Secured Transactions Proceeds Hypo

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blong4133
Posts: 219
Joined: Mon Sep 14, 2009 12:35 pm

Secured Transactions Proceeds Hypo

Postby blong4133 » Sun Dec 09, 2012 2:53 am

I'm having some real problems figuring out this S.T. hypo and wanted to see anyone could offer any help.

T, a TV dealer, sells a TV to C on credit, and retains a security interest in the TV. The Security Agreement states that C must keep the TV in her home and use it solely for personal entertainment purposes for as long as she owes money, and if C deviates from this, she will be deemed to be in default. C is to make monthly payments of $300 for 60 months. C agrees and takes possession of the TV. T never files a financing statement. Subsequently, C experiences financial difficulties and needs cash to pay her children's tuition bill. As a result, she sells the TV to a Used Appliance and Electronic Store (AES) and uses the proceeds to pay her children's tuition bill. Buyer2 sees the TV at AES and buys it for personal use in her home.

1. Can T repossess the TV from Buyer2? 2. Can T get a refund from the school for the tuition bill C payed with the proceeds from her disposition of the collateral?

I know that the Buyer2 is safe, as she is a BOC of consumer goods. I also get that the initial purchase between T and C is a PMSI in Consumer goods, which perfects automatically upon attachment. As a result, the security interest also automatically attaches to proceeds received by C as a result of her sale of the TV. What I can't figure out is whether T can get the refund from the tuition bill. My gut says no, but I can't find anything in the UCC to back that up. Anyone have any insight on this, or point me to the pertinent Art. 9 provision?

And for what it's worth, I've come to accept the fact that I'm going to get everything wrong on this exam, and am merely hoping that I can get enough partial credit to get a half-decent grade. This class is killing me.

jusacountrylawyer
Posts: 12
Joined: Sun Dec 09, 2012 4:53 am

Re: Secured Transactions Proceeds Hypo

Postby jusacountrylawyer » Sun Dec 09, 2012 5:05 am

Hello. I am a farmer. Can you please explain every term you have used here? I am trying to learn the law as much as possible before I make the dive to law student. Also, do you believe that I can profitably maintain a farm while a law student?

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Hodgy
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Re: Secured Transactions Proceeds Hypo

Postby Hodgy » Sun Dec 09, 2012 10:05 am

blong4133 wrote:I'm having some real problems figuring out this S.T. hypo and wanted to see anyone could offer any help.

T, a TV dealer, sells a TV to C on credit, and retains a security interest in the TV. The Security Agreement states that C must keep the TV in her home and use it solely for personal entertainment purposes for as long as she owes money, and if C deviates from this, she will be deemed to be in default. C is to make monthly payments of $300 for 60 months. C agrees and takes possession of the TV. T never files a financing statement. Subsequently, C experiences financial difficulties and needs cash to pay her children's tuition bill. As a result, she sells the TV to a Used Appliance and Electronic Store (AES) and uses the proceeds to pay her children's tuition bill. Buyer2 sees the TV at AES and buys it for personal use in her home.

1. Can T repossess the TV from Buyer2? 2. Can T get a refund from the school for the tuition bill C payed with the proceeds from her disposition of the collateral?

I know that the Buyer2 is safe, as she is a BOC of consumer goods. I also get that the initial purchase between T and C is a PMSI in Consumer goods, which perfects automatically upon attachment. As a result, the security interest also automatically attaches to proceeds received by C as a result of her sale of the TV. What I can't figure out is whether T can get the refund from the tuition bill. My gut says no, but I can't find anything in the UCC to back that up. Anyone have any insight on this, or point me to the pertinent Art. 9 provision?

And for what it's worth, I've come to accept the fact that I'm going to get everything wrong on this exam, and am merely hoping that I can get enough partial credit to get a half-decent grade. This class is killing me.


