Basic concepts of

security
Unsecured creditor
remedies

: Creditors Remedies Under

State Law
1. What is a security interest?
2. How does the secured creditor foreclose?

Basic
concepts
Security interest: An interest in property contingent on
the non-payment of a debt.
Transactions fitting that definition are security interests
Even though the documents show an absolute transfer
Example: deed absolute
Example: bank account in secured creditors name
Even though the parties dont realize they created a
security interest
Even though the parties didnt intend some security
effects
Regardless of who has possession (But 2-401(1)?)
UCC 9-109(a)(1): [T]his article applies to a transaction,
regardless of its form, that creates a security interest in
personal property or fixtures by contract.
4

Basic concepts

Security interest (lien): (1) An interest in property

(2) contingent on the non-payment (3) of a debt.
Example 5: Secured agrees to sell auto to Debtor if Debtor has
paid $30,000, in three years. Secured gives possession now,
but retains ownership until payments have been made
Contract to sell later
Secured
Promise to pay $30,000

Debtor

3. Debtor owes a debt (Promise to pay $30,000)

1. Secured has an interest in the auto (ownership)
2. The right is contingent on nonpayment (if Debtor pays,
Secured has no right in the auto).
This is a security interest. 2-401(1), 29

Basic
concepts
Right to redeem: The debtors right to pay the debt and own the
property free of the security interest. If a security interest exists,
debtor always has the right to redeem.
Synonymous with ownership.
Foreclosure: Termination of the right to redeem (four types)
1. Judicial foreclosure (court declares, sale by sheriff)
2. Power of sale foreclosure (no court, by trustee, real estate)
3. UCC foreclosure by sale (no court, by creditor, personalty)
4. Strict foreclosure (court declares, no sale, contract for deed)
Deed in lieu of foreclosure: Voluntary transfer of the debtors
ownership / right to redeem to the creditor (merger doctrine)
When is a deed in lieu of foreclosure a security interest?
When secureds right is contingent on nonpayment of a debt.
6

Sale of Accounts
Citibank
debtor
Credit
cards
Account
debtors

Debtor operates a business

that generates accounts, e.g.
credit cards

Sale of Accounts
Citibank
debtor
Credit
cards
Account
debtors
Goods and
services

Debtor operates a business

that generates accounts, e.g.
credit cards
Stores

Sale of Accounts
Citibank
debtor
$900 million
advances Debtor operates a business
that generates accounts, e.g.
credit cards
Account
debtors
Goods and
services

Stores

Sale of Accounts
Citibank
debtor
$1.1 billion
$900 million
accounts
advances Debtor operates a business
owing
that generates accounts, e.g.
credit cards
Account
debtors

10

Sale of Accounts
Citibank
debtor
$1.1 billion
accounts
owing
Account
debtors

Debtor operates a business

that generates accounts, e.g.
credit cards
Debtor wants to free up capital

11

Sale of Accounts
Citibank
debtor
$1.1 billion
accounts
owing
Account
debtors

Accounts
$1 billion

Buyer

Debtor operates a business

that generates accounts, e.g.
credit cards
Debtor wants to free up capital
So Debtor sells the accounts

12

Sale of Accounts
Citibank
debtor

Accounts
Buyer

$1 billion
$1.1 billion
accounts
Debtor operates a business
owing
that generates accounts, e.g.
credit cards
Account
debtors
Debtor wants to free up capital
So Debtor sells the accounts

13

Sale of Accounts
Citibank
debtor

Without
recourse

$1.1 billion
accounts
owing
Account
debtors

Buyer

Debtor operates a business

that generates accounts, e.g.
credit cards
Debtor wants to free up capital
So Debtor sells the accounts

14

Sale of Accounts With Recourse

Citibank
debtor

Account
debtors

Recourse
obligation

Buyer

Debtor operates a business

that generates accounts, e.g.
credit cards
Debtor wants to free up capital

So Debtor sells the accounts

With recourse: If an account debtor doesnt pay, Debtor
will buy the account back for the accounts face amount

15

Sale of Accounts With Recourse

Citibank
debtor

Account
debtors

Account
$500

Buyer

Debtor operates a business

that generates accounts, e.g.
credit cards
Debtor wants to free up capital

So Debtor sells the accounts

With recourse: If an account debtor doesnt pay, Debtor
will buy the account back for the accounts face amount

16

Sale of Accounts With Recourse

Citibank
debtor

Account
debtors

Account
$500

Buyer

Debtor operates a business

that generates accounts, e.g.
credit cards
Debtor wants to free up capital

So Debtor sells the accounts

With recourse: If an account debtor doesnt pay, Debtor
will buy the account back for the accounts face amount
Citibank promises (guarantees) Buyer $1.1 billion.
17

Security Interest in Accounts

Citibank
debtor
$1.1 billion
Account
debtors

$1.1 billion note,

security interest
$1 billion loan

Secured
Party

Debtor operates a business

that generates accounts, e.g.
credit cards
Debtor wants to free up capital
So Debtor borrows against the
accounts

This deal is the same as the Sale of Accounts With Recourse

18

Security Interest in Accounts

Citibank
debtor
$1.1 billion
Account
debtors

$1.1 billion note,

security interest
$1 billion loan

Secured
Party

Debtor operates a business

that generates accounts, e.g.
credit cards
Debtor wants to free up capital
So Debtor borrows against the
accounts

This deal is the same as the Sale of Accounts With Recourse.

Risk of nonpayment of accounts is on Citibank.
19

Security Interest in Accounts

Citibank
debtor
$1.1 billion
Account
debtors

$1.1 billion note,

security interest
$1 billion loan

Secured
Party

Debtor operates a business

that generates accounts, e.g.
credit cards
Debtor wants to free up capital
So Debtor borrows against the
accounts

This deal is the same as the Sale of Accounts With Recourse.

Risk of nonpayment of accounts is on Citibank.
A sale of accounts with recourse is a secured interest.

20

Asset Securitization
Popular alternative to individual loan security
Bundle loans.

