Secured Transactions Assignment 36 Buyers against Secured Creditors 1
Secured Party Security Interest Seller Item Debtor Item Buyer 2
Secured Party Security Interest Seller Item Assignment 35 Debtor Item Buyer Assignment 36 3
Main Rule: Security Interests Survive Sale of Collateral 4
Main Rule: Security Interests Survive Sale of Collateral § 9 -201. A security agreement is effective according to its terms. . . against purchasers of the collateral. . 5
Main 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. . . 6
Main 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. . . unless the secured party authorizes the disposition free of the security interest. . Exception 1 7
Exception 2: Buyer in Ordinary Course § 9 -320(a). A buyer in ordinary course of business. . . Secured Party Security Interest Debtor Collateral Buyer 8
Exception 2: Buyer in Ordinary Course § 9 -320(a). A buyer in ordinary course of business. . . Secured Party Security Interest Debtor Collateral Buyer 9
Exception 2: Buyer in Ordinary Course § 9 -320(a). A buyer in ordinary course of business. . . takes free of a security interest. . . Secured Party Security Interest Debtor Collateral Buyer 10
Exception 2: Buyer in Ordinary Course § 9 -320(a). A buyer in ordinary course of business. . . takes free of a security interest created by the buyer’s seller. . . Secured Party Security Interest Debtor Collateral Buyer 11
Exception 2: Buyer in Ordinary Course § 9 -320(a). A buyer in ordinary course of business. . . takes free of a security interest created by the buyer’s seller. . . Secured Party Security Interest Debtor Collateral Buyer 12
Exception 2: Buyer in Ordinary Course § 9 -320(a). A buyer in ordinary course of business. . . takes free of a security interest created by the buyer’s seller, even if the security interest is perfected and the buyer knows of its existence. Secured Party Security Interest Debtor Collateral Buyer 13
Exception 2: Buyer in Ordinary Course § 9 -320(a). A buyer in ordinary course of business. . . takes free of a security interest created by the buyer’s seller, even if the security interest is perfected and the buyer knows of its existence. But not if the buyer “has knowledge that the sale violates the rights of another person in the goods. ” § 1 -201(b)(9) Secured Party Security Interest Debtor Collateral Buyer 14
Exception to 9 -320(a) exception: Possession 15
Exception to 9 -320(a) exception: Possession § 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. 16
Exception to 9 -320(a) exception: Possession § 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. Tanbro case, 1976 Deering Possession Security Interest Mill Fabrics 17
Exception to 9 -320(a) exception: Possession § 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. Tanbro case, 1976 Deering Possession Security Interest Mill Fabrics Sale Tanbro BIOC 18
Exception to 9 -320(a) exception: Possession § 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. Tanbro case, 1976 Deering Possession Security Interest Mill Fabrics Sale Tanbro BIOC 19
Exception to 9 -320(a) exception: Possession § 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. Tanbro case, 1976 Revised Article 9, 2001 Deering Possession Security Interest Mill Fabrics Sale Tanbro BIOC 20
Exception to 9 -320(a) exception: Possession § 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. Tanbro case, 1976 Revised Article 9, 2001 Deering Possession Security Interest Mill Fabrics Sale Tanbro BIOC Would you buy and pay for something that seller doesn’t have in its possession? 21
Exception to 9 -320(a) exception: Possession § 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. Tanbro case, 1976 Revised Article 9, 2001 Deering Possession Security Interest Mill Fabrics Sale Tanbro BIOC Would you buy and pay for something that seller doesn’t have in its possession? Ebay 22
Exception 3: Consumer to Consumer § 9 -320(b). A buyer of goods Secured Security Interest Collateral Debtor Buyer 23