Hope I don't see any shit like this on my Secured final. My best guess would be that the interest attached to the proceeds and that most often a consumer would place the proceeds into a single bank account and commingle the funds. So then you would get into a lowest intermediate value analysis and here consumer wasted your proceeds and you are shit out of luck.

Probably cite to UCC 9-666.

FLaker
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Re: Secured Transactions Proceeds Hypo

Postby FLaker » Sun Dec 09, 2012 4:47 pm

How large is an $18,000 television?

This is an extremely cursory analysis, but I’d probably answer the question something like this:

Under §9-103, where a creditor extends value to the debtor for the purpose of enabling the debtor to acquire rights in the collateral that is the subject of the security interest, a purchase money security interest (PMSI) is created. PMSIs in consumer goods automatically attach and the creditor need not execute a security agreement to attach his PMSI with respect to the debtor.

Additionally, proceeds include whatever is acquired upon the sale, lease, license, exchange or other disposition of collateral. §9-102(a)(64). Under §9-315, a SI automatically attaches to any identifiable proceeds of collateral.

Further, it should be noted that a buyer in ordinary course (BIOC) buy goods in good faith, without knowledge that the sale violates rights of another, and in the ordinary course from a person in the business of selling goods of that kind. A BIOC takes goods free of an SI, even if the SI is perfected.

Here, Dealer is a creditor because it took a SI in Buyer’s TV. Dealer’s SI attached automatically when it lent Buyer the credit to purchase the TV, as the loan enabled Buyer to acquire rights in the TV. The TV constitutes the collateral that Dealer has secured in consideration for the loan. Thus, Dealer is a PMSI holder in Buyer’s TV and its SI is attached and enforceable against Buyer. Further, Dealer’s status as a PMSI holder gives it automatic perfection and super-priority status over all other lien holders that may have a conflicting security interest in the TV.

When Buyer sold the TV to Buyer 2, Dealer retained a SI in the proceeds from the sale of the TV. Accordingly, Dealer can go after Buyer for the proceeds.

Dealer probably has no claim against Buyer 2, as Buyer 2 took possession and had no actual knowledge that this violated Dealer’s security agreement. Therefore, Buyer probably took the TV free and clear of Dealer’s interest. Also, it should be noted that Buyer 2 is probably not a BIOC as Buyer is not in the business of selling TVs.

alpa chino
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Re: Secured Transactions Proceeds Hypo

Postby alpa chino » Sun Dec 09, 2012 9:18 pm

blong4133 wrote:I'm having some real problems figuring out this S.T. hypo and wanted to see anyone could offer any help.

T, a TV dealer, sells a TV to C on credit, and retains a security interest in the TV. The Security Agreement states that C must keep the TV in her home and use it solely for personal entertainment purposes for as long as she owes money, and if C deviates from this, she will be deemed to be in default. C is to make monthly payments of $300 for 60 months. C agrees and takes possession of the TV. T never files a financing statement. Subsequently, C experiences financial difficulties and needs cash to pay her children's tuition bill. As a result, she sells the TV to a Used Appliance and Electronic Store (AES) and uses the proceeds to pay her children's tuition bill. Buyer2 sees the TV at AES and buys it for personal use in her home.

1. Can T repossess the TV from Buyer2? 2. Can T get a refund from the school for the tuition bill C payed with the proceeds from her disposition of the collateral?

I know that the Buyer2 is safe, as she is a BOC of consumer goods. I also get that the initial purchase between T and C is a PMSI in Consumer goods, which perfects automatically upon attachment. As a result, the security interest also automatically attaches to proceeds received by C as a result of her sale of the TV. What I can't figure out is whether T can get the refund from the tuition bill. My gut says no, but I can't find anything in the UCC to back that up. Anyone have any insight on this, or point me to the pertinent Art. 9 provision?

And for what it's worth, I've come to accept the fact that I'm going to get everything wrong on this exam, and am merely hoping that I can get enough partial credit to get a half-decent grade. This class is killing me.


