9-612 tells us what reasonable notice is: (non consumer transaction): safe harbor for at

least 10 days.
So we can try to shorten the notice time since this is a consume transaction and
maybe well be ok.
Time price differential is the difference bretween a cash price and a rent-to-own
price

Very low deterrant effect because its only 10% AND its not likely to be enforced
(analogy to treble damages etc.)

5.4 $345k helicopter but hull has been ripped up. Debt is personally guaranteed by four
wealthy individuals.


Bankruptcy Problems:

6.1- cant do anything to collect. Should file proofs of claim but we arent going to be
very involved in the process.

6.2- breathing room; dont want to start a run on the debtors assets

6.4- Waste can occur where corporate management is still in charge of the assets; other
factors can cause things to depreciate

What if debtor owes 210 and the building is worth exactly 210?

(d)(1) lack of adequate protection? Any decrease in the value of the building can hurt
us. If we dont file automatic stay motion and a year later the building is only worth 180,
we are only secured up to that 180 amount.
Court could order adequate protection in some other ways: 1) security interest in 30k of
other property; 2) some kind of monthly payments to account for depreciation.

The effective prong is also key. Creditor can argue that the hopes for reorganization are
so bad in themselves that there is no effective reorganization possible.

6.5- Stay lifting motion equity cushion in the boat but no insurance: lack of adequate
protection because the boat could blow up.

362: look at ands and ors (or comes at the end of (d)(4)), but within (2) its an and


Assignment 5 Review: the 9 was designed to help us get commercially reasonable value.
Ten days is enough. Test whether or not we should put more work into a piece of
equipment.

Only if 9 is violated does debtor get any remedy: only remedy is that debtor gets to treat
the actual value as the sale price (this can decrease deficiency or increase a surplus).

Consider incentives: SC worst case is ending up in the place it would have been had it
conducted a commercially reasonable sale.

Littwin says we need to boost the incentives to get a good price given that we give the
creditor so much flexibility.

Strict foreclosure: Consumer has absolute right to a sale if youre going to go after a
deficiency.

Looked at how sale proceeds are distributed: 1) creditors reasonable expenses and
reasonable atty fees (if fatty fees are in K); 2) then to creditor; 3) then to debtor or other
secured/unsecured creditors.

Unit 6: Bankruptcy review:

Automatic stay comes into being automatically

Stay is meant to create orderly process, give D breathing room and prevent a run on the
debtors assets.

Unsecured creditors have few options; but S. Creditors can seek to lift the stay per
362(d).

1) lack of adequate protection: about to become undersecured may make a claim for
AP
2) or if D has no equity in the property and property is not necessary for an effective
reorganization
If creditor is oversecured, much harder to get stay lifted under either rational.


Assignment 7

7.1: we are an unsecurd creditor:

30k principal; 2,700 (502 says claim amt as of date of filing so we use regular K law to
get to interest rate) -18% yr take 30k * .015 = monthly 450 * 6 = 2700

7.2 there is a 5% payout to unsecurd creditors so theyre getting 1635 on their 32700
claim

7.3: a : look at a 506 claim since we are over secured: 20,400 + 340,000 amt 10,812 post
petition interest: 1% of 360,400 =(3604) * 3 months b) so now its 371,312 (the original
claim + 10,812): rate of interest during BK is not settled: after confirmation it will be the
Til rate. c) get to total of 414,460

7.4 undersecured by 35k so were going to get about 3.5k with the 10% payout to
unsecured creditors

7.5 no secureity agreement signed so unsecured: they get .1 *360,400

Mini-lecture summarizing 7:
Finished up remedirs unit :

Bankruptcy claim can be secured or unsecured: only secured up to the value of the
collateral. If creditor is undersecured: two claims one for deficneincy and one for the
secured amount.

Over secured creditors get to add post petition interest and lawyers fees up to the value of
the collateral.

Three time periods: [time before bankruptcy] everything is calculated according to the K.
Even unsecured creditors can get lawyer fees/etc.

[filing/stay] Over secured can get reasonable fees up to the value of the collateral.
Unsecured, undersecured and exactly secured creditors dont get fees in the bk.

