William H. Widen
description
Transcript of William H. Widen
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William H. Widen
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Secured TransactionsAssignment 15
The Prototype Secured Transaction
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The Big Picture
Part One: The Creditor-Debtor RelationshipChapter 1-2: Creditors’ remedies Chapter 3: Creation and scope of security interestsChapter 4: Default Acceleration and CureChapter 5: The Prototypical Secured Transaction
Part Two: The Creditor Third Party Relationship
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The Big Picture
Part One: The Creditor-Debtor RelationshipChapter 1-2: Creditors’ remedies Chapter 3: Creation and scope of security interestsChapter 4: Default Acceleration and CureChapter 5: The Prototypical Secured Transaction
Part Two: The Creditor Third Party Relationship
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The Prototype Secured Transaction
ShorelineBoat Co.
DeutscheFinancial
FloorplanAgreement
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The Prototype Secured Transaction
Bonnie’sBoat World
ShorelineBoat Co.
DeutscheFinancial
Security agreementStatement of transactionFinancing statement
FloorplanAgreement
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The Prototype Secured Transaction
Bonnie’sBoat World
ShorelineBoat Co.
DeutscheFinancial
Boats
Security agreementStatement of transactionFinancing statement
FloorplanAgreement
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The Prototype Secured Transaction
Bonnie’sBoat World
ShorelineBoat Co.
DeutscheFinancial
Boats
Security agreementStatement of transactionFinancing statement
FloorplanAgreement
1. Who has the risk of the value of collateral? Shoreline agreed to buy the boats back, Floorplan ¶ 3.a. and b
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The Prototype Secured Transaction
Bonnie’sBoat World
ShorelineBoat Co.
DeutscheFinancial
Boats
Security agreementStatement of transactionFinancing statement
FloorplanAgreement
1. Who has the risk of the value of collateral? Shoreline agreed to buy the boats back, Floorplan ¶ 3.a. and b
2. Who has the risk of missing collateral? Deutsche
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The Prototype Secured Transaction
Bonnie’sBoat World
ShorelineBoat Co.
DeutscheFinancial
Boats
Security agreementStatement of transactionFinancing statement
FloorplanAgreement
1. Who has the risk of the value of collateral? Shoreline agreed to buy the boats back, Floorplan ¶ 3.a. and b
2. Who has the risk of missing collateral? Deutsche
3. Who has the risk of Bonnie’s non-payment? Split
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The Prototype Secured Transaction
Bonnie’sBoat World
ShorelineBoat Co.
DeutscheFinancial
GladysHomerBoats Boats
First State Bank
FloorplanAgreement
1. Who has the risk of the value of collateral? Shoreline agreed to buy the boats back, Floorplan ¶ 3.a. and b
2. Who has the risk of missing collateral? Deutsche
3. Who has the risk of Bonnie’s non-payment? Split
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Problem 15.1, page 268
[Read problem]
This is “field warehousing.” Do you see any problems?
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Problem 15.1, page 268
[Read problem]
This is “field warehousing.” Do you see any problems?
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Tino De Angelis stands amid steamy clouds in his New Jersey refinery.
Problem 15.1, page 268
The Great Salad Oil Swindle November 1963.
1. The oil is floating on top of water.
2. An underground pumping system moves the salad oil ahead of the floor checkers
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Tino De Angelis stands amid steamy clouds in his New Jersey refinery.
Problem 15.1, page 268
The Great Salad Oil Swindle November 1963.
1. The oil is floating on top of water.
2. An underground pumping system moves the salad oil ahead of the floor checkers
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Tino De Angelis stands amid steamy clouds in his New Jersey refinery.
Problem 15.1, page 268
The Great Salad Oil Swindle November 1963.
1. The oil is floating on top of water.
2. An underground pumping system moves the salad oil ahead of the floor checkers
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Problem 15.2, page 2681. “Miller . . . double collateralized vehicles . . . by using [them]
as collateral on two or more floor plan loans without disclosing [the other pledge].”
