Contents

Contents

i
Cover Page
ii
Editorial Advisors
iii
Title Page
iv
Copyright Page
v
About Page
vii
Dedication Page
xiii
Table of Contents
xxvii
Acknowledgments
xxxi
Introduction
xxxix
Quote
xli
Half Title Page


PART I - The Creditor-Debtor Relationship


3
Chapter 1 Creditors’ Remedies Under State Law
3
Assignment 1: Remedies of Unsecured Creditors Under State Law
3
A.
Who Is an Unsecured Creditor?
4
B.
How Do Unsecured Creditors Compel Payment?
6
Vitale v. Hotel California, Inc.
12
Ellerbee v. County of Los Angeles
13
C.
Limitations on Compelling Payment
17
D.
Voidable Transfers
18
E.
Is the Law Serious About Collecting Unsecured Debts?
19
Problem Set 1
22
Assignment 2: Security and Foreclosure
24
A.
The Necessity of Foreclosure
24
The Invention of Security: A Pseudo History
27
B.
Transactions Intended as Security
27
In re 364 N.B.E. Corp.
29
1.
Conditional Sales
30
2.
Leases Intended as Security Interests
31
3.
Sales of Accounts
32
4.
Asset Securitization
33
C.
Foreclosure Procedure
34
1.
Judicial Foreclosure
34
Amir Efrati, The Court House: How One Family Fought Foreclosure
36
2.
Real Property Power of Sale Foreclosure
37
3.
UCC Foreclosure by Sale
37
Problem Set 2
40
Assignment 3: Repossession of Collateral
40
A.
The Importance of Possession Pending Foreclosure
40
B.
The Right to Possession Pending Foreclosure — Personal Property
43
C.
The Article 9 Right to Self-Help Repossession
44
D.
The Limits of Self-Help: Breach of the Peace
44
Duke v. Garcia
50
E.
Self-Help Against Accounts as Collateral
52
F.
The Right to Possession Pending Foreclosure — Real Property
52
1.
The Debtor’s Right to Possession During Foreclosure
52
2.
Appointment of a Receiver
54
3.
Assignments of Rents
54
Problem Set 3
57
Assignment 4: Judicial Sale and Deficiency
57
A.
Strict Foreclosure
58
B.
Foreclosure Sale Procedure
60
C.
Foreclosure Sale Prices
60
First Bank v. Fischer & Frichtel, Inc.
63
D.
Factors that Depress Foreclosure Sale Prices
64
1.
Advertising
65
2.
Inspection
66
3.
Title and Condition
67
Klein v. Oakland/Red Oak Holdings, LLC
69
4.
Hostile Situation
70
5.
The Statutory Right to Redeem
70
E.
Antideficiency Statutes
71
F.
Credit Bidding at Judicial Sales
73
G.
Judicial Sale Procedure: A Functional Analysis
73
Problem Set 4
76
Assignment 5: Article 9 Sale and Deficiency
76
A.
Acceptance of Collateral
76
McDonald v. Yarchenko
79
B.
Sale Procedure Under Article 9
81
C.
Problems with Article 9 Sale Procedure
81
1.
Failure to Sell the Collateral
82
2.
The Requirement of Notice of Sale
82
In re Downing
84
3.
The Requirement of a Commercially Reasonable Sale
85
General Electric Capital Corp. v. Nichols
88
D.
Article 9 Sale Procedure: A Functional Analysis
89
Problem Set 5
93
Chapter 2 Creditors’ Remedies in Bankruptcy
93
Assignment 6: Bankruptcy and the Automatic Stay
93
A.
The Federal Bankruptcy System
93
B.
Bankruptcy Concepts
95
C.
Types of Bankruptcy Cases
97
D.
The Automatic Stay
98
E.
Lifting the Stay for Secured Creditors
102
In re Omni Lion’s Run, L.P.
106
F.
Strategic Uses of Stay Litigation
108
Problem Set 6
110
Assignment 7: The Treatment of Secured Creditors in Bankruptcy
110
A.
The Vocabulary of Bankruptcy Claims
112
B.
The Claims Process
114
C.
Calculating Claim Amounts
114
1.
Unsecured Claims
115
2.
Secured Claims
116
D.
Payments on Unsecured Claims
117
E.