[after confirmation] Till case applies. Interest applies based on the value of the claim.
They get todays dollars for their secured claim, i.e., Till interest. Unsecured creditors
might be getting 10%. Divide unsecured creditors claim by 10 and they get interest over
the life of the plan so they are getting paid in todays dollars on that amount as well.




Assignment 8 pre-lecture notes:

Three requirements/formalities of a created security interest 9-203(b)
Collateral must be in possession of SC or debtor authenticated security
agreement containing description of collateral
Value must be given
Debtor has rights in collateral

Only with all three does security interest attach against debtor

Security agreement can be created without oral or written document: 9-203(b)(3):
inscribed on some medium from which it can be stored/retrieved: examples are entirely
electronic security agreements (email etc)

In re Schwalb (Bankr. D. Nev. 2006)
(requirements of writing to create security agreement)
Woman pwns QX4 SUV: signed pawn ticket
Identified the property pawned as QX4 SUV and included VIN
Included terms of repaying $4k loan +$1.6k interest in 120 days
o In small print: ticket indicated you are giving security interest in ____
Court says clearly established that Schwalb had rights in her car and value was
given in the form of $4k loan
Giving is not present tense but rather present participle:
o Analogy is you are falling describes an action taken by another rather
than separately constituting the act of falling
o Court rejects this reasoning: Description may not be the act described, by
signing Schwalb acknowledged and adopted the act as described
Courts have held that security agreement need not say security agreement and
that formalism should not prevail over substance
Subjective lack of understanding is not relevant:


In re Giaimo (Down v. Perfect) (6
th
Cir B.A.P. 2010)
(composite document approach)
Issue: whether application for certificate of title and actual certificate of title, both
identifying lienholder are sufficient security interest
Debtor Application for Certificate of Title prepared by dealership identified
OKeefe (grandmother) as lienholder and was signed by Debtor
Also provided Ohio Certificate of Title which identified OKeefe as lienholder
o While no special words are required, there must be a written document
showing an intent to grant security interest: parties must use language
conclusion intend sec. intrst.
o Language requirements low: if debtor writes I hereby grant bank SI in my
cattle John Jones that is enough (if bank makes loan and debtor does
own cattle)
9-203 writing requirement is a formal requisite in nature of statute of frauds
Courts dont require one document: review all documents between parties to
determine sufficient written foundation established for security interest
(composite document approach) looking to:
o Adequately describe collateral
o Carries signature of the debtor
o Establishes that a security interest was agreed upon
Some cases a financing statement isnt sufficient
o Example Yoppolo v. Trombley: (Bankr. N.D. Ohio) Debtor and sister both
signed promissory ote, and debtors sister was identified as lienholder on
certificate of title. Promissory note simply identified
parties/vehicle/purchase price/payments but said nothing re: SecInt.
Sister argued promissory note + notation listing her as lienholder
demonstrated necessary intent for SecIntst
Court rejected: neither financing statement (equiv of cert. of title)
alone nor promissory note alone exhibit intent for sec. intrst
could not find Sec.intst together
Here court finds:
o Application for certificate of title (not present in De Vincent)
o And certificate of title itself taken together security interest
Application for certificate of title is a writing signed by the debtor
Application specifically identifies collateral with VIN and instructs
state to issue title to OKeefe as lienholder
Includes phrase: following is a full statement of all liens on said
vehicle. If no lien state none. If more than one attach all
OKeefe identified following that language
o Court points out that a financing statement is often filed in anticipation of
a possible loan/sec agreement, but application for certificate of title is only
filed when there is an actual purchase of vehicle.
o can fathom no reason why debtor would have signed application for
certificate of title identifying OKeefe as lienholder if did not intend to
grans security interest to her

Notes:
Warren- Although application for cert. of title was signed, certificate was not: consider
Ace Lumber (Bankr. D. Mont. 1989): ct refused to consider (in conjunction with
financing statement) creditors handwritten notes of telephone conversation where debtor
supposedly agreed to sec. intst: Key fact: notes were not signed by D.