21

Asset securitization
Sale of Accounts
Originator

$1 billion

Buyer

$1.1 billion
Account
debtors

22

Asset securitization
Sale of Accounts
Originator

$1 billion

Trust
(SPE)

$1.1 billion
Account
debtors

23

Asset securitization
Sale of Accounts
Originator
$1.1 billion
Account
debtors

$1 billion

Trust
(SPE)

$1 billion

Investment
certificates
(securities)

Investors

24

Asset securitization
Sale of Accounts
Originator
$1.1 billion
Account
debtors

$1 billion

Trust
(SPE)

$1 billion

Traunch 1
Traunch 2
Traunch 3
Traunch 4

Investors

25

Asset securitization
Sale of Accounts
Originator
$1.1 billion
Account
debtors

$1 billion

Trust
(SPE)

$1 billion

Investment
certificates
(securities)

Investors

9-109(a)(1) [T]his article applies to a transaction, regardless

of its form, that creates a security interest in personal property

26

Asset securitization
Sale of Accounts
Originator

$1 billion

Trust
(SPE)

$1 billion
Did this deal create a security interest?
An interest in property contingent on the
non-payment of a debt.

Investment
certificates
(securities)

Investors

27

Asset securitization
Sale of Accounts
Originator

Trust
(SPE)

$1 billion

$1 billion
Did this deal create a security interest? No,
trust owns the accounts, has the risk of loss.

Investment
certificates
(securities)

Investors

28

Asset securitization
Sale of Accounts
Originator

Trust
(SPE)

$1 billion

$1 billion
Did this deal create a security interest? No,
trust owns the accounts, has the risk of loss.
Add: Investors want guaranteed return,
dont want to engage in business

Investment
certificates
(securities)

Investors

29

Asset securitization
Sale of Accounts
Originator

Trust
(SPE)

$1 billion

$1 billion
Did this deal create a security interest? No,
trust owns the accounts, has the risk of loss.
Add: Investors want guaranteed return,
dont want to engage in business

Investment
certificates
(securities)

Investors

1.Originator will service the accounts

30

Asset securitization
Sale of Accounts
Originator

Trust
(SPE)

$1 billion

$1 billion
Did this deal create a security interest? No,
trust owns the accounts, has the risk of loss.
Add: Investors want guaranteed return,
dont want to engage in business

Investment
certificates
(securities)

Investors

1.Originator will service the accounts

2.Originator will replace bad accounts (like
recourse)
31

Asset securitization
Sale of Accounts
Originator

Trust
(SPE)

$1 billion

$1 billion
Did this deal create a security interest? No,
trust owns the accounts, has the risk of loss.
Add: Investors want guaranteed return,
dont want to engage in business

Investment
certificates
(securities)

Investors

1.Originator will service the accounts

2.Originator will replace bad accounts (like
recourse)
Now does the securitization create a security interest?
32

Asset securitization
Debtor Sale of Accounts Secured party
Trust
Originator
(SPE)
$1 billion
$1 billion
Did this deal create a security interest? No,
trust owns the accounts, has the risk of loss.
Add: Investors want guaranteed return,
dont want to engage in business

Investment
certificates
(securities)

Investors

1.Originator will service the accounts

2.Originator will replace bad accounts (like
recourse)
Now does the securitization create a security interest? Yes,
sale is with recourse and debtor has the risk of loss.
33

Asset securitization
Debtor Sale of Accounts Secured party
Trust
Originator
(SPE)
$1 billion
$1.1 billion
Account
debtors

$1 billion

Investment
certificates
(securities)

Investors

This transaction creates and security interest.

34

Asset securitization
Debtor Sale of Accounts Secured party
Trust
Originator
(SPE)
$1 billion
$1.1 billion
Account
debtors

$1 billion

Investment
certificates
(securities)

Investors

This transaction creates and security interest.

Consequence: If originator files bankruptcy, the accounts are
property of the estate. Debtor can use collection proceeds to
reorganize.
35

Security and Foreclosure

Jordan Class 14

39

Trying to avoid expense and time costs of foreclosure

Basile p. 835- common law rules of construction

Conditional Sales
Leases

40

Remedies of Secured Creditors

Security and Foreclosure

1. What is a security interest?

2. How does the secured creditor
foreclose?

41

: Creditors Remedies Under

State
Law
Assignment 42: Remedies of Unsecured CreditorsDone
Assignments 43-46: Remedies of Secured Creditors
1. What is a security interest?

1. What is a security interest?

2. How does the secured creditor
foreclose?

42

: Creditors Remedies Under

State
Law
Assignment 42: Remedies of Unsecured Creditors
Assignments 2-5: Remedies of Secured Creditors
Assignment 2:
1. What is a security interest?
2. How does the secured creditor foreclose?

43

Basic
concepts
Security interest: An interest in property contingent on
the non-payment of a debt.
Transactions fitting that definition are security interests
Even though the documents show an absolute transfer
Example: deed absolute
Example: bank account in secured creditors name
Even though the parties dont realize they created a
security interest
Even though the parties didnt intend some security
effects
Regardless of who has possession (But 2-401(1)?)
UCC 9-109(a)(1): [T]his article applies to a transaction,
regardless of its form, that creates a security interest in
personal property or fixtures by contract.
44

Basic concepts

Security interest (lien): (1) An interest in property

(2) contingent on the non-payment (3) of a debt.

45

Basic concepts

Security interest (lien): (1) An interest in property

(2) contingent on the non-payment (3) of a debt.

46

Basic concepts

Security interest (lien): (1) An interest in personal

property
(2) contingent on the non-payment (3) of a debt.
Example 4: Secured leases an auto to Debtor for five years.
At the end of the lease, Debtor has the right to purchase
the auto for $1.
Secured

Lease and option

Promise to pay rent

Debtor

47

Basic concepts

Security interest (lien): (1) An interest in property

(2) contingent on the non-payment (3) of a debt.
Example 4: Secured leases an auto to Debtor for five years.
At the end of the lease, Debtor has the right to purchase
the auto for $1.
Secured

Lease and option

Promise to pay rent

Debtor

3. Debtor owes a debt (Promise to pay rent)

48

Basic concepts

Security interest (lien): (1) An interest in property

(2) contingent on the non-payment (3) of a debt.
Example 4: Secured leases an auto to Debtor for five years.
At the end of the lease, Debtor has the right to purchase
the auto for $1.
Secured

Lease and option

Promise to pay rent

Debtor

3. Debtor owes a debt (Promise to pay rent)

1. Secured has an interest in the auto (ownership)

49

Basic concepts

Security interest (lien): (1) An interest in property

(2) contingent on the non-payment (3) of a debt.
Example 4: Secured leases an auto to Debtor for five years.
At the end of the lease, Debtor has the right to purchase
the auto for $1.
Secured

Lease and option

Promise to pay rent

Debtor

3. Debtor owes a debt (Promise to pay rent)

1. Secured has an interest in the auto (ownership)
2. The interest is contingent on nonpayment (if Debtor pays
debt plus $1, Debtor will own the auto).
50

Basic concepts

Security interest (lien): (1) An interest in property

(2) contingent on the non-payment (3) of a debt.
Example 4: Secured leases an auto to Debtor for five years.
At the end of the lease, Debtor has the right to purchase
the auto for $1.
Secured

Lease and option

Promise to pay rent

Debtor

3. Debtor owes a debt (Promise to pay rent)

1. Secured has an interest in the auto (ownership)
2. The interest is contingent on nonpayment (if Debtor pays
debt plus $1, Debtor will own the auto).
This is a security interest.