Bankruptcy Sales
117
1.
The Sale Process
119
2.
Who Pays the Sale Expenses?
120
F.
Secured Creditor Entitlements
120
1.
General Rules
122
2.
Valuing Future Payments
123
Till v. SCS Credit Corporation
125
Problem Set 7
129
Chapter 3 Creation and Scope of Security Interests
129
Assignment 8: Formalities for Attachment
129
A.
A Prototypical Secured Transaction
132
B.
Formalities for Article 9 Security Interests
132
1.
Possession or Authenticated Security Agreement
134
In re Schwalb
136
In re Giaimo
140
2.
Value Has Been Given
141
3.
The Debtor Has Rights in the Collateral
143
C.
Formalities for Real Estate Mortgages
143
Problem Set 8
148
Assignment 9: Which Collateral and Obligations Are Covered?
148
A.
Interpreting Security Agreements
148
1.
Debtor Against Creditor
149
2.
Creditor Against Third Party
149
3.
Interpreting Descriptions of Collateral
150
B.
Sufficiency of Description: Article 9 Security Agreements
150
In re Murphy
152
C.
Describing After-Acquired Property
153
Stoumbos v. Kilimnik
155
D.
Which Obligations Are Secured?
156
E.
Real Estate Mortgages
157
Problem Set 9
160
Assignment 10: Proceeds, Products, and Other Value-Tracing Concepts
161
A.
Proceeds
161
1.
Definition
164
2.
Termination of Security Interest in the Collateral After Authorized Disposition
165
3.
Continuation of Security Interest in the Collateral After Unauthorized Disposition
168
4.
Limitations on the Secured Creditor’s Ability to Trace Collateral
170
In re Oriental Rug Warehouse Club, Inc.
173
B.
Other Value-Tracing Concepts
174
C.
Non-Value-Tracing Concepts
175
D.
Liability of Buyers of Collateral
176
Problem Set 10
178
Assignment 11: Tracing Collateral Value During Bankruptcy
178
A.
After-Acquired Property and the Proceeds Dilemma
180
B.
The “Equities of the Case” Solution to the Proceeds Dilemma
181
In re Delbridge
183
In re Gunnison Center Apartments, LP
185
C.
The “Redefining Proceeds” Solution to the Proceeds Dilemma
185
In Matter of Strick Chex Columbus Two, LLC
188
D.
Cash Collateral in Bankruptcy
189
Problem Set 11
192
Assignment 12: The Legal Limits on What May Be Collateral
192
A.
Property that Cannot Be Collateral
192
1.
Property of a Personal Nature
196
2.
Future Income of Individuals
197
3.
Pension Rights
197
In re Green
200
B.
Future Property as Collateral
201
C.
Valuable Nonproperty as Collateral
202
In re Tracy Broadcasting Corp.
205
D.
Defeating the Limits on What May Be Collateral
206
E.
Restrictions on the Grant of Security Interests Made Ineffective
206
In re Chris-Don, Inc.
209
Problem Set 12
213
Chapter 4 Default: The Gateway to Remedies
213
Assignment 13: Default, Acceleration, and Cure Under State Law
213
A.
Default
213
Standard Default Provisions
214
B.
When Is Payment Due?
215
1.
Installment Loans
215
2.
Single Payment Loans
216
3.
Lines of Credit
217
C.
Acceleration and Cure
217
1.
Acceleration
218
2.
The Debtor’s Right to Cure
219
Old Republic Insurance Co. v. Lee
220
3.
Limits on the Enforceability of Acceleration Clauses
220
J.R. Hale Contracting Co. v. United New Mexico Bank at Albuquerque
224
D.
The Enforceability of Payment Terms
225
Kham & Nate’s Shoes No. 2, Inc. v. First Bank of Whiting
228
E.
Procedures After Default
230
Problem Set 13
234
Assignment 14: Default, Acceleration, and Cure Under Bankruptcy Law
234
In re Moffett
237
A.
Stage One: Protection of the Defaulting Debtor Pending Reorganization
238
B.
Stage Two: Reinstatement and Cure
238
1.
Modification Distinguished from Reinstatement and Cure
239
2.
Reinstatement and Cure Under Chapter 11
241
3.
Reinstatement and Cure Under Chapter 13
242
4.
