Assignment 36

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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
Buyer23
Exception 3: Consumer to Consumer
§9-320(b). A buyer of goods
Secured
Security Interest
Collateral
Debtor
Buyer24
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
Buyer25
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
Buyer26
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
Buyer27
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
Buyer28
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
Buyer29
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 45day 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 45day period.
Sale
45 days
Subject to if S committed
Subject to these Subject to if S without without knowledge before
advances
knowledge
46th 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 45day period.
Sale
45 days
Subject to if S committed
Subject to these Subject to if S without without knowledge before
43
advances
knowledge
46th day
Problem 36.1.a, page 613
All Seasons RV
Eddy gives SI to All Seasons, sale prohibited
Security $17K
Interest
Eddy
44
Problem 36.1.a, page 613
All Seasons RV
Eddy gives SI to All Seasons, sale prohibited
Eddy sells to Sunrise in violation of SA
Security $17K
Interest
Eddy
Lindy
Sunrise RV
RV
45
Problem 36.1.a, page 613
All Seasons RV
Security $17K
Interest
Eddy
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
Card
$23K
46
Problem 36.1.a, page 613
All Seasons RV
Security $17K
Interest
Eddy
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
Card
$23K
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 $17K
Interest
Eddy
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
Card
$23K
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 $17K
Interest
Eddy
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
Card
$23K
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 $17K
Interest
Eddy
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
Card
$23K
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 $17K
Interest
Eddy
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
Card
$23K
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 $17K
Interest
Eddy
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
Card
$23K
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 $17K
Interest
Eddy
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
Card
$23K
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
Card
$10K
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
Card
$10K
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
Card
$10K
§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
Card
$10K
§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
Card
$10K
§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
Card
$10K
§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). Could59
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
Card
$10K
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
Card
$10K
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
Card
$10K
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
Card
$10K
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
Card
$10K
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
Card
$10K
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
Card
$10K
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
Card
$10K
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
Card
$10K
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
Card
$10K
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
Card
$10K
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
Card
$10K
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.
Butthead
$960
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.
Butthead
$960
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.
Butthead
$960
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.
Butthead
$960
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.
Butthead
$960
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.
Butthead
$960
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.
Butthead
$960
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.
Butthead
Moral: Never give your
name at a garage sale
$960
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
$150K
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
$150K
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
$150K
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
$150K
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.
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.
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.
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.
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.2d 1190 (Ariz. App.
1994).
93
Problem 36.8, page 615
Deutsche
Credit
Security
Interest
RSS, Inc.
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
$150K
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
$150K
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
$150K
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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