Discover the other floor plan lender and cross check lists.
2. “Miller . . . told . . . [the floor checkers] that the missing vehicles were on test drives or were out on loan to a customer whose vehicle was being serviced.”
Find them immediately or repeat the entire floor check.
3. “Miller [told] customers [to] return their vehicles for warranty or service work, . . . the license plates were removed and the financial institutions were called to do a floor plan check on the missing vehicles.”
Check VIN numbers on your own schedule, notice use signs
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Problem 15.2, page 2684. “Miller obtained nominee loans (a loan in the name of one
party that is intended for use by another) involving the fictitious sales of automobiles, forged and falsified sales contracts for vehicles, in addition to financial contracts for those vehicles. Miller [obtained] vehicle loans on behalf of other individuals without their knowledge or consent.”
“Know your borrower.”
Disburse to the dealer and the borrower.
Miller Ford BorrowerCar
Bank
Check
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Problem 15.3, page 269
Why should Archer Commercial Finance require personal guarantees when (1) it hurts business and (2) nine out of ten judgments on personal guarantees are uncollectible?
Debtor, Inc.
Owner
Limited liability
Archer
Other creditors
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Problem 15.3, page 269
Why should Archer Commercial Finance require personal guarantees when (1) it hurts business and (2) nine out of ten judgments on personal guarantees are uncollectible?
ArcherDebtor, Inc.
Owner
Limited liability Guarantee
Other creditors
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Problem 15.3, page 269
Why should Archer Commercial Finance require personal guarantees when (1) it hurts business and (2) nine out of ten judgments on personal guarantees are uncollectible?
Think ahead to the point in time when Owner realizes the corporation is insolvent and Owner will get nothing
ArcherDebtor, Inc.
Owner
Limited liability Guarantee
Other creditors
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Problem 15.3, page 269
Why should Archer Commercial Finance require personal guarantees when (1) it hurts business and (2) nine out of ten judgments on personal guarantees are uncollectible?
Think ahead to the point in time when Owner realizes the corporation is insolvent and Owner will get nothing
ArcherDebtor, Inc.
Owner
Limited liability GuaranteeAnswer: The guarantees assure Owner will favor Archer in the liquidation
Other creditors
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Problem 15.4, page 270[Read problem]
a. Does Deutsche have the right to the boats? Yes. §9-609
b. If Bonnie surrenders the boats, what will Deutsche do? Seek deficiency? Seek criminal prosecution?
c. How long can Bonnie keep the boats?
d. What is your advice to Bonnie?
Rule 4.4. In representing a client, a lawyer shall not use means that have no substantial purpose other than to . . . delay or burden a third person.
Rule 1.2. A lawyer shall not counsel a client to engage . . . in conduct that the lawyer knows is criminal or fraudulent . . . but a lawyer may discuss the legal consequences of any proposed course of conduct . . .
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Problem 15.4, page 270a. Does Deutsche have the right to the boats? Yes. §9-609
b. If Bonnie surrenders the boats, what will Deutsche do? Seek deficiency? Seek criminal prosecution?
c. How long can Bonnie keep the boats?
d. What is your advice to Bonnie?
Rule 4.4. In representing a client, a lawyer shall not use means that have no substantial purpose other than to . . . delay or burden a third person.
Rule 1.2. A lawyer shall not counsel a client to engage . . . in conduct that the lawyer knows is criminal or fraudulent . . . but a lawyer may discuss the legal consequences of any proposed course of conduct . . .
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Problem 15.4, page 270a. Does Deutsche have the right to the boats? Yes. §9-609
b. If Bonnie surrenders the boats, what will Deutsche do? Seek deficiency? Seek criminal prosecution?
c. How long can Bonnie keep the boats?
d. What is your advice to Bonnie?
Rule 4.4. In representing a client, a lawyer shall not use means that have no substantial purpose other than to . . . delay or burden a third person.
