Contents Library/TOCS/Law... · xxii Contents (c) Dishonor and Return 586 (i) The UCC’s “Midnight” Deadline 586 (ii) The Regulation CC Expeditious Return Rule 587 (iii) Regulation

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Contents

Acknowledgments xxxviiIntroduction xli

BOOK ONESales Systems 1

Chapter 1. Formation 3

Assignment 1: The Role and Scope of Codes in Sales Systems 3

A. Fundamental Aspects of Sales 3B. The Real World of Sales 4C. Functions of a Code in Sales Systems 6D. Scope of Article 2 8

Ragus Co. v. City of Chicago 11Gregory Funding LLC v. Saksoft, Inc. 14Cook v. Downing 18

Problem Set 1 22

Assignment 2: Scope Issues with Leases, CISG, and Real Estate 27

A. Scope of Article 2A 27Carlson v. Giachetti 29In re Purdy 32

B. Scope of the CISG 42Microgem Corp. v. Homecast Co. 42

C. Real Estate 46Problem Set 2 46

Assignment 3: The Process of Sales Contract Formation 51

Hill v. Gateway 2000, Inc. 51Belden, Inc. v. American Electronic Components, Inc. 59

Problem Set 3 70

Assignment 4: Formation with Leases, International Sales, and Real Estate 75

A. Formation of Contracts for Leases 75B. Formation of Contracts for International Sales 76

VLM Food Trading Int’l, Inc. v. Illinois Trading Co. 76C. Formation of Real Estate Contracts 82

Shimrak v. Goodsir 84Problem Set 4 91

Contentsxvi

Assignment 5: Statute of Frauds with Sales of Goods 95

DF Activities Corp. v. Brown 97General Trading Int’l v. Wal-Mart Stores 103

Problem Set 5 107

Assignment 6: Parol Evidence with Sales of Goods 111

Druckzentrum Harry Jung GmbH & Co. v. Motorola Mobility LLC 112Cravotta v. Deggingers’ Foundry, Inc. 119

Problem Set 6 125

Assignment 7: Requisites to Formalization in Leases, International Sales, and Real Estate Sales 129

A. Requisites to Formalization in Leases 129Kost v. Kraft 130

B. Requisites to Formalization in International Sales 133TeeVee Toons, Inc. v. Gerhard Schubert GmbH 134

C. Requisites to Formalization in the Real Estate System 140Ficke v. Wolken 141

Problem Set 7 148

Chapter 2. Terms 151

Assignment 8: Warranties with Sales of Goods 151

A. The Effects of Warranty Law on Business Practice 151B. The Basic UCC Quality Warranties 152

Phillips v. Cricket Lighters 153Leal v. Holtvogt 158

C. Extended Warranties and Maintenance Agreements 163Problem Set 8 164

Assignment 9: Lease, International, and Real Estate Warranties 169

A. Lease Warranties: The Case of Finance Leases 169Construction Resources Group, LLC v. Element Financial Corp. 169

B. Warranties with International Sales 176C. Real Estate Warranties 176

1. Warranties Generally 176 Hershey v. Rich Rosen Construction Co. 1772. Third-Party Home Warranties 183

Problem Set 9 184

Assignment 10: Reducing or Eliminating Warranty Liability: Basics 188

A. Warranty Reduction with Sales of Goods 188Wilbur v. Toyota Motor Sales, U.S.A. 191Lincoln Composites, Inc. v. Firetrace USA, LLC 194

B. Warranty Reduction with Leases 199C. Warranty Reduction with International Sales 200

Contents xvii

D. Disclaiming the Real Estate Implied Warranty of Habitability 201Axline v. Kutner 201

Problem Set 10 203

Assignment 11: Commercial Impracticability 207

A. Commercial Impracticability with Sales of Goods 207Alamance County Bd. of Educ. v. Bobby Murray Chevrolet 210

B. Commercial Impracticability with Leases 216C. Commercial Impracticability with International Sales 217

Raw Materials, Inc. v. Manfred Forberich GmbH & Co. 217D. Commercial Impracticability with Real Estate 224Problem Set 11 224

Assignment 12: Unconscionability 228

A. Unconscionability with Sales of Goods 228Duncan v. Nissan North America, Inc. 229

B. Unconscionability with Leases 235Pantoja-Cahue v. Ford Motor Credit Co. 236BMW Financial Services v. Smoke Rise Corp. 239

