Lecture 26 0

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Information about Lecture 26 0
Education

Published on February 7, 2008

Author: Bertrando

Source: authorstream.com

Administrative: Administrative Exam Review Session: Sunday, May 7th, 2 p.m., Room 102 Assignments to cover: Assignment 28. Lien creditors vs. secured creditors. Assignment 36. Buyers vs. secured creditors. Problem 28.6.: Problem 28.6. Bonnie Brezhnev of Bonnie’s Boat World (BBW) sold a $35,000 Bayliner Boat to Edith Jones. Orville holds an unrecorded judgment against Edith Jones for $22,000 for alimony and child support. Edith paid $3,500 in cash and signed a promissory note for the balance secured by the boat. Orville and the sheriff levied on the boat and took possession as soon as Edith got to the marina. The security agreement says a levy of the boat constitutes a default. Problem 28.6.: Problem 28.6. §9-102(a)(23). “Consumer goods” are goods used or bought for use primarily for personal, family, or household purposes. §9-308 (a) – A security interest is perfected when it has attached and all the requirements for perfection are met. §9-309(1) – A purchase money security interest in consumer goods perfects when it attaches. §9-317(a) – A security interest is subordinate to the rights of: (1) a person entitled to priority under section 9-322; (2) except for PMSI, a person that becomes a lien creditor before the earlier of: (A) security interest is perfected; or (B) one of the conditions in §9-203(b)(3) is met. Problem 28.6.: Problem 28.6. §9-317(e) – Except as otherwise provided in Sections 9-320 and 9-321, if a person files a financing statement with respect a purchase money security interest before or within 20 days after the debtor receives delivery of the collateral, the security interest takes priority over the rights of a buyer, lessee, or lien creditor which arise between the time the security interest attaches and the time of filing. §9- 609 – After default, a secured party may take possession of the collateral. Problem 28.6.a.: Problem 28.6.a. Can Bonnie get the boat back? Is Rita using as consumer good? NO YES §9-309(1) – A purchase money security interest in consumer goods perfects when it attaches. §9-317(e) – Have 20 days to file financing statement and take priority over lien creditor during that period. Competitions for collateral: Competitions for collateral Assignments 28 – 40: Lien Creditors Against Secured Creditors: The Basics – Assignment 28. Buyers Against Secured Creditors – Assignment 36. Exceptions to the rule that security interests survive sale:  General Rule: Security Interests Survive Sale of Collateral §9-201. A security agreement is effective according to its terms against purchasers of the collateral. §9-315(a)(1). A security interest continues in collateral notwithstanding sale. Exceptions: Authorized Disposition Exception: §9-315(a)(1). Buyers-in-the-Ordinary-Course Exception: §9-320(a). Consumer-to-Consumer-Sale Exception: §9-320(b). Exceptions to the rule that security interests survive sale Exception 1: Authorized Disposition §9-315(a)(1) :  §9-315(a)(1). A security interest continues in collateral notwithstanding sale, … unless the secured party authorizes the disposition free of the security interest . . . Related issues: Authorization does not need to be express (Gretna State Bank v. Cornbelt Livestock Co.). Split in authority on conditional authorization (RFC Capital Corp v. Earthlink – Earthlink did not get free of security interest held by RFC, since conditional). Exception 1: Authorized Disposition §9-315(a)(1) Exception 2: Buyer in Ordinary Course §9-320(a) :  §9-320(a). A buyer in ordinary course of business takes free of a security interest created by the buyer’s seller. Related issues: Ordinary course of whose business? The seller’s business §1-201(9)(Rev. §1-201(b)(9)). Buyer takes free of security interest, even if the buyer knows of security interest existence §9-320(a). But, not ordinary course if know violates security interest, §1-201(9)(Rev. §1-201(b)(9)). But, Comment 3, §9-320, only not ordinary course if knows that sale violates security interest terms. Exception 2: Buyer in Ordinary Course §9-320(a) Exception 2: Buyer in Ordinary Course §9-320(a) :  §9-320(a). A buyer in ordinary course of business takes free of a security interest created by the buyer’s seller. Related issues: Only take free of a security interest created by the seller (if seller acquired good