Exception 3: Consumer to Consumer § 9 -320(b). A buyer of goods Secured Security Interest Collateral Debtor Buyer 24
Exception 3: Consumer to Consumer § 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. . . Secured Security Interest Collateral Debtor Buyer 25
Exception 3: Consumer to Consumer § 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. . . Secured Security Interest Consumer Collateral Buyer 26
Exception 3: Consumer to Consumer § 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, Secured Security Interest Consumer Collateral Buyer 27
Exception 3: Consumer to Consumer § 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; Secured Security Interest Consumer Collateral Buyer 28
Exception 3: Consumer to Consumer § 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; Secured Security Interest Consumer Collateral Buyer 29
Exception 3: Consumer to Consumer § 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 Secured Security Interest Consumer Collateral 30 Consumer
Exception 3: Consumer to Consumer § 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. Secured Security Interest Consumer Collateral 31 Consumer
Exception 4: Unperfected Security Interest § 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. 33
Exception 4: Unperfected Security Interest § 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. 34
Exception 4: Unperfected Security Interest § 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. Notice: A secured creditor with knowledge has priority over an unperfected secured creditor § 9 -322(a) Secured Unperfected SI Debtor SI Secured with knowledge 35
Exception 4: Unperfected Security Interest § 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. Notice: A secured creditor with knowledge has priority over an unperfected secured creditor But a buyer with knowledge doesn’t have priority over an unperfected secured creditor § 9 -322(a) Secured Unperfected SI Debtor SI Secured with knowledge Secured § 9 -317(b) Unperfected SI Debtor Sale Buyer with 36 knowledge
Exception 5: Future Advances § 9 -323(d). A buyer of goods other than a buyer in the ordinary course of business. . . 37
Exception 5: Future Advances § 9 -323(d). A buyer of goods other than a buyer in the ordinary course of business takes free of a security interest to the extent that it secures [future] advances. . 38
Exception 5: Future Advances § 9 -323(d). A buyer of goods other than a buyer in the ordinary course of business takes free of a security interest to the extent that it secures [future] advances made after the earlier of (1) the secured party acquires knowledge of the buyer’s purchase; or (2) 45 days after the purchase. 39
Exception 5: Future Advances § 9 -323(d). A buyer of goods other than a buyer in the ordinary course of business takes free of a security interest to the extent that it secures [future] advances made after the earlier of (1) the secured party acquires knowledge of the buyer’s purchase; or (2) 45 days after the purchase. Sale 45 days Subject to these Subject to if S without advances knowledge 40
Exception 5: Future Advances § 9 -323(d). A buyer of goods other than a buyer in the ordinary course of business takes free of a security interest to the extent that it secures [future] advances made after the earlier of (1) the secured party acquires knowledge of the buyer’s purchase; or (2) 45 days after the purchase. (e) Subsection (d) does not apply if the advance is made pursuant to a commitment entered into without knowledge of the buyer’s purchase and before the expiration of the 45 day period. Sale 45 days Subject to these Subject to if S without advances knowledge 41