C. Unconscionability with International Sales 240D. Unconscionability with Real Estate 240Problem Set 12 240

Chapter 3. Performance 245

Assignment 13: Closing the Sale with Sales of Goods 245

North American Lighting, Inc. v. Hopkins Manufacturing Corp. 248Sinco, Inc. v. Metro-North Commuter R. Co. 253

Problem Set 13 259

Assignment 14: Closing with Leases, International Sales, and Real Estate 264

A. Closing with Leases 264In re Rafter Seven Ranches, L.P. 264

B. Closing with International Sales 276Topp Paper Co. v. Eti Converting Equipment 276

C. Real Estate Closings 284Gray v. First NH Banks 285

Problem Set 14 288

Assignment 15: Risk of Loss with Sales of Goods 292

Stampede Presentation Products, Inc. v. Productive Transportation, Inc. 294Cook Specialty Co. v. Schrlock 300

Problem Set 15 305

Assignment 16: Risk of Loss with Leases, International Sales, and Real Estate 310

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A. Risk of Loss with Leases 310In re Jawad 310

B. Risk of Loss with International Sales 317Citgo Petroleum Corp. v. Odfjell Seachem 317Chicago Prime Packers, Inc. v. Northam Food Trading Co. 324

C. Risk of Loss with Real Estate 330Voorde Poorte v. Evans 331

Problem Set 16 333

Chapter 4. Remedies 337

Assignment 17: Seller’s Remedies with Sales of Goods 337

A. Why Do Legal Remedies Matter at All? 337B. What Are a Seller’s Legal Remedies? 338

1. Action for the Price 340 Granvia Trading Ltd. v. Sutton Creations, Inc. 3402. Resale Damages 345 Firwood Mfg. Co. v. General Tire 3453. Contract-Market Difference (Without Resale) 3504. Lost Profits 350

Problem Set 17 350

Assignment 18: Lessor’s and Seller’s Remedies with Leases, International Sales, and Real Estate 355

A. Lessor’s Remedies 355BP Group, Inc. v. Kloeber 356

B. Seller’s Remedies with International Sales 360C. Seller’s Remedies with Real Estate Sales 361

Williams v. Ubaldo 362Problem Set 18 365

Assignment 19: Buyer’s Remedies with Sales of Goods 369

Lincoln Composites, Inc. v. Firetrace USA, LLC 370Problem Set 19 377

Assignment 20: Buyer’s and Lessee’s Remedies with Leases, International Sales, and Real Estate 383

A. Lessee’s Remedies 383B. Buyer’s Remedies with International Sales 384

Profi-Parkiet Sp. Zoo v. Seneca Hardwoods LLC 385C. Buyer’s Remedies with Real Estate 392

Jue v. Smiser 393Problem Set 20 396

Contents xix

BOOK TWOFinancial Systems 401

Part OnePayment Systems 403

Introduction to Part One 405Typologies of Payment Systems 406Developing Payment Systems 410

Chapter 5. Paying with a Card 413

Assignment 21: The Credit-Card System 413

A. The Issuer-Cardholder Relationship 413B. Using the Credit-Card Account 416C. Collection by the Payee 417

1. The Mechanics of Collection 4172. Finality of Payment 420

Hyland v. First USA Bank 422CitiBank (South Dakota), N.A. v. Mincks 424

Problem Set 21 433

Assignment 22: Error and Fraud in Credit-Card Transactions 436

A. Erroneous Charges 436Belmont v. Associates National Bank (Delaware) 437

B. Unauthorized Charges 447Roundtree v. Chase Bank USA, N.A. 447Azur v. Chase Bank, USA, N.A. 451New Century Financial Services v. Dennegar 456

Problem Set 22 461

Assignment 23: Debit Cards 464

A. Payment with a Debit Card 4641. Establishing the Debit-Card Relationship 4652. Transferring Funds with a Debit Card 4663. Collection by the Payee 466

B. Error and Fraud in Debit-Card Transactions 4671. Erroneous Transactions 4672. Fraudulent Transactions 468

Hospicomm, Inc. v. Fleet Bank, N.A. 472Problem Set 23 476

Contentsxx

Assignment 24: Prepaid Cards 479

A. Mechanics 479B. Legal Issues 482

1. EFTA 4822. Other Issues 483

Problem Set 24 485

Chapter 6. Electronic Consumer Payments 487

Assignment 25: Automated Clearing House Payments 487

A. The Basics of ACH Transfers 4871. The Basic Terminology 4882. The Mechanics 4893. Types of ACH Entries 4914. Finality, Error, and Fraud in ACH Transfers 492

