Secured Transactions: Pre-Midterm Problems

Problem 57: 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 Article 9 transaction (with the seller being the "debtor" and the buyer the "secured party" — see §9-109(a)(3)). Must Last National file a financing statement or make sure it has possession in order to perfect its security interest in the notes?

No, it is automatically perfected under 9-309.

Problem 28: EDM Corporation routinely did business as "EDM Equipment," and was commonly known by that name, so when the lender filed its financing statement it listed the debtor as "EDM CORPORATION D/B/A EDM EQUIPMENT." Does this correctly identify the debtor's name?

No, it would not work.

Problem 74(c): Jay Eastriver ran a clothing store and needed money. He went to two 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 September 25, but did not loan Eastriver any money (nor did it make any commitment to do so) until November 10. On October 2, Second State both loaned Eastriver the money and filed its financing statement. Eastriver paid neither bank. If Second State Bank had knowledge of the transaction between Eastriver and First National at the time it perfected, does that affect its priority?

No, knowledge of a transaction does not impact priority.

Problem 80: Andy Audio bought a stereo receiver on credit from Voice of Japan, Inc., an electronics store, giving it a purchase money security interest 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?

(1) Andy used this for personal use, (2) Nancy does not have knowledge of the security interest, (3) Nancy neighbor pays value, (4) Nancy is likely buying it for personal use, (5) and Nancy bought before a financing statement was filed. Nancy Neighbor will have rights superior to Voice of Japan.

Problem 65: Peripatetic Corporation was organized under the laws of the State of Delaware but has its large retail store outlet in New Jersey. Further, the corporation was really a husband-and-wife type of business, and they did all the corporate paperwork at their home in Baltimore, Maryland (where they also kept the corporate records). Their corporate stationery used their home address. When the corporation borrows money against its accounts receivable, (1) in what state should the financing statement be filed? See §9-307(b) and (e). (2) If the corporation was registered and had its only place of business in the Republic of Jahala, a Pacific island nation, where should the financing statement be filed?

(1) The financing statement should be filed in Delaware (2) File if you can in Jahala if they have a comparable Article 9 type system, but if not file in DC.

Problem 77: Howard "Red" Poll decided to go into the cattle business and borrowed $65,000 from the Brangus National Bank to finance part of the purchase of the initial herd. Poll signed a security agreement using the cattle as collateral for this "and all other obligations now or hereafter owed to the bank." A financing statement covering this transaction was filed in the appropriate place. Two years later, Poll received a charge card from the same bank and used it to finance a trip to Australia to look over cattle ranching there. 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). (1) Did the bank's security interest in the cattle encompass the credit card obligation? (2) Would it make a difference if he had gone to Australia in search of the perfect wave for surfing?

(1) Yes, because of the Drag-Net clause included in the agreement (2) Yes, because the courts would not likely uphold the the drag-net clause for surfing.

Problem 17(A)-(B): Classify the following Collateral: (A) A professional pianist's piano (B) Cattle fattened by a farmer for sale (C) The farmer's tractor (D) The farmer's chickens (E) Manure from the dairy herd

(A) Equipment (B) Farm Product (C) Equipment (D) Farm Product (E) Farm Product

Problem 21(a): Classify the Following Collateral: (A) MILK IN THE HANDS OF A FARMER. (B) MILK IN THE HANDS OF THE GROCERY STORE. (C) MILK IN THE HANDS OF THE GROCERY STORE'S CUSTOMER WHO IS BUYING FOR CONSUMPTION. (D) MILK IN THE HANDS OF A RESTAURANT TO BE USED IN SAUCE FOR CHICKEN?

(A) Farm Product (B) Inventory (C) Consumer Good (D) Inventory

Problem 21(g): Classify the Following Collateral: (A): Software, not embedded. (B) Software, embedded.

(A) General Intangible (B) Equiptment

Problem 17(F): Classify the following Collateral: (A) A Liquor License (B) A right to return of a security deposit held by landlord (C) A newspaper carrier's right to payments for papers already delivered (D) A newspaper carrier's right to payments for papers to be delivered in the future

(A) General Intangible (B) Payment Intangible (C) Account (D) Account

Problem 21(b): Classify the Following Collateral: (A) A CERTIFICATE OF DEPOSIT ISSUED BY A BANK. (B) AN AIRBILL ISSUED BY AN AIRLINE AS A RECEIPT FOR FROZEN SHRIMP SHIPPED BY AIR. (C) RECEIPT GIVEN TO A FARMER BY A SILO OPERATOR WHEN THE FARMER STORED GRAIN THERE.