Exception 5: Future Advances § 9 -323(d). A buyer of goods other than a buyer in the ordinary course of business takes free of a security interest to the extent that it secures [future] advances made after the earlier of (1) the secured party acquires knowledge of the buyer’s purchase; or (2) 45 days after the purchase. (e) Subsection (d) does not apply if the advance is made pursuant to a commitment entered into without knowledge of the buyer’s purchase and before the expiration of the 45 day period. Sale 45 days Subject to if S committed Subject to these Subject to if S without knowledge before advances knowledge 46 th day
Exception 5: Future Advances § 9 -323(d). A buyer of goods other than a buyer in the ordinary course of business takes free of a security interest to the extent that it secures [future] advances made after the earlier of (1) the secured party acquires knowledge of the buyer’s purchase; or Example: Buyer at (2) 45 days after the purchase. an execution sale (e) Subsection (d) does not apply if the advance is made pursuant to a commitment entered into without knowledge of the buyer’s purchase and before the expiration of the 45 day period. Sale 45 days Subject to if S committed Subject to these Subject to if S without knowledge before 43 advances knowledge 46 th day
Problem 36. 1. a, page 613 All Seasons RV Eddy gives SI to All Seasons, sale prohibited Security $17 K Interest Eddy 44
Problem 36. 1. a, page 613 All Seasons RV Security $17 K Interest Eddy gives SI to All Seasons, sale prohibited Eddy sells to Sunrise in violation of SA Lindy RV Sunrise RV 45
Problem 36. 1. a, page 613 All Seasons RV Security $17 K Interest Eddy gives SI to All Seasons, sale prohibited Eddy sells to Sunrise in violation of SA Sunrise sells to Card in ordinary course Lindy RV Sunrise RV Lindy $23 K Card 46
Problem 36. 1. a, page 613 All Seasons RV Security $17 K Interest Eddy gives SI to All Seasons, sale prohibited Eddy sells to Sunrise in violation of SA Sunrise sells to Card in ordinary course Lindy RV Sunrise RV Lindy $23 K Card a. Card sues All Seasons to remove lien. How good is her case? Card loses. In re Sunrise RV, 105 B. R. 587 (1989) § 9 -320(a). A buyer in ordinary course of business. . . takes free of a security interest created by the buyer’s seller, even if the security interest is perfected and the buyer knows of its existence. 47
Problem 36. 1. a, page 613 All Seasons RV Security $17 K Interest Eddy gives SI to All Seasons, sale prohibited Eddy sells to Sunrise in violation of SA Sunrise sells to Card in ordinary course Lindy RV Sunrise RV Lindy $23 K Card a. Card sues All Seasons to remove lien. How good is her case? Card loses. In re Sunrise RV, 105 B. R. 587 (1989) § 9 -320(a). A buyer in ordinary course of business. . . takes free of a security interest created by the buyer’s seller, even if the security interest is perfected and the buyer knows of its existence. 48
Problem 36. 1. a, page 613 All Seasons RV Security $17 K Interest Eddy gives SI to All Seasons, sale prohibited Eddy sells to Sunrise in violation of SA Sunrise sells to Card in ordinary course Lindy RV Sunrise RV Lindy $23 K Card a. Card sues All Seasons to remove lien. How good is her case? Card loses. In re Sunrise RV, 105 B. R. 587 (1989) § 9 -320(a). A buyer in ordinary course of business. . . takes free of a security interest created by the buyer’s seller, even if the security interest is perfected and the buyer knows of its existence. 49
Problem 36. 1. b, page 613 All Seasons RV Security $17 K Interest Eddy gives SI to All Seasons, sale prohibited Eddy sells to Sunrise in violation of SA Sunrise sells to Card in ordinary course Lindy RV Sunrise RV Lindy $23 K Card b. What if Card had demanded certificate of title? Sunrise has certificate showing Eddy as owner, All Seasons as secured. Back shows signature from Eddy; no place for All Seasons to sign. Sunrise: “We discharge the lien, you get clear title by mail in two weeks. ” 50
