ISSUE: Were the Wells Fargo financing statements valid and was Wells Fargo a secured creditor?
HOLDING: The court held that Wells Fargo had enough in the financing statements to put a subsequent
REASONING: Further, despite the transposition of the numbers of the annuities and the misidentification of the
issuer, Wells had provided enough information to warrant simply clarification. Wells Fargo is a
secured, perfected creditor in first position.
DISCUSSION POINTS: Have the students discuss the requirements for creating a valid security interest using the
ProGrowth Bank, Inc. v. Wells Fargo Bank, N.A. case.
DISCUSSION POINTS: E-Commerce & Cyberlaw
Engines Are From Mars; Priorities Are From Financing Statements
The piece highlights the differences in the way search engines can be structured. Finding the debtor’s name under
some requires an exact match which will lead to strict judicial interpretations.
Have the students solve the following problem:
A is a commercial loan officer for a bank. B seeks to borrow $10,000 and has a piece of equipment to offer
as collateral. How would A determine whether to loan the money, assuming B’s creditworthiness checks out?
How does A determine the value of the equipment the bank accepts as collateral? Would A take a security
interest in the collateral if the equipment was worth a fair market value of $10,000? If not, how much more
would the equipment have to be worth before A made the loan? How would A check to see whether any
other secured creditors claim an interest in the same item of collateral? Would A ask B? Students may
suggest running a check with the appropriate filing office – generally, the office of the secretary of state.
Assume that the response A gets indicates that another secured party claims a security interest in the same
collateral. Does A make the loan? Most students will say no. Point out that if the fair market value of the
collateral is well in excess of the amount of the loan, A should try and determine the dollar value of the other
creditor’s security interest, as it may turn out to be fairly safe to make the loan and be in second place.
Assume that when A reviews the report from the secretary of state, it shows no creditors claiming a security
interest in the collateral; therefore A makes the loan, signs the security agreements, and sends the financing
statement to be filed. Shortly thereafter, A receives the filed copy of the financing statement. Ultimately, B
does not make any payments, and A seeks possession of the collateral from the bank. However, A discovers
that another creditor claims a security interest in the collateral and that the amount of that security exceeds
the fair market value of the collateral. This competing secured party perfected its security interest by filing a
financing statement with the secretary of state’s office between the time that A ran the check and A filed the
bank’s financing statement. Who has first claim to the collateral? Obviously, the competing creditor does –
because of the first-to-file rule. Ask the students what the loan officer could have done to avoid this loss for
the bank.
J. Loss of perfection
1. Possessed collateral – lost if possession given to debtor without restrictions
2. Consumer goods – sold or moved to another state
III. What are the Rights of the Parties in a Secured Transaction Before Default?
A. Rights of parties before default
1. Creditor has contract rights
2. Debtor has contract rights
IV. What are the Priorities Rules for Creditors? (See Figure 33-1 in text)
A. Conflicting interests – two or more parties with interests in the same collateral
B. Unsecured party vs. unsecured party
C. Secured party vs. unsecured party
CASE BRIEF: General Motors Acceptance Corp. v. Lincoln National Bank
18 S.W. 3d 337, 40 UCC Rep. Serv. 2d 610, 42 UCC Rep. Serv. 2d 834 (Ky. 2000)
FACTS: Donahue gave GMAC a security interest in its inventory and proceeds. Before Donahue’s business
failed, it sold six trucks and deposited the proceeds in Lincoln. Lincoln applied the funds to an
overdraft. GMAC protested and filed suit. The trial court found for Lincoln and GMAC appealed.
ISSUE: Who has priority in the proceeds?
REASONING: GMAC had a filed financing statement perfected before the bank’s statutory lien for overdrafts took
effect.
DISCUSSION POINTS: Have the students discuss the priorities of parties with conflicting interests in collateral
when default occurs using the General Motors Acceptance Corp. v. Lincoln National Bank
case.