In re Ocean Petroleum, Inc. (Fleet Bank, N.A. v. Business Alliance Capital Corp.) 494Clinton Plumbing and Heating v. Ciacco 500

B. POS Conversion 503C. Telephone-Initiated Payments 505Problem Set 25 507

Assignment 26: Internet Payments 509

A. Credit Cards on the Internet 5091. Processing the Transactions 5092. Problems 510

B. Debit Cards on the Internet 515C. ACH Transfers (WEB Entries) 516D. Foreign and Cross-Border Payments 517E. A Note on Mobile Payments 519Problem Set 26 520

Assignment 27: Virtual Currencies 521

A. The Mechanics of Bitcoin 521Stephen T. Middlebrook, Bitcoin for Merchants: Legal Considerations for Businesses Wishing to Accept Bitcoin as a Form of Payment 522

B. Legal Issues 523Florida v. Espinoza 524

Problem Set 27 530

Chapter 7. Paying with Paper (Checks) 533

Assignment 28: The Basic Checking Relationship 533

A. The Basic Relationship 533

Contents xxi

B. The Bank’s Right to Pay 5341. When Is It Proper for the Bank to Pay? 534

McGuire v. Bank One, Louisiana, N.A. 5352. Remedies for Improper Payment 539

McIntyre v. Harris 540C. The Bank’s Obligation to Pay 542

1. When Are Funds Available for Payment? 5422. Wrongful Dishonor: What Happens If the Bank

Refuses to Pay? 546Problem Set 28 547

Assignment 29: Risk of Loss in the Checking System 549

A. The Basic Framework 5491. Nonpayment 5492. Forged Signatures 551

(a) Forged Drawers’ Signatures and the Rule of Price v. Neal 552(i) What If the Payor Bank Pays

the Forged Check? 552(ii) What If the Payor Bank Dishonors

the Forged Check? 554(iii) The Special Case of Telephone Checks 555

(b) Forged Indorsements 556(i) What If the Payor Bank Dishonors the

Check Because of the Forged Indorsement? 556(ii) What If the Payor Bank Pays the Check

Despite the Forged Indorsement? 556(iii) Conversion 557

3. Alteration 558B. Special Rules 559

1. Negligence 559Thompson v. First BancoAmericano 560

2. Theft by Employees 566Halifax Corp. v. Wachovia Bank 567

3. Impostors 569State Security Check Cashing, Inc. v. American General Financial Services (DE) 569

Problem Set 29 579

Assignment 30: Collection of Checks 581

A. The Payor Bank’s Obligation to the Payee 581B. The Traditional Process of Collection 582

1. Obtaining Payment Directly 5822. Obtaining Payment Through Intermediaries 583

(a) Payee/Customer to Depositary Bank 584(b) Depositary Bank to Payor Bank 584

Contentsxxii

(c) Dishonor and Return 586(i) The UCC’s “Midnight” Deadline 586(ii) The Regulation CC Expeditious

Return Rule 587(iii) Regulation CC and the UCC’s

Midnight Deadline 587Troy Bank & Trust Co. v. The Citizens Bank 588NBT Bank v. First National Community Bank 591

C. Truncation and Check 21 6001. Payor-Bank Truncation 6012. Depositary-Bank Truncation 601

Wachovia Bank, N.A. v. Foster Bancshares, Inc. 6023. Check 21 604

Problem Set 30 608

Chapter 8. Wire Transfers 613

Assignment 31: The Wire-Transfer System 613

A. Introduction 613B. How Does It Work? 614

1. Initiating the Wire Transfer: From the Originator to the Originator’s Bank 614Trustmark Ins. Co. v. Bank One 615Receivers of Sabena SA v. Deutsche Bank A.G. 620

2. Executing the Transfer: From the Originator’s Bank to the Beneficiary’s Bank 626(a) Bilateral Systems (Including SWIFT) 626(b) CHIPS 627(c) Fedwire 628

3. Completing the Funds Transfer: From the Beneficiary’s Bank to the Beneficiary 630

C. Discharge of the Originator’s Underlying Obligation 631D. Finality of Payment 632

Aleo International, Ltd. v. CitiBank, N.A. 633Problem Set 31 634

Assignment 32: Error in Wire-Transfer Transactions 638

A. Recovering from Parties in the System 6381. Errors by the Originator 639

Phil & Kathy’s Inc. v. Safra National Bank 6392. Errors in the System 643

(a) Sending Excessive Funds 643(b) Sending Inadequate Funds 644(c) Bank-Statement Rule 645

