SECURED TRANSACTIONS
Fall 2015
Prof. Freyermuth
PROBLEM SET 15
Maintaining Perfection and Priority Despite Post-Transaction Changes
Part I: Lapse, Continuation of UCC-1s, and Termination of UCC-1s
Carefully read the following:
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§§ 5.06 of UNDERSTANDING SECURED TRANSACTIONS
§§ 9-513, 9-515, 9-521(b), 9-625
1.
Your day begins with the standard morning e-mail from Bubba Charles at Putnam County
Bank. As you wonder how Bubba manages to keep advancing in his job, you read:
Back in 2010, we extended a $250,000 line of credit to Mel’s Diner, Inc., and took a security
interest in all of its present and after-acquired equipment. We filed a financing statement
covering the equipment on April 1, 2011. The line of credit remains in place today, and we
plan to keep it in place indefinitely.
Because our UCC-1 is only good for 5 years, I’ve prepared and filed another UCC-1
financing statement. Let me know if I need to do anything else.
Bubba attached a copy of what he filed. It is a UCC-1 financing statement under the proper name
(Mel’s Diner, Inc.), covering the same collateral (“all equipment”). The copy reflects that the
Secretary of State accepted the UCC-1 for filing on September 20, 2015.
(a)
As of today, what is the effect of the April 1, 2011 filing? The September 20, 2015
filing?
(b)
Is the September 20, 2015 sufficient to ensure Putnam County Bank will continue
to have first priority against the collateral? Why or why not? What additional
information, if any, do you need to make this determination?
(c)
What should Bubba have done differently?
2.
You agree to meet Sara Jones for lunch at First Bank to discuss a number of issues relative
to First Bank’s operations. During lunch, Sara says:
I’ve got a dilemma. Four years ago, we loaned $100,000 to one of our longtime customers,
Frank Bowman. We never took any collateral, although we probably should have. Anyway,
Frank also owes another bank, Crockett Bank, a total of $500,000, which is secured by a
security interest in Frank’s art collection. Crockett Bank filed a financing statement to
perfect its security interest; that statement was filed on October 30, 2010. As of today,
Crockett Bank hasn’t filed a continuation statement.
We were trying to work with Frank for a long time, but about a year ago, Frank moved all
his accounts to Crockett Bank. At that point, we decided to just sue him, and we’ve gotten
a judgment for $110,000 (the amount he owes us, with interest), but he hasn’t paid anything
on the judgment. I was about to send the sheriff out to levy on the art collection, but then
I realized that Crockett Bank’s UCC-1 is about to expire. So here’s my question: Should
I wait to see if it expires before I send the sheriff out to levy on the art? Or should I go
ahead and levy now? Does it matter?
What advice would you give to Sara? What additional information, if any, do you need to advise
her fully?
3.
At the end of the day, you get another call from Sara Jones:
I have a question about two loans and whether I have to file a termination statement. The
borrower on both loans is the same — one of our customers named Dennis Crouch. Back
in 2013, he bought a flat-screen television set and new kitchen appliances from Downtown
Appliance. He signed an installment contract under which he agreed to pay the $5,500
purchase price in 24 monthly installments. Under the contract, Downtown Appliance
purported to retain title to the goods until Crouch finished paying for them, and Downtown
Appliance filed a financing statement covering the TV set and the appliances. A week
following the sale, Downtown Appliance assigned the contract to us; we notified Crouch to
begin making payments to us, which he did, and he finished paying off the contract in
August 2015.
Crouch also has a $50,000 line of credit he took out from First Bank, which provides the
operating capital needed for him to hire research assistants to help him work on his patent
blog. First Bank has a security interest in all of Crouch’s present and after-acquired accounts
(which covers the advertising revenue he earns from advertisers on his blog), and it is
perfected by the filing of a financing statement. Currently, the balance due on this line of
credit is $0 (Crouch paid the balance down to zero last month).
Do we have to file a termination statement with respect to either of these transactions?
What’s your response to Sara? What additional information, if any, do you need to advise her fully?