Secured TransactionsAssignment 9

Collateral and Obligations Covered

The Big Picture

Chapter 1. Creditors’ Remedies Under State Law

Chapter 2. Creditors’ Remedies in Bankruptcy

Chapter 3. Creation of Security Interests

Assignment 8: Formalities for Attachment

Assignment 9: What Collateral and Obligations are Covered?

Assignment 10: Proceeds (State Law)

Assignment 11: Proceeds (Bankruptcy)

Assignment 12: Skip

The Big Picture

Chapter 1. Creditors’ Remedies Under State Law

Chapter 2. Creditors’ Remedies in Bankruptcy

Chapter 3. Creation of Security Interests

Assignment 8: Formalities for Attachment

Assignment 9: What Collateral and Obligations are Covered?

Assignment 10: Proceeds (State Law)

Assignment 11: Proceeds (Bankruptcy)

Assignment 12: Skip

The Big Picture

Chapter 1. Creditors’ Remedies Under State Law

Chapter 2. Creditors’ Remedies in Bankruptcy

Chapter 3. Creation of Security Interests

Assignment 8: Formalities for Attachment

Assignment 9: What Collateral and Obligations are Covered?

Assignment 10: Proceeds (State Law)

Assignment 11: Proceeds (Bankruptcy)

Assignment 12: Skip

Two issues in Assignment 9

What collateral secures the obligations?

Asset“Collateral”

Debt“Obligation”

LienSecurity interest

What obligations are secured?

Two issues in Assignment 9

What collateral secures the obligations?

Asset“Collateral”

Debt“Obligation”

LienSecurity interest

What obligations are secured?

Whatever the security agreement says

Contract interpretation and validityInterpretation

1. Generally: The rules of contract govern

2. The security agreement speaks as of its execution

3. “All equipment” means “all equipment presently owned”

4. Exception for inventory, accounts, other rapid turnover assets

5. But see §9-108 comment 3

Interpretation

1. Generally: The rules of contract govern

2. The security agreement speaks as of its execution

3. “All equipment” means “all equipment presently owned”

4. Exception for inventory, accounts, other rapid turnover assets

5. But see §9-108 comment 3

Contract interpretation and validity

Interpretation

1. Generally: The rules of contract govern

2. The security agreement speaks as of its execution

3. “All equipment” means “all equipment presently owned”

4. Exception for inventory, accounts, other rapid turnover assets

5. But see §9-108 comment 3

Contract interpretation and validity

Interpretation

1. Generally: The rules of contract govern

2. The security agreement speaks as of its execution

3. “All equipment” means “all equipment presently owned”

4. Exception for inventory, accounts, other rapid turnover assets

5. But see §9-108 comment 3

Contract interpretation and validity

Interpretation

1. Generally: The rules of contract govern

2. The security agreement speaks as of its execution

3. “All equipment” means “all equipment presently owned”

4. Exception for inventory, accounts, other rapid-turnover assets

5. But see §9-108 comment 3

Contract interpretation and validity

Interpretation

1. Generally: The rules of contract govern

2. The security agreement speaks as of its execution

3. “All equipment” means “all equipment presently owned”

4. Exception for inventory, accounts, other rapid- turnover assets

5. But see §9-108 comment 3

Contract interpretation and validity

Interpretation

1. Generally: The rules of contract govern

2. The security agreement speaks as of its execution

3. “All equipment” means “all equipment presently owned”

4. Exception for inventory, accounts, other rapid turnover assets

5. But see §9-108 comment 3

Validity (of descriptions)9-203(b)(3)(A) requires a

description9-108 permits1. Specific2. Category3. UCC category4. Quantity5. Computational formula6. Any other if “objectively

determinable”7. Not “all assets”8. Not “commercial tort claims9. Not “consumer goods”

“Much litigation has arisen over whether a description in a security agreement is sufficient to include after-acquired collateral if the agreement does not explicitly so provide. This question is one of contract interpretation and is not suceptible to a statutory rule. Accordingly, this seciton contains no reference to descriptions of after-acquired property.

