Secured Transactions Assignment 3

1

Secured TransactionsAssignment 3

Repossession of Collateral

2

Chapter 1: Creditors’ Remedies Under State Law

Assignment 1: Remedies of Unsecured Creditors

Assignment 2: Security and Foreclosure: title

Assignment 3: Repossession: possession

***************************Title and possession are independent

Foreclosure without repossession: Davet, p. 31

Repossession without foreclosure: Assignment 5

3

Chapter 1: Creditors’ Remedies Under State Law

Assignment 1: Remedies of Unsecured Creditors

Assignment 2: Security and Foreclosure: title

Assignment 3: Repossession: possession

***************************Title and possession are independent

Foreclosure without repossession: Davet, p. 31

Repossession without foreclosure: Assignment 5

4

Chapter 1: Creditors’ Remedies Under State Law

Assignment 1: Remedies of Unsecured Creditors

Assignment 2: Security and Foreclosure: title

(can occur without repossession – writ of assistance)

5

Chapter 1: Creditors’ Remedies Under State Law

Assignment 1: Remedies of Unsecured Creditors

Assignment 2: Security and Foreclosure: title

(can occur without repossession – writ of assistance)

Assignment 3: Repossession: possession

6

Chapter 1: Creditors’ Remedies Under State Law

Assignment 1: Remedies of Unsecured Creditors

Assignment 2: Security and Foreclosure: title

(can occur without repossession – writ of assistance)

Assignment 3: Repossession: possession

(can occur without foreclosure – cases in this assignment)

7

Basic Concepts: Repossession1. Replevin

2. Self help

3. Receiver

4. Breach of the peace

5. Trespass

6. Privilege to trespass

7. Concealment

8

Basic Concepts: RepossessionReplevin: A cause of action (writ) for possession

9

Basic Concepts: RepossessionReplevin: A cause of action (writ) for possession

1. Secured party has right to possession UCC § 9-609

10

Basic Concepts: RepossessionReplevin: A cause of action (writ) for possession

1. Secured party has right to possession UCC § 9-609

2. Powerful: sheriff delivers temporary possession early

11

Basic Concepts: RepossessionReplevin: A cause of action (writ) for possession

1. Secured party has right to possession UCC § 9-609

2. Powerful: sheriff delivers temporary possession early

3. Two procedures both Constitutional:

12

Basic Concepts: RepossessionReplevin: A cause of action (writ) for possession

1. Secured party has right to possession UCC § 9-609

2. Powerful: sheriff delivers temporary possession early

3. Two procedures both Constitutional:

Default

Complaint Writ

Hearing

Levy

10-20 daysNotice

Basic Concepts: RepossessionReplevin: A cause of action (writ) for possession

1. Secured party has right to possession UCC § 9-609

2. Powerful: sheriff delivers temporary possession early

3. Two procedures both Constitutional:

Complaint

Ex parte hearing

Default

Writ Levy

“Immediate” post-hearingNotice

Default

Complaint Writ

Hearing

Levy

10-20 daysNotice

10-20 days

14

Basic Concepts: Repossession

15

Basic Concepts: RepossessionBreach of the peace (limits self help, not sheriff levy)

16

Basic Concepts: RepossessionBreach of the peace (limits self help, not sheriff levy)

1. Criminal standard: Public disturbance

17

Basic Concepts: RepossessionBreach of the peace (limits self help, not sheriff levy)

1. Criminal standard: Public disturbance

2. Article 9 standard: “Tending to provoke others to break the peace,” Callaway v. Whittenton

Trespass

1. Criminal standard: “after warning”

2. Civil: Entry on land without express or implied authority

Privilege (to trespass): An entry to repossess is privileged if “there [is] no confrontation and the timing and manner, including notice or lack of notice, are found reasonable.”

Concealment: "Whoever . . . conceals any personal property in which he knows another has a security interest . . . is guilty of a Class E felony" Wis. Stat. §943.25

18

Basic Concepts: RepossessionBreach of the peace (limits self help, not sheriff levy)

1. Criminal standard: Public disturbance

2. Article 9 standard: “Tending to provoke others to break the peace,” Callaway v. Whittenton

Trespass

1. Criminal standard: “after warning”

2. Civil: Entry on land without express or implied authority

Privilege (to trespass): An entry to repossess is privileged if “there [is] no confrontation and the timing and manner, including notice or lack of notice, are found reasonable.”