Problem 36. 1. b, page 613 All Seasons RV Security $17 K Interest Eddy gives SI to All Seasons, sale prohibited Eddy sells to Sunrise in violation of SA Sunrise sells to Card in ordinary course Lindy RV Sunrise RV Lindy $23 K Card b. What if Card had demanded certificate of title? Who has it? Sunrise: “We discharge the lien, you get clear title by mail in two weeks. ” 51
Problem 36. 1. b, page 613 All Seasons RV Security $17 K Interest Eddy gives SI to All Seasons, sale prohibited Eddy sells to Sunrise in violation of SA Sunrise sells to Card in ordinary course Lindy RV Sunrise RV Lindy $23 K Card b. What if Card had demanded certificate of title? Who has it? Maybe All Seasons. Maybe Sunrise. Eddy has transferred ownership, but All Seasons has not released lien, page 424. Sunrise: “We discharge the lien, you get clear title by mail in two weeks. ” 52
Problem 36. 1. b, page 613 All Seasons RV Security $17 K Interest Eddy gives SI to All Seasons, sale prohibited Eddy sells to Sunrise in violation of SA Sunrise sells to Card in ordinary course Lindy RV Sunrise RV Lindy $23 K Card b. What if Card had demanded certificate of title? Who has it? Maybe All Seasons. Maybe Sunrise. Eddy has transferred ownership, but All Seasons has not released lien, page 424. Sunrise: “We discharge the lien, you get clear title by mail in two weeks. ” 53
Problem 36. 2. a, page 613 a. Card is buying a reconditioned piano from a store in the Mall. She wants you to represent her at the closing. Is there anything to her fears? Same as with the Lindy. Mall Store $10 K Card 54
Problem 36. 2. a, page 613 a. Card is buying a reconditioned piano from a store in the Mall. She wants you to represent her at the closing. Is there anything to her fears? Mall Store $10 K Card 55
Problem 36. 2. a, page 613 All Seasons RV Security Interest Eddy a. Card is buying a reconditioned piano from a store in the Mall. She wants you to represent her at the closing. Is there anything to her fears? Same as with the Lindy. Mall Store $10 K Card § 9 -320(a). A buyer in ordinary course of business. . . takes free of a security interest created by the buyer’s seller, even if the security interest is perfected and the buyer knows of its existence. b. Can we deal with problem by a thorough UCC search? No. Filing would be against Eddy. § 507(a). 56
Problem 36. 2. a, page 613 All Seasons RV Security Interest Eddy a. Card is buying a reconditioned piano from a store in the Mall. She wants you to represent her at the closing. Is there anything to her fears? Same as with the Lindy. Mall Store $10 K Card § 9 -320(a). A buyer in ordinary course of business. . . takes free of a security interest created by the buyer’s seller, even if the security interest is perfected and the buyer knows of its existence. b. Can we deal with problem by a thorough UCC search? No. Filing would be against Eddy. § 507(a). 57
Problem 36. 2. b, page 613 All Seasons RV Security Interest Eddy a. Card is buying a reconditioned piano from a store in the Mall. She wants you to represent her at the closing. Is there anything to her fears? Same as with the Lindy. Mall Store $10 K Card § 9 -320(a). A buyer in ordinary course of business. . . takes free of a security interest created by the buyer’s seller, even if the security interest is perfected and the buyer knows of its existence. b. Can we deal with problem by a thorough UCC search? No. Filing would be against Eddy. § 507(a). 58
Problem 36. 2. b, page 613 All Seasons RV Security Interest Eddy a. Card is buying a reconditioned piano from a store in the Mall. She wants you to represent her at the closing. Is there anything to her fears? Same as with the Lindy. Mall Store $10 K Card § 9 -320(a). A buyer in ordinary course of business. . . takes free of a security interest created by the buyer’s seller, even if the security interest is perfected and the buyer knows of its existence. b. Can we deal with problem by a thorough UCC search? Difficult. Filing would be against Eddy. § 9 -507(a). Could 59 be automatic perfection. § 9 -309(1).
