978-1285770178 Solution Manual BL ComLaw 1e SM-Ch21

in whole or in part.

ANSWERS TO QUESTIONS

AT THE ENDS OF THE CASES

CASE 21.1—QUESTIONS (PAGE 403)

THE LEGAL ENVIRONMENT DIMENSION

place.

WHAT IF THE FACTS WERE DIFFERENT?

Suppose that Angell had listed only the cows’ names and not their eartag designations.

Would the result have been different? Explain. It is not likely that the result would have been

CASE 21.2—QUESTIONS (PAGE 405)

WHAT IF THE FACTS WERE DIFFERENT?

Suppose that searches of the Florida and New York records had revealed that Regions

was a secured creditor of Camtech and Avstar Fuel. Would the result have been different

in whole or in part.

3A. Why does collateral have to be disposed of in a commercially reasonable manner?

party [UCC 9–626(a)(3)].

The purpose of requiring commercially reasonable conduct is to obtain a satisfactory

price, but price alone is not enough to prove reasonableness. The courts look at many factors to

determine reasonableness. Every aspect of a sale must be conducted in a commercially

reasonable manner. Under UCC 9–627(b)(3), this can happen if a sale conforms with the

defaulted on their loans. Firstbank sold the shares in two private transactions that the debtors

alleged were not commercially reasonable, as required under the UCC for a creditor’s sale of

collateral. To determine whether the sale was commercially reasonable, the court looked at the

manner in which the sale was conducted. Here, Firstbank sought multiple offers to obtain the

best price for the stock. The court also pointed out that “the circumstances surrounding previous

survive a motion for summary disposition.”

ANSWERS TO QUESTIONS IN THE REVIEWING FEATURE

AT THE END OF THE CHAPTER

filing of a financing statement. In the case of the 4-Runner, motor vehicles often fall under other

4 UNIT FIVE: CREDITORS’ RIGHTS AND BANKRUPTCY

in whole or in part.

state laws concerning such details as their use as collateral and encumbrances on their titles,

but these laws are not discussed in the chapter.

2A. Debtor’s name

According to UCC 9–503(c), providing only the debtor’s trade name (or a fictitious name) in a

financing statement is not sufficient for perfection.

3A. Purchase-money security interests

The sound system, the kayak, and possibly the vehicle would qualify for purchase-money

security interests, or PMSIs. The iMacs would be classified as equipment and so would not

PMSI, in which case the secured party must sell or otherwise dispose of the repossessed

collateral within ninety days. Failure to comply could subject the secured party to an action for

conversion or other liability.

ANSWER TO DEBATE THIS QUESTION IN THE REVIEWING FEATURE

upon interest. Creditors should be able to take possession of collateral in which the creditors

have created a security interest. Just because a creditor might have made an error in naming

the debtor should not prevent the creditor from obtain the collateral in case of default.

Those creditors who engage in secured transactions have very specific requirements to

follow for them to be able to have priority over collateral in case debtor defaults. If we allowed

CHAPTER 21: SECURED TRANSACTIONS 5

in whole or in part.

ANSWERS TO ISSUE SPOTTERS IN THE EXAMPREP FEATURE

AT THE END OF THE CHAPTER

1A. Nero needs $500 to buy textbooks and other supplies. Olivia agrees to loan Nero

$500, accepting Nero’s computer as collateral. They put their agreement in writing. How

can Olivia let other creditors know of her interest in the computer? A creditor can put other

creditors on notice by perfecting its interest: by filing a financing statement in the appropriate

public office, or by taking possession of the collateral until the debtor repays the loan.

2A. Liberty Bank loans Michelle $5,000 to buy a car, which is used as collateral to

the disposal, a debtor can redeem the collateral by tendering performance of all of the

obligations secured by it and by paying the creditor’s reasonable expenses in retaking and

maintaining it.

ANSWERS TO BUSINESS SCENARIOS AND BUSINESS CASE PROBLEMS

free of a security interest created by his seller even though the security interest is perfected and

even though the buyer knows of its existence.” Garfield purchased a generator from Redford, a

seller who deals in goods of that kind. Thus, Garfield is a buyer in the ordinary course of

business. Mallon’s perfection of its security interest in the generators sold to Redford as inven–

tory is not effective against Garfield, even if Garfield knows of Mallon’s perfection or security

tension in the original perfection or perfect such separately within the twenty-one days [UCC 9–

315].