Check out UCC 9-332.

blong4133
Posts: 219
Joined: Mon Sep 14, 2009 12:35 pm

Re: Secured Transactions Proceeds Hypo

Postby blong4133 » Mon Dec 10, 2012 12:17 am

alpa chino wrote:
blong4133 wrote:I'm having some real problems figuring out this S.T. hypo and wanted to see anyone could offer any help.

T, a TV dealer, sells a TV to C on credit, and retains a security interest in the TV. The Security Agreement states that C must keep the TV in her home and use it solely for personal entertainment purposes for as long as she owes money, and if C deviates from this, she will be deemed to be in default. C is to make monthly payments of $300 for 60 months. C agrees and takes possession of the TV. T never files a financing statement. Subsequently, C experiences financial difficulties and needs cash to pay her children's tuition bill. As a result, she sells the TV to a Used Appliance and Electronic Store (AES) and uses the proceeds to pay her children's tuition bill. Buyer2 sees the TV at AES and buys it for personal use in her home.

1. Can T repossess the TV from Buyer2? 2. Can T get a refund from the school for the tuition bill C payed with the proceeds from her disposition of the collateral?

I know that the Buyer2 is safe, as she is a BOC of consumer goods. I also get that the initial purchase between T and C is a PMSI in Consumer goods, which perfects automatically upon attachment. As a result, the security interest also automatically attaches to proceeds received by C as a result of her sale of the TV. What I can't figure out is whether T can get the refund from the tuition bill. My gut says no, but I can't find anything in the UCC to back that up. Anyone have any insight on this, or point me to the pertinent Art. 9 provision?

And for what it's worth, I've come to accept the fact that I'm going to get everything wrong on this exam, and am merely hoping that I can get enough partial credit to get a half-decent grade. This class is killing me.


Check out UCC 9-332.


Awesome. How the heck did I miss that provision? Thanks! I appreciate it.

Four Ten
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Re: Secured Transactions Proceeds Hypo

Postby Four Ten » Mon Dec 10, 2012 1:07 am

I think the T can go after Buyer 2. Here's my reasoning:

1. AES did not take the TV free and clear - AES does not qualify for the BIOC exception under 9-320(a) because it is not a BIOC under 1-201(a)(9) (def. of BIOC). A BIOC must buy the good from "a person...in the business of selling goods of that kind." AES bought the TV from C, who is an ordinary consumer, and not a dealer of TVs. Therefore, T's security interest in the TV survives the AES transaction because of 9-315(a)(1) (continuation of security interest in collateral notwithstanding subsequent disposition).

2. Buyer 2 did not take TV free and clear - the next issue is whether the sale of the TV to Buyer 2 resulted in the severing of T's security interest. T's security interest is not severed by the sale because 9-315(a)(1) still applies to this transaction. The buyer of consumer goods exception in 9-320(b) does not protect Buyer 2 here because it only protects transactions between consumers. See 9-320(b) ("from a person who used or bought the goods for use primarily for personal, family, or household purposes"). In order to qualify, the goods must be consumer goods not only in Buyer 2's hands, but also in the hands of his seller, AES. AES is a dealer. Therefore, the TV constitutes inventory, not consumer goods, in AES's possession. Therefore, 9-320(b) doesn't sever T's security interest.

In conclusion, T's security interest in the TV should survive both the sale to AES and the sale to Buyer 2. Therefore, T has the right to act against Buyer 2. It looks like this is its only recourse because 9-332 prevents claw back of proceeds that were used to pay for the tuition bill.

LOLyer
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Re: Secured Transactions Proceeds Hypo

Postby LOLyer » Mon Dec 10, 2012 4:09 am

Can you get SI in a tuition bill refund? No. You only retain a SI in *identifiable* cash proceeds. Note the lowest intermediary balance rule, or lowest intermediate balance or whatever it's called. Already took the test; don't know the section number citation but look it up.




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