D. Secured party vs. secured party – first-in-time rule of first to attach
E. Perfected secured party vs. secured party – perfected secured party takes priority
F. Perfected secured party vs. perfected secured party
1. Discuss the progression of first to file, first to perfect, then first to attach
2. Students often ask about the priorities of creditors who claim a security interest in the same item of
collateral. Advise your students that UCC § 9-312(5) solves some of the problems by providing that for
cases involving conflicting interests not otherwise provided for, priority is in the order of filing if the
G. Exceptions to first-in-time rules on perfected secured parties
1. Inventory collateral (PMSI) – a creditor who perfects before the debtor receives possession of goods
2. Noninventory collateral (PMSI) – PMSI prevails if a financing statement is filed within 20 days – Revised
Article 9 after a debtor gets possession (use copier example in text).
Define a purchase money security interest. Structure examples to cover this material, such as a security
interest in machinery manufactured and sold by the seller. A purchase money security interest in goods
H. Status of repair or storage lien
1. Liens are also first-in-time; first-in-right
2. It might be useful to explain the procedure in your state for disposal of motor vehicles under a
I. Secured parties vs. buyer of collateral from debtor (See Figure 33-2)
NOTE: Revised Article 9 is virtually unchanged on buyer’s rights.
1. Buyer in the ordinary course of business takes priority over secured creditor, whether the secured
2. Buyer not in the ordinary course of business
a. If creditor is perfected, creditor takes priority
CASE BRIEF: Tolbert v. Automotive Finance Corp.
341 S.W. 3d 195 (Mo. App. 2011)
FACTS: In 2003, Automotive Finance Corporation (“AFC”) executed a contract to provide “floorplan
financing” to R American Auto, Inc., a used car dealership, for the purchase of inventory. As
collateral for the financing, AFC took a security interest in all of R American’s present and future
inventory. AFC filed a UCC Financing Statement to record the security interest on December 16,
2003.
On August 24, 2006, R American purchased a white 2006 Corvette for its inventory. AFC took
possession of the Corvette’s certificate of title. On January 31, 2007, Kip Rowley, the owner of R
American, gave AFC a business check for $43,220 as payment in full for the Corvette, and AFC
provided Rowley with the certificate of title to the Corvette. The check was dishonored because R
American’s bank account had been closed. An agent of AFC went to R American’s car lot to secure
possession of the Corvette and discovered that it was not on the lot. AFC filed a lien on the missing
vehicle.
On March 4, 2008, Steven Tolbert filed a petition seeking a release of AFC’s lien on the Corvette
because he claimed to be a “bona fide purchaser” of the Corvette from Ultimate Motor Cars, LLC,
on January 21, 2007. AFC filed an answer to the petition and a counterclaim against Tolbert for
conversion, seeking damages for the value of the Corvette.
Tolbert testified that he paid $52,000 to Kip Rowley on November 2, 2006, and immediately took
possession of the Corvette. He gave Rowley a check made out to “R American” for $50,900 and
also paid $1,100 in cash. Tolbert did not receive a bill of sale and the certificate of title to the
Corvette until nearly three months later on January 21, 2007. The bill of sale, issued by “Ultimate
Motor Cars, Inc.,” indicated the sale was completed on January 21, 2007, and the purchase price
was $52,099. The certificate of title indicated that R American acquired the Corvette on August 24,
2006, and then transferred the Corvette to Ultimate Motor Cars on October 20, 2006. Tolbert’s
name was listed both as the seller of the Corvette as agent for R American and as the buyer of the
Corvette as agent for Ultimate Motor Cars. Tolbert testified that he inadvertently signed in the wrong
spot as seller on the Corvette’s certificate of title. Nevertheless, Tolbert wasn’t concerned with these
discrepancies because he believed Rowley did business as both R American and Ultimate Motor
Cars. Tolbert said he was unaware of AFC’s security interest until February 2007, when he
attempted to have the Corvette titled in his name and learned about the lien.
Jason Yount, branch manager for AFC, testified that on September 7, 2006, R American paid AFC
for the Corvette, and AFC gave R American the certificate of title to the Corvette. On December 12,
2006, R American gave the certificate of title back to AFC, AFC advanced R American credit for the
Corvette, and R American “refloored” the Corvette. Before reclaiming the title, on December 12,
2006, an agent of AFC physically inspected the Corvette on R American’s lot, verified the Corvette’s
VIN number, and ensured that the Corvette’s certificate of title indicated that R American owned the
Corvette. Yount explained that AFC would not have advanced credit to R American and accepted
the Corvette’s certificate of title on December 12, 2006, if at that time the certificate of title indicated
that R American had transferred the Corvette to Ultimate Motor Cars on October 20, 2006.