Rule 1.2. A lawyer shall not counsel a client to engage . . . in conduct that the lawyer knows is criminal or fraudulent . . . but a lawyer may discuss the legal consequences of any proposed course of conduct . . .
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Problem 15.4, page 270a. Does Deutsche have the right to the boats? Yes. §9-609
b. Assume Bonnie has surrendered the boats. Should Deutsche seek a deficiency? How long can Bonnie keep the boats?
d. What is your advice to Bonnie?
Rule 4.4. In representing a client, a lawyer shall not use means that have no substantial purpose other than to . . . delay or burden a third person.
Rule 1.2. A lawyer shall not counsel a client to engage . . . in conduct that the lawyer knows is criminal or fraudulent . . . but a lawyer may discuss the legal consequences of any proposed course of conduct . . .
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Problem 15.4, page 270a. Does Deutsche have the right to the boats? Yes. §9-609
b. Assume Bonnie has surrendered the boats. Should Deutsche seek a deficiency? Seek criminal prosecution?
Ill. Rev. Stat. 9-315.01. It is unlawful for a debtor . . . who has a right of sale . . . and is to account to the secured party for the proceeds . . . to sell . . . and willfully and wrongfully fail to pay the secured party the amount of said proceeds due under the security agreement. Failure to pay such proceeds . . . within 10 days after the sale . . . is prima facia evidence of a willful and wanton failure to pay. [Such conduct is a Class 3 felony.]
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Problem 15.4, page 270a. Does Deutsche have the right to the boats? Yes. §9-609
b. Assume Bonnie has surrendered the boats. Should Deutsche seek a deficiency? Seek criminal prosecution?
c. How long can Bonnie keep the boats?
d. What is your advice to Bonnie?
Rule 4.4. In representing a client, a lawyer shall not use means that have no substantial purpose other than to . . . delay or burden a third person.
Rule 1.2. A lawyer shall not counsel a client to engage . . . in conduct that the lawyer knows is criminal or fraudulent . . . but a lawyer may discuss the legal consequences of any proposed course of conduct . . .
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Problem 15.4, page 270a. Does Deutsche have the right to the boats? Yes. §9-609
b. Assume Bonnie has surrendered the boats. Should Deutsche seek a deficiency? Seek criminal prosecution?
c. How long can Bonnie keep the boats? What is the worst-case scenario for Deutsche?
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Problem 15.4, page 270a. Does Deutsche have the right to the boats? Yes. §9-609
b. Assume Bonnie has surrendered the boats. Should Deutsche seek a deficiency? Seek criminal prosecution?
c. How long can Bonnie keep the boats? What is the worst-case scenario for Deutsche?
d. What is your advice to Bonnie?
Rule 4.4. In representing a client, a lawyer shall not use means that have no substantial purpose other than to . . . delay or burden a third person.
Rule 1.2. A lawyer shall not counsel a client to engage . . . in conduct that the lawyer knows is criminal or fraudulent . . . but a lawyer may discuss the legal consequences of any proposed course of conduct . . .
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Problem 15.5.a, page 270Charge type Days/Date Rate/Amount Description
Finance 31-90 Prime - 1.00% Per annum of ADB91- 2.4% Per month of ADB
equates to over 28% APR (with compounding)
Flat: 31- .2500% Of balance every month
Late rate: Prime + 5.5% Per annum of ADB of late pmt amt
Prime means the highest prime rate or reference rate of interest publicly announced from time to time by Chase Manhattan Bank, N.A., Chemical Bank and Citibank, N.A. . . .http://www.bankrate.com/brm/ratewatch/leading-rates.asp
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Is BBW’s lease collateral?
Problem 15.5.b, page 270
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Is BBW’s lease collateral?
“Dealer grants Deutsche a security interest in all Dealer’s inventory, equipment, fixtures, accounts, contract rights, chattel paper, instruments, reserves, documents and general intangibles, whether now owned or hereafter acquired, all attachments, accessories, accessions, substitutions and replacements thereto and all proceeds thereof.”