Concealment: "Whoever . . . conceals any personal property in which he knows another has a security interest . . . is guilty of a Class E felony" Wis. Stat. §943.25

19

Basic Concepts: RepossessionBreach of the peace (limits self help, not sheriff levy)

1. Criminal standard: Public disturbance

2. Article 9 standard: “Tending to provoke others to break the peace,” Callaway v. Whittenton

Trespass

1. Criminal standard: fenced, posted, “after warning”

2. Civil: Entry on land without express or implied authority

Privilege (to trespass): An entry to repossess is privileged if “there [is] no confrontation and the timing and manner, including notice or lack of notice, are found reasonable.”

Concealment: "Whoever . . . conceals any personal property in which he knows another has a security interest . . . is guilty of a Class E felony" Wis. Stat. §943.25

20

Basic Concepts: RepossessionBreach of the peace (limits self help, not sheriff levy)

1. Criminal standard: Public disturbance

2. Article 9 standard: “Tending to provoke others to break the peace,” Callaway v. Whittenton

Trespass

1. Criminal standard: fenced, posted, “after warning”

2. Civil: Intentional entry on land without authority

Privilege (to trespass): An entry to repossess is privileged if “there [is] no confrontation and the timing and manner, including notice or lack of notice, are found reasonable.”

Concealment: "Whoever . . . conceals any personal property in which he knows another has a security interest . . . is guilty of a Class E felony" Wis. Stat. §943.25

21

Basic Concepts: RepossessionBreach of the peace (limits self help, not sheriff levy)

1. Criminal standard: Public disturbance

2. Article 9 standard: “Tending to provoke others to break the peace,” Callaway v. Whittenton

Trespass

1. Criminal standard: fenced, posted, “after warning”

2. Civil: Intentional entry on land without authority

Privilege (to trespass): An entry to repossess is privileged if “there [is] no confrontation and the timing and manner, including notice or lack of notice, are found reasonable.”

Concealment: "Whoever . . . conceals any personal property in which he knows another has a security interest . . . is guilty of a Class E felony" Wis. Stat. §943.25

22

Basic Concepts: RepossessionBreach of the peace (limits self help, not sheriff levy)

1. Criminal standard: Public disturbance

2. Article 9 standard: “Tending to provoke others to break the peace,” Callaway v. Whittenton

Trespass

1. Criminal standard: fenced, posted, “after warning”

2. Civil: Intentional entry on land without authority

Privilege (to trespass): An entry to repossess is privileged if “there [is] no confrontation and the timing and manner, including notice or lack of notice, are found reasonable.”

Concealment: "Whoever . . . conceals any personal property in which he knows another has a security interest . . . is guilty of a Class E felony" Wis. Stat. §943.25

23

Basic Concepts: RepossessionReceiver: An officer of the court who takes possession of

collateral during foreclosure to preserve it

California: Receiver gets possession if:

1. Property in danger of loss, removal, injury or

2. Debtor in default and value of collateral less than amount of the debt

Illinois: Mortgagee gets possession if:

1. Non-residential real property

2. Provision in the mortgage and

3. Probability mortgagee will prevail

Unless good cause

Repo Method by Property Type

MethodsReal estate Tangible

personalIntangible personal

Voluntary surrender

Self help

Receiver

Replevin

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Repo Method by Property Type

MethodsReal estate Tangible

personalIntangible personal

Voluntary surrender Yes Yes Yes

Self help

Receiver

Replevin

25

Repo Method by Property Type

MethodsReal estate Tangible

personalIntangible personal

Voluntary surrender Yes Yes Yes

Self help No Yes Yes (some)

Receiver

Replevin

26

Repo Method by Property Type

MethodsReal estate Tangible

personalIntangible personal

Voluntary surrender Yes Yes Yes

Self help No Yes Yes (some)

Receiver Yes Yes Yes

Replevin

27

Repo Method by Property Type

MethodsReal estate Tangible

personalIntangible personal

Voluntary surrender Yes Yes Yes

Self help No Yes Yes (some)

Receiver Yes Yes Yes

Replevin No Yes No

28

Repo Method by Property TypeReal estate Tangible

personalIntangible personal

Voluntary surrender Yes Yes Yes

Self help No Yes Yes (some)

Receiver Yes Yes Yes

Replevin No Yes No

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Creditors don’t get possession by foreclosure; purchasers do

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Problem 3.1,page 54

Problem 1.3

Our advice: Jeff can’t use self help.