51

Basic concepts

Security interest (lien): (1) An interest in property

(2) contingent on the non-payment (3) of a debt.
Example 5: Secured agrees to sell auto to Debtor if Debtor has
paid $30,000, in three years. Secured gives possession now,
but retains ownership until payments have been made
Contract to sell later
Secured
Promise to pay $30,000

Debtor

52

Basic concepts

Security interest (lien): (1) An interest in property

(2) contingent on the non-payment (3) of a debt.
Example 5: Secured agrees to sell auto to Debtor if Debtor has
paid $30,000, in three years. Secured gives possession now,
but retains ownership until payments have been made
Contract to sell later
Secured
Promise to pay $30,000

Debtor

3. Debtor owes a debt (Promise to pay $30,000)

53

Basic concepts

Security interest (lien): (1) An interest in property

(2) contingent on the non-payment (3) of a debt.
Example 5: Secured agrees to sell auto to Debtor if Debtor has
paid $30,000, in three years. Secured gives possession now,
but retains ownership until payments have been made
Contract to sell later
Secured
Promise to pay $30,000

Debtor

3. Debtor owes a debt (Promise to pay $30,000)

1. Secured has an interest in the auto (ownership)

54

Basic concepts

Security interest (lien): (1) An interest in property

(2) contingent on the non-payment (3) of a debt.
Example 5: Secured agrees to sell auto to Debtor if Debtor has
paid $30,000, in three years. Secured gives possession now,
but retains ownership until payments have been made
Contract to sell later
Secured
Promise to pay $30,000

Debtor

3. Debtor owes a debt (Promise to pay $30,000)

1. Secured has an interest in the auto (ownership)
2. The right is contingent on nonpayment (if Debtor pays,
Secured has no right in the auto).
55

Basic concepts

Security interest (lien): (1) An interest in property

(2) contingent on the non-payment (3) of a debt.
Example 5: Secured agrees to sell auto to Debtor if Debtor has
paid $30,000, in three years. Secured gives possession now,
but retains ownership until payments have been made
Contract to sell later
Secured
Promise to pay $30,000

Debtor

3. Debtor owes a debt (Promise to pay $30,000)

1. Secured has an interest in the auto (ownership)
2. The right is contingent on nonpayment (if Debtor pays,
Secured has no right in the auto).
This is a security interest. 2-401(1), 29

56

Basic
concepts
Right to redeem: The debtors right to pay the debt and own the
property free of the security interest. If a security interest exists,
debtor always has the right to redeem.
Synonymous with ownership.
Foreclosure: Termination of the right to redeem (four types)
1. Judicial foreclosure (court declares, sale by sheriff)
2. Power of sale foreclosure (no court, by trustee, real estate)
3. UCC foreclosure by sale (no court, by creditor, personalty)
4. Strict foreclosure (court declares, no sale, contract for deed)
Deed in lieu of foreclosure: Voluntary transfer of the debtors
ownership / right to redeem to the creditor (merger doctrine)
When is a deed in lieu of foreclosure a security interest?
When secureds right is contingent on nonpayment of a debt.
57

Sale of Accounts
Citibank
debtor
Credit
cards
Account
debtors

Debtor operates a business

that generates accounts, e.g.
credit cards

58

Sale of Accounts
Citibank
debtor
Credit
cards
Account
debtors
Goods and
services

Debtor operates a business

that generates accounts, e.g.
credit cards
Stores

59

Sale of Accounts
Citibank
debtor
$900 million
advances Debtor operates a business
that generates accounts, e.g.
credit cards
Account
debtors
Goods and
services

Stores

60

Sale of Accounts
Citibank
debtor
$1.1 billion
$900 million
accounts
advances Debtor operates a business
owing
that generates accounts, e.g.
credit cards
Account
debtors

61

Sale of Accounts
Citibank
debtor
$1.1 billion
accounts
owing
Account
debtors

Debtor operates a business

that generates accounts, e.g.
credit cards
Debtor wants to free up capital

62

Sale of Accounts
Citibank
debtor
$1.1 billion
accounts
owing
Account
debtors

Accounts
$1 billion

Buyer

Debtor operates a business

that generates accounts, e.g.
credit cards
Debtor wants to free up capital
So Debtor sells the accounts

63

Sale of Accounts
Citibank
debtor

Accounts
Buyer

$1 billion
$1.1 billion
accounts
Debtor operates a business
owing
that generates accounts, e.g.
credit cards
Account
debtors
Debtor wants to free up capital
So Debtor sells the accounts

64

Sale of Accounts
Citibank
debtor

Without
recourse

$1.1 billion
accounts
owing
Account
debtors

Buyer

Debtor operates a business

that generates accounts, e.g.
credit cards
Debtor wants to free up capital
So Debtor sells the accounts

65

Sale of Accounts With Recourse

Citibank
debtor

Account
debtors

Recourse
obligation

Buyer

Debtor operates a business

that generates accounts, e.g.
credit cards
Debtor wants to free up capital

So Debtor sells the accounts

With recourse: If an account debtor doesnt pay, Debtor
will buy the account back for the accounts face amount

66

Sale of Accounts With Recourse

Citibank
debtor

Account
debtors

Account
$500

Buyer

Debtor operates a business

that generates accounts, e.g.
credit cards
Debtor wants to free up capital

So Debtor sells the accounts

With recourse: If an account debtor doesnt pay, Debtor
will buy the account back for the accounts face amount

67

Sale of Accounts With Recourse

Citibank
debtor

Account
debtors

Account
$500

Buyer

Debtor operates a business

that generates accounts, e.g.
credit cards
Debtor wants to free up capital

So Debtor sells the accounts

With recourse: If an account debtor doesnt pay, Debtor
will buy the account back for the accounts face amount
Citibank promises (guarantees) Buyer $1.1 billion.
68

Security Interest in Accounts

Citibank
debtor
$1.1 billion
Account
debtors

$1.1 billion note,

security interest
$1 billion loan

Secured
Party

Debtor operates a business

that generates accounts, e.g.
credit cards
Debtor wants to free up capital
So Debtor borrows against the
accounts

This deal is the same as the Sale of Accounts With Recourse

69

Security Interest in Accounts

Citibank
debtor
$1.1 billion
Account
debtors

$1.1 billion note,

security interest
$1 billion loan

Secured
Party

Debtor operates a business

that generates accounts, e.g.
credit cards
Debtor wants to free up capital
So Debtor borrows against the
accounts

This deal is the same as the Sale of Accounts With Recourse.

