property is way more likely to create a BoP than onto commercial property i. People are more likely to be present on residential property, and people are more likely to defend with physical force b. (b) Fence/no guard i. C can climb the fence, but problem of how to get the bulldozer (collateral) out ii. C can cut an opening in the fence or pick the lock 1. Potential problem: leaves the D's other equipment/assets unprotected iii. C can still trespass c. (c) Guard provided by someone other than the debtor i. Lie to the guard? 1. Give paper with forged signature saying that the bulldozer is needed for another job? a. Ie. lobster example in the unsecured scenario 2. Lying is fine if it helps the SC get the collateral with no threat of violence a. It can be a very effective method of self help 3. But cf: some courts do not appreciate/accept wholesale misrepresentation when SC could have used a writ of replevin ii. PROF: advise your client NOT to go up to the line/limit of self help/BoP d. (d) Guard provided by the D i. This guard may know about the default and the possibility of repo 1. Odds of confrontation are different, b/c other/ignorant guard may think that any trespasser would be stealing

Prob. 2.1: -Facts: Karen has loaned Ted $10k and has taken a SI in: a. Car worth $15k; b. House worth $50k; i. K took an additional "mortgage" aka SI on the house (in addition to the bank's mortgage) c. Equipment worth $25k; and d. Bank account worth $12,265.92 -Issue: What can K foreclose on?

a. (a) WI § 815.18(12); 815.20(1): K can take as much is needed to pay back the debt via foreclosure [could take everything] i. Exemption statutes only exempt assets from the reach of unsecured creditors. If D grants a SI in assets, exemptions do not protect them at all. 1. B/c the status of being secured has been bargained for. The D knows that the bank has a right to take back the house when he signs the mortgage (D can assess the risk) a. Consensual v. non-consensual b. (b) Waiver is a voluntary relinquishment of a known right i. Is K's SI void as a waiver of exemption rights under the statute? 1. NO. B/c this debt would not spring into existence w/o a SI (exemption statute deals with debts that are already in default) a. The statute means to say that if you are a SC, this statute doesn't apply ii. Statute says that D cannot contract away its exemption rights (only in the unsecured context) 1. A SI is a specific grant that deals with a specific piece of property and specific obligation (different from the blanket waiver that the statute is concerned with) c. Karen does not get all of this value [on D's asset list] i. C would choose to foreclose on the minimum/easiest assets to satisfy the obligation ii. If the car is repossessed and sold to generate the whole $15k value, the C would keep the amount owed to her and pay the residual to the D

Prob 16.4: (cont.) (d) Inventory of automobiles and some autos that are not for sale

a. (i) Inventory → file in UCC filing system i. Look to definition of inventory in UCC (goods held for sale by dealer) ii. W/ inventory, perfect a SI by filing in normal UCC-1 filing system 1. But the problem is that these are cars a. § 9-311: filing an ordinary fin statement is not effective if the goods are subject to a statute of the USA i. Can stop, though, b/c the Uniform Cert. of Title Act is NOT federal law (it is state law) ii. BUT § 9-311 Sec. 2 says that filing an ordinary fin statement is not effective to perfect a SI in a car b/c cars are covered by a statute that required perfection to be noted on the certificate of title b. → § 9-311(d): during any period in which that collateral (cars) is inventory, you're back in the UCC (aka DON'T note lien on certificate of title—file an ordinary fin statement in UCC system) i. A certificate of title isn't even issued until it is sold to the buyer b. (ii) Cars that aren't for sale, but owned by dealer i. Use Certificate of Title Filing system 1. The problem is how to distinguish an inventory car from a non-inventory car? a. Problem would be compounded for used cars

Prob. 10.1 (cont): -Facts: Bank has SI in equipment, inventory, and accounts. [Makes no mention of proceeds, products, offspring, substitutions, additions or replacements] -Issue #3: If old equipment is traded for new equipment, this would clearly be proceeds and SI would reach the new equipment whether the agreement said anything about it or now

a. But tracing problem if you trade something of low value (that you had to add money to in order to get the trade) Analysis: a. PROF: it would be wise to include "replacements, additions" as separate categories in the agreement AND use "after acquired" clause b. If agreement doesn't say "additions," then the SI wouldn't reach additions (which would represent a fair amount of value) i. NOTE: But additions to accounts and inventory would be included, b/c the ordinary expectation is that new inventory is covered due to its very nature (this is NOT true of equipment)

