1 William H. Widen. 2 Secured Transactions Assignment 15 The Prototype Secured Transaction.

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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 interests

Chapter 4: Default Acceleration and Cure

Chapter 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 interests

Chapter 4: Default Acceleration and Cure

Chapter 5: The Prototypical Secured Transaction

Part Two: The Creditor Third Party Relationship

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ShorelineBoat Co.

DeutscheFinancial

FloorplanAgreement

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Bonnie’sBoat World

ShorelineBoat Co.

DeutscheFinancial

Security agreementStatement of transactionFinancing statement

FloorplanAgreement

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ShorelineBoat Co.

DeutscheFinancial

Boats


FloorplanAgreement

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ShorelineBoat Co.

DeutscheFinancial

Boats


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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ShorelineBoat Co.

DeutscheFinancial

Boats


FloorplanAgreement


2. Who has the risk of missing collateral? Deutsche

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ShorelineBoat Co.

DeutscheFinancial

Boats


FloorplanAgreement



3. Who has the risk of Bonnie’s non-payment? Split

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ShorelineBoat Co.

DeutscheFinancial

GladysHomer

Boats Boats

First State Bank

FloorplanAgreement



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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[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.


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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4. “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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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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ArcherDebtor, Inc.

Owner

Limited liabilityGuarantee

Other creditors

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Think ahead to the point in time when Owner realizes the corporation is insolvent and Owner will get nothing

ArcherDebtor, Inc.

Owner


Other creditors

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Think ahead to the point in time when Owner realizes the corporation is insolvent and Owner will get nothing

ArcherDebtor, Inc.

Owner


Answer: 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






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b. Assume Bonnie has surrendered the boats. Should Deutsche seek a deficiency? How long can Bonnie keep the boats?




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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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c. How long can Bonnie keep the boats? What is the worst-case scenario for Deutsche?

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c. How long can Bonnie keep the boats? What is the worst-case scenario for Deutsche?




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Problem 15.5.a, page 270

Charge type Days/Date Rate/Amount Description

Finance 31-90 Prime - 1.00% Per annum of ADB

91- 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

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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“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.”


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Are BBW’s bank accounts collateral?


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Are BBW’s bank accounts collateral?


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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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5. Dealer will:








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5. Dealer will:








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5. Dealer will:








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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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ShorelineBoat Co.

DeutscheFinancial


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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ShorelineBoat Co.

DeutscheFinancial


Repo

Prototype deal


UCC sale for “the total unpaid balance”

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ShorelineBoat Co.

DeutscheFinancial


Repo

Prototype deal


What is the amount of the deficiency?

UCC sale for “the total unpaid balance” 261

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ShorelineBoat Co.

DeutscheFinancial


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 . . .”


Zero on existing boats; Shoreline pays the entire balance


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ShorelineBoat Co.

DeutscheFinancial


Repo

Prototype deal



Zero on existing boats; Shoreline pays the entire balance

The amount owing on nonexisting boats or boats insolvent Shoreline can’t buy.


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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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“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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“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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What if Deutsche wants to send a really expensive Statement of Transaction to percipitate a rejection?

1 William H. Widen. 2 Secured Transactions Assignment 15 The Prototype Secured Transaction.

Documents

Transcript of 1 William H. Widen. 2 Secured Transactions Assignment 15 The Prototype Secured Transaction.