Risk of nonpayment of accounts is on Citibank.
70

Security Interest in Accounts

Citibank
debtor
$1.1 billion
Account
debtors

$1.1 billion note,

security interest
$1 billion loan

Secured
Party

Debtor operates a business

that generates accounts, e.g.
credit cards
Debtor wants to free up capital
So Debtor borrows against the
accounts

This deal is the same as the Sale of Accounts With Recourse.

Risk of nonpayment of accounts is on Citibank.
A sale of accounts with recourse is a secured interest.

71

Asset securitization
Sale of Accounts
Originator

$1 billion

Buyer

$1.1 billion
Account
debtors

72

Asset securitization
Sale of Accounts
Originator

$1 billion

Trust
(SPE)

$1.1 billion
Account
debtors

73

Asset securitization
Sale of Accounts
Originator
$1.1 billion
Account
debtors

$1 billion

Trust
(SPE)

$1 billion

Investment
certificates
(securities)

Investors

74

Asset securitization
Sale of Accounts
Originator
$1.1 billion
Account
debtors

$1 billion

Trust
(SPE)

$1 billion

Traunch 1
Traunch 2
Traunch 3
Traunch 4

Investors

75

Asset securitization
Sale of Accounts
Originator
$1.1 billion
Account
debtors

$1 billion

Trust
(SPE)

$1 billion

Investment
certificates
(securities)

Investors

9-109(a)(1) [T]his article applies to a transaction, regardless

of its form, that creates a security interest in personal property

76

Asset securitization
Sale of Accounts
Originator

$1 billion

Trust
(SPE)

$1 billion
Did this deal create a security interest?
An interest in property contingent on the
non-payment of a debt.

Investment
certificates
(securities)

Investors

77

Asset securitization
Sale of Accounts
Originator

Trust
(SPE)

$1 billion

$1 billion
Did this deal create a security interest? No,
trust owns the accounts, has the risk of loss.

Investment
certificates
(securities)

Investors

78

Asset securitization
Sale of Accounts
Originator

Trust
(SPE)

$1 billion

$1 billion
Did this deal create a security interest? No,
trust owns the accounts, has the risk of loss.
Add: Investors want guaranteed return,
dont want to engage in business

Investment
certificates
(securities)

Investors

79

Asset securitization
Sale of Accounts
Originator

Trust
(SPE)

$1 billion

$1 billion
Did this deal create a security interest? No,
trust owns the accounts, has the risk of loss.
Add: Investors want guaranteed return,
dont want to engage in business

Investment
certificates
(securities)

Investors

1.Originator will service the accounts

80

Asset securitization
Sale of Accounts
Originator

Trust
(SPE)

$1 billion

$1 billion
Did this deal create a security interest? No,
trust owns the accounts, has the risk of loss.
Add: Investors want guaranteed return,
dont want to engage in business

Investment
certificates
(securities)

Investors

1.Originator will service the accounts

2.Originator will replace bad accounts (like
recourse)
81

Asset securitization
Sale of Accounts
Originator

Trust
(SPE)

$1 billion

$1 billion
Did this deal create a security interest? No,
trust owns the accounts, has the risk of loss.
Add: Investors want guaranteed return,
dont want to engage in business

Investment
certificates
(securities)

Investors

1.Originator will service the accounts

2.Originator will replace bad accounts (like
recourse)
Now does the securitization create a security interest?
82

Asset securitization
Debtor Sale of Accounts Secured party
Trust
Originator
(SPE)
$1 billion
$1 billion
Did this deal create a security interest? No,
trust owns the accounts, has the risk of loss.
Add: Investors want guaranteed return,
dont want to engage in business

Investment
certificates
(securities)

Investors

1.Originator will service the accounts

2.Originator will replace bad accounts (like
recourse)
Now does the securitization create a security interest? Yes,
sale is with recourse and debtor has the risk of loss.
83

Asset securitization
Debtor Sale of Accounts Secured party
Trust
Originator
(SPE)
$1 billion
$1.1 billion
Account
debtors

$1 billion

Investment
certificates
(securities)

Investors

This transaction creates and security interest.

84

Asset securitization
Debtor Sale of Accounts Secured party
Trust
Originator
(SPE)
$1 billion
$1.1 billion
Account
debtors

$1 billion

Investment
certificates
(securities)

Investors

This transaction creates and security interest.

Consequence: If originator files bankruptcy, the accounts are
property of the estate. Debtor can use collection proceeds to
reorganize.
85

Problem 43.1, 36
Problem 1.5, we represent Benning to collect $50,000 from
Knopf
We have a security agreement naming these items as
collateral:
1. Toyota automobile worth $15,000
2. Inherited house, value $275,000, lien $225,000
3. Day care equipment worth $25,000
4. Bank account, balance $,265.92
a.

Which can we foreclose on?

815.18 () No property . . . may be claimed as exempt . .
. against the claim . . . of a holder of a security interest.

b. Waiver is a voluntary relinquishment of a known right.