Prob. 3.3: -Issue: D in default wants to know how to protect his collateral against self help repo.

a. D can't hide the collateral, but he can force the C to use judicial process by causing a BoP i. Throw a tantrum. Don't just object, say that D is going to get a bat and chase the SC off. Then SC would have to leave get a Writ. At least this means that the SC won't take D's equipment that night. b. Can D call the police? i. SC can't use the police in self-help scenario (can use one after the judicial process) ii. But D can use the police. Bringing sheriff in is likely to stop a repo, b/c it insinuates a BoP. 1. PROF: calling police may even put D in a better position

Prob. 16.1: (cont.) -Concern re: the creation of Bernie's SI?

a. D didn't borrow the money on a secured basis initially—the SI in the car was created 3 months ago. This looks like there are two unsecured debts ($36k to B based on their business together and $30k to F for alimony - BOTH unsecured) i. This looks like D was preserving the only value that he had for his business partner rather than leaving it available for his ex-wife 1. Can D do this? Ie. grant SI for obligations already incurred in the past? a. YES- a SI can secure PAST lending under the UCC b. An unsecured creditor can be converted into a SC after the fact, and sometimes there are reasons to do this (ie. D who wants to borrow more) c. But here you could worry that D was trying to screw over his ex-wife i. Is this illegal? ii. What if D had just sold the car? He would now have $30k in cash and he could give to either F or B (L's actions here would essentially do the same thing)

Prob. 1.1: -Facts: $50k loan at prime +5 points [means the going interest rate plus 5%]. After loan, day care center moves and business decisions are made that are unattractive to the creditor. Creditor is worried about repayment. i. Prime rate = charged by major banks to their most creditworthy customers (adjusted from time to time in response to federal funds rate set by the federal reserve—PROF: 3.25%] ii. This prime+ rate fluctuates with the prime rate -Issue: What can creditor do?

a. Debtor is not yet in default—creditor hasn't suffered a loss i. Creditor can't do anything yet b/c debtor hasn't missed a payment 1. Maybe Creditor should have negotiated for some voice in management decisions (if she didn't, then the fact that the daycare is in trouble does NOT give creditor any rights here) b. PROF: Moral of this problem is that once the loan is made, the leverage can totally shift b/w the debtor and the creditor i. Before the loan is made, creditor could have conditioned loan on veto power, etc. (but too late to do so after) ii. Creditor could have also used a clause in the agreement saying "if I have reason to believe that you will not be able to repay me when due, I can take some sort of insurance..."

Prob 16.4: (cont.) (c) Royalties from books

a. File in the federal copyright system i. National Peregrine Inc.- Copyright Act does deal with SIs in copyrights 1. but there are other cases that come to a different result ii. Assignment = the outright sale of royalties iii. If there is a close question, file and search in both

Prob. 8.1: -Issue: do these exhibits meet the authenticated security agreement requirement? a. (i) Promissory note signed by D but not SC b. (ii) Unsigned financing statement that describes the collateral [what SC uses to perfect a SI] accompanied by signed authorization to file it c. (iii) Letter from debtor's lawyer assuring SC that he has a SI

a. First: ask if any of these docs standing alone meet the requirements of an authenticated SI i. NO; one thing describes the collateral but isn't signed, etc. b. Then: can we use the composite document rule? i. When looking at the docs, try to establish the intent of the parties [want to know if the D realizes and intends to create a SI and confer it upon this particular creditor] 1. Think subjectively (this D's intention) AND objectively (look at the docs after the fact) ii. Can we discern intent here? 1. Focus on the attorney letter b/c this is the one thing that uses the phrase "security interest" a. The other docs suggest it but don't use the phrase b. BUT the letter is from the D's lawyer, not the D himself i. May want to know the extent to which the D has authorized the attorney to represent him and who this lawyer is (ie. is it a partner who is fully immersed in the deal or just an associate who was instructed to write the letter but who may not know if everything was completed) 2. On one hand, why would you do this if you haven't already granted a SI? The fin statement has no function other than to perfect a SI [so no purpose in authorizing the filing of one unless you are recognizing the presence of a SI] a. But on the other hand, you may authorize a fin statement in anticipation of a deal that is never completed [so don't put too much weight on this] 3. PROF: need more facts/details to see if the composite document doctrine could be relied upon here a. The issue is whether the SI was granted. If you don't have a clear indication of this conferral of rights, court may be hesitant