encumbered by security interest, the security interest remains). When does a buyer become a buyer? Daniel v. Bank of Hayward – became buyer when car identified. Only a buyer if take possession: §1-201(9)(Rev. §1-201(b)(9)). Exception 2: Buyer in Ordinary Course §9-320(a) Exception 3: Consumer to Consumer Sales §9-320(b) :  §9-320(b). A buyer of goods from a person who used or bought the goods for use primarily for personal, family, or household purposes takes free of a security interest, even if perfected, if the buyer buys: (1) without knowledge of the security interest; (2) for value; (3) primarily for the buyer’s personal, family, or household purposes; and (4) before the filing of a financing statement covering the goods. Exception 3: Consumer to Consumer Sales §9-320(b) Exception 4: Unperfected Security Interests:  §9-317(b). A buyer . . . takes free of a security interest . . . if the buyer gives value and receives delivery of the collateral without knowledge of the security interest . . . and before it is perfected. Exception 4: Unperfected Security Interests Exception to the Exceptions: Possession by Secured Party: Exception to the Exceptions: Possession by Secured Party §9-320(e). Subsections (a) and (b) do not affect a security interest in goods in the possession of the secured party under Section 9-313. UCC response to: Tanbro Fabrics v. Deering (1976) Deering Tanbro Mill Fabrics Sale Buyer in Ordinary Course Secured Creditor Perfects by Possession Problem 36.1.: Davis Department store sells TV-stereo-VCR-pop-corn popper to Beavis for $1,925 on credit, and files financing statement. Six months later, Beavis sells TV-stereo-VR-pop-corn popper to Butthead for $960 by check. Butthead did not know of security agreement. If Davis repossess, do they owe Butthead $960? Problem 36.1. IOU $1,925 $960 $960 ? Problem 36.1.: §1-201(9)(Rev. §1-201(b)(9)) - Definition of buyer in the ordinary course of business. §9-315 (a) – A security interest continues in collateral notwithstanding sale, unless the secured party authorizes the disposition free of the security interest. §9-320 – When a buyer of goods may take free of a security interest created by the buyer ((a) ordinary course of business, (b) consumer to consumer). §9-401(b) – An agreement between debtor and secured party that prohibits a transfer does not prevent the transfer from taking effect. Problem 36.1. Problem 36.1.: Problem 36.1. Can Davis Department Store repossesses the TV-stereo-VCR-popcorn popper? YES. NO. MAYBE. I prefer not to answer this question. §9-201(a) – Security agreement effective according to terms against purchasers of the collateral. §9-320(a) – Not buyer in ordinary course of business. §9-320(b) – Davis had filed financing statement. Problem 36.1.: Problem 36.1. Does Davis have to refund $960 to Butthead? YES. NO. MAYBE. I prefer not to answer this question. §9-315(a)(2) – A security interest attaches to any identifiable proceeds of collateral. Problem 36.2.: Problem 36.2. University City Bank (UCB) has security interest in inventory of Sound City, Inc. Security agreement prohibited sales on credit, and required proceeds by deposited at UCB. UCB filed financing statement on inventory. Sound City files Chapter 7. UCB sold inventory. Deficiency of $36,000 remains. You’re looking for more! Problem 36.2.a.: Problem 36.2.a. Sound City, Inc. sold system to Rhonda Fried for $12,000. Rhonda paid $2,000 and promissory note for $10,000. Sound City used $2,000 for utilities and sold note. Rhonda did not know of UCB restrictions. Problem 36.2.a.: §9-315 (a) – A security interest continues in collateral notwithstanding sale, unless the secured party authorizes the disposition free of the security interest. §9-320 – When a buyer of goods may take free of a security interest created by the buyer ((a) ordinary course of business, (b) consumer to consumer). §9-323(d) and (e) – Treatment of future advances (not covered by us). §1-201(9)(Rev. §1-201(b)(9)) - Definition of buyer in the ordinary course of business. Problem 36.2.a. Problem 36.2.a.: Problem 36.2.a. Can UCB repossess the sound system that Sound City sold to Rhonda? YES, following §9-201(a), which states the security agreement is effective according to terms against purchasers of the collateral. NO, because Rhonda was a buyer in the ordinary course of business under §9-320(a) . MAYBE. I prefer not to answer this question. Problem 36.2.b.: Problem 36.2.b. George Paulos, a lawyer for Sound