Problem 36. 2. c, page 613 All Seasons RV Security Interest § 9 -320(a). A buyer in ordinary course of business. . . takes free of a security interest created by the buyer’s seller, even if the security interest is perfected and the buyer knows of its existence. Eddy Mall Store $10 K Card c. What should we do? Tell her fears are irrational? Like an Airline crash victim. Send her to a shrink? Take her money, so some investigation. But what if a guardian is appointed? 60
Problem 36. 2. c, page 613 All Seasons RV Security Interest § 9 -320(a). A buyer in ordinary course of business. . . takes free of a security interest created by the buyer’s seller, even if the security interest is perfected and the buyer knows of its existence. Eddy Mall Store $10 K Card c. What should we do? Tell her fears are irrational? Like an Airline crash victim. Send her to a shrink? Take her money, so some investigation. But what if a guardian is appointed? 61
Problem 36. 2. c, page 613 All Seasons RV Security Interest § 9 -320(a). A buyer in ordinary course of business. . . takes free of a security interest created by the buyer’s seller, even if the security interest is perfected and the buyer knows of its existence. Eddy Mall Store $10 K Card c. What should we do? Tell her fears are irrational? Like an Airline crash victim. Send her to a shrink? Take her money, so some investigation. But what if a guardian is appointed? 62
Problem 36. 2. c, page 613 All Seasons RV Security Interest § 9 -320(a). A buyer in ordinary course of business. . . takes free of a security interest created by the buyer’s seller, even if the security interest is perfected and the buyer knows of its existence. Eddy Mall Store $10 K Card c. What should we do? Tell her fears are irrational? Like an Airline crash victim. Send her to a shrink? Take her money, so some investigation. But what if a guardian is appointed? 63
Problem 36. 2. c, page 613 All Seasons RV Security Interest § 9 -320(a). A buyer in ordinary course of business. . . takes free of a security interest created by the buyer’s seller, even if the security interest is perfected and the buyer knows of its existence. Eddy Mall Store $10 K Card c. What should we do? Tell her fears are irrational? Like an Airline crash victim. Send her to a shrink? Weyrauch: She won’t go. Take her money, so some investigation. But what if a guardian is appointed? 64
Problem 36. 2. c, page 613 All Seasons RV Security Interest § 9 -320(a). A buyer in ordinary course of business. . . takes free of a security interest created by the buyer’s seller, even if the security interest is perfected and the buyer knows of its existence. Eddy Mall Store $10 K Card c. What should we do? Tell her fears are irrational? Like an Airline crash victim. Send her to a shrink? Weyrauch: She won’t go. Take her money, do some investigation? But what if a guardian is appointed? 65
Problem 36. 2. c, page 613 All Seasons RV Security Interest § 9 -320(a). A buyer in ordinary course of business. . . takes free of a security interest created by the buyer’s seller, even if the security interest is perfected and the buyer knows of its existence. Eddy Mall Store $10 K Card c. What should we do? Tell her fears are irrational? Like an Airline crash victim. Send her to a shrink? Weyrauch: She won’t go. Take her money, do some investigation? But what if a guardian is appointed? 66
Problem 36. 2. d, page 613 Inventory lender Security Interest Mall store 1 § 9 -320(a). A buyer in ordinary course of business. . . takes free of a security interest created by the buyer’s seller, even if the security interest is perfected and the buyer knows of its existence. Mall store 2 $10 K Card d. Could this problem occur with new goods? Yes. Dealer sells encumbered inventory in bulk. What is the policy for “created by the buyer’s seller” exception? Wrongfully sold collateral is like stolen goods. Don’t make a market for it. Void title rule. 67
Problem 36. 2. d, page 613 Inventory lender Security Interest Mall store 1 § 9 -320(a). A buyer in ordinary course of business. . . takes free of a security interest created by the buyer’s seller, even if the security interest is perfected and the buyer knows of its existence. Bulk sale Mall store 2 $10 K Card d. Could this problem occur with new goods? Yes. Dealer sells encumbered inventory in bulk. What is the policy for “created by the buyer’s seller” exception? Wrongfully sold collateral is like stolen goods. Don’t make a market for it. Void title rule. 68
Problem 36. 2. d, page 613 Inventory lender Security Interest Mall store 1 § 9 -320(a). A buyer in ordinary course of business. . . takes free of a security interest created by the buyer’s seller, even if the security interest is perfected and the buyer knows of its existence. Bulk sale Mall store 2 $10 K Card d. Could this problem occur with new goods? Yes. Dealer sells encumbered inventory in bulk. What is the policy for “created by the buyer’s seller” exception? Wrongfully sold collateral is like stolen goods. Don’t make a market for it. Void title rule. 69
Problem 36. 2. d, page 613 Inventory lender Security Interest Mall store 1 § 9 -320(a). A buyer in ordinary course of business. . . takes free of a security interest created by the buyer’s seller, even if the security interest is perfected and the buyer knows of its existence. Bulk sale Mall store 2 $10 K Card d. Could this problem occur with new goods? Yes. Dealer sells encumbered inventory in bulk. What is the policy for “created by the buyer’s seller” exception? Wrongfully sold collateral is like stolen goods. Don’t make a market for it. Void title rule. “Secureds need certainty. ” 70
Problem 36. 2. d, page 613 Inventory lender Security Interest Mall store 1 § 9 -320(a). A buyer in ordinary course of business. . . takes free of a security interest created by the buyer’s seller, even if the security interest is perfected and the buyer knows of its existence. Bulk sale Mall store 2 $10 K Card d. Could this problem occur with new goods? Yes. Dealer sells encumbered inventory in bulk. What is the policy for “created by the buyer’s seller” exception? Wrongfully sold collateral is like stolen goods. Don’t make a market for it. Void title rule. “Secureds need certainty. ” 71 Truth in Lending Act § 170 chargeback is a partial solution.