When Is It Too Late to File Bankruptcy to Reinstate and Cure or to Modify?
243
C.
Binding Lenders in the Absence of a Fixed Schedule for Repayment
244
Problem Set 14
247
Chapter 5 The Prototypical Secured Transaction
247
Assignment 15: The Prototypical Secured Transaction
247
A.
The Parties
248
B.
Otis Approves Bonnie’s Loan
249
C.
Otis and Bonnie’s Document the Loan
249
1.
Security Agreement and Statement of Transaction
257
2.
The Financing Statement
257
3.
The Personal Guarantee
259
D.
Bonnie’s Buys Some Boats
259
1.
The Floorplan Agreement
261
2.
The Buy
262
E.
Bonnie’s Sells a Boat
263
F.
Monitoring the Existence of the Collateral
264
G.
The Role of Criminal Law
265
Problem Set 15
265
Miller Indicted on Bank Fraud
PART II - The Creditor-Third Party Relationship


271
Chapter 6 Perfection
271
Assignment 16: The Personal Property Filing Systems
271
A.
Competition for the Secured Creditor’s Collateral
272
B.
What Is Priority?
273
Peerless Packing Co. v. Malone & Hyde, Inc.
275
C.
How Do Creditors Get Priority?
277
D.
The Theory of the Filing System
279
E.
The Multiplicity of Filing Systems
280
In re Peregrine Entertainment, Limited
284
In re Pasteurized Eggs Corporation
285
F.
Methods and Costs of Searching
286
Problem Set 16
289
Assignment 17: Article 9 Financing Statements: The Debtor’s Name
289
A.
The Components of a Filing System
290
1.
Financing Statements
290
2.
The Index
292
3.
Search Systems
293
B.
Correct Names for Use on Financing Statements
293
1.
Individual Names
295
2.
Corporate Names
296
3.
Partnership Names
297
4.
Trade Names
297
5.
The Entity Problem
298
C.
Errors in the Debtors’ Names on Financing Statements
298
In re EDM Corporation
303
Problem Set 17
306
Assignment 18: Article 9 Financing Statements: Other Information
306
A.
Introduction
307
B.
Filing Office Errors in Acceptance or Rejection
307
1.
Wrongly Accepted Filings
307
2.
Wrongly Rejected Filings
308
C.
Filer Errors in Accepted Filings
308
1.
Information Necessary Only to Qualify for Filing
309
2.
Required Information
312
In re Pickle Logging, Inc.
314
D.
Authorization to File a Financing Statement
315
E.
UCC Insurance
316
Problem Set 18
319
Assignment 19: Exceptions to the Article 9 Filing Requirement
319
A.
Collateral in the Possession of the Secured Party
319
1.
The Possession-Gives-Notice Theory
320
2.
What Is Possession?
322
3.
Possession as a Means of Perfection
324
B.
Collateral in the Control of the Secured Party
324
1.
Deposit Accounts
325
2.
Investment Property
326
C.
Automatic Perfection of Purchase-Money Security Interests in Consumer Goods
327
1.
Purchase-Money Security Interest (PMSI)
328
2.
Consumer Goods
328
In re Lockovich
331
D.
Security Interests Not Governed by Article 9 or Another Filing Statute
331
Genesis Merchant Partners, L.P. v. Gilbride, Tusa, Last & Spellane
334
E.
What Became of the Notice Requirement?
335
Problem Set 19
338
Assignment 20: The Land and Fixtures Recording Systems
338
A.
Real Property Recording Systems
340
B.
What Is Recorded?
341
C.
Fixtures
342
1.
What Is a “Fixture”?
343
2.
How Does a Secured Creditor Perfect in Fixtures?
343
In re Cliff’s Ridge Skiing Corp.
348
In re Renaud
349
3.
Perfecting in the Fixtures of a Transmitting Utility
350
D.
Personal Property Interests in Real Property
351
Problem Set 20
353
Assignment 21: Characterizing Collateral and Transactions
353
A.
Determining the Proper Place of Filing
354
B.
Determining the Proper Method of Perfection
354
1.
Instruments Distinguished from General Intangibles
354
Omega Environmental Inc. v. Valley Bank, N.A.
355
2.
True Leases Distinguished from Leases Intended as Security
356
In re Purdy
359
3.