Contract interpretation and validity

Interpretation

1. Generally: The rules of contract govern

2. The security agreement speaks as of its execution

3. “All equipment” means “all equipment presently owned”

4. Exception for inventory, accounts, other rapid turnover assets

5. But see §9-108 comment 3

Validity (of descriptions)9-203(b)(3)(A) requires a

description9-108 permits1. Specific2. Category3. UCC category4. Quantity5. Computational formula6. Any other if “objectively

determinable”7. Not “all assets”8. Not “commercial tort claims9. Not “consumer goods”

“Much litigation has arisen over whether a description in a security agreement is sufficient to include after-acquired collateral if the agreement does not explicitly so provide. This question is one of contract interpretation and is not susceptible to a statutory rule. Accordingly, this section contains no reference to descriptions of after-acquired property.”

Contract interpretation and validity

Interpretation

1. Generally: The rules of contract govern

2. The security agreement speaks as of its execution

3. “All equipment” means “all equipment presently owned”

4. Exception for inventory, accounts, other rapid turnover assets

5. But see §9-108 comment 3

Validity (of descriptions)9-203(b)(3)(A) requires a

description9-108 permits1. Specific2. Category3. UCC category4. Quantity5. Computational formula6. Any other if “objectively

determinable”7. Not “all assets”8. Not “commercial tort claims9. Not “consumer goods”

Contract interpretation and validity

Interpretation

1. Generally: The rules of contract govern

2. The security agreement speaks as of its execution

3. “All equipment” means “all equipment presently owned”

4. Exception for inventory, accounts, other rapid turnover assets

5. But see §9-108 comment 3

Validity (of descriptions)9-203(b)(3)(A) requires a

description

9-108 permits1. Specific2. Category3. UCC category4. Quantity5. Computational formula6. Any other if “objectively

determinable”7. Not “all assets”8. Not “commercial tort claims9. Not “consumer goods”

Contract interpretation and validity

Interpretation

1. Generally: The rules of contract govern

2. The security agreement speaks as of its execution

3. “All equipment” means “all equipment presently owned”

4. Exception for inventory, accounts, other rapid turnover assets

5. But see §9-108 comment 3

Validity (of descriptions)9-203(b)(3)(A) requires a

description

9-108 permits1. Specific2. Category 3. UCC category4. Quantity5. Computational formula6. Any other if “objectively

determinable”7. Not “all assets”8. Not “commercial tort claims9. Not “consumer goods”

Contract interpretation and validity

Interpretation

1. Generally: The rules of contract govern

2. The security agreement speaks as of its execution

3. “All equipment” means “all equipment presently owned”

4. Exception for inventory, accounts, other rapid turnover assets

5. But see §9-108 comment 3

Validity (of descriptions)9-203(b)(3)(A) requires a

description

9-108 permits1. Specific2. Category3. UCC category4. Quantity5. Computational formula6. Any other if “objectively

determinable”7. Not “all assets”8. Not “commercial tort claims9. Not “consumer goods”

Contract interpretation and validity

Validity (of descriptions)9-203(b)(3)(A) requires a

description

9-108 permits1. Specific2. Category3. UCC category4. Quantity5. Computational formula6. Any other if “objectively

determinable”7. Not “all assets”8. Not “commercial tort claims9. Not “consumer goods”

Interpretation

1. Generally: The rules of contract govern

2. The security agreement speaks as of its execution

3. “All equipment” means “all equipment presently owned”

4. Exception for inventory, accounts, other rapid turnover assets

5. But see §9-108 comment 3

Contract interpretation and validity

Validity (of descriptions)9-203(b)(3)(A) requires a

description

9-108 permits1. Specific2. Category3. UCC category4. Quantity5. Computational formula6. Any other if “objectively

determinable”7. Not “all assets”8. Not “commercial tort claims9. Not “consumer goods”

Interpretation

1. Generally: The rules of contract govern

2. The security agreement speaks as of its execution

3. “All equipment” means “all equipment presently owned”

4. Exception for inventory, accounts, other rapid turnover assets

5. But see §9-108 comment 3

Contract interpretation and validity

Validity (of descriptions)9-203(b)(3)(A) requires a

description

9-108 permits1. Specific2. Category 3. UCC category4. Quantity5. Computational formula6. Any other if “objectively

determinable”7. Not “all assets”8. Not “commercial tort claims9. Not “consumer goods”