Problem 3.1. What if Jeff is secured?

What policy justifies the difference?

Jeff Lisa$1KLoan

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Problem 3.2,page 54How do we repossess?

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Problem 3.2,page 54How do we repossess?

Owner

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Problem 3.2,page 54How do we repossess?

Contractor

Owner

Contract

35

Problem 3.2,page 54How do we repossess?

Subcontractor

Contractor

Owner

Contract

Contract

36

Problem 3.2,page 54How do we repossess?

Subcontractor

Contractor

Owner

Contract

Contract

Rights inthe collateral(ownership)

37

Problem 3.2,page 54How do we repossess?

a. No guard, no fence

38

Problem 3.2,page 54How do we repossess?

a. No guard, no fence

- Time of day?

39

Problem 3.2,page 54How do we repossess?

a. No guard, no fence

- Time of day?

- OK to trespass?

40

Problem 3.2,page 54How do we repossess?

a. No guard, no fence

- Time of day?

- OK to trespass?

- Give prior notice?

41

Problem 3.2,page 54How do we repossess?

a. No guard, no fence

- Time of day?

- OK to trespass?

- Give prior notice?

- If someone objects?

42

Problem 3.2,page 54How do we repossess?

a. No guard, no fence

- Time of day?

- OK to trespass?

- Give prior notice?

- If someone objects?

- Instructions?

43

Problem 3.2,page 54How do we repossess?

a. No guard, no fence

- Time of day?

- OK to trespass?

- Give prior notice?

- If someone objects?

- Instructions?

b. Fence, but no guard

44

Problem 3.2,page 54How do we repossess?

a. No guard, no fence

- Time of day?

- OK to trespass?

- Give prior notice?

- If someone objects?

- Instructions?

b. Fence, but no guard

- OK to trespass?

45

Problem 3.2,page 54How do we repossess?

a. No guard, no fence

- Time of day?

- OK to trespass?

- Give prior notice?

- If someone objects?

- Instructions?

b. Fence, but no guard

- OK to trespass?

- Cut the lock?

46

Problem 3.2,page 54How do we repossess?

a. No guard, no fence

- Time of day?

- OK to trespass?

- Give prior notice?

- If someone objects?

- Instructions?

b. Fence, but no guard

- OK to trespass?

- Cut the lock?

- Pick, tension wrench?

47

Problem 3.2,page 54

c. Guard and fenceHow do we repossess?

a. No guard, no fence

- Time of day?

- OK to trespass?

- Give prior notice?

- If someone objects?

- Instructions?

b. Fence, but no guard

- OK to trespass?

- Cut the lock?

- Pick, tension wrench?

48

Problem 3.2,page 54

c. Guard and fence

What happens if we ask for the dozer?

How do we repossess?

a. No guard, no fence

- Time of day?

- OK to trespass?

- Give prior notice?

- If someone objects?

- Instructions?

b. Fence, but no guard

- OK to trespass?

- Cut the lock?

- Pick, tension wrench?

49

Problem 3.2,page 54

c. Guard and fence

What happens if we ask for the dozer?

What if we defraud?

How do we repossess?

a. No guard, no fence

- Time of day?

- OK to trespass?

- Give prior notice?

- If someone objects?

- Instructions?

b. Fence, but no guard

- OK to trespass?

- Cut the lock?

- Pick, tension wrench?

50

Problem 3.2,page 54

c. Guard and fence

What happens if we ask for the dozer?

What if we defraud?

d. In debtor’s steel building

How do we repossess?

a. No guard, no fence

- Time of day?