The court issued a judgment awarding AFC $53,904.41. Tolbert appeals the judgment.
ISSUE: Was Tolbert a BFP of the Corvette?
REASONING: There was nothing normal about his transaction. He received no documents and when he did
finally receive the documents, the documents raised questions because they had different names
on them and he seemed to be confused about who was selling and who was buying. Tolbert’s story
about the transactions differed from the paperwork trail on the financing and when the car was
actually available for sale.
3. Resale of consumer goods
If there is no filing of a financing statement and no knowledge, the subbuyer purchases free of the
CASE BRIEF: Dawson v. Fifth Third Bank
965 N.E. 2d 730 (Ind. App. 2012)
FACTS: In May 2006, Jacob J. Magish agreed to purchase a certain 2001 Harley-Davidson motorcycle from
Christine and Larry Logsdon for $14,635. Magish took out a loan at a Fifth Third branch in
Indianapolis with a security interest in the motorcycle in favor of Fifth Third in order to borrow
$15,000 for the purchase. Magish presented to Fifth Third the Logsdons’ original Certificate of Title.
As part of the transaction, Magish executed, amongst other documents, an Application for
Certificate of Title and a Power of Attorney. Fifth Third’s closing representative, John Wargel,
copied the Logsdon original title and then gave the Logsdon original title back to Magish and
instructed Magish to apply for a new title at the Indiana Bureau of Motor Vehicles (“BMV”). Wargel
kept the May 31 application and the Magish File in the loan file.
Shortly after the transaction, Magish, using deception, approached the Logsdons and requested
that they sign paperwork to obtain a duplicate title. The Logsdons, who had no knowledge that
Magish had financed the purchase of the motorcycle through Fifth Third, unwittingly signed an
application to obtain a duplicate title and gave the application to Magish.
Magish obtained a duplicate title from the BMV in the name of the Logsdons. The Logsdons signed
the Logsdon duplicate title as sellers. The Logsdon duplicate title inactivated the Logsdon original
title in the BMV records.
Magish, using the Logsdon duplicate title, submitted an application to the BMV for a new title in his
name. Magish intentionally omitted Fifth Third from the June 20 application and did not list a
lienholder. Magish concurrently tendered the Logsdon duplicate title to the BMV and failed to notate
Fifth Third as lienholder. On June 28, 2006, the BMV issued a new title in Magish’s name. There
was no lien notated on the first Magish title.
On October 16, 2006, Fifth Third submitted an application for an amended title to the BMV. Fifth
Third did not have the Logsdon original title nor the first Magish title in its possession and so did not
tender to the BMV either with the Fifth Third application.
On October 18, 2006, the BMV issued a new title listing Magish as owner and Fifth Third as
lienholder. The second Magish title inactivated the first Magish title in the BMV records. The
whereabouts of the second Magish title are unknown and Fifth Third has no record of receiving it.
In 2009, the Dawsons responded to a Magish posting on Craigslist for the sale of the motorcycle.
On June 18, 2009, Magish sold and delivered the motorcycle to the Dawsons for $13,050.00.
Magish, who was terminally ill and died in August 2009, had defaulted on the loan in 2008. Magish
gave the Dawsons the certificate of title that showed it was free of any lienholders. After the sale,
the Dawsons submitted an application for a new title to the motorcycle to the BMV. The BMV
advised the Dawsons that, according to the BMV records, the title the Dawsons had was not the
most current title. For privacy reasons the BMV would not tell the Dawsons exactly what the issue
was, but said it was either there was a duplicate title or a lienholder on the title. After discussions
with Magish and his wife, the Dawsons determined that Fifth Third was a lienholder. The BMV
refused to issue a new title to the motorcycle to the Dawsons.