Interpretation

1. Generally: The rules of contract govern

2. The security agreement speaks as of its execution

3. “All equipment” means “all equipment presently owned”

4. Exception for inventory, accounts, other rapid turnover assets

5. But see §9-108 comment 3

Contract interpretation and validity

Validity (of descriptions)9-203(b)(3)(A) requires a

description

9-108 permits1. Specific2. Category3. UCC category4. Quantity5. Computational formula6. Any other if “objectively

determinable”7. Not “all assets”8. Not “commercial tort claims9. Not “consumer goods”

Interpretation

1. Generally: The rules of contract govern

2. The security agreement speaks as of its execution

3. “All equipment” means “all equipment presently owned”

4. Exception for inventory, accounts, other rapid turnover assets

5. But see §9-108 comment 3

Contract interpretation and validity

Validity (of descriptions)9-203(b)(3)(A) requires a

description

9-108 permits1. Specific2. Category3. UCC category4. Quantity5. Computational formula6. Any other if “objectively

determinable”7. Not “all assets”8. Not “commercial tort claims”

9. Not “consumer goods”

Interpretation

1. Generally: The rules of contract govern

2. The security agreement speaks as of its execution

3. “All equipment” means “all equipment presently owned”

4. Exception for inventory, accounts, other rapid turnover assets

5. But see §9-108 comment 3

Contract interpretation and validity

Validity (of descriptions)9-203(b)(3)(A) requires a

description

9-108 permits1. Specific2. Category3. UCC category4. Quantity5. Computational formula6. Any other if “objectively

determinable”7. Not “all assets”8. Not “commercial tort claims”9. Not “consumer goods”

Interpretation

1. Generally: The rules of contract govern

2. The security agreement speaks as of its execution

3. “All equipment” means “all equipment presently owned”

4. Exception for inventory, accounts, other rapid turnover assets

5. But see §9-108 comment 3

Contract interpretation and validity

After-Acquired PropertyDefinition: Collateral acquired after security agreement is signed

Issue: Must the description say “after-acquired” to include it?

§9-204(a) A security agreement may provide for after acquired

§9-108. Cmt 3. “Much litigation has arisen over whether a description in a security agreement is sufficient to include after-acquired collateral if the agreement does not explicitly so provide. This question is one of contract interpretation and is not susceptible to a statutory rule. . . . Accordingly, this section contains no reference to descriptions of after-acquired collateral.

Case law: Cases turn on the facts. Most likely outcomes:

“All inventory” is held to include after-acquired inventory

“All equipment” is held not to include after-acquired25

§9-108(a)(6) “Objectively determinable” by whom? Using what additional information?

26

Rules for interpretation and validity

§9-108(a)(6) “Objectively determinable” by whom? Using what additional information?

1. Example: “inventory” is goods held for sale – depends on debtor’s intention – OK

27

Rules for interpretation and validity

§9-108(a)(6) “Objectively determinable” by whom? Using what additional information?

1. Example: “inventory” is goods held for sale – depends on debtor’s intention – OK

2. Example: “Crops growing on real estate described by ASCS Farm Serial Number J-528” – OK

28

Rules for interpretation and validity

§9-108(a)(6) “Objectively determinable” by whom? Using what additional information?

1. Example: “inventory” is goods held for sale – depends on debtor’s intention – OK

2. Example: “Crops growing on real estate described by ASCS Farm Serial Number J-528” – OK

3. Example: “The equipment in the restaurant at 123 Main Street.” (Consider the possibility it will be moved.) – OK

29

Rules for interpretation and validity

§9-108(a)(6) “Objectively determinable” by whom? Using what additional information?

1. Example: “inventory” is goods held for sale – depends on debtor’s intention – OK

2. Example: “Crops growing on real estate described by ASCS Farm Serial Number J-528” – OK

3. Example: “The equipment in the restaurant at 123 Main Street.” (Consider the possibility it will be moved.) – OK

4. Example: “Creditor shall have a security interest in all items purchased on this account” – Not OK, Shirel

30

Rules for interpretation and validity

§9-108(a)(6) “Objectively determinable” by whom? Using what additional information?