City, Inc., accepted a $14,000 sound system as partial payment. §1-201(9)(Rev. §1-201(b)(9)) - Definition of buyer in the ordinary course of business. §9-315 (a) – A security interest continues in collateral notwithstanding sale, unless the secured party authorizes the disposition free of the security interest. §9-320 – When a buyer of goods may take free of a security interest created by the buyer ((a) ordinary course of business, (b) consumer to consumer). §9-323(d) and (e) – Treatment of future advances (not covered by us). Problem 36.2.b.: Problem 36.2.b. Can UCB repossess the sound system that Sound City provided to George? YES, following §9-201(a). NO, because George was a buyer in the ordinary course of business under §9-320(a) . YES, because §1-201(9) excludes those who acquire goods in partial satisfaction of money debt from the definition of purchasers in the ordinary course of business. I prefer not to answer this question. Problem 36.3.: Problem 36.3. Alecia bought a 1992 Lindy from used car lot of Sunrise R.V. for $23,000. Salesman told Lindy the title was in the mail. Alecia discovered Kenneth Eddy purchased this same Lindy from All Seasons R.V. Eddy violated security agreement with All Seasons RV by trading Lindy to Sunrise R.V. Sunrise got Lindy subject to $17,000 lien. Sunrise spent Alecia’s $23,000 on rent. Problem 36.3.: Problem 36.3. §9-315 (a) – A security interest continues in collateral notwithstanding sale, unless the secured party authorizes the disposition free of the security interest. §9-320(a) – A buyer in ordinary course of business takes free of a security interest created by the buyer’s seller. Problem 36.3.a.: Problem 36.3.a. Alecia sues to remove All Season’s lien? Is she successful? YES, because Alecia was a buyer in the ordinary course of business under §9-320(a), since Sunrise R.V. is in the business of selling used vehicles. No, because a buyer in the ordinary course under §9-320(a) only takes free of a security interest created by the buyer’s seller, and All Seasons was not the buyer’s seller. MAYBE. I prefer not to answer this question. Problem 36.3.b.: Problem 36.3.b. Suppose Alecia had asked to see the certificate of title for the Lindy? §9-311 (d) – Requirement of perfection through licensing system does not apply to goods held as inventory for sale. §9-311(d), Comment 4 – Secured party who finances an automobile dealer would use financing statement, not certificates of title. Sunrise probably still has the title they got from Eddy, and that would show the lien from All Season’s. Voila. Problem 36.4.a.: Problem 36.4.a. Alecia found a reconditioned piano at American Piano Company for $5,000. Wants you to represent her at closing. §9-320(a) – A buyer in ordinary course of business takes free of a security interest created by the buyer’s seller. Problem 36.4.a.: Problem 36.4.a. Does Alecia have anything to fear? No, because Alecia was a buyer in the ordinary course of business under §9-320(a). YES, because a buyer in the ordinary course under §9-320(a) only takes free of a security interest created by the buyer’s seller, and there may security interests other than those created by the buyer’s seller on the piano. MAYBE. I prefer not to answer this question. Problem 36.4.b.: Problem 36.4.b. Would a search of the UCC records help? §9-507(a) – A filed financing statement remains effective with respect to collateral that is sold, even if secured party consents to the disposition. Comment 3 – The collateral may be owned by a person other than the debtor against whom the financing statement was filed, so must inquire as to debtor’s source of title. No, because the collateral may be owned by a person other than the debtor, American Piano. I prefer not to answer this question. Problem 36.4.c.: Problem 36.4.c. Should you recommend a psychiatrist? No, because she is willing to pay you. No, because her fears are not crazy, even if the legal costs of searching for filings against the previous owners of the piano are prohibitive in this case. Yes, because her concerns about having the piano repossessed indicate that she lives in a fearful and scared place. Yes, because we can all use a little help. I prefer not to answer this question. Problem 36.4.d.: Problem 36.4.d. Could the possibility of secured claims from owners previous to the buyer’s seller be a problem with new goods? YES. NO. MAYBE. I prefer not to answer this question.

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