Regatos v. North Fork Bank 646

Contents xxiii

3. Circuity of Recovery 650Grain Traders, Inc. v. CitiBank, N.A. 650

B. Recovering from the Mistaken Recipient 655Problem Set 32 656

Part TwoCredit Enhancement and Letters of Credit 659

Chapter 9. Credit Enhancement 661

Assignment 33: Credit Enhancement by Guaranty 661

A. The Role of Guaranties 661B. Rights of the Creditor Against the Guarantor 664

In re Caesars Entertainment Operating Co. (Caesars Entertainment Operating Co. v. BOKF, N.A.) 665

Problem Set 33 669

Assignment 34: Protections for Guarantors 671

A. Rights of the Guarantor Against the Principal 6711. Performance 6712. Reimbursement 6713. Subrogation 672

Chemical Bank v. Meltzer 673Stahl v. Simon (In re Adamson Apparel, Inc.) 678

B. Rights of the Guarantor Against the Creditor 6851. Suretyship Defenses 6852. Waiver of Suretyship Defenses 687

Data Sales Co. v. Diamond Z Manufacturing 687C. Bankruptcy of the Guarantor 693

Trimec, Inc. v. Zale Corporation 693Problem Set 34 695

Guaranty Agreement 697

Chapter 10. Letters of Credit 707

Assignment 35: Letters of Credit — The Basics 707

A. The Underlying Transaction 708B. Advising and Confirming Banks 709C. The Terms of the Credit 710D. Drawing on the Credit 712

Gilday v. Suffolk County National Bank 713

Contentsxxiv

Carter Petroleum Products, Inc. v. Brotherhood Bank & Trust Co. 716LaBarge Pipe & Steel Co. v. First Bank 720

E. Reimbursement 731Banco Nacional De Mexico v. Societe Generale 732

Problem Set 35 735

Assignment 36: Letters of Credit — Advanced Topics 740

A. Error and Fraud in Letter-of-Credit Transactions 7401. Wrongful Honor 7402. Wrongful Dishonor 7423. Fraud 744

(a) Forged Drafts 744(b) Fraudulent Submissions by the Beneficiary 744

B. Assigning Letters of Credit 746C. Choice-of-Law Rules 748Problem Set 36 749

Assignment 37: Third-Party Credit Enhancement — Standby Letters of Credit 751

A. The Standby Letter-of-Credit Transaction 751Nobel Insurance Co. v. First National Bank 753Wood v. State Bank 7583M Co. v. HSBC Bank USA, N.A. 760

B. Problems in Standby Letter-of-Credit Transactions 7691. Bankruptcy of the Applicant 770

In re Ocana 7712. The Issuer’s Right of Subrogation 772

CCF, Inc. v. First National Bank (In re Slamans) 773CRM Collateral II, Inc. v. Tri-County Metropolitan Transp. Dist. 775

Problem Set 37 781

Part ThreeLiquidity Systems 783

Chapter 11. Negotiability 785

Assignment 38: Negotiable Instruments 785

A. Negotiability and Liquidity 785B. A Typical Transaction 787C. The Negotiability Requirements 788

1. The Promise or Order Requirement 7892. The Unconditional Requirement 790

Contents xxv

3. The Money Requirement 7924. The Fixed-Amount Requirement 7925. The Payable-to-Bearer-or-Order Requirement 7936. The Demand or Definite-Time Requirement 7947. The No-Extraneous-Undertakings Requirement 794

In re Walker 795Problem Set 38 798

Promissory Note 801

Assignment 39: Transfer and Enforcement of Negotiable Instruments 809

A. Transferring a Negotiable Instrument 8091. Negotiation and Status as a Holder 8092. Special and Blank Indorsements 8103. Restrictive and Anomalous Indorsements 812

B. Enforcement and Collection of Instruments 8121. The Right to Enforce an Instrument 812

In re Kang Jin Hwang 8132. Presentment and Dishonor 8193. Defenses to Enforcement 819

Turman v. Ward’s Home Improvement, Inc. 820C. Liability on an Instrument 821

State Bank v. Smith 822D. The Effect of the Instrument on the Underlying Obligation 825Problem Set 39 826

Assignment 40: Holders in Due Course 829

A. Holder-in-Due-Course Status 8291. The Requirements for Holder-in-Due-Course Status 8292. Rights of Holders in Due Course 831