(A) Instrument (B) Document (C) Document

Problem 17(H): Classify the following Collateral: (A) Oral Agreement to pay Aunt $5,000 (B) Written Agreement to pay Aunt $5,000

(A) Payment Intangible (B) Instrument

Problem 32: 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. (A) Which of these parties is the "debtor" (B) Which of these parties is the "obligor" (C) Under whose name should the financing statement be filed?

(A) Richard (B) Robin (C) Richard's Name

Problem 53: 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, because it is a General Intangible.

Hypo 5-2: 2/1 Growmerica Bank makes a loan to Debtor, Debtor executes a security agreement, and Growerica takes possession of jewelry securing the loan. 2/3 FeeBank makes loan to Debtor, Debtor executes a security agreement, and FeeBank files a financing statement describing the jewelry. 2/4 Who has priority in the jewelry?

GrowAmerica, because they were the first to attach and perfect (through possession).

Problem 34: A financing statement states: "This Financing Statement also relates to an obligation secured by a security interest in collateral and is evidenced by the Mortgage referred to above and the All-Assets Security Agreement executed on Sept. 28, 2015." Does the financing statement perfect a security interest in collateral listed in the All-Assets Security Agreement?

No, because it is an insufficient description of what is in the document.

Problem 17(J): Classify the following Collateral: Lottery winnings

Account

Problem 21(h): Classify the Following Collateral: THE MONTHLY RENTAL OBLIGATIONS OWED TO A LANDLORD, WHO WANTS TO USE THESE OBLIGATIONS AS COLLATERAL FOR A LOAN

Account

Problem 43: The loan officer at ONB has sent you, the bank's attorney, an e-mail with the following question. The bank is planning to make a loan to Luddite Technology and wants to take a security interest in the of the equipment of the debtor. However, Luddite's most important piece of equipment is the very expensive Abacus-12, which makes computer hardware. Should the security agreement be drafted to say that the debtor grants a security interest in "the abacus-12 plus all other equipment" all equipment particularly the abacus-12 or simply all equipment"?

All three descriptions would be fine, but being more specific to outline a specific item would not be a bad idea.

Problem 63(b): Coco buys a corvette, signing a security agreement making the car collateral for payment of the price. The dealer retains possession of the certificate of title and a set of keys. If the dealer filed a financing statement indicating the car as collateral, would that perfect its security interest?

No, because you need to note it on the certificate of title (9-311).

Problem 72: Epstein's Bookstore borrowed $10,000 from Octopus National Bank (ONB), signing a security agreement 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 and 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 is sold?

Because Martin's Travel Service is a clean creditor, they will win.

Problem 80(a): 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 security agreement 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 security agreement 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 security interest. The policy of Sophy's Interiors was not to file financing statements for its credit furniture sales. Why might it have such a policy? Is it wise here?

Becuase they believe that it is consumer good, and will not be filed based on automatic perfect. However, it is not wise here because it is not a consumer good, but used as equipment.

Problem 76(a): 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; 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 security agreement in the same stamp collection. The father filed a financing statement in the proper place. Who has priority between CNB and the father?

Collectors National Bank, they perfected through possession before the Father filed.

Problem 17(C): Classify the following Collateral: A Mobile Home

Consumer Good

Problem 21(c): Classify the Following Collateral: RARE COINS BOUGHT BY A HOBBYIST FOR ADDITION TO HIS COLLECTION.

Consumer Good

Problem 21(f): Classify the Following Collateral: Checking Account you have at your bank.

Deposit Account

Problem 14: Local Loan Company (LLC) needed to borrow money, and Octopus National Bank (ONB) agreed to loan it the requisite amount, taking into ONB's possession as collateral the real property mortgages and accompanying promissory notes given to LLC by its borrowers. Need ONB do anything either in the real property recording office or under the UCC's Article 9 to protect its interest in this collateral?

No, because attachment will extend to mortgages (UCC 9-203(g)) and will also be automatically perfected.

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 security interest 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 (§9-322(a)(1)), did Elsinore "file" first, or did it bear the risk of clerical error?

Elsionore filed first, the clerical error does not matter.