Prob. 1.2: -Facts: Creditor has default judgment. -Issue: Creditor wants to know when she will be paid; how will creditor get the $60k back?

a. Go to the sheriff and get a writ of execution against assets. i. To find out what the assets are, could go to court and order the debtor to provide a schedule of assets (discovery process)—this is expensive and time consuming ii. To find out debtor's assets w/o going through the discovery, could consult public records 1. Easier for real property 2. Credit reports are not public 3. This is not always straightforward b. Even once you ID the available assets, sometimes levying on them can be very challenging i. If debtor is trying to shield the assets, etc. ii. See Vitale case c. Creditor wanted to take the daycare equipment i. Caution: exemption rights of debtor 1. Some daycare equipment may be shielded by this exemption 2. If you levy against property that is owned by someone other than the debtor, the creditor has committed a tort/conversion [don't levy on assets before being clear of ownership] ii. Even if you levy successfully and the equipment IS owned by the debtor, how much is it worth? 1. If the debt is $60k, may only satisfy a fraction of the loan

Prob. 4.1(a): 1. Facts: a. Commercial is the only bidder (is also the SC who requested the foreclosure sale) b. D owes $530k. The house is worth somewhere between $400-450k c. State law says that Commercial is not going to be able to obtain a deficiency judgment, so whatever the house sells for is all Commercial (SC) gets

a. If Commercial is the only bidder at the sale, it should bit up to the amount of the debt with a credit bid [$530k] in order to avoid the debtor challenging the sale/judicial process b. If a deficiency judgment were available, then Commercial would want to bid high enough for the sale not to be set aside for inadequate price, but otherwise as low as it can. That way SC can get the property AND sue the D for the remainder owed via a deficiency judgment c. If a third party bids $530k or $531k, Commercial should not bid more than that b/c Commercial thinks that the land is worth only $400-450k i. If Commercial won the property, it would just turn around and sell it 1. If Commercial wants to bid more than $530k, it is NOT on credit anymore (and they have no incentive to bid additional cash) d. If a third party bids $440k, it may make Commercial question what they estimated the value to be, so maybe they should bid up to $530k, get the property, and investigate. i. Alternatively, Commercial may think that the hassle isn't worth it so they will let it go to the third party

Prob. 1.3: -Facts: Creditors want to take the furniture from the debtor to satisfy the $1k debt owed

a. It does not matter that the creditor's money/loan was used to buy the furniture—unsecured creditor can not use self help to repossesses the assets (he does not have a SI in the furniture) b. Advice: i. If creditor asks for repayment and debtor says no, use small claims process to take debtor to court 1. Small value amount (lower legal costs b/c creditor could do this w/o a lawyer) ii. If the value is higher such that creditor needs a lawyer, probably do not recommend for creditor to take the debtor to court 1. If debtor chooses to resist, it probably wouldn't be worth it a. Creditor has rights, but the value of the rights are minimal due to this difficulty c. Creditor's ability to get a judgment i. At least creditor has a written IOU (other situations may just be one person's word against another's) 1. Creditor would have to prove that he made the loan and that debtor failed to repay it d. Even if creditor goes to court and gets a judgment here, problems of execution on the judgment may follow

Prob. 3.1: -Facts: Lawn furniture loan example (from earlier) a. But now Lisa had signed an effective personal property security agreement designating lawn furniture as collateral

a. J could go repo the furniture w/o legal process if he doesn't breach the peace b/c J IS a secured creditor now i. He can use the value to satisfy the loan b. Breach of peace i. A mere objection without more is not enough to cause a breach of the peace 1. But if L seriously objects to the taking, J has to revert to the legal process c. Advice: i. Use self-help repo. Try to take the furniture when L is not around, b/c less likely to be a breach of peace. ii. Advise J to be surreptitious

Prob. 16.3: -Inequities of the above facts -Facts: S buys a street vendor cart and later gets a note that the previous owner of the cart has filed for BK and a bank is demanding possession of the cart. a. A filing statement HAD been properly filed in the filing system (b/w the bank and the BK debtor, using cart as collateral) -Issue: does S have any protection against this bank asserting its SI?