Realty Paper
359
4.
Chattel Paper, Instruments, Accounts, and Payment Intangibles Distinguished
361
In re Commercial Money Center, Inc.
364
C.
Multiple Items of Collateral
365
Problem Set 21
367
Chapter 7 Maintaining Perfection
367
Assignment 22: Maintaining Perfection Through Lapse and Bankruptcy
367
A.
Removing Filings from the Public Record
367
1.
Satisfaction
369
2.
Release
370
3.
Article 9 Termination and Release
371
In re Motors Liquidation Co.
375
B.
Self-Clearing and Continuation in the Article 9 Filing System
377
The Four County Bank v. Tidewater Equipment Co.
380
C.
The Effect of Bankruptcy on Lapse and Continuation
381
Problem Set 22
384
Assignment 23: Maintaining Perfection Through Changes of Name, Identity, and Use
385
A.
Changes in the Debtor’s Name
388
B.
New Debtors
388
C.
Changes Affecting the Description of Collateral
390
D.
Exchange of the Collateral
390
1.
Barter Transactions
392
In re Seaway Express Corporation
394
2.
Collateral to Cash Proceeds to Noncash Proceeds
395
3.
Collateral to Cash Proceeds (No New Property)
395
Problem Set 23
398
Assignment 24: Maintaining Perfection Through Relocation of Debtor or Collateral
398
A.
State-Based Filing in a National Economy
399
B.
Initial Perfection
399
1.
At the Location of the Debtor
400
Lynn M. LoPucki, Why the Debtor’s State of Incorporation Should Be the Proper Place for Article 9 Filing: A Systems Analysis
402
Dayka & Hackett, LLC v. Del Monte Fresh Produce N.A., Inc.
404
2.
At the Location of the Collateral
405
C.
Perfection Maintenance
405
1.
Through Debtor Relocation
407
2.
Through Collateral Transfer
408
D.
Nation-Based Filing in a World Economy
410
E.
International Filing Systems
411
Problem Set 24
413
Assignment 25: Maintaining Perfection in Certificate of Title Systems
416
A.
Perfection in a Certificate of Title System
418
In re Thompson
420
B.
Accessions
422
C.
In What State Should a Motor Vehicle Be Titled?
423
D.
Motor Vehicle Registration
424
E.
Maintaining Perfection on Interstate Movement of Collateral
424
1.
How It Is Supposed to Work
425
2.
Some Things that Can Go Wrong
426
3.
Movement of Goods Between Non-Certificate and Certificate Jurisdictions
428
Problem Set 25
431
Chapter 8 Priority
431
Assignment 26: The Concept of Priority: State Law
431
A.
Priority in Foreclosure
434
B.
Credit Bidding Revisited
435
C.
Reconciling Inconsistent Priorities
437
D.
The Right to Possession Between Lien Holders
438
Legacy Bank v. Fab Tech Drilling Equipment, Inc.
443
E.
UCC Notice of Sale
443
F.
Rule Variation Across Systems
444
Problem Set 26
447
Assignment 27: The Concept of Priority: Bankruptcy Law
448
A.
Bankruptcy Sale Procedure
449
In re Oneida Lake Development, Inc.
453
B.
The Power to Grant Senior Liens
455
In re 495 Central Park Avenue Corporation
460
C.
Protection of Subordinate Creditors
461
Problem Set 27
463
Chapter 9 Competitions for Collateral
463
Assignment 28: Lien Creditors Against Secured Creditors: The Basics
463
A.
How Creditors Become “Lien Creditors”
465
B.
Priority Among Lien Creditors
466
C.
Priority Between Lien Creditors and Secured Creditors
467
People v. Green
470
D.
Priority Between Lien Creditors and Mortgage Creditors
470
E.
Purchase-Money Priority
471
Problem Set 28
474
Assignment 29: Lien Creditors Against Secured Creditors: Future Advances
474
A.
Priority of Future Advances: Personal Property
476
B.
Priority of Nonadvances: Personal Property
476
Uni Imports, Inc. v. Exchange National Bank of Chicago
480
C.
Priority of Future Advances and Nonadvances: Real Property
481
Shutze v. Credithrift of America, Inc.
485
Problem Set 29
487
Assignment 30: Trustees in Bankruptcy Against Secured Creditors: The Strong Arm Clause
487
A.