Problem 17(G): Classify the following Collateral: Curtains bought by a lawyer for the law office.

Equipment

Hypo 5-5: 9/25 FNB -Security Agreement executed, -Loan Given 10/2 SSB -Security Agreement executed -Loan Given 11/3 Priority Battle

FNB, because they were the first to file their security agreement.

Problem 81: Video Wonder, an electronics store, had granted a floating lien over its inventory and equipment to Last National Bank, which perfected its security interest 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 and two mail carriers. 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 and the manager agreed that the store would not get any title to Fang until all the payments had been made. Fang proved to be a fine watchdog for the store, but when Video Wonder stopped making payments to all creditors two months later, Last National Bank seized all of the store's assets, including Fang. Agatha Shaw is upset. She calls you, her attorney. Is

Fang would be classified as Equiptment, Agatha would have needed to file within 20 days and would not have priority over the bank.

Problem 17(L): Classify the following Collateral: Hay grown, raised, harvested and packed in bales by the farmer.

Farm Product

Problem 76(b): 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; 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 security agreement in the same stamp collection. The father filed a financing statement in the proper place. If Phillip goes to the bank and takes the collection home so that he can add new stamps but does then return it, does the answer change? At common law the pledgee could return the collateral to the pledgor for a "temporary and limited purpose" without losing its perfection. Has this doctrine survived the enactment of the Code?

Father would win, because when the bank relinquished possession they lost perfection when they relinquished the stamps and the financing statement filed by Father took priority.

Hypo 5-3: 1/15 FeeBank, anticipating future relationship with Debtor, files a financing statement describing jewelry with the Debtor's written authorization. 2/1 Growmerica Bank makes a loan to Debtor, Debtor executes a security agreement, and Growerica takes possession of jewelry securing the loan. 2/3 FeeBank makes loan to Debtor, Debtor executes a security agreement. 2/4 Who has priority in the jewelry?

FeeBank will win, because they filed a Financing Statement on 1/15, and when they attached on 2/3, their attached and perfection in the jewelry was deemed to have been effective since 1/15.

Problem 74(b): Jay Eastriver ran a clothing store and needed money. He went to two 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 September 25, but did not loan Eastriver any money (nor did it make any commitment to do so) until November 10. On October 2, Second State both loaned Eastriver the money and filed its financing statement. Eastriver paid neither bank. 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 will have superior rights in the inventory, because they filed their financing statement first.

Problem 60(a): Octopus National Bank (ONB) had a security interest in the equipment of the Weekend Construction Company for which it filed a financing statement in the proper place on May 1, 2020. Antitrust National Bank (ANB) took a security interest in the same collateral and filed its financing statement on May 2, 2020, in the same place. How long is the financing statement effective? 9-515a

Five years.

Problem 52(D): Kiddie Delight, Inc., 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 its local warehouse custodian (Mort was paid $1 a week by Fred's to mind the goods; he continued to receive his normal paycheck from Kiddie Delight). Kiddie Delight pledged the warehouse receipt (a document) to Mammon State Bank in return for a loan. Kiddie Delight went bankrupt shortly thereafter. If the bank loses its perfection, who would you advise it to sue?

Fred.

Problem 17(I): Classify the following Collateral: Patents, copyrights, and trademarks.

General Intangible

Problem 21(d): Classify the Following Collateral: Tax Refund

General Intangible

Problem 82: Hart Farm Equipment leased a construction backhoe to Farmer Bean for a six-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 this a "sale on approval." Farmer Bean's equipment was already subject to a perfected floating lien in favor of Octopus National Bank. Three months after the delivery of the backhoe, Farmer Bean agreed to buy the backhoe, and Hart Farm Equipment filed its financing statement the next day, claiming its purchase money security interest. Who wins in the priority battle between Hart Farm Equipment and Octopus National Bank?

Hart Farm Equipment would win, because it was a sale of approval and the twenty day period starts when the parties agree to buy.

Problem 17(E): Classify the following Collateral: Pencils and other stationery supplies used by sears or a similar large retailer in its credit offices.

Inventory

Problem 84: Merchants Credit Association has PSI in Inventory 12/10 Debtor buys $4,000; Seller obtains a PMSI 12/11 Seller notifies Merchants; files FS 12/12 Goods delivered to Debtor Who has priority?