State Street Bank & Trust Co. v. Strawser 833Langley v. FDIC 835

3. Payment and Discharge 8404. Transferees Without Holder-in-Due-Course Status 842

B. The Fading Role of Negotiability 8421. The Declining Use of Negotiable Instruments 8432. The Decreasing Relevance of Negotiability to

Negotiable Instruments 844Problem Set 40 846

Chapter 12. Securities 849

Assignment 41: Securities 849

A. Securitization and Liquidity 849B. The Rise of Securitization 850

Contentsxxvi

C. Investment Securities and Article 8 851Davis v. Stern, Agee & Leach, Inc. 8521. The Subject Matter: What Is a Security? 8572. The Obligation of the Issuer 8593. The Two Holding Systems 860

(a) The Direct Holding System 861(i) Making the Transfer Effective Against the Issuer 861(ii) The Effect of a Transfer on Third Parties 862

Meadow Homes Development Corp. v. Bowens 863(b) The Indirect Holding System 867

(i) The Basic Framework 867(ii) Rights Against the Intermediary 869

Rider v. Estate of Rider (In re Estate of Rider) 869(iii) Rights Against Third Parties 877

Problem Set 41 879

BOOK THREESecured Credit 883

Part OneThe Creditor-Debtor Relationship 885

Chapter 13. Creditors’ Remedies Under State Law 887

Assignment 42: Remedies of Unsecured Creditors Under State Law 887

A. Who Is an Unsecured Creditor? 887B. How Do Unsecured Creditors Compel Payment? 888

Vitale v. Hotel California, Inc. 890Ellerbee v. County of Los Angeles 896

C. Limitations on Compelling Payment 897Wisconsin Statutes Annotated 899

D. Voidable Transfers 901E. Is the Law Serious About Collecting Unsecured Debts? 902Problem Set 42 903

Assignment 43: Security and Foreclosure 906

A. The Necessity of Foreclosure 908The Invention of Security: A Pseudo History 908

B. Transactions Intended as Security 911In re 364 N.B.E. Corp. 9111. Conditional Sales 9142. Leases Intended as Security Interests 9143. Sales of Accounts 9154. Asset Securitization 916

Contents xxvii

C. Foreclosure Procedure 9171. Judicial Foreclosure 918

Amir Efrati, The Court House: How One Family Fought Foreclosure 918

2. Real Property Power of Sale Foreclosure 9203. UCC Foreclosure by Sale 921

Problem Set 43 921

Assignment 44: Repossession of Collateral 924

A. The Importance of Possession Pending Foreclosure 924B. The Right to Possession Pending Foreclosure —

Personal Property 924Wisconsin Statutes 92612 Oklahoma Statutes 926

C. The Article 9 Right to Self-Help Repossession 927D. The Limits of Self-Help: Breach of the Peace 928

Duke v. Garcia 928E. Self-Help Against Accounts as Collateral 934F. The Right to Possession Pending

Foreclosure — Real Property 9361. The Debtor’s Right to Possession

During Foreclosure 9362. Appointment of a Receiver 936

California Code of Civil Procedure 937Illinois Mortgage Foreclosure Law 938

3. Assignments of Rents 938Problem Set 44 938

Assignment 45: Judicial Sale and Deficiency 941

A. Strict Foreclosure 941B. Foreclosure Sale Procedure 942

California Civil Code 942C. Foreclosure Sale Prices 944

First Bank v. Fischer & Frichtel, Inc. 944D. Factors that Depress Foreclosure Sale Prices 947

1. Advertising 948Wisconsin Statutes Annotated 948

2. Inspection 949Homebuyer Finds Remains of Owner 950

3. Title and Condition 950Klein v. Oakland/Red Oak Holdings, LLC 951

4. Hostile Situation 9535. The Statutory Right to Redeem 954

E. Antideficiency Statutes 954California Code of Civil Procedure 955

F. Credit Bidding at Judicial Sales 955G. Judicial Sale Procedure: A Functional Analysis 957Problem Set 45 957

Contentsxxviii

Assignment 46: Article 9 Sale and Deficiency 960

A. Acceptance of Collateral 960McDonald v. Yarchenko 960

B. Sale Procedure Under Article 9 963C. Problems with Article 9 Sale Procedure 965

1. Failure to Sell the Collateral 9652. The Requirement of Notice of Sale 966

In re Downing 9663. The Requirement of a Commercially Reasonable Sale 968

General Electric Capital Corp. v. Nichols 969D. Article 9 Sale Procedure: A Functional Analysis 972Problem Set 46 973