- OK to trespass?

- Give prior notice?

- If someone objects?

- Instructions?

b. Fence, but no guard

- OK to trespass?

- Cut the lock?

- Pick, tension wrench?

51

Problem 3.2,page 54

c. Guard and fence

What happens if we ask for the dozer?

What if we defraud?

d. In debtor’s steel building

Pick the lock?

How do we repossess?

a. No guard, no fence

- Time of day?

- OK to trespass?

- Give prior notice?

- If someone objects?

- Instructions?

b. Fence, but no guard

- OK to trespass?

- Cut the lock?

- Pick, tension wrench?

52

Problem 3.2,page 54

c. Guard and fence

What happens if we ask for the dozer?

What if we defraud?

d. In debtor’s steel building

Pick the lock?

If interrupted? Return?

How do we repossess?

a. No guard, no fence

- Time of day?

- OK to trespass?

- Give prior notice?

- If someone objects?

- Instructions?

b. Fence, but no guard

- OK to trespass?

- Cut the lock?

- Pick, tension wrench?

53

Problem 3.2,page 54

c. Guard and fence

What happens if we ask for the dozer?

What if we defraud?

d. In debtor’s steel building

Pick the lock?

If interrupted? Return?

e. Anything we should put in the security agreement?

How do we repossess?

a. No guard, no fence

- Time of day?

- OK to trespass?

- Give prior notice?

- If someone objects?

- Instructions?

b. Fence, but no guard

- OK to trespass?

- Cut the lock?

- Pick, tension wrench?

54

Problem 3.2,page 54

c. Guard and fence

What happens if we ask for the dozer?

What if we defraud?

d. In debtor’s steel building

Pick the lock?

If interrupted? Return?

e. Anything we should put in the security agreement?

Breach of peace waiver?

How do we repossess?

a. No guard, no fence

- Time of day?

- OK to trespass?

- Give prior notice?

- If someone objects?

- Instructions?

b. Fence, but no guard

- OK to trespass?

- Cut the lock?

- Pick, tension wrench?

55

c. Guard and fence

What happens if we ask for the dozer?

What if we defraud?

d. In debtor’s steel building

Pick the lock?

If interrupted? Return?

e. Anything we should put in the security agreement?

Breach of peace waiver?

Right of entry?

Problem 3.2,page 54How do we repossess?

a. No guard, no fence

- Time of day?

- OK to trespass?

- Give prior notice?

- If someone objects?

- Instructions?

b. Fence, but no guard

- OK to trespass?

- Cut the lock?

- Pick, tension wrench?

56

Problem 3.3, page 54

How do we prevent repossession “for a week or two?”

57

Problem 3.3, page 54

How do we prevent repossession “for a week or two?”

- What if the repossessors persist?

58

Problem 3.3, page 54

How do we prevent repossession “for a week or two?”

- What if the repossessors persist? Gun?

59

Problem 3.3, page 54

How do we prevent repossession “for a week or two?”

- What if the repossessors persist? Gun?

- Is there an ethical problem? Rule 1.2

60

Problem 3.3, page 54

How do we prevent repossession “for a week or two?”

- What if the repossessors persist? Gun?

- Is there an ethical problem? Rule 1.2

What if they bring the sheriff?

61

Problem 3.3, page 54

How do we prevent repossession “for a week or two?”

- What if the repossessors persist? Gun?

- Is there an ethical problem? Rule 1.2

What if they bring the sheriff?

- Self help?

- Writ of replevin?

67

Problem 3.3, page 54

How do we prevent repossession “for a week or two?”

- What if the repossessors persist? Gun?

- Is there an ethical problem? Rule 1.2

What if they bring the sheriff?

- Self help?

- Writ of replevin? Should we resist the sheriff?

68

Problem 3.3, page 54

How do we prevent repossession “for a week or two?”

- What if the repossessors persist? Gun?

- Is there an ethical problem? Rule 1.2

What if they bring the sheriff?

- Self help?

- Writ of replevin? Should we resist the sheriff?

Should we call sheriff?

69

Problem 3.3, page 54

How do we prevent repossession “for a week or two?”

