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B-1
ALTERNATE CASE PROBLEM ANSWERS
CHAPTER 30
SECURED TRANSACTIONS
30-1A. Financing statement
The bankruptcy court resolved the issue in AAL’s favor, and EAI of NC and SouthTrust
appealed to a federal district court, which affirmed the decision of the bankruptcy court. The
federal district court concluded in part that AAL perfected its security interest in the assets of
EAL of NC before SouthTrust perfected its interest as part of the renegotiated loan. The court
reasoned that AAL’s financing statements contained minor errors but that those errors “were not
seriously misleading.” The court explained that “the attached Security Agreement, clearly
referenced on the financing statement itself as an ‘attachment,’ identified EAI of NC as the
debtor, contained the signature of [the] President of EAI of NC, and accurately described the
collateral at issue. It is also worthy of note that . . . a copy of the Security Agreement, in and of
itself, is sufficient as a financing statement if it contains the requisite information and is signed
30-2A. Sale of collateral
Yes, to both questions. Sufficient notice was given to Calcote, and the private sale was held to
B-2 APPENDIX B: ALTERNATE CASE PROBLEM ANSWERS—CHAPTER 30
30-3A. Purchase-money security interest
The court held that Sears had a purchase-money security interest (PMSI) in the goods. The
court agreed with the merchant that the sales slip contained the essential terms of a security
agreement. “It identifies the collateral. It is signed by the debtor, and it grants Sears a security
30-4A. Perfection
The court held that the financing statement did not fulfill the requirements of Article 9 because
the name of the partnership was not included on the form. The court noted that the Official
Comment to the UCC 9–402(7) states in part, “In the case of a partnership it contemplates filing
in the partnership name, not in the names of any of the partners.” The court pointed out that the
financing statement in this case was filed in the names of the three individuals and not in the
30-5A. Pledge
The court ruled in favor of Premier for the total amount due. The Grossmans appealed to a state
intermediate appellate court, which reversed the judgment on the Grossmans’ claim that they
were entitled to recoup the value of the stock, and remanded the case for a determination of the
amount to be offset against the debt. The appellate court concluded that “it was clearly
APPENDIX B: ALTERNATE CASE PROBLEM ANSWERS—CHAPTER 30 B-3
30-6A. Purchase-money security interest
The court ruled in favor of Conry. Sears appealed to a state intermediate appellate court, which
reversed the order of the lower court. The appellate court held that “a security interest was
adequately proven by Sears when it produced [Conry’s] signed credit card sales receipts
incorporating a Sears security agreement by reference and stating that [she] granted Sears a
security interest in the merchandise.” The court acknowledged that a security interest “is not en-
forceable against the debtor with respect to the collateral and does not attach unless the debtor
30-7A. Priorities
The court held, among other things, that the equipment belonged to Dean, but Union appealed
to a state intermediate appellate court, which reversed this judgment. The appellate court held
that the payment of a purchase price does not control when a buyer acquires rights in collateral
sufficient to support the attachment of a creditor’s security interest. Instead, “for a security
interest to attach, a debtor must have some degree of control or authority over collateral placed
30-8A. Sale of collateral
The court held that “[t]he fact that a better price could have been obtained by a sale at a
different time or in a different method from that selected by the secured party is not in and of
itself sufficient to establish that the sale was not made in a commercially reasonable manner.”
The court added that “ ’blue book’ values for the merchandise indicate that a fair market value
B-4 APPENDIX B: ALTERNATE CASE PROBLEM ANSWERS—CHAPTER 30
30-9A. Repossession
The court granted a summary judgment in favor of the defendants (MBCC and LAB), and
Headspeth appealed. The District of Columbia Court of Appeals upheld the lower court’s
judgment. The appellate court held in part that under Article 9 “a secured creditor may enter
upon the debtor’s land to repossess the collateral where it can be accomplished without
confrontation or objection, and it does not amount to a breach of the peace.” The court
30-10A. A QUESTION OF ETHICS
1. A principal who hires an independent contractor as an agent is not ordinarily liable for
harm caused to another by the acts of the independent contractor, because the principal does
not have the right to control the details of performance. For this reason, it seems unfair to hold
a creditor liable for the acts of its independent contractor in undertaking a repossession.
Exceptions to this general rule exist, however, in some circumstances, such as blasting opera-
2. Self-help repossession simplifies the process of repossession for creditors and re-
duces the burden on the courts. It may also be noted that under a security agreement, the
3. Repossession often occurs during the night or the early morning hours, because it is
then that the effort is least likely to be observed. At those times, confrontation with debtors is