Truth in Lending Act § 170 a. Subject to. . . (b), a card issuer [bank]. . . shall be subject to all claims. . . arising out of any transaction in which the credit card is used as a method of payment. . . if 72
Truth in Lending Act § 170 a. Subject to. . . (b), a card issuer [bank]. . . shall be subject to all claims. . . arising out of any transaction in which the credit card is used as a method of payment. . . if (3) The place where the initial transaction occurred was in the same State as the mailing address previously provided by the cardholder or was within 100 miles from such address. . 73
Truth in Lending Act § 170 a. Subject to. . . (b), a card issuer [bank]. . . shall be subject to all claims. . . arising out of any transaction in which the credit card is used as a method of payment. . . if (3) The place where the initial transaction occurred was in the same State as the mailing address previously provided by the cardholder or was within 100 miles from such address. . b. The amount of claims. . . asserted by the cardholder may not exceed the amount of credit outstanding with respect to such transaction at the time the cardholder first notifies the card issuer. . . of such claim. 74
Truth in Lending Act § 170 a. Subject to. . . (b), a card issuer [bank]. . . shall be subject to all claims. . . arising out of any transaction in which the credit card is used as a method of payment. . . if (3) The place where the initial transaction occurred was in the same State as the mailing address previously provided by the cardholder or was within 100 miles from such address. . b. The amount of claims. . . asserted by the cardholder may not exceed the amount of credit outstanding with respect to such transaction at the time the cardholder first notifies the card issuer. . . of such claim. Scenario: Alecia buys piano. Alecia pays her entire credit card balance. Inventory lender finds Alecia and claims. It is too late for Alecia to claim against the credit card issuer. 75
Problem 36. 5, page 614 Davis Dept Store Davis sells TV to Beavis TV Beavis 76
Problem 36. 5, page 614 Davis Dept Store Davis sells TV to Beavis; takes PMSI and files financing statement. Security FS Interest Filed Beavis 77
Problem 36. 5, page 614 Davis Dept Store Security FS Interest Filed Beavis Davis sells TV to Beavis; takes PMSI and files financing statement. Beavis sells TV to Butthead, who is a bona fide purchaser for value. TV, etc. $960 Butthead 78
Problem 36. 5, page 614 Davis Dept Store Security FS Interest Filed Beavis Davis sells TV to Beavis; takes PMSI and files financing statement. Beavis sells TV to Butthead, who is a bona fide purchaser for value. TV, etc. $960 Butthead Can Davis repossess the TV from Butthead? 79
Problem 36. 5, page 614 Davis Dept Store Security FS Interest Filed Beavis Davis sells TV to Beavis; takes PMSI and files financing statement. Beavis sells TV to Butthead, who is a bona fide purchaser for value. TV, etc. $960 Butthead Can Davis repossess the TV from Butthead? Yes, § 9 -201 and § 9 -315(a)(1). 80
Problem 36. 5, page 614 Davis Dept Store Security FS Interest Filed Beavis Davis sells TV to Beavis; takes PMSI and files financing statement. Beavis sells TV to Butthead, who is a bona fide purchaser for value. TV, etc. $960 Butthead Can Davis repossess the TV from Butthead? Yes, § 9 -201 and § 9 -315(a)(1). Does Consumer to Consumer exception save Butthead? § 9320(b). 81
Problem 36. 5, page 614 Davis Dept Store Security FS Interest Filed Beavis Davis sells TV to Beavis; takes PMSI and files financing statement. Beavis sells TV to Butthead, who is a bona fide purchaser for value. TV, etc. $960 Butthead Can Davis repossess the TV from Butthead? Yes, § 9 -201 and § 9 -315(a)(1). Does Consumer to Consumer exception save Butthead? § 9320(b). No, because Davis filed a financing statement. 82