Conversely: Longtree Ltd (Wyo. 1988) court used composite document approach to
consider unsigned document that came into existence at time security agreement signed:
Debtor grants security agreement in logs it is purchasing and describes logs but also says
subject to revision from time to time; later parties revise to describe other logs but
revision not signed by Debtor
Hawkland UCC: issue is when one document is signed sec.int and another is
unsigned but describes addl collateral:
o Majority rule: so long as there is some internal connection/coherence
within the documents, they may be read together for purposes of including
collateral described in second document
o This is in keeping with the liberal approach of these rules: some courts
would probably demand more than mere internal connection/consistency,
instead demanding a reference to each other

Doctrine of equitable mortgage implies that courts can enforce oral security agreements
where doing so is equitable repudiated in the text of UCC 9-203(b)(3)

Casees where secured party completes describing the collateral after debtor signs sec.
agreement have divided the courts: In re Hewn (Bankr. W.D. Wis) debtor signs blank
security agreement containing no description of collateral: sec. creditor filed description
and sent it to debtors, which was received without comment: In bankruptcy court held
unenforceable: UCC does not allow a sec. creditor to complete the security agreemtn or
financing statementauthorized or notafter debtor has signed the instrument.

Court reached opposite conclusion in In re Blundell (D. Kan) sec. creditor fills out after
in accordance with debtors intention: court stated sequence of events is immaterial

Seems arguable that 203(b)(3)(A) requires a description at the time of agreement debtor
has authenticated a security agreement that provides description


Requirement that Value has been Given

1-204 in defining value includes: person giving value for rights (the security interest) if
he acquires them (2) as security for a pre-existing claim

Easy for unsecured debts to become secured:

Trade credit may be extended on unsecured basis but insist on security agreement if
debtor pays late

Sometimes instead of enforcing a judgment immedieatly, creditor may agree to take
payment overtime secured by an interest in property


Debtor having rights in the collateral: Three important subtexts that courts read in:

1) if debtor owns limited interest in property and grants security interest in that
property, security interest will generally only attach to that limited interest
2) Some owners who acquired their rights in property by fraud have the power to
transfer to bona fide purchasers rights they themselves do not have 2-403
3) Secured parties want their interest in property to become enforceable the moment
the debtor acquires rights in the collateral

8.1
There are three requirements in 9-203(b): (1) that value has been given; (2) that the
debtor have rights in the collateral; and (3)(A) that the debtor has authenticated a security
agreement that describes the collateral (neither (B) or (C) would be applicable here).
(1) it is not clear to me that value has been given. Do not understand if promissory
note refers to cash that the Debtor received somewhere in the transaction
(2) Debtor appears to have rights in the collateral inventory and equipment of his
business
(3) There must be an authenticated somethingorother and it must describe the
collateral. The promissory note has the debtors signature so it is authenticated:
Question is whether it describes the collateral: refers to financing statement of
same date: and that financing statement does describe collateral as inventory
o Under the composite document approach multiple documents are ok
o Where one is signed and another not: internal reference (here referring to
a financing statement from the same day) will normally be enough: this
satisfies the higher standard identified in Hawkland treatise: some courts
might have allowed them to get by with mere consistency
Taken together the promissory note and financing statement seem
like enough: if there is internal reference within the documents,
i.e., if that financing statement is from the same day
Arguably there is an independent basis as debtor has signed authorization for secured
party to file such financing statements as deemed necessary/expedient: this is a split
among courts: In re Couch/In re Hewn: say creditor cannot complete a security
agreement/financing agreement after the fact, whereas In re Blundell/InreAllen say the
order all are completed in is immaterial. If the latter courts are right then this financing
statement works no matter what: the secured party had the right to file it whenever.
However this interpretation may seem at odds with the UCC language: debtor has
authenticated a security agreement that provides description 9-203(b)(3)(A).

Littwin: notice that this is a financing statement: as In re Giaimo financing statements are
often speculative/filed before there is an actual security agreement:

Usually article 9 context is that creditors file a financing statement 1
st
thing. That has to
do with how filing systems work and are processed.

Look at objective indicia of actual agreement; must be objectively manifested enough to
pass the statute of frauds test. White and Summers secured credit treatise.