It depends on when the Merchants received the notification, if they received it before the goods were delivered, then they have priority.

Problem 36: 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?

It depends, because it will completely depend on what a judge would determine, based on how they accurately the agreement outlined the specificity.

Problem 68: 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 and other registration fees, Saylor told the dealership that he lived in Indiana and that 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 because it had not gotten a Michigan certificate of title and 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?

It does not matter where the title comes from, as long as the application for the certificate of title is valid.

Problem 73: 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 his desk. Six months later, Coke Travel Agency needed another loan and applied for one from the Bentham National Bank, which searched the files, discovered that there were no financing statements recorded for Coke Travel Agency as debtor, and took a security interest 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?

Mansfield is unperfected Bentham National Bank is perfect Therefore, Bentham has a superior interest.

Problem 90(a): Betty Consumer bought a television set from Distortion TV, Inc., a retail store. A month later, Distortion went bankrupt, and a minor functionary from the Octopus National Bank (ONB) showed up on her stoop and asked her to turn over the set. He explained that ONB held a perfected security interest in all of Distortion's inventory and that since Distortion had not paid off its debts to ONB, the bank was repossessing. What should Ms. Consumer tell the bank's flunky?

Ms. Consumer should tell the bank's flunky that she is a BIOC (buyer in the ordinary course) and that she is protected.

Problem 1: Honest John sold Nancy Debts a used car for $900, to be paid off in three payments of $300 each. The contract was oral. Nancy missed the second payment, and one of Honest John's employees repossessed the car and returned it to the seller. Nancy sued Honest John for conversion. Who should win?

Nancy should win, because John did not have a properly perfect claim.

Problem 30: Barbara Song borrowed $50,000 from Octopus National Bank (ONB) in order to start a business called "Barb's Interiors," interior design being her specialty. ONB and Ms. Song signed a security agreement showing her as the debtor and giving ONB an interest in the inventory and equipment. ONB duly filed a financing statement. Subsequently, Ms. Song married Fred Dancer, and she changed her name to Barbara Dancer. She borrowed another $50,000 from the Nightflyer Finance Company, which loaned her the money after searching the records under "Dancer" and finding no prior encumbrances on the business's inventory and equipment. Did ONB lose its security interest because it failed to refile when her name changed?

No, as they will keep their security interest as long as they file within the four month grace period provided by UCC 9-507(C)

Problem 47: Daniel lends Jennifer money to buy a car. They agree over the phone that the car will be collateral for the debt. After Daniel sends a form to the Registry of Motor Vehicles, he is listed as a creditor on the car's certificate of title. Does he have a security interest in the car?

No, because Daniel is not attached or perfect, he also does not have a security interest in the car.

Problem 2 (Part 1): Assume that a state statute gives someone doing repairs a possessory artisan's lien on the property repaired. Mr. Baker took his car into Mack's Garage for repair but, being strapped for funds, couldn't pay the full bill, and Mack wouldn't let him have the car back. Is Mack's artisan's lien an Article 9 security interest?

No, because an Artisan Lien does not fall within the scope of 9-109(d) and is also no consensual.

Problem 78: 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 security agreements 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 two 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, because it was not Howard's intent to have a singular bank both his consumer and ranching obligations.

Problem 52(C): Kiddie Delight, Inc., 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 its local warehouse custodian (Mort was paid $1 a week by Fred's to mind the goods; he continued to receive his normal paycheck from Kiddie Delight). Kiddie Delight pledged the warehouse receipt (a document) to Mammon State Bank in return for a loan. Kiddie Delight went bankrupt shortly thereafter. If Kiddie Delight (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 rehypothecation to the bank, will the bank lose its perfection if it turns the document over to the debtor?

No, because of the 20 day grace period.

Problem 48: 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 and the notes put in the vault. Do the notes become collateral for ACRO's debt to the bank?

No, because the debtor did not voluntarily give the notes to the bank.

Problem 55(a): Bilko Siding, Inc., put aluminum siding on Mr. and Mrs. Brown's home. They signed a contract on August 4, giving the company a security interest in all their currently owned consumer goods plus those acquired in the future. On September 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 security interest in the machine. First Finance did not file a financing statement. The Browns bought the machine on October 11. They filed for bankruptcy on October 12. Bilko, First Finance, and their trustee all claim the machine. Did Bilko's security interest attach to the sewing machine?