- What if the repossessors persist? Gun?

- Is there an ethical problem? Rule 1.2

What if they bring the sheriff?

- Self help?

- Writ of replevin? Should we resist the sheriff?

Should we call sheriff? “Officers . . . cross the line if they affirmatively intervene to aid the repossessor.” Marcus

70

Problem 3.3, page 54

How do we prevent repossession “for a week or two?”

- What if the repossessors persist? Gun?

- Is there an ethical problem? Rule 1.2

What if they bring the sheriff?

- Self help?

- Writ of replevin? Should we resist the sheriff?

Should we call sheriff? “Officers . . . cross the line if they affirmatively intervene to aid the repossessor.” Marcus

Should we hide the bulldozer?

71

Problem 3.3, page 54

How do we prevent repossession “for a week or two?”

- What if the repossessors persist? Gun?

- Is there an ethical problem? Rule 1.2

What if they bring the sheriff?

- Self help?

- Writ of replevin? Should we resist the sheriff?

Should we call sheriff? “Officers . . . cross the line if they affirmatively intervene to aid the repossessor.” Marcus

Should we hide the bulldozer? No: Wis. Stat. 943.25

72

Problem 3.3, page 54

How do we prevent repossession “for a week or two?”

- What if the repossessors persist? Gun?

- Is there an ethical problem? Rule 1.2

What if they bring the sheriff?

- Self help?

- Writ of replevin? Should we resist the sheriff?

Should we call sheriff? “Officers . . . cross the line if they affirmatively intervene to aid the repossessor.” Marcus

Should we hide the bulldozer? No: Wis. Stat. 943.25

Is the District Attorney going to prosecute Sal for hiding his own bulldozer?

73

Problem 3.4, page 55

If both sides are well advised, who wins?

74

Problem 3.4, page 55

If both sides are well advised, who wins?

The debtor.

75

Problem 3.4, page 55

If both sides are well advised, who wins?

The debtor.

Winning strategy: Sleep on the bulldozer

76

Problem 3.4, page 55

If both sides are well advised, who wins?

The debtor.

Winning strategy: Sleep on the bulldozer

If awakened, debtor threatens violence, repo is over

77

Problem 3.4, page 55

If both sides are well advised, who wins?

The debtor.

Winning strategy: Sleep on the bulldozer

If awakened, debtor threatens violence, repo is over

“§9-609 After default, a secured party may take possession of the collateral . . . .” Legal strategy nullifies that law.

78

Account: A right to payment of a monetary obligation . . . for property sold or services rendered, UCC § 9-102(a)(2)

Basic Concepts: Accounts

Creditor DebtorAccount

Property,services

79

Account: A right to payment of a monetary obligation . . . for property sold or services rendered, UCC § 9-102(a)(2)

Account debtor: means a person obligated on an account, UCC § 9-102(a)(3)

Basic Concepts: Accounts

Creditor DebtorAccount

Property,services

80

Account: A right to payment of a monetary obligation . . . for property sold or services rendered, UCC § 9-102(a)(2)

Account debtor: means a person obligated on an account, UCC § 9-102(a)(3)

Basic Concepts: Accounts

CreditorAccountdebtorAccount

Property,services

81

Account: A right to payment of a monetary obligation . . . for property sold or services rendered, UCC § 9-102(a)(2)

Account debtor: means a person obligated on an account, UCC § 9-102(a)(3)

Basic Concepts: Accounts

DebtorAccountdebtorAccount

Securedparty

AccountLoan

Accounts financing: Selling or borrowing against a group of accounts

How the parties do business

Debtor sells a tractor on credit

Debtor sends invoice copy to Secured party

Secured party advances 60%

Later:

Account debtor pays Debtor

Debtor pays 60% to Secured

82

Problem 3.5, page 55

DebtorAccountdebtor

Tractors

Account

Securedparty

AccountLoan

How the parties do business

Debtor sells a tractor on credit

Debtor sends invoice copy to Secured party

Secured party advances 60%

Later:

Account debtor pays Debtor

Debtor pays 60% to Secured

83

Problem 3.5, page 55

DebtorAccountdebtor

Tractors

Account

Securedparty

AccountLoan

What could go wrong

How the parties do business

Debtor sells a tractor on credit

Debtor sends invoice copy to Secured party

Secured party advances 60%

Later:

Account debtor pays Debtor

Debtor pays 60% to Secured

84

Problem 3.5, page 55

DebtorAccountdebtor

Tractors

Account

Securedparty

AccountLoan

What could go wrong

Debtor fakes invoices

85

How the parties do business

Debtor sells a tractor on credit

Debtor sends invoice copy to Secured party

Secured party advances 60%

Later

Account debtor pays Debtor

Debtor pays 60% to Secured

Problem 3.5, page 55

OPMLeasing

RockwellInternat’l

Computers

Leases

Banks

LeasesLoan

IBMComputers

Payment

What could go wrong

Debtor fakes invoices

86

How the parties do business

Debtor sells a tractor on credit

Debtor sends invoice copy to Secured party

Secured party advances 60%

Later:

Account debtor pays Debtor

Debtor pays 60% to Secured

Problem 3.5, page 55

DebtorAccountdebtor

Tractors

Account

Securedparty

AccountLoan

What could go wrong

Debtor fakes invoices

Account debtor pays Debtor, but Debtor doesn’t pay Secured

87

Problem 3.6.a, page 56

Deare Horne’sTractors

Account

Firstbank

AccountLoan

88

Problem 3.6.a, page 56

Deare defaults on loan

Deare Horne’sTractors

Account

Firstbank

AccountLoan

89

Problem 3.6.a, page 56

Deare defaults on loan

Bank sends notification to Horne’s

Deare Horne’sTractors

Account

Firstbank

Loan“Pay Firstbank, not Deare”Account

90

Problem 3.6.a, page 56

Deare defaults on loan

Bank sends notification to Horne’s

Horne’s pays Deare

Deare Horne’sTractors

Account

Firstbank

AccountLoan“Pay Firstbank, not Deare”

91

Problem 3.6.a, page 56

Deare defaults on loan

Bank sends notification to Horne’s

Horne’s pays Deare

Can Firstbank make Horne’s pay twice?

Deare Horne’sTractors

Account

Firstbank

AccountLoan“Pay Firstbank, not Deare”

92

Problem 3.6.a, page 56

Deare defaults on loan

Bank sends notification to Horne’s

Horne’s pays Deare

Can Firstbank make Horne’s pay twice?

AssignorAccountdebtor

Tractors

Account

Assignee

AccountLoan“Pay Firstbank, not Deare”Yes. § 9-406(a) After receipt

of the notification, the account debtor may discharge its obligation by paying the assignee and may not discharge the obligation by paying the assignor.

93

Problem 3.6.b, page 56Deare

assignsaccounts

Deare

Firstbank

AccountLoan

94

Problem 3.6.b, page 56

Dearesells$42K

Deareassigns

accounts$19K warrantyclaim accrues

Deare Wilson’s$19K

$42Kaccount

Firstbank

AccountLoan

95

Problem 3.6.b, page 56Deare

defaults

Dearesells$42K

Deareassigns

accounts$19K warrantyclaim accrues

Deare Wilson’s$19K

$42Kaccount

Firstbank

AccountLoan

96

Problem 3.6.b, page 56Deare

defaults

Dearesells$42K

Bank notifiesWilson’s

Deareassigns

accounts$19K warrantyclaim accrues

Deare Wilson’s$19K

$42Kaccount

Firstbank

Loan“Pay Firstbank, not Deare”Account

97

Problem 3.6.b, page 56Deare

defaults

Dearesells$42K

Bank notifiesWilson’s

Deareassigns

accounts$19K warrantyclaim accrues

Wilson’sclaims on warranty

Deare Wilson’s$19K

$42Kaccount

Firstbank

Loan“Pay Firstbank, not Deare”Account

98

Problem 3.6.b, page 56Deare

defaults

Dearesells$42K

Bank notifiesWilson’s

Wilson’sclaims on warranty

Banksues

Deareassigns

accounts$19K warrantyclaim accrues

Deare Wilson’s$19K

$42Kaccount

Firstbank

Loan“Pay Firstbank, not Deare”Account

99

Problem 3.6.b, page 56

To how much is Bank entitled?