Problem 36. 5, page 614 Davis Dept Store Security FS Interest Filed Beavis Davis sells TV to Beavis; takes PMSI and files financing statement. Beavis sells TV to Butthead, who is a bona fide purchaser for value. TV, etc. $960 Butthead Can Davis repossess the TV from Butthead? Yes, § 9 -201 and § 9 -315(a)(1). Does Consumer to Consumer exception save Butthead? § 9320(b). No, because Davis filed a financing statement. Must Davis give Butthead his money back? 83
Problem 36. 5, page 614 Davis Dept Store Security FS Interest Filed Beavis Davis sells TV to Beavis; takes PMSI and files financing statement. Beavis sells TV to Butthead, who is a bona fide purchaser for value. TV, etc. $960 Butthead Can Davis repossess the TV from Butthead? Yes, § 9 -201 and § 9 -315(a)(1). Does Consumer to Consumer exception save Butthead? § 9320(b). No, because Davis filed a financing statement. Must Davis give Butthead his money back? No. Davis didn’t get the money. The money is collateral, § 9 -315(a)(2). 84
Problem 36. 5, page 614 Davis Dept Store Security FS Interest Filed Beavis Davis sells TV to Beavis; takes PMSI and files financing statement. Beavis sells TV to Butthead, who is a bona fide purchaser for value. TV, etc. $960 Butthead Moral: Never give your name at a garage sale Can Davis repossess the TV from Butthead? Yes, § 9 -201 and § 9 -315(a)(1). Does Consumer to Consumer exception save Butthead? § 9320(b). No, because Davis filed a financing statement. Must Davis give Butthead his money back? No. Davis didn’t get the money. The money is collateral, § 9 -315(a)(2). 85
Problem 36. 8, page 615 Inventory Lender Security $150 K Interest Foster Marketing 100% financed Mall Store BIOC 86
Problem 36. 8, page 615 Deutsche Credit Security Interest Inventory Deal: Foster Marketing takes Lender subject to Deutsche’s SI. § 1302(a). Security $150 K Interest Foster “Subject Manufacturing to SI” Foster Marketing 100% financed Mall Store BIOC 87
Problem 36. 8, page 615 Deutsche Credit Security Interest Inventory Deal: Foster Marketing takes Lender subject to Deutsche’s SI. § 1302(a). Security $150 K Interest Foster “Subject Manufacturing to SI” Foster Marketing 100% financed Mall Store BIOC § 9 -320(a). A buyer in ordinary course of business (Mall Store). . . takes free of a security interest created by the buyer’s seller, even if the security interest is perfected and the buyer knows of its existence. 88
Problem 36. 8, page 615 Deutsche Credit Security Interest Inventory Deal: Foster Marketing takes Lender subject to Deutsche’s SI. § 1302(a). Security $150 K Interest Foster “Subject Manufacturing to SI” Foster Marketing 100% financed Mall Store BIOC § 9 -320(a). A buyer in ordinary course of business (Mall Store). . . takes free of a security interest created by the buyer’s seller, even if the security interest is perfected and the buyer knows of its existence. Will this work to defeat the Inventory Lender? 89
Problem 36. 8, page 615 Deutsche Credit Security Interest RSS, Inc. and All Quip have identical officers and directors. Case Power was a BFP. Equipment “Subject to SI” All Quip Equipment 100% financed Case Power 90
Problem 36. 8, page 615 Deutsche Credit Security Interest RSS, Inc. and All Quip have identical officers and directors. Case Power was a BFP. Equipment “Subject to SI” All Quip Equipment 100% financed Case Power § 9 -320(a). A buyer in ordinary course of business [Case Power]. . . takes free of a security interest created by the buyer’s seller, even if the security interest is perfected and the buyer knows of its existence. 91
