Commercial Law
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1. Honest John sold Nancy Debts a used car for $900, to be paid off in three
payment of $300 each. The K was oral. Nancy missed the second payment,
and one of Honest John's employees repossessed the car and returned it to
the seller. Nancy sued Honest John for conversion. Who should win?: · Unpaid
seller can only repossess in 3 circumstances
o (1) when §2-702 applies. If J can can show N was already insolcvent at the tiem
she made the purchase (10 day limit and exception if N gave J written statement
she was solcent)
o (2) if the buyer granted seller a security interest in the car
o (3) Could recover if/when seller sues and gets a judgement (judicial lien)
· This is just a conditional sales K. Leads to the B v. R problem.
· Effect of retention of title under the UCC à § 2-401(1)
o Any retention or reservation by the seller of the title in goods shipped or delivered
to the buyer is limited in effect to a reservation of a security interest.
2. Assume that a state statute gives someone doing repairs a possessory
artisan's lien on the property repaired. Mr. Baker took his car into Mack's
Garage for repair but, being strapped for funds, couldn't pay the full bill, and
Mack wouldn't let him have the car back. Is Mack's artisan's lien an Art. 9
security interest?
What if, prior to the repair work, Mr. Baker signed a statement giving Mack's
Garage the right to repossess the car if the bill wasn't paid. Does this agree-
ment create a security interest under the Code?: · No. §9-109(d)(2) provides that
Art. 9 does not apply to a lien, other than agricultural lien, given by statute or other
rule of law for services or materials.
· Yes! §9-109(a)(1) provides that a transaction, regardless of its form, that creates a
security interest in personal property or fixtures by K are subject to Art. 9.
3. To raise money, Farmer Brown Food Stand sold all of its AR to NFC, which
notified the customers that henceforth all payment should be made directly
to NFC. Is this sale nonetheless an Article 9 security interests?: · This is not a
loan, but an outright sale. Thus, NFC keeps all proceeds §9-608(b). So, if Farmer B
defaults NFC does not have to return any proceeds to debtor (Farmer B)
o NOTE: if it were a loan, the excess proceeds goes back to debtor
· This sale is an Art. 9 SI under §9-102(c) - "this article applies to (3) sale of accounts
....
· §9-102(a)(28) - Debtor - a debtor means (B) seller of accounts . . . . à Famer B is
the debtor, NFC is the creditor
· This transaction is included in the Art. 9 to avoid problems of distinguishing between
, Commercial Law
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transactions in which a receivable secured an obligation and those in which a
receivable is sold outright. It avoids the secret lien problem of B v. R.
· NFC must perfect under Art. 9 so they don't lose priority to other creditors.
· Takeaway - outright sale of accounts = covered by Art. 9
· Exception! §9-109(d)(4) (5) and (7)
o (4) if assignment of accounts as part of a slae of the business out of which they
arose (EX: selling entire business to another entity and assigning all AR's to the
buyer)
o (5) assignment of accounts which for is for the purpose of collection only (EX:
assign accounts for someone to collect)
o (7) assignment of a single account ot an assignee in full or partial satisfaction of
a preexisting indebtedness (EX: paying off a debt with a single AR).
4. The loan agreement between Dickens Publishing, Inc. and ONB contained
a negative pledge clause. Dickens agreed not to use any of its property as
collateral for debt to other creditors. Is the transaction governed by Art. 9?
Suppose Dickens had agreed as follows: "Dickens agrees to repay Lender
the entire principal of $18k on or before April 1, 2015. If Dickens cannot
refinance its current debt to cover this amount or if another source of funds
is unavailable, Dickens agrees to sell its inventory and equipment in order to
repay Lender." Is the transaction governed by Art. 9?: · No, not SI is created.
There is no encumbrance of property, just a promise to not use that property as
collateral to other creditors. Does not fall within scope of Art. 9.
· Takeaway: Negative pledge is not the granting of a SI in any particular property. No
right on default to take possession and sell.
· Second Part - To be a SI, ONB must have the right to seize the property and sell
it. This is essentially just a promise, not a SI. It is an unsecured debt.
5. Antiques R Us was the largest antiques store in the city, well known as
a place where antique dealers could hire out space and exhibit their wares,
with the store handling the sales and taking a commission on each one and
returning to the dealers items that remained unsold. When the store takes out
a loan from ONB and uses as collateral "all its property," will the bank's SI
reach the items in the store that belongs to the dealers if the dealers have
never taken the steps required of consignors under Art. 9?: · Likely not. This is
the "not generally known by its creditors to be substantially engaged in the business
of selling the goods of others" test. Here, the facts indicate that ARS is well known
to do this, thus it is a "consignment" under §9-102(a)(20) and therefore not subject
to Art. 9 under §9-109(a)(4).
· If creditors are aware that they sell the goods of others, they have notice that the
"consignee" does not own his inventory, but rather the consignors do.