Isnt a security interest a waiver of exemptions
prohibited by Wis. Stat. 815.18(6)(a)? 17

89

Problem 43.2, Two ways to move cars

Sale
Price
Down payment
Amount financed 18%
Monthly payment
Number of payments
Additional amount
payable to own
Total payments

Lease

5,000
0
5,000
180.77
36
0
6,507.72
90

Problem 43.2, Two ways to move cars

Sale
Price
Down payment
Amount financed 18%
Monthly payment
Number of payments
Additional amount
payable to own
Total payments

Lease

5,000

Not applicable

0
5,000
180.77
36
0
6,507.72
91

Problem 43.2, Two ways to move cars

Sale
Price
Down payment
Amount financed 18%
Monthly payment
Number of payments
Additional amount
payable to own
Total payments

Lease

5,000

Not applicable

5,000
180.77
36
0
6,507.72
92

Problem 43.2, Two ways to move cars

Sale
Price
Down payment
Amount financed 18%
Monthly payment
Number of payments
Additional amount
payable to own
Total payments

Lease

5,000

Not applicable

5,000

Not applicable

180.77
36
0
6,507.72
93

Problem 43.2, Two ways to move cars

Sale
Price
Down payment
Amount financed 18%
Monthly payment
Number of payments
Additional amount
payable to own
Total payments

Lease

5,000

Not applicable

5,000

Not applicable

180.77

180.77

36
0
6,507.72
94

Problem 43.2, Two ways to move cars

Sale
Price
Down payment
Amount financed 18%
Monthly payment
Number of payments
Additional amount
payable to own
Total payments

Lease

5,000

Not applicable

5,000

Not applicable

180.77

180.77

36

36

0
6,507.72
95

Problem 43.2, Two ways to move cars

Sale
Price
Down payment
Amount financed 18%
Monthly payment
Number of payments
Additional amount
payable to own
Total payments

Lease

5,000

Not applicable

5,000

Not applicable

180.77

180.77

36

36

10

6,507.72
96

Problem 43.2, Two ways to move cars

Sale
Price
Down payment
Amount financed 18%
Monthly payment
Number of payments
Additional amount
payable to own
Total payments

Lease

5,000

Not applicable

5,000

Not applicable

180.77

180.77

36

36

10

6,507.72

6,517.72
97

Sale-Lease Distinction
9-109(a)(1) [T]his article applies to a transaction,
regardless of its form, that creates a security interest
in personal property

98

Sale-Lease Distinction
9-109(a)(1) [T]his article applies to a transaction,
regardless of its form, that creates a security interest
in personal property
1-203. [A] transaction in the form of a lease creates a
security interest if the consideration . . . is an
obligation for the term of the lease not subject to
termination by the lessee

99

Sale-Lease Distinction
9-109(a)(1) [T]his article applies to a transaction,
regardless of its form, that creates a security interest
in personal property
1-203. [A] transaction in the form of a lease creates a
security interest if the consideration . . . is an
obligation for the term of the lease not subject to
termination by the lessee, and . . . [the lease is for the
remaining economic life of the goods

Security interest

Economic life
Lease/consideration term
100

Sale-Lease Distinction
9-109(a)(1) [T]his article applies to a transaction,
regardless of its form, that creates a security interest
in personal property
1-203. [A] transaction in the form of a lease creates a
security interest if the consideration . . . is an
obligation for the term of the lease not subject to
termination by the lessee, and . . . [the lease is for the
remaining economic life of the goods by
1. Original term

Security interest

Economic life
Lease/consideration term
101

Sale-Lease Distinction
9-109(a)(1) [T]his article applies to a transaction,
regardless of its form, that creates a security interest
in personal property
1-203. [A] transaction in the form of a lease creates a
security interest if the consideration . . . is an
obligation for the term of the lease not subject to
termination by the lessee, and . . . [the lease is for the
remaining economic life of the goods by
1. Original term
2. Required renewal or purchase

Security interest

Economic life
Lease term Mandatory renewal
102

Sale-Lease Distinction
9-109(a)(1) [T]his article applies to a transaction,
regardless of its form, that creates a security interest in
personal property
1-203. [A] transaction in the form of a lease creates a
security interest if the consideration . . . is an obligation for
the term of the lease not subject to termination by the
lessee, and . . . [the lease is for the remaining economic
life of the goods by
1. Original term
2. Required renewal or purchase
3. Renewal term for no (or nominal) additional
consideration

Security interest

Economic life
Lease term Free renewal
103

Sale-Lease Distinction
9-109(a)(1) [T]his article applies to a transaction, regardless of
its form, that creates a security interest in personal property
1-203. [A] transaction in the form of a lease creates a security
interest if the consideration . . . is an obligation for the term of
the lease not subject to termination by the lessee, and . . . [the
lease is for the remaining economic life of the goods by
1. Original term
2. Required renewal or purchase
3. Renewal term for no (or nominal) additional consideration
4. Option to buy for no (or nominal) additional consideration]

Security interest

Economic life
Lease term Option to buy for free
104

Sale-Lease Distinction
9-109(a)(1) [T]his article applies to a transaction, regardless of
its form, that creates a security interest in personal property
1-203. [A] transaction in the form of a lease creates a security
interest if the consideration . . . is an obligation for the term of
the lease not subject to termination by the lessee, and . . . [the
lease is for the remaining economic life of the goods by
1. Original term
2. Required renewal or purchase
3. Renewal term for no (or nominal) additional consideration
4. Option to buy for no (or nominal) additional consideration]

True Lease

Economic life
Lease term

Meaningful reversion
105

Problem 43.2, Two ways to move cars

Sale
Price
Down payment
Amount financed 18%
Monthly payment
Number of payments
Additional amount
payable to own
Total payments

Sale

5,000

Not applicable

5,000

Not applicable

180.77

180.77

36

36

10

6,507.72

6,517.72
106

Problem 43.3.a, 845

We represent bank in foreclosure against the OHurleys.

107

Problem 43.3.a, 845

We represent bank in foreclosure against the OHurleys.
Mrs. OHurly offers a deal: The OHurleys deed the property to
Bank, Bank drops the foreclosure, we prepare the documents.

108

Problem 43.3.a, 845

We represent bank in foreclosure against the OHurleys.
Mrs. OHurly offers a deal: The OHurleys deed the property to
Bank, Bank drops the foreclosure, we prepare the documents.

Now

lien

Deed in
lieu
109

Problem 43.3.a, 845

We represent bank in foreclosure against the OHurleys.
Mrs. OHurly offers a deal: The OHurleys deed the property to
Bank, Bank drops the foreclosure, we prepare the documents.
See any legal problems? Is this a good deal for the bank?

Now

lien

Deed in
lieu
110

Problem 43.3.a, 845

We represent bank in foreclosure against the OHurleys.
Mrs. OHurly offers a deal: The OHurleys deed the property to
Bank, Bank drops the foreclosure, we prepare the documents.
See any legal problems? Is this a good deal for the bank?
If you represented the OHurleys, what advice?