The Purpose of Bankruptcy Code §544(a)
488
B.
The Text of Bankruptcy Code §544(a)
489
1.
The Judicial Lien Creditor of §544(a)(1)
490
In re Duckworth
494
2.
The Creditor with an Execution Returned Unsatisfied
494
3.
The Bona Fide Purchaser of Real Property
495
Midlantic National Bank v. Bridge
497
C.
The Implementation of Bankruptcy Code §544(a)
497
1.
Exercise of Bankruptcy Code §544(a) Discretion by Chapter 7 Trustees
499
2.
Exercise of §544(a) Discretion by Chapter 11 Debtors in Possession
500
D.
Recognition of Grace Periods
500
Problem Set 30
504
Assignment 31: Trustees in Bankruptcy Against Secured Creditors: Preferences
504
A.
Priority Among Unsecured Creditors
504
1.
Priority Under State Law: A Review
505
2.
Priority Under Bankruptcy Law: A Review
505
3.
Reconciling the State and Bankruptcy Policies
506
B.
What Security Interests Can Be Avoided as Preferential?
506
1.
Generally
507
2.
When Does the “Transfer” of a Security Interest Occur?
509
3.
The §547(c)(5) Exception for Inventory or a Receivable
510
C.
Strategic Implications of Preference Avoidance
511
Problem Set 31
514
Assignment 32: Secured Creditors Against Secured Creditors: The Basics
514
A.
Nonpurchase-Money Security Interests
514
1.
The Basic Rule: First to File or Perfect
516
2.
Priority of Future Advances
517
In re Reckart Equipment Co., Inc.
519
3.
Priority in After-Acquired Property
521
B.
Purchase-Money Security Interests
521
1.
Purchase-Money Security Interests Generally
523
2.
Multiple Purchase-Money Security Interests
523
3.
Purchase-Money Security Interests in Inventory
524
4.
Purchase-Money Priority in Proceeds
526
C.
Priority in Commingled Collateral
527
Problem Set 32
530
Assignment 33: Priority in Land and Fixtures
530
A.
Mortgage Against Mortgage
530
1.
Recording Statutes: The Rules of Priority
533
2.
Who Is a Good Faith Purchaser for Value?
534
3.
Purchase-Money Mortgages
535
B.
Judgment Liens Against Mortgages
535
C.
Mechanics’ Liens Against Construction Mortgages
536
1.
A Prototypical Construction Financing Transaction
538
2.
Who Is Entitled to a Mechanic’s Lien?
539
3.
Priority of Mechanics’ Liens
540
In re Skyline Properties, Inc.
541
D.
The Priority of Article 9 Fixture Filings
542
1.
Priority in Fixtures Incorporated During Construction
543
2.
Priority in Fixtures Incorporated Without Construction
543
E.
Priority in Real Property Based on Personal Property Filing
545
Problem Set 33
548
Assignment 34: Multiple Items of Collateral, Marshaling, Cross-Collateralization, and Purchase Money Priority
548
A.
Multiple Items of Collateral and Cross- Collateralization Provisions in Security Agreements
550
B.
The Secured Creditor’s Right to Choose Its Remedy
550
1.
Debtor-Enforceable Limits on the Secured Creditor’s Right to Choose Its Remedy
551
2.
Release of Collateral
553
C.
Marshaling Assets
554
1.
Marshaling as a Limit on the Secured Creditor’s Choice
554
In re Robert E. Derecktor of Rhode Island, Inc.
558
2.
Equitable Assignment as an Alternative to Marshaling
559
3.
Can the Bankruptcy Trustee Marshal?
559
4.
Marshaling Against Property Owned by Third Parties
561
D.
The Effect of Cross-Collateralization on Purchase-Money Status
563
Problem Set 34
566
Assignment 35: Sellers Against Secured Creditors
566
A.
Limits of the After-Acquired Property Clause
567
1.
Rules Governing Title to Personal Property
568
2.
Rules Governing Security Interests in Personal Property
569
3.
The Filing System as an Exception to Nemo Dat
569
B.
Suppliers Against Inventory-Secured Lenders
571
C.
Sellers’ Weapons Against the After-Acquired Property Clause
571
1.
Purchase-Money Security Interests
571
2.