Study online at https://quizlet.com/_bj9edg
1. Honest John sold Nancy Debts a used car for $900, to be paid off in three
payment of $300 each. The K was oral. Nancy missed the second payment,
and one of Honest John's employees repossessed the car and returned it to
the seller. Nancy sued Honest John for conversion. Who should win?: · Unpaid
seller can only repossess in 3 circumstances
o (1) when §2-702 applies. If J can can show N was already insolcvent at the tiem
she made the purchase (10 day limit and exception if N gave J written statement
she was solcent)
o (2) if the buyer granted seller a security interest in the car
o (3) Could recover if/when seller sues and gets a judgement (judicial lien)
· This is just a conditional sales K. Leads to the B v. R problem.
· Effect of retention of title under the UCC à § 2-401(1)
o Any retention or reservation by the seller of the title in goods shipped or delivered
to the buyer is limited in effect to a reservation of a security interest.
2. Assume that a state statute gives someone doing repairs a possessory
artisan's lien on the property repaired. Mr. Baker took his car into Mack's
Garage for repair but, being strapped for funds, couldn't pay the full bill, and
Mack wouldn't let him have the car back. Is Mack's artisan's lien an Art. 9
security interest?
What if, prior to the repair work, Mr. Baker signed a statement giving Mack's
Garage the right to repossess the car if the bill wasn't paid. Does this agree-
ment create a security interest under the Code?: · No. §9-109(d)(2) provides that
Art. 9 does not apply to a lien, other than agricultural lien, given by statute or other
rule of law for services or materials.
· Yes! §9-109(a)(1) provides that a transaction, regardless of its form, that creates a
security interest in personal property or fixtures by K are subject to Art. 9.
3. To raise money, Farmer Brown Food Stand sold all of its AR to NFC, which
notified the customers that henceforth all payment should be made directly
to NFC. Is this sale nonetheless an Article 9 security interests?: · This is not a
loan, but an outright sale. Thus, NFC keeps all proceeds §9-608(b). So, if Farmer B
defaults NFC does not have to return any proceeds to debtor (Farmer B)
o NOTE: if it were a loan, the excess proceeds goes back to debtor
· This sale is an Art. 9 SI under §9-102(c) - "this article applies to (3) sale of accounts
....
· §9-102(a)(28) - Debtor - a debtor means (B) seller of accounts . . . . à Famer B is
the debtor, NFC is the creditor
· This transaction is included in the Art. 9 to avoid problems of distinguishing between
, Commercial Law
Study online at https://quizlet.com/_bj9edg
transactions in which a receivable secured an obligation and those in which a
receivable is sold outright. It avoids the secret lien problem of B v. R.
· NFC must perfect under Art. 9 so they don't lose priority to other creditors.
· Takeaway - outright sale of accounts = covered by Art. 9
· Exception! §9-109(d)(4) (5) and (7)
o (4) if assignment of accounts as part of a slae of the business out of which they
arose (EX: selling entire business to another entity and assigning all AR's to the
buyer)
o (5) assignment of accounts which for is for the purpose of collection only (EX:
assign accounts for someone to collect)
o (7) assignment of a single account ot an assignee in full or partial satisfaction of
a preexisting indebtedness (EX: paying off a debt with a single AR).
4. The loan agreement between Dickens Publishing, Inc. and ONB contained
a negative pledge clause. Dickens agreed not to use any of its property as
collateral for debt to other creditors. Is the transaction governed by Art. 9?
Suppose Dickens had agreed as follows: "Dickens agrees to repay Lender
the entire principal of $18k on or before April 1, 2015. If Dickens cannot
refinance its current debt to cover this amount or if another source of funds
is unavailable, Dickens agrees to sell its inventory and equipment in order to
repay Lender." Is the transaction governed by Art. 9?: · No, not SI is created.
There is no encumbrance of property, just a promise to not use that property as
collateral to other creditors. Does not fall within scope of Art. 9.
· Takeaway: Negative pledge is not the granting of a SI in any particular property. No
right on default to take possession and sell.
· Second Part - To be a SI, ONB must have the right to seize the property and sell
it. This is essentially just a promise, not a SI. It is an unsecured debt.
5. Antiques R Us was the largest antiques store in the city, well known as
a place where antique dealers could hire out space and exhibit their wares,
with the store handling the sales and taking a commission on each one and
returning to the dealers items that remained unsold. When the store takes out
a loan from ONB and uses as collateral "all its property," will the bank's SI
reach the items in the store that belongs to the dealers if the dealers have
never taken the steps required of consignors under Art. 9?: · Likely not. This is
the "not generally known by its creditors to be substantially engaged in the business
of selling the goods of others" test. Here, the facts indicate that ARS is well known
to do this, thus it is a "consignment" under §9-102(a)(20) and therefore not subject
to Art. 9 under §9-109(a)(4).
· If creditors are aware that they sell the goods of others, they have notice that the
"consignee" does not own his inventory, but rather the consignors do.