Now

lien

Deed in
lieu
111

Repossession of Collateral

112

Creditors Remedies Under

State
Law
Assignment 441: Remedies of Unsecured Creditors
Assignment 4444: Security and Foreclosure: title
(can occur without repossession writ of assistance)
Assignment 443: Repossession: possession
(can occur without foreclosure cases in this
assignment)

113

Basic Concepts:
Repossession
1. Replevin
2. Self help
3. Receiver
4. Breach of the peace
5. Trespass
6. Privilege to trespass
7. Concealment

114

Basic Concepts:
Replevin: A cause of action (writ) for possession
Repossession

1. Secured party has right to possession UCC 9-609

2. Powerful: sheriff delivers temporary possession
early

3. Two procedures both Constitutional:

Notice
Hearing
10-20
days
Default
Complaint

Default

Ex parte
hearing Notice

Complaint Writ Levy

Writ Levy
10-20 days

Immediate
post-hearing

Basic Concepts:
Breach of the peace (limits self help, not sheriff levy)
Repossession
Criminal standard: Public disturbance
1.
2.

Article 9 standard: Tending to provoke others to

break the peace, Callaway v. Whittenton

Trespass
1.

Criminal standard: fenced, posted, after warning

2.

Civil: Intentional entry on land without authority

Privilege (to trespass): An entry to repossess is

privileged if there [is] no confrontation and the
timing and manner, including notice or lack of notice,
are found reasonable.
Concealment: "Whoever . . . conceals any personal
property in which he knows another has a security

116

Basic Concepts:
Receiver:
An officer of the court who takes possession
Repossession
of collateral during foreclosure to preserve it

California: Receiver gets possession if:

1. Property in danger of loss, removal, injury or
2. Debtor in default and value of collateral less than
amount of the debt
Illinois: Mortgagee gets possession if:
1. Non-residential real property
2. Provision in the mortgage and
3. Probability mortgagee will prevail
Unless good cause
117

Repo Method by Property Type

Real estate

Tangible
personal

Intangible
personal

Voluntary
surrender

Yes

Yes

Yes

Self help
Receiver
Replevin

No
Yes
No

Yes
Yes
Yes

Yes (some)
Yes
No

Creditors dont get possession by foreclosure; purchasers do

118

Repossession of Collateral
Limits on Self Help Repossession

119

Cases interpreting
Breach
ofself
the
Peace
Limits of 9-609
help
Salisbury Livestock p.852
Chapa

121

122

Problem 44.1,
Jeff

$1K
Loan

Lisa

Our advice: Jeff cant use self help.

Problem 44.1. What if Jeff is secured?
What policy justifies the difference?

123

Problem 44.2,

How do we repossess?

124

Problem 44.2,

How do we repossess?

Owner

125

Problem 44.2,

How do we repossess?

Owner
Contract
Contractor

126

Problem 44.2,

How do we repossess?

Owner
Contract
Contractor
Contract
Subcontractor

127

Problem 44.2,

How do we repossess?

Owner
Contract
Contractor
Contract

Rights in
the collateral
(ownership)

Subcontractor

128

Problem 44.2,

How do we repossess?
a.

No guard, no fence

129

Problem 44.2,

How do we repossess?
No guard, no fence

a.
-

Time of day?

130

Problem 44.2,

How do we repossess?
No guard, no fence

a.
-

Time of day?

OK to trespass?

131

Problem 44.2,

How do we repossess?
No guard, no fence

a.
-

Time of day?

OK to trespass?

Give prior notice?

132

Problem 44.2,

How do we repossess?
No guard, no fence

a.
-

Time of day?

OK to trespass?

Give prior notice?

If someone
objects?

133

Problem 44.2,

How do we repossess?
No guard, no fence

a.
-

Time of day?

OK to trespass?

Give prior notice?

If someone
objects?

Instructions?

134

Problem 44.2,

How do we repossess?
No guard, no fence

a.

b.

Time of day?

OK to trespass?

Give prior notice?

If someone
objects?

Instructions?
Fence, but no
guard
135

Problem 44.2,

How do we repossess?
No guard, no fence

a.
-

Time of day?

OK to trespass?

Give prior notice?

If someone
objects?

Instructions?
Fence, but no
guard

b.
-

OK to trespass?
136

Problem 44.2,

How do we repossess?
No guard, no fence

a.
-

Time of day?

OK to trespass?

Give prior notice?

If someone objects?

Instructions?
Fence, but no guard

b.
-

OK to trespass?

Cut the lock?

137

Problem 44.2,

How do we repossess?
No guard, no fence

a.
-

Time of day?

OK to trespass?

Give prior notice?

If someone objects?

Instructions?
Fence, but no guard

b.
-

OK to trespass?

Cut the lock?

Pick, tension wrench?

138

Problem 44.2,

How do we repossess?
a.

No guard, no fence
-

Time of day?

OK to trespass?

Give prior notice?

If someone objects?

Instructions?

b.

c. Guard and fence

Fence, but no guard

-

OK to trespass?

Cut the lock?

Pick, tension wrench?

139

Problem 44.2,

How do we repossess?
a.

No guard, no fence
-

Time of day?

OK to trespass?

Give prior notice?

If someone objects?

Instructions?

b.

c. Guard and fence

What happens if we ask
for the dozer?

Fence, but no guard

-

OK to trespass?

Cut the lock?

Pick, tension wrench?

140

Problem 44.2,

How do we repossess?
a.

No guard, no fence

c. Guard and fence

Time of day?

What happens if we ask

for the dozer?

OK to trespass?

What if we defraud?

Give prior notice?

If someone objects?

Instructions?

b.

Fence, but no guard

-

OK to trespass?

Cut the lock?

Pick, tension wrench?

141

Problem 44.2,

How do we repossess?
a.

No guard, no fence

c. Guard and fence

Time of day?

What happens if we ask

for the dozer?

OK to trespass?

What if we defraud?

Give prior notice?

If someone objects?

Instructions?

b.

d. In debtors steel building

Fence, but no guard

-

OK to trespass?

Cut the lock?

Pick, tension wrench?

142

Problem 44.2,

How do we repossess?
a.

No guard, no fence

c. Guard and fence

Time of day?

What happens if we ask

for the dozer?

OK to trespass?

What if we defraud?

Give prior notice?

If someone objects?

Instructions?

b.

d. In debtors steel building

Pick the lock?

Fence, but no guard

-

OK to trespass?

Cut the lock?

Pick, tension wrench?

143

Problem 44.2,

How do we repossess?
a.

No guard, no fence

c. Guard and fence

Time of day?