Chapter 14. Creditors’ Remedies in Bankruptcy 977

Assignment 47: Bankruptcy and the Automatic Stay 977

A. The Federal Bankruptcy System 977B. Bankruptcy Concepts 977C. Types of Bankruptcy Cases 979D. The Automatic Stay 981E. Lifting the Stay for Secured Creditors 982

In re Omni Lion’s Run, L.P. 986F. Strategic Uses of Stay Litigation 990Problem Set 47 992

Assignment 48: The Treatment of Secured Creditors in Bankruptcy 994

A. The Vocabulary of Bankruptcy Claims 994B. The Claims Process 996C. Calculating Claim Amounts 998

1. Unsecured Claims 9982. Secured Claims 999

D. Payments on Unsecured Claims 1000E. Bankruptcy Sales 1001

1. The Sale Process 10012. Who Pays the Sale Expenses? 1003

F. Secured Creditor Entitlements 10041. General Rules 10042. Valuing Future Payments 1006

Till v. SCS Credit Corporation 1007Problem Set 48 1009

Chapter 15. Creation and Scope of Security Interests 1013

Assignment 49: Formalities for Attachment 1013

A. A Prototypical Secured Transaction 1013Fisherman’s Pier: A Prototypical Secured Transaction 1013

Contents xxix

B. Formalities for Article 9 Security Interests 10161. Possession or Authenticated Security Agreement 1016

In re Schwalb 1018In re Giaimo 1020

2. Value Has Been Given 10243. The Debtor Has Rights in the Collateral 1025

C. Formalities for Real Estate Mortgages 1027Ohio Revised Code Ann. 1027

Problem Set 49 1027

Assignment 50: Which Collateral and Obligations Are Covered? 1032

A. Interpreting Security Agreements 10321. Debtor Against Creditor 10322. Creditor Against Third Party 10333. Interpreting Descriptions of Collateral 1033

B. Sufficiency of Description: Article 9 Security Agreements 1034In re Murphy 1034

C. Describing After-Acquired Property 1036Stoumbos v. Kilimnik 1037

D. Which Obligations Are Secured? 1039E. Real Estate Mortgages 1040Problem Set 50 1041

Assignment 51: Proceeds, Products, and Other Value-Tracing Concepts 1044

A. Proceeds 10451. Definition 10452. Termination of Security Interest in the Collateral

After Authorized Disposition 10493. Continuation of Security Interest in the Collateral

After Unauthorized Disposition 10494. Limitations on the Secured Creditor’s Ability to

Trace Collateral 1052In re Oriental Rug Warehouse Club, Inc. 1054

B. Other Value-Tracing Concepts 1057C. Non-Value-Tracing Concepts 1058D. Liability of Buyers of Collateral 1059Problem Set 51 1060

Assignment 52: Tracing Collateral Value During Bankruptcy 1062

A. After-Acquired Property and the Proceeds Dilemma 1062B. The “Equities of the Case” Solution to the Proceeds Dilemma 1064

In re Delbridge 1065In re Gunnison Center Apartments, LP 1067

C. The “Net Proceeds” Solution to the Proceeds Dilemma 1069In Matter of Strick Chex Columbus Two, LLC 1069

D. Cash Collateral in Bankruptcy 1072Problem Set 52 1073

Contentsxxx

Chapter 16. Default: The Gateway to Remedies 1077

Assignment 53: Default, Acceleration, and Cure Under State Law 1077

A. Default 1077Standard Default Provisions 1077

B. When Is Payment Due? 10781. Installment Loans 10792. Single Payment Loans 10793. Lines of Credit 1080

C. Acceleration and Cure 10811. Acceleration 10812. The Debtor’s Right to Cure 1082

Old Republic Insurance Co. v. Lee 1083735 Illinois Compiled Statutes 1084

3. Limits on the Enforceability of Acceleration Clauses 1084J.R. Hale Contracting Co. v. United New Mexico Bank at Albuquerque 1084

D. The Enforceability of Payment Terms 1088Kham & Nate’s Shoes No. 2, Inc. v. First Bank of Whiting 1089

E. Procedures After Default 1092Problem Set 53 1094

Assignment 54: Default, Acceleration, and Cure Under Bankruptcy Law 1098

In re Moffett 1098A. Stage One: Protection of the Defaulting Debtor Pending

Reorganization 1101B. Stage Two: Reinstatement and Cure 1102

1. Modification Distinguished from Reinstatement and Cure 1102

2. Reinstatement and Cure Under Chapter 11 11033. Reinstatement and Cure Under Chapter 13 11054. When Is It Too Late to File Bankruptcy to