The Dawsons filed suit against Fifth Third, arguing that Fifth Third’s lien against the motorcycle
should be unenforceable because, under a theory of equitable estoppel, Fifth Third should bear the
loss of Magish’s fraud on the Dawsons because Fifth Third’s acts and omissions made the loss
possible. Fifth Third filed a counterclaim, seeking replevin of the motorcycle.
The trial court denied the Dawsons’ summary judgment motion, granted Fifth Third’s summary
judgment motion, awarded permanent possession of the motorcycle to Fifth Third, and ordered that
the Dawsons maintain possession of the motorcycle pending their appeal.
ISSUE: Who has priority on the motorcycle – the Dawsons or Fifth Third Bank? Is there an equitable
remedy for the Dawsons?
HOLDING AND
REASONING: There was a perfected secured creditor (Fifth Third Bank) who had a right to replevin of motorcycle.
The bank’s lienholder status was on the title and it was the only title of public record. A buyer not in
V. What are the Rights of Parties After Default?
A. Creditor’s possession and disposition of collateral
CASE BRIEF: Chrysler Credit v. Koontz
661 N.E. 2d 1171 (Ill. App. Ct. 1996)
FACTS: Koontz entered into an agreement with Chrysler to purchase a 1988 Sundance in exchange for 60
monthly payments of $185.92. When Koontz defaulted on the contract in early 1991, Chrysler
notified him that it would repossess the vehicle if he did not make up the missed payments. Koontz
notified Chrysler that he would make every effort to catch up on the payments, that he did not want
the vehicle to be repossessed, and that Chrysler was not to enter his private property to repossess
the car. Chrysler repossessed the car, however, according to the self-help repossession statute of
the UCC.
When Koontz heard the repossession in progress, he rushed outside in his underwear and
hollered, “Don’t take it,” to the repossessor. The repossessor did not respond and proceeded to
take the vehicle. Chrysler sold the car and filed a complaint against Koontz seeking a deficiency
judgment for the balance due on the loan. Koontz alleged that the repossession was a breach of
the peace. From a judgment in favor of Chrysler, Koontz appealed.
ISSUE: Is disregarding the oral protest of a debtor not to repossess his collateralized car violate the
self-help repossession rule?
HOLDING: No. A debtor’s private property interests and society’s interests in tranquility must be protected
while still allowing the efficiency and reduced litigation costs that the self-help remedy affords.
Under UCC § 9-503, a secured party has on default the right to take possession of the collateral
and my do so without judicial process if the repossession can be done without a breach of the
REASONING: Comment 3 to UCC § 9-501 states that § 9-207 lays out the rights, remedies and duties with
respect to collateral in a secured transaction both before and after default. After default, the two
sections are to be read together (except agreements permitted under § 9-207 cannot waive of
modify the rights of the debtor contrary to § 9-501(3)).
The official comment to § 9-503 states that in cases where it would be impractical or exceedingly
expensive to actually remove the collateral from the debtor’s control (e.g., heavy equipment or
equipment installed at the debtor’s factory), the secured creditor may render the equipment
unusable or dispose of the collateral on the debtor’s property as long as either is done in a
commercially reasonable manner.
DISCUSSION POINTS: Have the students discuss the rights of the parties in the case of a debtor’s default using
the Chrysler Credit v. Koontz case.
B. Creditor’s retention of collateral
1. Notice of intention – written notice required from creditor
2. Compulsory disposition of collateral (with 90 days of repossession)
a. If debtor objects to retention within 21 days
DISCUSSION POINTS: Thinking Things Through
Repossessing and Replacing Tires
The court held that the repossession was lawful and there is implicit in repossession that a car might be without tires
for a time until the creditor could get them replaced. Les Schwab had a security interest in the tires which were
mounted on the wheels. Repossession under these circumstances required removing the tires from the wheels.
