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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)
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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
24
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
29
Creditors don’t get possession by foreclosure; purchasers do
30
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
32
Problem 3.2,page 54How do we repossess?
33
Problem 3.2,page 54How do we repossess?
Owner
34
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