Dearedefaults

Dearesells$42K

Bank notifiesWilson’s

Banksues

Deareassigns

accounts$19K warrantyclaim accrues

Wilson’sclaims on warranty

Deare Wilson’s$19K

$42Kaccount

Firstbank

“Pay Firstbank, not Deare”Loan Account

100

UCC § 9-404(a). [T]he rights of an assignee are subject to:

(1) all terms of the agreement between the account debtor and assignor and any defense or claim in recoupment arising from the transaction that gave rise to the contract; and

(2) any other . . . claim of the account debtor against the assignor which accrues before the account debtor receives a notification of the assignment . . .

Problem 3.6.b, page 56

101

UCC § 9-404(a). [T]he rights of an assignee are subject to:

(1) all terms of the agreement between the account debtor and assignor and any defense or claim in recoupment arising from the transaction that gave rise to the contract; and

(2) any other . . . claim of the account debtor against the assignor which accrues before the account debtor receives a notification of the assignment . . .

Problem 3.6.b, page 56

102

To how much is Bank entitled?

$23K

Dearedefaults

DeareSells$42K

Bank notifiesWilson’s

Warrantyclaimmade

Banksues

Deareassigns

accounts$19K warrantyclaim accrues

Problem 3.6.b, page 56

Deare Wilson’s$19K

$42Kaccount

Firstbank

AccountLoan“Pay Firstbank, not Deare”

103

The policy in favor of account assignment

104

The policy in favor of account assignment

§9-406(d). [A] term in an agreement between an account debtor and an assignor . . . is ineffective to the extent that it:

(1) prohibits, restricts, or requires the consent of the account debtor . . . to the assignment or transfer of . . . the account . . . .

105

§9-406(d). [A] term in an agreement between an account debtor and an assignor . . . is ineffective to the extent that it:

(1) prohibits, restricts, or requires the consent of the account debtor . . . to the assignment or transfer of . . . the account . . . .

Comment 5, example: “Buyer enters into an agreement with Seller to buy equipment . . . . Seller . . . agrees that it will not assign any of its rights under the sale agreement . . . . Seller’s anti-assignment agreement is ineffective under subsection (d) . . . . If Secured Party notifies Buyer to make all future payments directly to Secured Party, buyer will be obligated to do so . . . .”

The policy in favor of account assignment

106

The policy in favor of account assignment

Cardholder had a bad experience paying Citibank, does not want to have to pay Citibank

Card-holder

107

The policy in favor of account assignment

Cardholder had a bad experience paying Citibank, does not want to have to pay Citibank

Cardholder creates account with Chase, Chase agrees not to assign. Restriction is invalid, §9-406(d).

ChaseCard-holder

Contract thatprohibits assignment

108

The policy in favor of account assignment

Cardholder had a bad experience paying Citibank, does not want to have to pay Citibank

Cardholder creates account with Chase, Chase agrees not to assign. Restriction is invalid, §9-406(d).

Chase assigns and authorizes notice prior to default

ChaseCard-holder

Citibank

Contract thatprohibits assignment

Assignment and authorityto give notice

109

The policy in favor of account assignment

Cardholder had a bad experience paying Citibank, does not want to have to pay Citibank

Cardholder creates account with Chase, Chase agrees not to assign. Restriction is invalid, §9-406(d).

Chase assigns and authorizes notice prior to default

Notice to pay Citibank prior to

default

ChaseCard-holder

Citibank

Contract thatprohibits assignment

Assignment and authorityto give notice

110

The policy in favor of account assignment

Cardholder had a bad experience paying Citibank, does not want to have to pay Citibank

Cardholder creates account with Chase, Chase agrees not to assign. Restriction is invalid, §9-406(d).

Chase assigns and authorizes notice prior to default

Cardholder must pay Citibank. §9-406(a) §9-607(a)

Notice to pay Citibank prior to

default

ChaseCard-holder

Citibank

Contract thatprohibits assignment

Assignment and authorityto give notice