CA Bank ---------------Knifty Knits ------------------ Loan Star

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Customer

27.2:

Q1: If LS takes SI in accounts and perfects w/FS Who claims interest in payments form customers to
knifty knits upon default?
o Californina:

9-322: First to Perfect rule for two secured parties

(a)(1): First to file is first to perfect

o Original collateral, CA will win
What if filed FS indicated only inventory? Not accounts
o They are only perfected as to inventory
o Now who wins?

Are we dealing with proceeds now regarding funds coming from customer

Inventory sold to customer and customer is not getting funds

BUT:

Its really coming in as Invoice and Purchase ordersnow cash yet, just
accounts receivable

Has CA attached and perfected to these accounts?

Accounts are proceeds from inventory

SI extends to accounts automatically if: (not perfection yet)

o 9-315(a)(2):
o 9-315(c): Auto perfect if original collateral is..here, yes, filed FS so
perfected statuts continues byond 20 day pd IF:

9-315(d):

Accts are not identifiable cash proceeds b/c

customer has not paid yet BUT

(d)(1):
o 1st: Did FS cover orig collateral? Y
o 2nd: Proceeds..type that FS can be filed
in same office? Y accounts can be
perfected by FS (not a deposit acct, that
cannot be perfected that way, these are
acct receivables so OK)
o 3d: Acquired by inventory so OK

Therefore, CA is perfected

If so, who prevails in a priority dispute

Lone Star-no proceeds analysis, just gives oney and takes perfected interest in
that account

9-322/California Bank would prevail

o (b)(1): If they filed FS in 11 w/respect to inventory, but did not
receive/interest in proceeds in 13, we get to use the 11 Filing of FS
o Go back to 9-322(a)(1) for priorityFirst in time

Therefore, CB prevails
o Even though FS does not mention acccts, just inventory
o LS would try:

Subordination agreement with bank

Blanket lien
o Remember, you can file FS if vehicles are inventory, do not have to do COT
Here, two types of SI
Is Buyer reqd to make payments to ICH under this note?
o Yes, once they have been notified by ICH
If F defaults on loan and ICH cleans out inventory..ICH can send notification to Buyer to get Buyer to pay it
o If Buyer keeps paying F, it will nto be counted as payment under this note
o Look to 9-406(a)
Are they an account debtor
o 9-102(a)(3): Person obligated on acct.....does not necessarily include aperson..

This is chattel paper because you have a note + a SI in the equipment/monetary ob + SI in

specific goods

27.3:
- Proceeds of inventory (Note + SI)
- Identifiable
- Attachment yes
- Perfection Yes, automatically when original was/Possession/filing FS
- If Perfected and remain perfected: Who wins when both are perfected?

GR: First to file or perfect ICH would win

BUT: Exceptions9-330(a):
o Exception if chattel paper: Purchaser of CP will have priority over SP claimed as proceeds of
inventroy if purchased in GF, taken in OCB, gives new value, take possession, and CP does nto
indicate it has been assigned

ICH is merely claiming proceeds of inventory

So FRA can beat if it shows it meets these elements

o Examples: Permanent Editorial Board Comments

Cmt 8 pg 1079

This is Type A inventory financing

o Calin as proceeds, not underlying collateral
- Would it change analysis if F sold to RFA instead of chattle paper

No, because still a purchaser of chattel paper

o Purchase: one who purchases or takes SI

Lending or buying
Etna Finance Case:

Inventory floor plan arrangement

Hendrickson oneI will sell you this equipment and you give me back chattel paper (sham)
o Takes chattel paper and sales to Thorpe for 45K

Jr: Actual transaction, actually makes payments

o MEC gave to Sperry
o Some to Thorpe

Perry repossess all inventory, including Thorpes sell of chattel paper

o Thorpe was entitled to take this
o Now, priority dispute

Both perfected
o If GRSperry
o Thorpe:

Effective funcitioniong of community in this area.....be entitled to rely on the

representative validity..unless such knowledge to preclude..

Same reason for placing risk on flooring lender should apply here where sales are
dummied at start

**Want the chattel paper to be treated like caash b/c sold like cahs

9-330Purchaser of chattel paper will prevail over first to file/perfect

27.4:
- ICH was just inventory, clame to CP was that it was proceeds
- Here, CP is part of the original SI
-9-330(b) ((a) LS is not claiing as merely proceeds, but as collateral)Type B Financing

Purchaser of CP against SP w/SI in origingal CP

- Requirements:

Has prioroity if:

o Purchased in good faith
o OCB
o Takes possession
o As long as taken w/o knowledge that purchase violates rights of prior secured party

Here, RFA has no knowledge, b/c CP was not marked

o If mkared, RFA would not have priority

Cmt 6: Knowledge means actual knowledge

No obligation to inquire

Knowledge of FS or competing SI is not knowledge of a violation

(f): If CP indicates it has been assignedknowledge
o

9-330(a)&(b) will trump first to file rule

Bank
4/17: Default Chpt 31
Rule: for a SP to enforce its rights against the DB, ,t he DB must be in default in some way
- Must distinguish b/w secured and perfected
- you do not have to perfected to take the collateral remember this **Exam
- Perfection is to protect against TPs
Common Documents:
- Promissory Note, SA, and UCC1 FS

SA:
o Secure some underlying obligation
o Underlying ob is the debt

Debt should not be written out in SA alone, should also have a contract
o Have a separate Pn, SA, UCC1
- After you lend $, they sight PN, SA, FS then DEFAULT

Default: stop making payments

o Art. 9 does not specifiy what a default is
o Parties can define, as long as done in good faith and is reasonable

Missing payment is a default

- Point is to accelerate the DB

Accelleration Clause: if DB defaults on one payment, it accelerates everything

o Goes in SA
- If default + Accelleration: You can repossess

Self-help

Judicial:
o File a complaint via court system
- After repossession

Sell collateral

Typically not enough, so there is some deficiency and that deficiency is unsecured

DB is liable for that deficiency Have to sue, no more collateral, just an empty promise
- Security Agreement Example:

Idaho deal

If DB does nto follow, it could be an event of default, even if he is still paying

o All information

Insurance information, storage information

o Sell, lease, etc

DB cant sale or pledge to another SP

o Protect collateral

Stormstorm = default; depreciation

o Reporting requirement

Default on payments, cash flow, etc.

o 4.1: Ownership clause = guarantees right in the collateral, if not it's a breach

Breach of covenant
o Accelleration clause:

Must pay total amount NOW v. if DB only missed two he only has to pay two

Can redeem collateral for full amount v. just the amount of two payments and get the
collateral back

If full amount, the only way DB can redeem collateral is to pay full amount
owed

Purely contractual in nature, in SA and PN

DB may want written notice in the event of default