Problem 15.5.b, page 270
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Is BBW’s lease collateral?
“Dealer grants Deutsche a security interest in all Dealer’s inventory, equipment, fixtures, accounts, contract rights, chattel paper, instruments, reserves, documents and general intangibles, whether now owned or hereafter acquired, all attachments, accessories, accessions, substitutions and replacements thereto and all proceeds thereof.”
Problem 15.5.b, page 270
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Is BBW’s lease collateral?
“Dealer grants Deutsche a security interest in all Dealer’s inventory, equipment, fixtures, accounts, contract rights, chattel paper, instruments, reserves, documents and general intangibles, whether now owned or hereafter acquired, all attachments, accessories, accessions, substitutions and replacements thereto and all proceeds thereof.”
Are BBW’s bank accounts collateral?
Problem 15.5.b, page 270
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Is BBW’s lease collateral?
“Dealer grants Deutsche a security interest in all Dealer’s inventory, equipment, fixtures, accounts, contract rights, chattel paper, instruments, reserves, documents and general intangibles, whether now owned or hereafter acquired, all attachments, accessories, accessions, substitutions and replacements thereto and all proceeds thereof.”
Are BBW’s bank accounts collateral?
Problem 15.5.b, page 270
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Does a demonstration ride violate the Agreement?
5. Dealer will:
(b) Not . . . demonstrate . . . any Collateral financed by Deutsche without Deutsche’s prior written consent . . .
Would a demonstration ride be grounds to call the loan?
9. Dealer will be in default under this Agreement if:
(a) Dealer breaches any terms . . . contained herein . . .
In the event of default
(i) Deutsche may at any time at Deutsche’s election, without notice or demand to dealer . . . declare all or any part of the debt . . . immediately due and payable . . . .
Problem 15.5.c, page 270
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Does a demonstration ride violate the Agreement?
5. Dealer will:
(b) Not . . . demonstrate . . . any Collateral financed by Deutsche without Deutsche’s prior written consent . . .
Would a demonstration ride be grounds to call the loan?
9. Dealer will be in default under this Agreement if:
(a) Dealer breaches any terms . . . contained herein . . .
In the event of default
(i) Deutsche may at any time at Deutsche’s election, without notice or demand to dealer . . . declare all or any part of the debt . . . immediately due and payable . . . .
Problem 15.5.c, page 270
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Does a demonstration ride violate the Agreement?
5. Dealer will:
(b) Not . . . demonstrate . . . any Collateral financed by Deutsche without Deutsche’s prior written consent . . .
Would a demonstration ride be grounds to call the loan?
9. Dealer will be in default under this Agreement if:
(a) Dealer breaches any terms . . . contained herein . . .
In the event of default
(i) Deutsche may at any time at Deutsche’s election, without notice or demand to dealer . . . declare all or any part of the debt . . . immediately due and payable . . . .
Problem 15.5.c, page 270
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Does a demonstration ride violate the Agreement?
5. Dealer will:
(b) Not . . . demonstrate . . . any Collateral financed by Deutsche without Deutsche’s prior written consent . . .
Would a demonstration ride be grounds to call the loan?
9. Dealer will be in default under this Agreement if:
(a) Dealer breaches any terms . . . contained herein . . .
In the event of default
(i) Deutsche may at any time at Deutsche’s election, without notice or demand to dealer . . . declare all or any part of the debt . . . immediately due and payable . . . .
Problem 15.5.c, page 270
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Bonnie’sBoat World
ShorelineBoat Co.
DeutscheFinancial
Problem 15.5.d, page 270
SA andobligation
Prototype deal
Boats
If Shoreline has to buy repossessed boats back, can it get a deficiency from Bonnie’s?
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Bonnie’sBoat World
ShorelineBoat Co.