What happens if we ask

for the dozer?

OK to trespass?

What if we defraud?

Give prior notice?

If someone objects?

Pick the lock?

Instructions?

If interrupted? Return?

b.

d. In debtors steel building

Fence, but no guard

-

OK to trespass?

Cut the lock?

Pick, tension wrench?

144

Problem 44.2,

How do we repossess?
a.

No guard, no fence

c. Guard and fence

Time of day?

What happens if we ask

for the dozer?

OK to trespass?

What if we defraud?

Give prior notice?

If someone objects?

Pick the lock?

Instructions?

If interrupted? Return?

b.

Fence, but no guard

-

OK to trespass?

Cut the lock?

Pick, tension wrench?

d. In debtors steel building

e. Anything we should put in the

security agreement?

145

Problem 44.2,

How do we repossess?
a.

No guard, no fence

c. Guard and fence

Time of day?

What happens if we ask

for the dozer?

OK to trespass?

What if we defraud?

Give prior notice?

If someone objects?

Pick the lock?

Instructions?

If interrupted? Return?

b.

Fence, but no guard

-

OK to trespass?

Cut the lock?

Pick, tension wrench?

d. In debtors steel building

e. Anything we should put in the

security agreement?
Breach of peace waiver?
146

Problem 44.2,

How do we repossess?
a.

No guard, no fence

c. Guard and fence

Time of day?

What happens if we ask

for the dozer?

OK to trespass?

What if we defraud?

Give prior notice?

If someone objects?

Pick the lock?

Instructions?

If interrupted? Return?

b.

Fence, but no guard

d. In debtors steel building

e. Anything we should put in the

security agreement?

OK to trespass?

Cut the lock?

Breach of peace waiver?

Pick, tension wrench?

Right of entry?

147

Problems 44.3,
How do we prevent repossession for a week or two?

148

Problems 44.3,
How do we prevent repossession for a week or two?
-

What if the repossessors persist?

149

Problems 44.3,
How do we prevent repossession for a week or two?
-

What if the repossessors persist? Gun?

150

Problems 44.3,
How do we prevent repossession for a week or two?
-

What if the repossessors persist? Gun?

Is there an ethical problem? Rule 1.2

151

Problems 44.3,
How do we prevent repossession for a week or two?
-

What if the repossessors persist? Gun?

Is there an ethical problem? Rule 1.2

What if they bring the sheriff?

152

Problems 44.3,
How do we prevent repossession for a week or two?
-

What if the repossessors persist? Gun?

Is there an ethical problem? Rule 1.2

What if they bring the sheriff?

-

Self help?

Writ of replevin?

153

Problems 44.3,
How do we prevent repossession for a week or two?
-

What if the repossessors persist? Gun?

Is there an ethical problem? Rule 1.2

What if they bring the sheriff?

-

Self help?

Writ of replevin? Should we resist the sheriff?

159

Problems 44.3,
How do we prevent repossession for a week or two?
-

What if the repossessors persist? Gun?

Is there an ethical problem? Rule 1.2

What if they bring the sheriff?

-

Self help?

Writ of replevin? Should we resist the sheriff?

Should we call sheriff?

160

Problems 44.3,
How do we prevent repossession for a week or two?
-

What if the repossessors persist? Gun?

Is there an ethical problem? Rule 1.2

What if they bring the sheriff?

-

Self help?

Writ of replevin? Should we resist the sheriff?

Should we call sheriff? Officers . . . cross the line if they

affirmatively intervene to aid the repossessor.
Marcus

161

Problems 44.3,
How do we prevent repossession for a week or two?
-

What if the repossessors persist? Gun?

Is there an ethical problem? Rule 1.2

What if they bring the sheriff?

-

Self help?

Writ of replevin? Should we resist the sheriff?

Should we call sheriff? Officers . . . cross the line if

they affirmatively intervene to aid the
repossessor. Marcus
Should we hide the bulldozer?
162

Problems 44.3,
How do we prevent repossession for a week or two?
-

What if the repossessors persist? Gun?

Is there an ethical problem? Rule 1.2

What if they bring the sheriff?

-

Self help?

Writ of replevin? Should we resist the sheriff?

Should we call sheriff? Officers . . . cross the line if

they affirmatively intervene to aid the
repossessor. Marcus
Should we hide the bulldozer? No: Wis. Stat. 943.25
163

Problems 44.3,
How do we prevent repossession for a week or two?
-

What if the repossessors persist? Gun?

Is there an ethical problem? Rule 1.2

What if they bring the sheriff?

-

Self help?

Writ of replevin? Should we resist the sheriff?

Should we call sheriff? Officers . . . cross the line if they

affirmatively intervene to aid the repossessor.
Marcus
Should we hide the bulldozer? No: Wis. Stat. 943.25
Is the District Attorney going to prosecute Sal for
164
hiding his own bulldozer?

Problem 3.4,
If both sides are well advised, who wins?

165

Problem 3.4,
If both sides are well advised, who wins?
The debtor.

166

Problem 3.4,
If both sides are well advised, who wins?
The debtor.

Winning strategy: Sleep on the bulldozer

167

Problem 3.4,
If both sides are well advised, who wins?
The debtor.

Winning strategy: Sleep on the bulldozer

If awakened, debtor threatens violence, repo is over

168

Problem 3.4,
If both sides are well advised, who wins?
The debtor.

Winning strategy: Sleep on the bulldozer

If awakened, debtor threatens violence, repo is over
9-609 After default, a secured party may take
possession of the collateral . . . . Legal strategy
169
nullifies that law.