6 UNIT FIVE: CREDITORS’ RIGHTS AND BANKRUPTCY

in whole or in part.

21-2A. Perfection of a security interest

(Chapter 21—Page 400)

The creditor has a security interest in the collateral and is a perfected secured party. To create a

security interest, the following criteria must be met [UCC 9–203]:

(a) Unless the collateral is in the possession of the secured party, a debtor must sign a

security agreement describing the collateral.

(b) The secured party must give value to the debtor.

(c) The debtor must have rights in the collateral.

21-3A. The scope of a security interest

(Chapter 21—Page 408)

No. The bank will prevail because it held a properly perfected security interest in Edward’s entire

inventory, not just in specific items or in the value of the inventory at the time the loan was

Yes, the bank’s security interest has priority over Radio Shack’s claims. The Boudreauxes

bought the original inventory in their individual names, and gave the bank a security interest in

the original and future inventory. Furthermore, the bank perfected its security interest in existing

and future inventory owned by Boudreauxes by filing financing statements that listed

Boudreauxes and D & J Enterprises, Inc. Radio Shack was not misled by the debtors’ change

UCC, these remedies are cumulative and can be exercised simultaneously. A secured creditor

can repossess and retain a debtor’s collateral in full or partial satisfaction of the debt. The

collateral does not have to be disposed of first unless the parties have agreed otherwise. If the

collateral satisfies the debt only partially, the creditor can seek a judgment for the balance due.

Of course, it would not be fair for a creditor to deprive a debtor of the possession of the

in whole or in part.

In the actual case on which this problem is based, the court concluded that all of the

plain and obvious meaning of its terms.

In this problem, the loan agreement between Barclays and Poynter gave Barclays

multiple stand-alone options on default. One option required the lender to give ten days’

advance notice of a sale. A different option permitted the lender to avoid this requirement. When

Poynter did not repay the loan, Barclays repossessed the yacht, notified Poynter that it would be

favor. On Poynter’s appeal, the U.S. Court of Appeals for the First Circuit affirmed. The loan

agreement “gave Barclays multiple stand-alone options upon default and, given these choices, it

opted to conduct a sale under” a provision of the agreement that did not require ten days’

advance notice of sale.

FIB responded that one of its officers “fully informed” Denton about the structure of the two

loans, that Denton knew the SBA loan would have priority to the collateral on Anderson’s

default, and that Denton agreed to this arrangement. The state supreme court affirmed the lower

court’s decision. “Our review of the record confirms that significant evidence was presented that

would allow the . . . Court to conclude that Denton knew his loan would hold a second position

care or to read the document in its entirety before signing it. Besides, FIB asserted, Denton was

not denied the opportunity to negotiate the terms and he admitted that he “studied” the note

before signing it.

CHAPTER 21: SECURED TRANSACTIONS 9

in whole or in part.

The court concluded that the loan contract was not unenforceable as a contract of

adhesion, and the state supreme court affirmed this conclusion. The higher court pointed out

that “[a] contract of adhesion is a contract whose terms are dictated by one contracting party to

another who has no voice in its formulation. Contracts of adhesion are unenforceable if not

within the reasonable expectations of the weaker party or if they are unduly oppressive,

unconscionable, or against public policy. . . .

“[I]nequality in bargaining power does not equate to unenforceability and not all

standardized contracts are unenforceable as adhesion contracts. Denton . . . was a so-

reasonable expectation.”

21–10A. LEGAL REASONING GROUP ACTIVITY—Security Interests

(a) The requirements that must be met for a creditor to have an enforceable security

interest are (1) the collateral must either (a) be in the possession of the secured party pursuant

others’ use of the property to secure interests in which the owners have no part.

(b) A security interest is not enforceable unless it attaches to the collateral. For

attachment to occur, under UCC 9–203 the debtor must have rights in the collateral, the secured

party must give something of value to the debtor, and the creditor must either possess the

collateral or there must be a security agreement that contains a description of the collateral and

collateral in a signed or authenticated document or in a separate document incorporated by

reference into a signed or authenticated document, no security interest can be recognized.

(c) As noted in the answer to the previous question, the debtor did not sign the

financing statement. Under the UCC, without a description of the collateral in a signed or

authenticated document or in a separate document incorporated by reference into a signed or

authenticated document, no security interest can exist.