8.3
a. The bank probably does not have a security interest: 9-203(b)(3)(A) requires an
authenticated writing describing the collateral. A blank list that doesnt describe the
collateral probably doesnt cut it.
b. Breaks down similar to above: courts split above. Can argue that according to: whereas
In re Blundell/InreAllen the order in which the tasks are completed does not matter. This
is arguably contradicted by the text of 203(b)(3)(A)
c. I dont think it matters two weeks or years according to the text of the UCC. However,
obviously when two years elapse it more forcefully raises the possibility that the debtor is
getting screwed with all types of stuff he did not foresee getting thrown into security
agreements.
d. This looks to be barred by/potentially a violation of the automatic stay. It attempts to
enforce a lien against property of the estate (362)(a)(4)) and attempts to support a lien
that arises before the commencement of the bankruptcy case ((a)(5)).

8.4

Littwin:

Is there a security agreement? Call it 50/50 because we dont know if were in a district
that will follow the at any time rule.

Theres not a specific reference to a forthcoming list so thats a negative.
Subjective intent suggests parties

What is it about article 9 that puts us in this position?
The delimma comes from the fact tha we have this strict writing requirement but its
usually the creditor who keeps the document. In real estate we always record the
mortgage. Fox guarding the hen house.




Assignment 9-

9.2- Non-possessory non- purchase money security interests are not allowed to take
interest in your household goods. 16 CFR 444.2 cant take non-PMSI

9-204(b)(1) cant do after acquired property acquired more than

What other 3
rd
parties are we looking out for? Its not really secondary lenders because
you arent supposed to do non-posessory non-PMSI; but its going to be to protect 3
rd

parties who want to buy the goods.

But its not that realistic to think that 3d party buyers are actually being helped out that
much. So what is the court really doing? Probably protecting the debtor.

Businesses can probably contract around this so it is really just about helping out that one
debtor.

9.3: 9-108(c) is really about the description, not about the protection of the debtor
because you can take all their shit if you give sufficient notice.

9.4 Looks like the bank might have an interest in the after-acquired property that is their
crops. 204 doesnt give us a lot of help because it just syas that you can take that
interest.
Needs to be clear based on the language
In some circunstances it would make basically no sense for a lender to make a
loan against collateral which is going to turn over almost instantaneously (certain
kinds of inventory etc)
o Not necessarily clear that this applies to farm crops.
o Case this was based on said crops was present tense and they could
have referred to the future crops if they had wanted to.


9.5 Definite argument that crops dont mean livestock but the comment says that
these terms are not defined. Comment 4 says these are not defined.

We might look at general dictionary definitions: Websters calls a crop a plant/animal
product. Blacks says crop is product of the soil.


9.6

This may turn on the definition of additions but we dont have a lot of definitions to
help us out here.


Littwins thoughts on after-acquired property:

Useful in situations where the collateral is turning over quickly; what types of debtors
does this work for:
Retail (inventory constantly turning over)
Restaurants
Accounts (accounts receivable) service companies; B2B suppliers etc

Before article 9 you had to get them to re-sign for equipment/inventory each and every
time that places were getting in new after-acquired property.

Whats the difference between after acquired property and future advances?

Future advance- in original security agreement we may make more loans to this debtor
and if we do these are also secured by the security agreement
Construction: often advance money in stages of a project

Non-advance: future non advance is money the debtor may later owe the creditor but
wont be given as an advance.

Can you have after-acquired clause and future advance clause in the same contract?
-yes no reason you cant. they refer to different things so you can get one at one time and
do the other at another time.

Mini-lectures

8: focused on 9-203(b)(3)(A): requirement that debtor authenticate security agreement
that provides a description of the collateral
Financing statements are generally ineffective, since that is often filed at the
beginning of the relationship before other stuff happens
Composite document rule can help, but many courts want to be able to draw some
kind of internal link
o Courts split 50/50 as to whether or not a security agreement can arise from
a blank/after the fact interest at all.
o Safest bet is to have the debtor just authenticate it afterwards
o Creditor is the one hanging onto the writing, which is kind of a vampire
guarding the blood bank situation