No, because the description does not meet the requirements of the 9-204(b) 10 day rule.

Problem 55(c): Bilko Siding, Inc., put aluminum siding on Mr. and Mrs. Brown's home. They signed a contract on August 4, giving the company a security interest in all their currently owned consumer goods plus those acquired in the future. On September 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 security interest in the machine. First Finance did not file a financing statement. The Browns bought the machine on October 11. They filed for bankruptcy on October 12. Bilko, First Finance, and their trustee all claim the machine. Would it have been a purchase money security interest if the Browns had used the $80 to pay a liquor bill and had used $80 from their savings account to buy the sewing machine? How can finance companies protect themselves from the debtor's misuse of the funds advanced?

No, because the money was used to buy the liquor bill and not the sewing machine, because it was not used to purchase the sewing machine, it is not a PMSI. Financing companies can protect themselves by making the check jointly payable.

Problem 60(d): Octopus National Bank (ONB) had a security interest in the equipment of the Weekend Construction Company for which it filed a financing statement in the proper place on May 1, 2020. Antitrust National Bank (ANB) took a security interest in the same collateral and filed its financing statement on May 2, 2020, in the same place. If ONB fails to file a continuation statement in time, but a week later files another financing statement, is it still senior to ANB?

No, because there was a lapse in their perfection which would have given ANB superior rights.

Problem 67: ONB files first in Chicago LNB files second in Chicago January 1, 2021 - Firm moves to DC March 2021 - LNB files in DC September 2021 - ONB files in DC Does ONB retain priority over LNB?

No, because they did not refile within the 4 month grace period.

Problem 42: The security agreement stated that the collateral was "machinery, equipment, furniture and fixture." To this list the financing statement added "inventory and account receivable" the parties are all willing to testify that the loan was intended to be secured by inventory and account receivable as well as by the items listed in the security agreement. Other creditors object. Does the secured parties interest reach inventory and account receivable?

No, because they have not properly attached those items.

Octopus National Bank issued Connie Consumer 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 Article 9 apply to the bank's rights in this account?

No, because this is a consumer account and UCC 9-109(D)(13) states that Article 9 does not apply to these accounts.

Problem 56: Facade 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 Facade Motors was covered by a perfected floating lien in favor of Octopus National Bank. As soon as Facade gets possession of the rug (and before it makes up its corporate mind whether it wants to buy it), does the bank's lien attach?

No, because this is a sale on approval, and items sold on approval are not subject to the claims of the buyers creditor until acceptance.

Problem 63(d): Coco buys a corvette, signing a security agreement making the car collateral for payment of the price. The dealer retains possession of the certificate of title and a set of keys. Does the security interest perfect automatically, if it is a PMSI in consumer goods?

No, because you have to note your lein-holder interest on the certificate of title.

Problem 76(c): 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; 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 security agreement in the same stamp collection. The father filed a financing statement in the proper place. If CNB makes Phillip sign a security agreement and then turns the collection over to him but never files a financing statement, who wins? What should CNB have done?

No, the Dad still wins and the Bank should have filed a financing statement before the Father.

Problem 75: When First National Bank took a perfected security interest in the inventory of Jay Eastriver's clothing store, the security agreement 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 and security agreement need to be altered in any way, or are they sufficient as is to protect the bank?

No, the security agreement is sufficient as written because it incudes language for future advances which covers the additional loan.

Problem 60(b): Octopus National Bank (ONB) had a security interest in the equipment of the Weekend Construction Company for which it filed a financing statement in the proper place on May 1, 2020. Antitrust National Bank (ANB) took a security interest in the same collateral and filed its financing statement on May 2, 2020, in the same place. If ONB files a continuation statement on May 1, 2024, is its perfection continued?

No, their perfection is not continued because they filed too early.

Problem 60(c): Octopus National Bank (ONB) had a security interest in the equipment of the Weekend Construction Company for which it filed a financing statement in the proper place on May 1, 2020. Antitrust National Bank (ANB) took a security interest in the same collateral and filed its financing statement on May 2, 2020, in the same place. If ONB never files a continuation statement at all, after May 1, 2025, does it nonetheless retain its priority over ANB?

No, they will not retain their priority over ANB.

Problem 63(c): Coco buys a corvette, signing a security agreement making the car collateral for payment of the price. The dealer retains possession of the certificate of title and a set of keys. What if the dealer retained possession of the vehicle, would that perfect its security interest?