Problem 36. 8, page 615 Deutsche Credit Security Interest RSS, Inc. and All Quip have identical officers and directors. Case Power was a BFP. Equipment “Subject to SI” All Quip Equipment 100% financed Case Power § 9 -320(a). A buyer in ordinary course of business [Case Power]. . . takes free of a security interest created by the buyer’s seller, even if the security interest is perfected and the buyer knows of its existence. Will this work to defeat the Inventory Lender? 92
Problem 36. 8, page 615 Deutsche Credit Security Interest RSS, Inc. and All Quip have identical officers and directors. Case Power was a BFP. Court held for Deutsche. Equipment “Subject to SI” All Quip Equipment 100% financed Case Power § 9 -320(a). A buyer in ordinary course of business [Case Power]. . . takes free of a security interest created by the buyer’s seller, even if the security interest is perfected and the buyer knows of its existence. Will this work to defeat the Inventory Lender? Deutsche Credit v. Case Power & Equipment, 876 P. 2 d 1190 (Ariz. App. 1994). 93
Problem 36. 8, page 615 Deutsche Credit Security Interest RSS, Inc. and All Quip have identical officers and directors. Case Power was a BFP. Court held for Deutsche. Equipment “Subject to SI” All Quip Equipment 100% financed Case Power Court: “We do not wish our holding here to be read as giving parties a license to engage in practices similar to those employed by RSS and All Quip. In our opinion, such title transfers between closely held corporations with common ownership will, upon scrutiny, often reveal a pattern of abuse of the corporate form sufficient to justify piercing the corporate veil. ” 94
Problem 36. 8, page 615 Deutsche Credit Inventory Lender Deal: Foster Marketing takes subject to Deutsche’s SI Security $150 K Interest Security Interest Foster “Subject Manufacturing to SI” Foster Marketing 100% financed Mall Store BIOC § 9 -320(a). A buyer in ordinary course of business (Mall Store). . . takes free of a security interest created by the buyer’s seller, even if the security interest is perfected and the buyer knows of its existence. Ethical problem here? Paolella, 587. “Unless the creditor has become the alter ego of the debtor, he will not be held to an ethical duty in excess of the morals of the marketplace. ” 95
Problem 36. 8, page 615 Deutsche Credit Inventory Lender Deal: Foster Marketing takes subject to Deutsche’s SI Security $150 K Interest Security Interest Foster “Subject Manufacturing to SI” Foster Marketing 100% financed Mall Store BIOC § 9 -320(a). A buyer in ordinary course of business (Mall Store). . . takes free of a security interest created by the buyer’s seller, even if the security interest is perfected and the buyer knows of its existence. Ethical problem here? Paolella, 587. “Unless the creditor has become the alter ego of the debtor, he will not be held to an ethical duty in excess of the morals of the marketplace. ” 96
Problem 36. 8, page 615 Deutsche Credit Inventory Lender Deal: Foster Marketing takes subject to Deutsche’s SI Security $150 K Interest Security Interest Foster “Subject Manufacturing to SI” Foster Marketing 100% financed Mall Store BIOC § 9 -320(a). A buyer in ordinary course of business (Mall Store). . . takes free of a security interest created by the buyer’s seller, even if the security interest is perfected and the buyer knows of its existence. Ethical problem here? Paolella, 580. “Unless the creditor has become the alter ego of the debtor, he will not be held to an ethical duty in excess of the morals of the marketplace. ” 97
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