Assignment 9: once you have a security interst, they can be incredibly broad. SIs I things
like accounts and inventory are assumed to have after acquired clauses so you can tie up
the debtors inventory for a long time.
After-acquired: interest you take in the debtors property that he hasnt even
acquired yet.
Even a simple phrase crops growing can be used to cover crops that werent
growing at the time
Ambiguity is a problem for the debtor long before default because it can be hard
for them to get additional credit: wont have time to bring a lawsuit to clarify the
terms with the previous creditor.
Article 9 doesnt necessarily have its own rules of interpretation: rather we fall
into typical contract language looking for the objective manifestation of the
parties.
One hard and fast rule is that you cannot take a SI in all of the debtors property
but you can very easily take an interest in all assets by listig only a a few major
categories. Inventory accts and equipment will cover all the assest for a good
number of businesses.
Two big exceptions:
o Cannot use consumer goods as a category
o Cannot use commercial tort claims as a category
Courts are often more protective in consumer cases. Charel invalidated the credit
card appliance state. Court made it about 3
rd
parties but Littwin really thinks this
was about protecting the debtor.
o Can get around by listing categories of merchandise
o Many stores now just work on the receipts (everything you just bought)

Assignment 10- Value tracing
Proceeds-9-102(a)(64) very important and very broad. (64)(C) is also extremely
broad and would seem to apply to EVERYTHING arising out of the collateral.
Proceeds 9-203(f) are in all contracts, you dont have to write them in.
Proceeds are defined as collateral.
Value tracing is so expansive that it often overwhelmes the written description of
property in the security agreement. Accounts specifically excludes money deposit
accounts, but those deposit accounts will often end up being proceeds generated
from other cash.
315(a)(2)- Tracing is key. Must be able to show that its directly descended from
something that was there in the past. Can be difficult.
315(b)(2)- lowest intermediate balance rule- allows the SC to assume that the D
spends his own money first and that anything that is left over is the creditors
money.


Assignment 11 Lecture

11.1 552: says that proceeds are allowed in bankruptcy, so we dont have any problems
in terms of continuing the value tracing

11.2: Polly with security interest in inventory equipment and accounts
(a) works 28 hours straight and bills the client for $1800 and this is after she filed for
bankruptcy. Is that part of first banks security agreement. If not in BK it would be
covered by accounts squarely within the definition of accounts.

However, because shed filed bankruptcy 552 stops after-acquired clauses from being
effective. This is an account thats created after filing.
Policy Rationale For This- We want to stem the advantage flowing to inventory and
account lenders who are going to be the debtors most powerful creditors. Absent this,
they might encourage debtors to put all their money into inventory or something that will
give them access.

Can we get back I the door through services? No. You cannot have proceeds of services.
Things arising out of her labor are owned by her.

One important effect of the combination of 552 a and b you have to know whether its
that way because of an after-acquired interest or because of proceeds. In bankruptcy you
can only get proceeds, not after acquired property.

Washers from the SC inventory: does it matter? Yes. Its a product of her inventory. Its
raw materials used in a business. As long as we have a record of those washers we can
probably find it. And remember that proceeds are always covered, we dont have to have
a special K provision identifying it.

Look to article 9-102(a)(64): Looks like the entire bill would be attributed to her
collateral.

BUT THATS CRAZY!!!!! (Littwin Segway to discuss what courts do sometimes)

Lemonade stand: SA = lemons ($20)
-cups, sugar, stand, child labor ($30) water
and everything else together is worth $50. So we have $100 worth of stuff going into the
lemonade stand.

-The stand makes $200 in profits.

How do we allocate these?
1. Pro rata based on contribution; 2. Just get the $20 from the lemons; 3. Contribution
($20) but with some kind of flat rate risk premium; 4. Debtor could get expenses it needs
to keep running the enterprise and the creditor gets the rest ($100 to creditor). 5. Could do
article 9 approach and all $200 goes to SC.

IF we all have the intuition that the Art 9 approach is wrong, how does bankruptcy get us
out of the dilemma. 552 gives the court equity of the case discretion: protects proceeds
except to the extent that the court orders otherwise. This is what the Delbridge court is
talking about saying that other courts try to read the definition of proceeds in crazy ways
to avoid this bad outcome. Its equity, not the English language. We look at the
mathematical formula that the court uses comparing the depreciation on the capital
contributed to the enterprise.