No, you have to put it on the certificate of title.

Problem 63(a): Coco buys a corvette, signing a security agreement making the car collateral for payment of the price. The dealer retains possession of the certificate of title and a set of keys. Would that perfect the dealer's security interest?

No.

Problem 58: 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 security interest 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 the client did not. What must NFC do to perfect its interest in the surety obligation of the mother?

Nothing, because it is a supporting obligation under 9-102. As long as they were attached and perfected, they will extend to the surety obligation of the Mother.

Problem 80(b): 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 security agreement 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 security agreement 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 security interest. The policy of Sophy's Interiors was not to file financing statements for its credit furniture sales. On June 10, which creditor will have priority in the furniture? On June 30?

On June 10th: Sophy On June 30th: Sullivan National Bank

Hypo 5-4: 9/25 FNB -Security Agreement executed, -Financing Statement filed -No loan or commitment 10/2 SSB -Security Agreement executed -Financing Statement filed -Loan Given 11/3 Priority Battle: Who wins?

SSB would win, because they actually gave value while FNB did not.

Problem 62: 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 statements in the public records to show that all of Sam's assets were security for various nonexistent 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 would file under 9-513 and Make a demand the record be removed, or file a corrective statement under 9-518.

Problem 85: Hans Racing Equipment bought much of its inventory from Standard Auto Wholesales, Inc., which always took a purchase money security interest 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 security interest in Hans'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 purchase money security interest in the goods for the rest. On that same day, he borrowed the $1,500 down payment from MDNB and also gave the bank a purchase money security interest 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 Auto has priority, because they are the seller and sellers will always beat lenders in a battle between PMSIs.

Problem 37: The financing statement described the collateral as: "All assets of the Debtor including, but not limited to, any and all equipment, fixtures, inventory, accounts, chattel paper, documents, instruments, investment property, general intangibles, letter-of-credit rights and deposit accounts now owned and hereafter acquired by Debtor and located at or relating to the operation of the premises at 100 River Rock Drive, Suite 304, Buffalo, New York, together with any products and proceeds thereof including, but not limited to, a certain Komori 628 P+L Ten Color Press and Heidelberg B20 Folder and Prism Print Management System." After the financing statement was filed and payment commenced the debtor moved everything in the business to a new location in Buffalo. No one thought to amend the financing statement. Will this description be sufficient to give the creditor a valid interest in the same assets at the new Buffalo location?

The Financing Statement is fine, because the burden is on the creditor to do further investigation.

Problem 26(A): Harry Fellini ran a movie theater called "Fellini'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 Company. The financing statement calls for a listing of the "debtor's name." Should the parties use the business name or individual name?

The Individuals name, because he runs a Sole Proprietorship.

Problem 10: Pollution Solutions, Inc., took out a loan from ONB (Bank), putting up as collateral its copyrights, patents and trademarks. Where should ONB file to be sure it has a perfected security interest?

The State Secretary of State's Office, but when in doubt, you should file everywhere.

Problem 22: 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 and let it appreciate in value (he did not himself play the guitar). If Ambulance uses the guitar as collateral for a loan needed to run his law practice, how is the guitar classified?

The guitar would be considered a Consumer Good.

Problem 29: 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." (a typographical error), but the State's database correctly listed the company as "World Wide Widgets, Inc." and that was the name in the State's Index of Registered Corporations. What is the corporation's name for A9 filing purposes?

The name would be whatever name is used on the Public Organic Record, in this case, World Wide Wigets, INC. (The name you file is the name you use, not what the State has).

Problem 33: Peter Poor signed a security agreement and financing statement in favor of the Total Finance Company, giving the company a security interest in "all personal property debtor now owns or even hopes to own between now and the end of the world or his death, whichever occurs first." Does this perfect an interest in his guitar?

This description works for the filing statement, but does not work for a security agreement because it is "super generic."

Problem 45: If the creditor agrees to provide value to a third party on the debtor's request, will the security interest still attach to the debtor's property?

Yes, assuming that there was an Authenticated Security Agreement and the Debtor has rights.

Problem 24: The State of Montana has enacted a statute giving unpaid crop dusters a lien on the crops of the farmer; Montana Statutes §71-3-901. This, of course, is a statutory lien (since it arises by statute and is not created by the consent of the debtor — the farmer). Is this nonetheless an Article 9 transaction requiring compliance with the usual Article 9 rules?