a. NO- he bought this cart subject to the preexisting SI i. S is NOT a creditor, he is a 3rd party purchaser of the collateral ii. Once the seller/debtor defaulted, the bank had the right to repossess S's cart and sell it 4. Analysis #1: a. S should have searched against the seller/debtor's name to see if it had used the cart as collateral in a previous transaction b. S would argue that he didn't know about the existence of the filing system i. Maybe he could make a fraud/equity argument here 1. § 1-103(b): general principles of law and equity apply unless they are displaced by the UCC 2. Good faith requirement of the UCC ii. Can S make a bad faith argument? 1. If debtor/seller acted in bad faith, this doesn't help S b/c the contest is with the bank 2. Would NOT be able to make a bad faith argument against the bank—the bank is just doing what the UCC allows them to do

Prob 16.4: (cont.) (b) Collateral = patent

a. Patents are general intangibles-- use UCC filing system i. Patent Act only applies to transfers in ownership, so does NOT preempt the UCC in SIs ii. General intangibles are covered by Art. 9-- the Q is then whether you file to perfect a SI in patents under the UCC filing system OR some other system 1. Analogy to a car [which is personal property covered by the UCC]: BUT to perfect a SI in a car, don't file a UCC-1 fin statement (use a different statute instead) b. NOTE: Preemption → § 9-311: Perfection of SI i. Art. 9 does apply to general intangibles, but if you are looking at WHERE to perfect, the filing of a fin statement is not necessary or effective to perfect an SI in property subject to a statute, etc., whose requirements re: priority preempt the UCC. 1. Perfection/Filing Requirements may trump the UCC—this doesn't mean that these objects are completely carved out of the UCC (Art. 9 applies to ALL personal property) c. Patents are NOT subject to a different statute that preempts Art. 9 re: requirements for perfection i. Patent Act does NOT preempt Art. 9 for SIs in patents ii. BUT how could the Patent Act/other statute preempt Art. 9? 1. Supremacy Clause: if a federal statute that occupies a certain field is inconsistent with a state law, it preempts the state law (UCC is state law)

Prob. 10.1 (cont.): -Facts: Bank has SI in equipment, inventory, and accounts. [Makes no mention of proceeds, products, offspring, substitutions, additions or replacements] -Issue #2: If old equipment is sold for cash and that cash is used to buy a new piece of equipment, then the new equipment is proceeds (and SI covers it)

a. Proceeds are automatically covered [§ 9-203(f) & § 9-315(a)(2)] i. § 9-203(f): The attachment of a security interest in collateral gives the secured party the rights to proceeds provided by § 9-315 and is also attachment of a security interest in a supporting obligation for the collateral. ii. § 9-315(a)(2): SI that attaches to proceeds will automatically attach to all proceeds of that collateral as long as it is identifiable 1. Watch out for co-mingling iii. NOTE: Other forms (ie. products, etc.) may not be covered unless the agreement explicitly reaches them

Prob. 10.1: -Facts: Bank has SI in equipment, inventory, and accounts. [Makes no mention of proceeds, products, offspring, substitutions, additions or replacements] -Issue #1: If equipment covered by SI fails and has to be replaced, the question is where the new equipment comes from:

a. The new equipment is NOT proceeds of the old equipment unless it comes from the old equipment (ie. acquired due to the exchange of the old collateral) i. If it comes from somewhere totally different (ie. bought out of her checking account), then it doesn't come from the old equipment 1. To cover this, agreement would have to say "after-acquired equipment"

Prob. 16.1: (cont.) -Issue #3: Could the sheriff be instructed to seize the car anyway and force it to be sold?

a. Tough question—technically, F has the writ of execution and Sheriff is standing there i. But what good would it do her—the car is only worth $30k and Bernie has a right to be paid in full first (F won't see a dime out of the sale of this car) 1. Knowing this, F would have to worry about whether this would be seen as a conversion of Bernie's interest