Basic
Concepts:
Accounts
Account: A right to payment of a monetary
obligation . . . for property sold or services
rendered, UCC 9-102(a)(2)

Property,
services
Creditor

Account

Debtor

170

Basic
Concepts:
Accounts
Account: A right to payment of a monetary
obligation . . . for property sold or services
rendered, UCC 9-102(a)(2)
Account debtor: means a person obligated on an
account, UCC 9-102(a)(3)

Property,
services
Creditor

Account

Debtor

171

Basic
Concepts:
Accounts
Account: A right to payment of a monetary
obligation . . . for property sold or services
rendered, UCC 9-102(a)(2)
Account debtor: means a person obligated on an
account, UCC 9-102(a)(3)

Creditor

Property,
services Account
debtor
Account

172

Basic
Concepts:
Accounts
Account: A right to payment of a monetary
obligation . . . for property sold or services
rendered, UCC 9-102(a)(2)
Account debtor: means a person obligated on an
account,
UCC 9-102(a)(3)
Accounts
financing:
Selling
Secured
or borrowing against a
party
group of accounts
Loan Account
Debtor

Account

Account
debtor

173

Problems
44.5,
How the parties do business
Debtor sells a tractor on credit
Debtor sends invoice copy to Secured party
Secured party advances 60%
Secured
Later:
party
Account debtor pays Debtor
Loan Account
Debtor pays 60% to Secured
Tractors
Debtor
Account

Account
debtor

174

Problems
44.5,
How the parties do business
Debtor sells a tractor on credit
Debtor sends invoice copy to Secured party
Secured party advances 60%
Secured
Later:
party
Account debtor pays Debtor
Loan Account
Debtor pays 60% to Secured
Tractors
Debtor
Account

Account
debtor

What could go wrong

175

Problems
44.5,
How the parties do business
Debtor sells a tractor on credit
Debtor sends invoice copy to Secured party
Secured party advances 60%
Secured
Later:
party
Account debtor pays Debtor
Loan Account
Debtor pays 60% to Secured
Tractors
Debtor
Account

Account
debtor

What could go wrong

Debtor fakes invoices
176

Problems
44.5,
How the parties do business
Debtor sells a tractor on credit
Debtor sends invoice copy to Secured party
Secured party advances 60%
Later

Banks

Account debtor pays Debtor

Loan Leases
Debtor pays 60% to Secured
Computers OPM Computers Rockwell
IBM
Payment Leasing
Leases Internatl
What could go wrong
Debtor fakes invoices
177

Problems
44.5,
How the parties do business
Debtor sells a tractor on credit
Debtor sends invoice copy to Secured party
Secured party advances 60%
Secured
Later:
party
Account debtor pays Debtor
Loan Account
Debtor pays 60% to Secured
Tractors
Debtor
Account

Account
debtor

What could go wrong

Debtor fakes invoices
178
Account debtor pays Debtor, but Debtor doesnt pay Secured

Problem 3.6.a, 56

Firstbank
Loan

Account

Deare

Tractors
Account

Hornes

179

Problem 3.6.a, 56

Deare defaults on loan

Firstbank
Loan

Account

Deare

Tractors
Account

Hornes

180

Problem 3.6.a, 56

Deare defaults on loan

Bank sends notification to Hornes

Firstbank
Loan

Pay Firstbank,
Account
not Deare

Deare

Tractors
Account

Hornes

181

Problem 3.6.a, 56

Deare defaults on loan

Bank sends notification to Hornes

Hornes pays Deare
Firstbank
Loan

Pay Firstbank,
Account
not Deare

Deare

Tractors
Account

Hornes

182

Problem 3.6.a, 56

Deare defaults on loan

Bank sends notification to Hornes

Hornes pays Deare
Can Firstbank make Hornes
pay twice?

Firstbank
Loan

Pay Firstbank,
Account
not Deare

Deare

Tractors
Account

Hornes

183

Problem 3.6.a, 56

Deare defaults on loan

Bank sends notification to Hornes

Hornes pays Deare
Can Firstbank make Hornes
pay twice?

Assignee
Pay Firstbank,
Account
not Deare

Yes. 9-406(a) After receipt Loan

of the notification, the account
Tractors
debtor may discharge its
Assignor
Account
obligation by paying the
assignee and may not
discharge the obligation by
paying the assignor.

Account
debtor

184

Deare
Problem
3.6.b, 56

assigns
accounts

Firstbank
Loan

Account

Deare

185

Deare
Problem
3.6.b, 56

assigns
accounts

$19K warranty
claim accrues
Deare
sells
$42K

Firstbank
Loan

Account

Deare

$19K
$42K
account

Wilsons

186

Deare
Problem
3.6.b, 56

assigns
accounts

$19K warranty
claim accrues
Deare
sells
$42K

Deare
defaults

Firstbank
Loan

Account

Deare

$19K
$42K
account

Wilsons

187

Deare
Problem
3.6.b, 56

assigns
accounts

$19K warranty
claim accrues
Deare
sells
$42K

Deare
defaults

Bank notifies
Wilsons

Firstbank
Loan

Pay Firstbank,
Account
not Deare

Deare

$19K
$42K
account

Wilsons

188

Deare
Problem
3.6.b, 56

assigns
accounts

$19K warranty
claim accrues
Deare
sells
$42K

Deare
defaults

Bank notifies
Wilsons
Wilsons
claims on
warranty

Firstbank
Loan

Pay Firstbank,
Account
not Deare

Deare

$19K
$42K
account

Wilsons

189

Deare
Problem
3.6.b, 56

assigns
accounts

$19K warranty
claim accrues
Deare
sells
$42K

Deare
defaults

Bank notifies
Wilsons

Wilsons
claims on
warranty

Firstbank
Loan

Bank
sues

Pay Firstbank,
Account
not Deare

Deare

$19K
$42K
account

Wilsons

190

Deare
Problem
3.6.b, 56

assigns
accounts

$19K warranty
claim accrues
Deare
sells
$42K

To how much is
Bank entitled?

Deare
defaults

Bank notifies
Wilsons

Wilsons
claims on
warranty

Firstbank
Loan

Bank
sues

Pay Firstbank,
Account
not Deare

Deare

$19K
$42K
account

Wilsons

191

Problem 3.6.b, 56
UCC 9-404(a). [T]he rights of an assignee are
subject to:
(1) all terms of the agreement between the
account debtor and assignor and any defense or
claim in recoupment arising from the transaction
that gave rise to the contract; and
(2) any other . . . claim of the account debtor
against the assignor which accrues before the
account debtor receives a notification of the
assignment . . .

192

Problem 3.6.b, 56
UCC 9-404(a). [T]he rights of an assignee are
subject to:
(1) all terms of the agreement between the
account debtor and assignor and any defense or
claim in recoupment arising from the transaction
that gave rise to the contract; and
(2) any other . . . claim of the account debtor
against the assignor which accrues before the
account debtor receives a notification of the
assignment . . .

193

Deare
assigns
accounts

Problem 3.6.b, 56
$19K warranty
claim accrues
Deare
Sells
$42K

To how much is
Bank entitled?
$23K

Deare
defaults

Bank notifies
Wilsons

Bank
sues

Warranty
claim
made

Firstbank

Pay Firstbank,
Loan Account
not Deare
Deare

$19K
$42K
account

Wilsons

194