Yes, because Agricultural Liens are covered within the Scope of Article 9.

Problem 12: Carl Jugular was an independent insurance agent who sold policies for many companies, though his primary sales were the life and automobile policies of the Montana Insurance Association (MIA). In order to float a loan to buy a car, Carl gave the lending bank a security interest in "all present and future commissions earned or to be earned" from the MIA. Does Article 9 cover this assignment?

Yes, because Carl is considered to be an independent contractor and the payment in question was not wages, but rather commissions meaning that Carl was not a salaried employee of MIA.

Problem 52(B): Kiddie Delight, Inc., 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 its local warehouse custodian (Mort was paid $1 a week by Fred's to mind the goods; he continued to receive his normal paycheck from Kiddie Delight). Kiddie Delight pledged the warehouse receipt (a document) to Mammon State Bank in return for a loan. Kiddie Delight went bankrupt shortly thereafter. Assume the warehouse receipt is validly issued and effective. If the bank and Kiddie Delight signed a written security agreement covering the warehouse receipt and the inventory it represented and if the bank gave Kiddie Delight the money, does the bank have a perfected security interest in the warehouse receipt even before the bank gets possession of it?

Yes, because UCC 9-312 provides a twenty (20) day grace period.

Problem 55(b): Bilko Siding, Inc., put aluminum siding on Mr. and Mrs. Brown's home. They signed a contract on August 4, giving the company a security interest in all their currently owned consumer goods plus those acquired in the future. On September 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 security interest in the machine. First Finance did not file a financing statement. The Browns bought the machine on October 11. They filed for bankruptcy on October 12. Bilko, First Finance, and their trustee all claim the machine. Was the loan agreement a purchase money security interest even though First Finance was a lender and not the seller of the machine?

Yes, because both lenders and sellers can acquire a PMSI in goods.

Problem 2 (Part 2): Mr. Baker took his car into Mack's Garage for repair but, being strapped for funds, couldn't pay the full bill, and Mack wouldn't let him have the car back. If, prior to the repair work, Mr. Baker signed a statement giving Mack's Garage a right to repossess the car if the bill wasn't paid, does this agreement create a security interest under the Code?

Yes, because the Lien was a consensual lien between Mr. Baker and Mack.

Problem 20: Passport Credit Card Company 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 it needs to borrow money, can it use these credit card transactions as collateral?

Yes, because the credit card transactions would be considered accounts.

Harry Fellini ran a movie theater called "Fellini'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 Company. The financing statement calls for a listing of the "debtor's name." If the theater were run as a partnership, would the partnership's name be used as the debtor's name?

Yes, because the equipment would be property of the partnership.

Problem 4: Floyd Mutrux, one author of the musical "Million Dollar Quartet," owed money to his attorney, Gilbert Kelly. Mutrux made an agreement assigning to Kelly a percentage of Mutrux's future royalty distributions from the musical, effective until the debt was paid. Does Article 9 apply so that the attorney should take appropriate steps to protect these rights from other creditors?

Yes, because this agreement constitutes the assignment of an account, meaning that Article 9 will apply.

Problem 25: 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, because this was a consensual agreement between the two parties.

Problem 11: 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 and could be seized and sold if Christopher defaulted in the rent payments. Is the landlord's lien required to be perfected under Article 9?

Yes, because this was a consensual agreement, meaning it is subject to Article 9 of the UCC.

Problem 41: THE FINANCING STATEMENT'S DESCRIPTION SAID "VARIOUS EQUIPMENT. SEE ATTACHED LIST." NO LIST WAS ATTACHED. IS THE STATEMENT SUFFICIENT TO PERFECT A SECURITY INTEREST IN THE DEBTOR'S EQUIPMENT?

Yes, because while no list was attached, the description of "Equipment" was sufficient.

Problem 83: Danica trades in her SUV for a hybrid Maxwell Demon at Cash For Clunkers. Danica still owes Cash For Clunkers $15,000 on the SUV, which is now worth $10,000. Danica borrows $25,000, secured by the Maxwell Demon, from Octopus National Bank: a hybrid loan of $20,000 to pay the price of the Maxwell Demon and $5,000 to pay off her "negative equity" in the SUV. Does Octopus National Bank have a purchase money security interest?