Retention of Title
571
3.
Consignment
573
In re Petit Oil
575
4.
The Seller’s Right of Reclamation
576
In re HHGREGG, Inc.
577
5.
Express or Implied Agreement with the Secured Creditor
578
6.
Equitable Subordination
578
In re M. Paolella & Sons, Inc.
581
Feresi v. The Livery, LLC
582
7.
Unjust Enrichment
583
Problem Set 35
587
Assignment 36: Buyers Against Secured Creditors
587
A.
Introduction
588
B.
Buyers of Personal Property
588
1.
The Buyer-in-the-Ordinary-Course Exception: UCC §9-320(a)
591
Daniel v. Bank of Hayward
596
2.
The Failure-to-Perfect Exception, UCC §§9-323(d) and (e), 9-317(b) and (d)
596
3.
The Authorized Disposition Exception: UCC §9-315(a)(1)
597
RFC Capital Corporation v. EarthLink, Inc.
600
4.
The Consumer-to-Consumer-Sale Exception: UCC §9-320(b)
601
C.
Buyers of Real Property
602
Problem Set 36
606
Assignment 37: Statutory Lien Creditors Against Secured Creditors
606
A.
The Variety of Statutory Liens in Personal Property
607
1.
Artisans’ Liens
607
2.
Garage Keepers’ Liens
608
3.
Attorneys’ Charging and Retaining Liens
609
4.
Landlord’s Lien
610
5.
Agricultural Liens
610
Stockman Bank of Montana v. Mon-Kota, Inc.
614
Nickey Gregory Co., LLC v. AgriCap, LLC
617
B.
Statutory Liens in Bankruptcy
618
C.
The Priority of Statutory Liens
620
Myzer v. Emark Corporation
621
D.
Statutory Liens as a Challenge to the First-in-Time Rule
622
E.
Secured Creditor Responses to Statutory Lien Priority
624
Problem Set 37
627
Assignment 38: Competitions Involving Federal Tax Liens: The Basics
629
A.
The Creation and Perfection of Federal Tax Liens
629
1.
Creation
629
2.
Perfection
631
3.
Remedies for Enforcement
632
4.
Maintaining Perfection of a Tax Lien
632
In re LMS Holding Co.
635
In re Eschenbach
637
B.
Competitions Involving Federal Tax Liens
638
1.
Security Interest
638
2.
Purchaser
639
Mayer-Dupree v. Internal Revenue Service
640
3.
Judgment Lien Creditor
640
United States v. McDermott
643
Problem Set 38
645
Assignment 39: Competitions Involving Federal Tax Liens: Advanced Problems
645
A.
The Strange Metaphysics of the Internal Revenue Code
647
B.
Protection of Those Who Lend After the Tax Lien Is Filed
647
1.
The General Provision Regarding Future Advances, I.R.C. §6323(d)
648
2.
Commercial Transactions Financing Agreements
649
3.
Real Property Construction or Improvement Financing
650
4.
Obligatory Disbursement Agreements
650
5.
Statutory Liens
651
6.
Purchase-Money Security Interests
651
United States v. Heptner
655
C.
Nonadvances
655
Problem Set 39
658
Assignment 40: Why Secured Credit?
659
A.
Economic Analyses
659
Thomas H. Jackson and Anthony Kronman, Secured Financing and Priorities Among Creditors
660
Robert E. Scott, A Relational Theory of Secured Financing
662
Steven L. Harris and Charles W. Mooney, Jr., A Property Based Theory of Security Interests: Taking Debtor’s Choices Seriously
663
Lynn M. LoPucki, The Unsecured Creditor’s Bargain
664
Donald B. Dowart, Memorandum: Priorities of Maritime Lien and Preferred Ship Mortgages
665
B.
Reform Prospects
665
Elizabeth Warren, Article 9 Set Aside for Unsecured Creditors
667
Elizabeth Warren, Making Policy with Imperfect Information: The Article 9 Full Priority Debates
669
Lynn M. LoPucki, The Death of Liability
670
Lynn M. LoPucki, Arvin I. Abraham, and Bernd P. Delahaye, Optimizing English and American Security Interests
672
C.
System in Disarray
673
Problem Set 40
675
Table of Cases
679
Table of Statutes
689
Index
Test footnote please ignore