Carefully read the following:
SECURED TRANSACTIONS
Fall Semester 2015
PROBLEM SET 12
Priority: Secured Party v. Lien Creditor
•
• §§ 14.01 and 14.02 of U NDERSTANDING S ECURED T RANSACTIONS
§§ 9-201, 9-317, 9-323, and Bankruptcy Code § 544(a)
1.
Reading the newspaper while enjoying your morning coffee, you saw in the “Legal Notices” section of the paper an announcement of a sheriff’s sale being conducted later today. A check on the sheriff’s website indicated that the sale was to satisfy a judgment held by Second Bank against Gary
Myers in the amount of $75,000. Among the items being sold is a Rolex Oyster Perpetual GMT-
Master II Watch. You’ve been pricing them in the stores in the $35,000 to $40,000 range, and you’d like to pick one up for $25,000 or less (if you could). A quick check of the Secretary of State’s website also revealed no UCC-1 filings on record against Gary Myers. Should you purchase the watch at the sheriff’s sale? If so, for how much? What additional information (if any) do you need?
2.
Just before lunch, you get this e-mail from Dan Taylor at Atlantic Commercial Finance:
You’ve probably heard about Supreme Electronics. They sell most of their goods in cash or credit cards sales, but for some high-ticket items, they sell using installment sale contracts under which Supreme Electronics retains title to the goods until the customer finishes making all of the required installment payments. In fact, ACF provides these forms to
Supreme Electronics; when Supreme has a customer that wants to buy on installment credit, it e-mails ACF the customer’s credit information, and if we approve the loan, then Supreme goes ahead and has the customer sign the contract, which Supreme then assigns to us (we pay Supreme anywhere from 90% to 95% of the face amount of the contract, depending upon the customer’s creditworthiness).
Last Friday, Supreme sold a 110" HD flat-screen TV to Dennis Crouch, who signed one of the form contracts. Unfortunately, one of our new credit officers at ACF approved the transaction without running a credit check, which would have revealed that a creditor named
S.I. Strong had gotten a judgment against Crouch in the amount of $5,000. Because the credit officer missed the judgment, we bought the contract from Supreme and took an assignment of the contract. Later that day, as the TV set was being delivered to Crouch,
Litton and the local sheriff showed up and levied on the TV set before Supreme could even complete delivery of the TV.
Is there any way we can recover possession of the TV from the sheriff, or is our chance at first priority gone?
What’s your response to Dan? What additional information, if any, do you need?

3.
Just when you thought that you’d seen or heard every way that Bubba Charles could botch a loan transaction, you receive a phone message with this gem:
It’s Bubba. Two weeks ago, a local landscaper, Doug Abrams, came to us for a loan so he could buy a new riding mower. He hadn’t yet decided which of two mowers he was going to buy (one was a Deere and the other was a Cub Cadet), so we had him sign papers that allowed us to file a financing statement covering “equipment,” and we filed it. We then told him to come by the bank when he found the one he wanted and sign the paperwork. Two days ago, he said he’d found a Cub Cadet he wanted for $3,500; we had him sign a security agreement covering the mower, and we loaned him the $3,500.
Problem was, he had already bought it, the day before, from a local vendor who agreed to allow him 30 days to pay. Even worse, about 30 minutes after he picked up the mower, the sheriff levied on it pursuant to a $10,000 judgment against Abrams (the judgment creditor was Rafael Gely). Of course, at the time he signed the agreement and got the loan, Abrams didn’t tell us he’d already taken possession of the mower and that it had already been seized by the sheriff.
I think we’re still good, though, because I filed that financing statement, so we should still have priority against Gely’s judgment, right? Let me know.
Explain to Bubba why he’s wrong (again) and then explain how Bubba should have handled the transaction differently.
4.
As you’re about to leave for the day, you get an e-mail from Sara Jones at First Bank:
We have a long-time customer, Hawley Electric, Inc. For years, the Bank has provided
Hawley with a line of credit; the top limit of the credit line is $250,000, but the balance usually fluctuates between $10,000 and $100,000. The Bank has a properly perfected security interest in all of Hawley’s equipment, inventory, and accounts, including afteracquired. Obviously, because this is a line of credit, the security agreement provides that the collateral also secures future advances (although the Bank is not obligated to make future advances).
We’ve got a problem now with another creditor, a guy named Paul Litton, who has a judgment against Hawley Electric for $100,000 (the judgment was the product of a settlement of litigation over damages to Litton’s home caused by Hawley’s allegedly negligent wiring work). Not quite two months ago, Litton had the sheriff levy upon four of
Hawley’s stepvans and the supplies in those vans. We didn’t know about this, and Hawley continued to draw on his line of credit. At the time of the levy, Hawley’s balance on the credit line was $80,000. Today it’s $130,000.
I found out about the levy this morning, when I was looking at our loan file and discovered that the Bank got a letter from Litton, dated two weeks ago, advising the Bank that it had seized the stepvans and the supplies in those vans. My secretary had put the letter in the file without showing it to me. So as of this morning, I’ve put a freeze on the line of credit so

Hawley can’t borrow any more. Also, apparently, Litton and Hawley have agreed that the four stepvans and the supplies will be sold, and they would probably sell for about $120,000.
We don’t object to a sale, as long as all of the proceeds are paid to us. Litton’s lawyer is taking the position that the Bank would only be entitled to the first $80,000 of the proceeds, and that the rest of the proceeds would go to Litton. Is that right?
What’s your response? What additional information, if any, do you need to advise Sara fully?