Prob. 5.1: -Facts: Repo'd hummer and D was notified that it would be sold in a private sale after ten days of this notice. a. Balance owed on loan is $100k b. FMV is $80k c. Sells for $70k in a commercially reasonable sale. -Issues: a. What deficiency award? b. What amount necessary for D to redeem? c. If D's friend offers to pay the bank $80k and the bank doesn't take his offer and instead sells it to someone else for $70k

a. What deficiency award? i. $30k b/c measured from the sale price and the unpaid loan amount [§ 9-615(d)(2)] b. What amount necessary for D to redeem? i. $100k [§ 9-623(b)] 1. Should D redeem this car or buy another car like it for $80k? a. Should redeem this car b/c he still will have to pay the $30k deficiency [if he buys a different car it would cost the D $10k more] c. If D's friend offers to pay the bank $80k and the bank doesn't take his offer and instead sells it to someone else for $70k i. Deficiency is still $30k b/c § 9-627 says that even though the chosen method didn't bring as much as another one would have, it was nevertheless a commercially reasonable method. 1. PROF: this feels really unfair to the D, but that's the deal

Prob. 2.3: -Facts: D is in default but willing to turn over the house. D doesn't want to get sued or have a foreclosure on his record. D is not represented by counsel -Issue: Can you help D is you are bank's counsel?

a. YES, you can help D but you have to let them know that you are not neutral b. If D did have a lawyer, lawyer would advise: i. Point out that Ds could buy themselves more time in the house with foreclosure option ii. Bank might be willing to offer D money in exchange for a deed in lieu of foreclosure (b/c bank would be able to sell the house right away instead of having to sit there for 12 months as an unproductive asset) c. Can you send Ds to get a lawyer? i. You can, but this would disadvantage the interests of your client (the bank) ii. PROF: not a good idea d. Procedurally, D is proposing use of a deed in lieu of foreclosure [this would eliminate any deficiency, too] i. You should get something in writing from the Ds while they are in your office (paper trail that explains why you think it was a fair procedure) ii. Can Ds do this if they execute a deed right now, and you record it? 1. YES if there are no other interests in the property 2. If there is another lien on the property, that will have to be foreclosure on through the regular process iii. If Ds say that they will execute the deed today but ask you to wait to record the deed for 60 days (and see if they will repay it)? 1. NO, b/c this is itself a mortgage a. This deed in lieu of foreclosure would be a SI in itself and would be a new layer of SI 2. NOTE: deed in lieu of foreclosure has to be executed and recorded right away to be effective

Prob. 9.3: 1. This is not meant to be a consumer transactions -Facts: loan officer is lending to businesses and wants to describe the collateral as all the debtor's property. a. UCC clearly prohibits this (super generic problem) i. Loan officer wants to know why in the context of corporations? 1. If this were permitted, surely a lot of lenders would try to do it. If there is poor leverage from the borrower's POV, they may feel that they have to agree. Down the road, this could be a terrible situation for the company b/c they would have nothing left to put up as collateral to other lenders. 2. Problem that companies may do this w/o realizing it or properly valuing what they are giving up -Issue: What can loan officer do (that is enforceable) to get closer to the super generic?

a. § 9-108(b)(3)- if your description uses categories defined by UCC, that is sufficient description i. So say "all accounts, equipment, inventory, general intangibles, etc." - use ALL UCC categories 1. It gets the SC to the same place, but it gets the debtor to think b/c the debtor would then be looking at these categories—would maybe want to negotiate b. SC can encumber all of the debtor's assets i. SC just has to meet the requirements of § 9-108

Prob. 5.2(a): -Facts: a. Highest bid = $47,136 [less than the debt] -Issue: How to distribute the proceeds from this bid?

a. § 9-615 gives the order: i. First: Subtract the bank and attorneys' fees [reasonable expenses of sale] ii. Second: Pay in satisfaction of the underlying loan obligation 1. Leaves $60,886 of indebtedness a. Which leaves a deficiency of $20k i. The sale did not bring enough b. If the sale instead brought $75k [ie. more than the debt] i. First pay the cost of the sale, then satisfy the unpaid loan completely. Now have a surplus that goes to the D. ii. § 9-615(a)(3)(A): Can pay over some proceeds to satisfy obligations secured by a subordinate security interest iii. The surplus goes to the D even if we now have another (unsecured) creditor that says that they have a money judgment against this D and wants to execute it against the surplus (wants the SC to hand it over to them) 1. Judgment lien is not the same thing as a SI a. A SI is a consensual agreement

Prob 16.4: (cont.) 6. (e) A/Rs from the sale of autos 7. (f) Dealer's rights to trademark

e: file in UCC system f: This is a general intangible-- file in UCC system. Peregrine case distinguishing trademarks