Reinstate and Cure or to Modify? 1106C. Binding Lenders in the Absence of a Fixed Schedule

for Repayment 1107Problem Set 54 1108

Chapter 17. The Prototypical Secured Transaction 1111

Assignment 55: The Prototypical Secured Transaction 1111

A. The Parties 1111B. Otis Approves Bonnie’s Loan 1112

Contents xxxi

C. Otis and Bonnie’s Document the Loan 11131. Security Agreement and Statement of Transaction 11132. The Financing Statement 11213. The Personal Guarantee 1121

D. Bonnie’s Buys Some Boats 11231. The Floorplan Agreement 11232. The Buy 1125

E. Bonnie’s Sells a Boat 1126F. Monitoring the Existence of the Collateral 1127G. The Role of Criminal Law 1128 810 Illinois Compiled Statutes 1128 New York Penal Law 1128Problem Set 55 1129

Miller Indicted on Bank Fraud 1129

Part TwoThe Creditor-Third Party Relationship 1133

Chapter 18. Perfection 1135

Assignment 56: The Personal Property Filing Systems 1135

A. Competition for the Secured Creditor’s Collateral 1135B. What Is Priority? 1136

Peerless Packing Co. v. Malone & Hyde, Inc. 1137C. How Do Creditors Get Priority? 1139D. The Theory of the Filing System 1141E. The Multiplicity of Filing Systems 1143

In re Peregrine Entertainment, Limited 1144In re Pasteurized Eggs Corporation 1148

F. Methods and Costs of Searching 1149Problem Set 56 1150

Assignment 57: Article 9 Financing Statements: The Debtor’s Name 1153

A. The Components of a Filing System 11531. Financing Statements 11542. The Index 11543. Search Systems 1156

B. Correct Names for Use on Financing Statements 11571. Individual Names 11572. Corporate Names 11593. Partnership Names 11604. Trade Names 11615. The Entity Problem 1161

Contentsxxxii

C. Errors in the Debtors’ Names on Financing Statements 1162In re EDM Corporation 1162

Problem Set 57 1167

Assignment 58: Article 9 Financing Statements: Other Information 1170

A. Introduction 1170B. Filing Office Errors in Acceptance or Rejection 1171

1. Wrongly Accepted Filings 11712. Wrongly Rejected Filings 1171

C. Filer Errors in Accepted Filings 11721. Information Necessary Only to Qualify for Filing 11722. Required Information 1173

In re Pickle Logging, Inc. 1176D. Authorization to File a Financing Statement 1178E. UCC Insurance 1179Problem Set 58 1180

Assignment 59: Exceptions to the Article 9 Filing Requirement 1183

A. Collateral in the Possession of the Secured Party 11831. The Possession-Gives-Notice Theory 11832. What Is Possession? 11843. Possession as a Means of Perfection 1186

B. Collateral in the Control of the Secured Party 11881. Deposit Accounts 11882. Investment Property 1189

C. Automatic Perfection of Purchase-Money Security Interests in Consumer Goods 11901. Purchase-Money Security Interest (PMSI) 11912. Consumer Goods 1192

In re Lockovich 1192D. Security Interests Not Governed by Article 9 or

Another Filing Statute 1195Genesis Merchant Partners, L.P. v. Gilbride, Tusa, Last & Spellane 1195

E. What Became of the Notice Requirement? 1198Problem Set 59 1199

Chapter 19. Maintaining Perfection 1203

Assignment 60: Maintaining Perfection Through Lapse and Bankruptcy 1203

Contents xxxiii

A. Removing Filings from the Public Record 12031. Satisfaction 1203

Arizona Revised Statutes Annotated 1204Florida Statutes Annotated 1205

2. Release 12053. Article 9 Termination and Release 1206

In re Motors Liquidation Co. 1207B. Self-Clearing and Continuation in the

Article 9 Filing System 1211The Four County Bank v. Tidewater Equipment Co. 1213

C. The Effect of Bankruptcy on Lapse and Continuation 1216Problem Set 60 1217

Assignment 61: Maintaining Perfection Through Changes of Name, Identity, and Use 1220