DeutscheFinancial
Problem 15.5.d, page 270
SA andobligation
Prototype deal
Boats
“10. Dealer agrees that the purchase of any Collateral by a vendor, as provided in any agreement between Deutsche and the vendor, is a commercially reasonable disposition and private sale of such Collateral under the Uniform Commercial Code . . . .”
If Shoreline has to buy repossessed boats back, can it get a deficiency from Bonnie’s?
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Bonnie’sBoat World
ShorelineBoat Co.
DeutscheFinancial
Problem 15.5.d, page 270
Repo
Prototype deal
“10. Dealer agrees that the purchase of any Collateral by a vendor, as provided in any agreement between Deutsche and the vendor, is a commercially reasonable disposition and private sale of such Collateral under the Uniform Commercial Code . . . .”
UCC sale for “the total unpaid balance”
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Bonnie’sBoat World
ShorelineBoat Co.
DeutscheFinancial
Problem 15.5.d, page 270
Repo
Prototype deal
“10. Dealer agrees that the purchase of any Collateral by a vendor, as provided in any agreement between Deutsche and the vendor, is a commercially reasonable disposition and private sale of such Collateral under the Uniform Commercial Code . . . .”
What is the amount of the deficiency?
UCC sale for “the total unpaid balance” 261
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Bonnie’sBoat World
ShorelineBoat Co.
DeutscheFinancial
Problem 15.5.d, page 270
Repo
Prototype deal
“10. Dealer agrees that the purchase of any Collateral by a vendor, as provided in any agreement between Deutsche and the vendor, is a commercially reasonable disposition and private sale of such Collateral under the Uniform Commercial Code . . .”
What is the amount of the deficiency?
Zero on existing boats; Shoreline pays the entire balance
UCC sale for “the total unpaid balance” 261
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Bonnie’sBoat World
ShorelineBoat Co.
DeutscheFinancial
Problem 15.5.d, page 270
Repo
Prototype deal
“10. Dealer agrees that the purchase of any Collateral by a vendor, as provided in any agreement between Deutsche and the vendor, is a commercially reasonable disposition and private sale of such Collateral under the Uniform Commercial Code . . . .”
What is the amount of the deficiency?
Zero on existing boats; Shoreline pays the entire balance
The amount owing on nonexisting boats or boats insolvent Shoreline can’t buy.
UCC sale for “the total unpaid balance” 261
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Problem 15.7, page 271
Deutsche wants out of the deal but Bonnie is not in breach. Can Deutsche get out? Can Deutsche stop making advances?
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Problem 15.7, page 271“12. . . .Either party may terminate this Agreement at any time by written notice received by the other party. If Deutsche terminates this Agreement, Dealer agrees that if Dealer: (a) is not in default hereunder, 30 days prior notice of termination is reasonable and sufficient (although this provision shall not be construed to mean that shorter periods may not, in particular circumstances, also be reasonable and sufficient). . . Dealer will not be relieved from any obligation to Deutsche arising out of Deutsche’s advances or commitments made before the effective termination date of this Agreement. Deutsche will retain all of its rights, interests and remedies hereunder until Dealer has paid all Dealer’s debts to Deutsche.
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Problem 15.7, page 271
“2. . . . Dealer acknowledges that Deutsche maythen elect to terminate Dealer’s financing program . . . and cease making additional advances to Dealer. Any termination for that reason, however, will not accelerate the maturities of advances previously made, unless Dealer shall otherwise be in default of this Agreement.”
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Problem 15.7, page 271“2. [Dealer can reject a S of T]. . . Dealer acknowledges that Deutsche may then elect to terminate Dealer’s financing program . . . and cease making additional advances [when?] to Dealer. Any termination for that reason, however, will not accelerate the maturities of advances previously made, unless Dealer shall otherwise be in default of this Agreement.”
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Problem 15.7, page 271
What if Deutsche wants to send a really expensive Statement of Transaction to percipitate a rejection?