Lets apply that to lemonade stand: CC = D/D+E+L *P

Thus depreciation will be $20 (the total value of the lemons lost): $20/$20+$30 +$50 =
20% * 200 = 40. This is the Delbridge approach. This looks complicated but is really just
giving them a pro rata contribution

Littwin- this formula works really well when the creditor has something that is
depreciating rapidly. But when the creditors collateral is not depreciating the court might
use a different notion of equities/balance of the case.

If the debtor is losing money, the creditor is going to be trying to say that the automatic
stay needs to be lifted.

How about Gunnison Center Apts: More like #4 option: we give the debtor the money
needed to keep running the business, and attribute the rest of it to the creditor. Courts
probably wont apply in this context: our lemonade stand is different than the facts in
Gunnison in that Gunnison is entitled to rents/issues/profits/income of the property
which is essentially all the assets of the debtor.

In the bk code until we decide the debtors business isnt viable we want to give them a
chance to keep going. More debtor labor then youre less likely to get into this test. The
$100 that we let the debtor put back into the business benefits the debtor and also the
creditor.

This money is simply attributed to the creditor, they are not literally paid that amount:
this is cash collateral.
The debtor has to get consent of the court or the creditor to use the cash collateral.
This is 363(c)(2).
Debtor cannot even buy more lemons. If something is cash collateral you need to
get permission to use it even if youre just buying more collateral.
This is why authorization to use cash collateral is always one of the first day
orders
o Needs adequate protection 363(e)- that could mean alternate lean/payment
etc.
Say our lemonade stand is just breaking even. So $20 attributed to creditor and
$80 to debtor. No unencumbered property. Is there any way that the debtor can
provide adequate protection? Floating lean in the new lemons that youre going to
bring in. Replacement lean in the future lemons. That might be considered
adequate protection. You can get what 552 takes away: give it back to the
creditor through judicial order.

11.4: filing for bankruptcy matter? The creditor still has a security interest in these
proceeds. So wed have to do the same analysis as before. Here the debtor has done
something wrong here, violating 363(c)(2): the trustee in bankruptcy can clawback
funds under 549

Part (a) how does Gunnison Center Apartments determine the kind of cash collateral.
Net profits approach This allows the debtor to keep investing in the business. So what
does this come out to here? If we do the food and drink separately the profits would be
$21,000. Or you could use the total net profits and just take the $11,000 as indicated on
the balance sheet.



Assignment 11

Under UCC 9-102(a)(64) proceeds are not just the value that can be traced into the
new collateral, but includes whatever is received in a transaction in which the debtor
disposes of collateral.

11.1

So normally I work out at 24 hr fitness or the gym in my apartment because I like to get
some separation from school and honestly just don't like hanging out at the law school
anymore than necessary, but today I had a gap in between some stuff I had to do so I
figured I'd hit the gym and make some use of my dead time. Big fucking mistake.

So I roll into the law school gym for what has to be the first time since 1L. I sit down at
the bench. I warm up with 135 and then start doing some work sets with 185 which I
thought was a decently respectable number. Just then this guy from my small section 1L
rolls up on me and says "'scuse me little guy, mind if I work in?" Now I've always
thought of this guy as kind of a nerd/superstudybro--he got the model answer/book
awards in 3 1L classes and it was well known that he was going to WLRK/Susman style
boutique, but seeing him in the gym I noticed that he was at least 6'3" and was bulging
out of his "T14 Law" tshirt. I kind of mumbled "ok" and he plopped down on the bench.

I asked what he wanted on it and he said "45's" so I went to take the 25's off. He said
"nah, bro: throw some more 45's ON THIS BITCH" wtf? I couldn't tell if he was kidding
but he looked at me expectantly so I put 45's on top of the 25's. He was starting with 275?
It's pretty rare that I see anyone going over 250 at my gym but this bro snatched it off the
bar and ripped off 10 reps like it was nothing. On the twelfth he started to slow down and
I want to give him a spot but he started screaming "NO HELP! NO HELP
MOTHERFUCKER!" I backed away and he