A. Changes in the Debtor’s Name 1221B. New Debtors 1224C. Changes Affecting the Description of Collateral 1224D. Exchange of the Collateral 1226

1. Barter Transactions 1226In re Seaway Express Corporation 1228

2. Collateral to Cash Proceeds to Noncash Proceeds 12303. Collateral to Cash Proceeds (No New Property) 1231

Problem Set 61 1231

Assignment 62: Maintaining Perfection Through Relocation of Debtor or Collateral 1234

A. State-Based Filing in a National Economy 1234B. Initial Perfection 1235

1. At the Location of the Debtor 1235Lynn M. LoPucki, Why the Debtor’s State of Incorporation Should Be the Proper Place for Article 9 Filing: A Systems Analysis 1236Dayka & Hackett, LLC v. Del Monte Fresh Produce N. A., Inc. 1238

2. At the Location of the Collateral 1240C. Perfection Maintenance 1241

1. Through Debtor Relocation 1241a. Individuals 1241b. Unregistered Organizations 1242c. Registered Origanizations 1242

2. Through Collateral Transfer 1243D. Nation-Based Filing in a World Economy 1244E. International Filing Systems 1246Problem Set 62 1247

Contentsxxxiv

Assignment 63: Maintaining Perfection in Certificate of Title Systems 1249

A. Perfection in a Certificate of Title System 1252In re Thompson 1254

B. Accessions 1256C. In What State Should a Motor Vehicle Be Titled? 1258D. Motor Vehicle Registration 1259E. Maintaining Perfection on Interstate Movement of Collateral 1260

1. How It Is Supposed to Work 12602. Some Things That Can Go Wrong 12613. Movement of Goods Between Non-Certificate and

Certificate Jurisdictions 1262Problem Set 63 1264

Chapter 20. Priority 1267

Assignment 64: The Concept of Priority: State Law 1267

A. Priority in Foreclosure 1267B. Credit Bidding Revisited 1270C. Reconciling Inconsistent Priorities 1271D. The Right to Possession Between Lien Holders 1273

Legacy Bank v. Fab Tech Drilling Equipment, Inc. 1274E. UCC Notice of Sale 1279F. Rule Variation Across Systems 1279Problem Set 64 1280

Chapter 21. Competitions for Collateral 1283

Assignment 65: Lien Creditors Against Secured Creditors: The Basics 1283

A. How Creditors Become “Lien Creditors” 1283California Code of Civil Procedure 1284

B. Priority Among Lien Creditors 1285C. Priority Between Lien Creditors and Secured Creditors 1286

People v. Green 1287D. Priority Between Lien Creditors and Mortgage Creditors 1290E. Purchase-Money Priority 1290Problem Set 65 1291

Assignment 66: Lien Creditors Against Secured Creditors: Future Advances 1294

A. Priority of Future Advances: Personal Property 1294B. Priority of Nonadvances: Personal Property 1296

Uni Imports, Inc. v. Exchange National Bank of Chicago 1296C. Priority of Future Advances and Nonadvances:

Real Property 1300Shutze v. Credithrift of America, Inc. 1301

Problem Set 66 1305

Contents xxxv

Assignment 67: Secured Creditors Against Secured Creditors: The Basics 1307

A. Nonpurchase-Money Security Interests 13071. The Basic Rule: First to File or Perfect 13072. Priority of Future Advances 1309

In re Reckart Equipment Co., Inc. 13103. Priority in After-Acquired Property 1312

B. Purchase-Money Security Interests 13141. Purchase-Money Security Interests Generally 13142. Multiple Purchase-Money Security Interests 13163. Purchase-Money Security Interests in Inventory 13164. Purchase-Money Priority in Proceeds 1317

C. Priority in Commingled Collateral 1319Problem Set 67 1320

Assignment 68: Buyers Against Secured Creditors 1323

A. Introduction 1323B. Buyers of Personal Property 1324

1. The Buyer-in-the-Ordinary-Course Exception: UCC §9-320(a) 1324Daniel v. Bank of Hayward 1327

2. The Failure-to-Perfect Exception: UCC §§9-323(d) and (e), 9-317(b) and (d) 1332

3. The Authorized Disposition Exception: UCC §9-315(a)(1) 1332RFC Capital Corporation v. EarthLink, Inc. 1333

4. The Consumer-to-Consumer-Sale Exception: UCC §9-320(b) 1336

C. Buyers of Real Property 1337Problem Set 68 1338

Table of Cases 1343Table of Statutes, Regulations, and Restatements 1351Index 1377