Granting a right of repossession necessarily contemplated handling the wheels for some period of time during
repossession. And, tires mounted on wheels are typically removed together as a unit from the vehicle. It was
reasonable of Les Schwab to use its machinery to dismount the tires from the wheels at its store to prevent damage
to the wheels. Les Schwab promptly returned the wheels. At no time did Les Schwab intend to keep the wheels and
Mr. Reed does not show how he was damaged by the short period of time his vehicle was without wheels. While he
claims he could not go to work, it is illegal in this state to drive a vehicle with only wheels. See RCW 46.37.420(1) (“It
is unlawful to operate a vehicle upon the public highways of this state unless it is completely equipped with pneumatic
rubber tires.”). And, on the day of the repossession, he was at work submitting bids without his vehicle. The record
shows he was out the next day similarly bidding work before the wheels were returned.
DISCUSSION POINTS: Ethics & the Law
Women, Children, and the Repo Guys
Debtors owe money. Concealing collateral is fraud, not just unethical.
C. Debtor’s right of redemption – at any time prior to resale
D. Disposition of collateral
E. Postdisposition accounting
1. First, disposition expenses; second, debt owed; third, remaining secured creditors
ANSWERS TO QUESTIONS AND CASE PROBLEMS
1. Security interest; perfection; validity. The failure to perfect on the title does not eliminate the security interest
because of the underlying loan documents. WaMu would step into secured creditor from perfected secured
2. Perfection of a security interest. No. The court held that the sign was not equipment but a fixture. As a fixture,
the proper place for the filing of a security interest in it was the recorder’s office, where land records are located.
This case predates Revised Article 9. However, the filing requirements under Revised Article 9 are central for all
transactions except real property, which are filed according to state laws in the land records. This case, therefore,
3. Creation of security interest; adequacy of description. Because the security interest was a purchase money
security interest in consumer goods, the brief descriptions were sufficient to identify the goods for purposes of the
4. Proceeds of collateral. Yes. A security interest exists not only in the collateral, but also in proceeds from the
5. Errors in financing statement.
a. The court held that the financing statement was not seriously misleading because difference between two
b. Not seriously misleading.
c. Financing statement is not seriously misleading where Grey Dawn Farms is a partnership consisting of
these two individuals.
The answers given were pre-Revised Article, as were all the cases. However, under Revised Article 9, it is
doubtful that any of these incorrect names would pull up under an electronic search. As a result, they would all
6. Financing statement, filing. While Revised Article 9 makes it easier to file, the debtors name must be accurate.
7. Status of buyer of collateral from debtor. No. The typewriter was consumer goods. When no financing statement
use.
8. Compulsory disposition of collateral. No. Because the buyer paid more than 60 percent of the purchase price,
9. Repair and storage lien. The dealer who did the repair work will have priority. A lien for repair or storage charges
10. Perfection of consumer goods. Yes. In this case, the motorboat is a consumer good. With consumer goods, no
financing statement must be filed by the creditor to perfect a secured interest in the collateral. The only reason it
11. Rights of buyers; ordinary course. The court of appeals reversed, noting that the UCC allows a buyer to qualify
as a buyer in the ordinary course when the buyer purchases goods from a dealer who only possesses, but does
not have legal title to, those goods. A buyer of consignment goods who purchases from a consignment dealer
12. Repossession. The court held that there was more than a trespass; there was breaking and entering because
there was a break-in into the garage and a breach of the peace in violation of Article 9 protections. [ Purkett v.
13. Security interest based on possession of collateral. When taking possession of the collateral, B acquired a
perfected security interest, with perfection dating from the time of the taking of possession. The fact that
14. Extent to which creditor may break and enter in order to repossess property. The Uniform Commercial Code
gives the secured party “in taking possession [the right to] proceed without judicial process if this can be done
without breach of the peace” (UCC § 9-503). Cook made a proper repossession. He did not damage the truck
Authors’ Comment: Attention is called to Fuentes v. Shevin, 407 US 67, in which UCC § 9-503 was held
When the statute providing for repossession required that the creditor first obtain a court order authorizing
Note also the concept of Blaire v. Pitchess, 5 Cal. 3d 258, 96 Cal. Rptr. 42, 486 P. 2d 242, by which a secured
creditor cannot obtain possession of the collateral by a replevin action without first showing the existence of
15. Conflicting security interests. Judgment was for Kimbrell’s Furniture. Kimbrell had priority through its perfected
security interest in the consumer goods effective at the time of attachment. The pawn broker’s security interest is
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
management system for classroom use.