Yes, because without the loan, she would not have been enabled to buy the new car.

Problem 74(a): Jay Eastriver ran a clothing store and needed money. He went to two 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 September 25, but did not loan Eastriver any money (nor did it make any commitment to do so) until November 10. On October 2, Second State both loaned Eastriver the money and filed its financing statement. Eastriver paid neither bank. Did both banks have a perfected security interest, assuming they filed in the proper place? That is, is it possible for two creditors to have perfected security interests in the same collateral?

Yes, it is possible for two creditors to have perfected security interests in the same collateral.

Problem 39: The security agreement and the financing statement both described the collateral as "inventory." Does this limit the security interest to existing inventory only, or does the security interest extend to replacement for the original collateral? If the security agreement had said "inventory now owned or after-acquired" but the financing statement had simply mentioned "inventory," does this perfect a security interest in after-acquired inventory?

Yes, it would have under UCC 9-502, but it is a good idea to include an After-Acquired Clause in an agreement.

Problem 61: 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 (and taken a purchase money security interest 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?

Yes, she would contact them and instruct them to file a termination statement.

Problem 38: Polly Travis owned a clothing store that was doing quite well, so she decided to open branches all over the state. She borrowed money to do so from Longhorn State Bank, which took a security interest (according to the filed financing statement) in "all inventory, accounts receivable, equipment, instruments, general intangibles, and personal property." The bank also made her pledge her extensive collection of jewelry to the bank, making her bring it from her home and putting it in the vault. A year later she asked to have the jewelry back so that she could wear it to a social occasion, and the bank gave it to her. Before she could return it to the bank, another creditor seized it by judicial process. You are the lawyer for the Longhorn Bank. Is their interest in the jewelry perfected by the filed financing statement? What will be your argument?

Yes, the financing statement was sufficient to perfect their interest in the item. While they relinquished ownership in the jewelry, but because they had filed a security agreement, their interest remained protected.

Problem 19: Mercy Hospital needs financing and calls you, its attorney, with this question. Many of its patients are members of various health plans, and when they come in for treatment, they sign paperwork authorizing the hospital to seek 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 monies due it from the various health plans as collateral?

Yes, the money due to the hospital as apart of the plan would be considered HealthCare Insurance Receivables.

Problem 66: Factory, Factory & Money is a legal partnership that has its only place of business in Chicago, Illinois, where Octopus National Bank, which has a security interest in the accounts receivable of the firm, had filed its financing statement. If the law firm makes a permanent move to Washington, D.C., on January 1, 2013, 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 D.C., with the new D.C. firm assuming all the debts of the former one, is the time period the same?

Yes, they have a four month grace period under 9-316.

Problem 52(A): Kiddie Delight, Inc., 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 its local warehouse custodian (Mort was paid $1 a week by Fred's to mind the goods; he continued to receive his normal paycheck from Kiddie Delight). Kiddie Delight pledged the warehouse receipt (a document) to Mammon State Bank in return for a loan. Kiddie Delight went bankrupt shortly thereafter. By having possession of this document, did the bank have a perfected security interest in the inventory?

Yes, they perfected through possession.

Problem 5: To raise money, Farmer Brown's Fresh Vegetables Roadside Stand sold all of its accounts receivable to Nightflyer Finance Company, which notified the customers that henceforth all payments should be made directly to Nightflyer. Is this sale nonetheless an Article 9 "security interest"? If so, even though Farmer Brown has no further obligations to Nightflyer, he would of necessity be termed an Article 9 "debtor." Then Nightflyer would have to file an Article 9 financing statement to perfect its interest against later parties. Why would the Code drafters have brought an outright sale of accounts under the coverage of Article 9?

Yes, this would be an Article 9 Security Interest since the accounts receivable would be considered an Accounting. The drafters would have brought an outright sale of accounts in order to protect against secret liens.

Problem 60(e): Octopus National Bank (ONB) had a security interest in the equipment of the Weekend Construction Company for which it filed a financing statement in the proper place on May 1, 2020. Antitrust National Bank (ANB) took a security interest in the same collateral and filed its financing statement on May 2, 2020, in the same place. Is an attorney who fails to file a continuation statement guilty of malpractice?

Yes, you should make sure to properly communicate with your client about their responsibility to file certain documents and maintain a calendar with proper dates and times for when things need to be filed.