1. Example: “inventory” is goods held for sale – depends on debtor’s intention – OK

2. Example: “Crops growing on real estate described by ASCS Farm Serial Number J-528” – OK

3. Example: “The equipment in the restaurant at 123 Main Street.” (Consider the possibility it will be moved.) – OK

4. Example: “Creditor shall have a security interest in all items purchased on this account” – Not OK, Shirel

Shirel is an exception. Most courts allow extrinsic evidence. Otherwise, most descriptions would fail

31

Rules for interpretation and validity

In re Shirel“It is understandable for a creditor to desire one catchall phrase which creates a security agreement in every possible situation. However, in doing so, it may not ignore one of the primary reasons for creating a security agreement, which is to give notice to a third party. [If that is the case why is it a private agreement nobody can read?] This can only be achieved by describing what property is subject to the security interest.”

Judge Bohanon does not seem to understand the difference between a security agreement and a financing statement.

33

34

Problem 9.1, page 160

35

a. “All equipment and inventory”

§9-108(b)(3), “a type of collateral defined in the Uniform Commercial Code”

b. “All items purchased with the card”

c. “Restaurant equipment located at 123 Main Street.” Debtor has a restaurant there.

d. “All of the debtor’s consumer goods”

§9-108(e)

e. “All goods other than consumer goods.” §9-108(b)(3) UCC category. §9-108(c), supergeneric?

Problem 9.2, page 161

36

Problem 9.2, page 161

37

Description of collateral in Shirel (page 152):

“Respondent will have a security interest in all ‘merchandise’ purchased with the credit card.”

Problem 9.2, page 161

38

Description of collateral in Shirel (page 152):

“Respondent will have a security interest in all ‘merchandise’ purchased with the credit card.”

Holding: Description insufficient because it does not reasonably describe the collateral. Respondent is unsecured.

Problem 9.2, page 161

39

Description of collateral in Shirel (page 152):

“Respondent will have a security interest in all ‘merchandise’ purchased with the credit card.”

Holding: Description insufficient because it does not reasonably describe the collateral. Respondent is unsecured.

Our client’s (Walter’s Department Store) description of collateral (page 161):

“Cardholder grants Walter’s a security interest in all items purchased on the account.”

Problem 9.2, page 161

40

Description of collateral in Shirel (page 152):

“Respondent will have a security interest in all ‘merchandise’ purchased with the credit card.”

Holding: Description insufficient because it does not reasonably describe the collateral. Respondent is unsecured.

Our client’s (Walter’s Department Store) description of collateral (page 161):

“Cardholder grants Walter’s a security interest in all items purchased on the account.”

Insufficient, but why . . . .

Problem 9.2, page 161

41

Some statements from Shirel:

The form says “respondent will have a security interest in all ‘merchandise’ purchased with the credit card.” page 152.

Problem 9.2, page 161

42

Some statements from Shirel:

The form says “respondent will have a security interest in all ‘merchandise’ purchased with the credit card.” page 152. [T]he phrase “all merchandise” is . . . too liberal, too imprecise, and is not a description. . . . [I]t does not set forth a graphic or detailed account of the purported collateral.” A “sufficient description might have been a refrigerator” p 153-4

Problem 9.2, page 161

43

Some statements from Shirel:

The form says “respondent will have a security interest in all ‘merchandise’ purchased with the credit card.” page 152. [T]he phrase “all merchandise” is . . . too liberal, too imprecise, and is not a description. . . . [I]t does not set forth a graphic or detailed account of the purported collateral.” A “sufficient description might have been a refrigerator” p 153-4

“One of the primary reasons for creating a security agreement . . . is to give notice to a third party. This can only be achieved by describing what property is subject to the security interest.”

Problem 9.2, page 161

44

Some statements from Shirel:

The form says “respondent will have a security interest in all ‘merchandise’ purchased with the credit card.” page 152. [T]he phrase “all merchandise” is . . . too liberal, too imprecise, and is not a description. . . . [I]t does not set forth a graphic or detailed account of the purported collateral.” A “sufficient description might have been a refrigerator” p 153-4

“One of the primary reasons for creating a security agreement . . . is to give notice to a third party. This can only be achieved by describing what property is subject to the security interest.”

What can we do to satisfy Judge Bohanon?

Problem 9.2, page 161

45

Some statements from Shirel:

The form says “respondent will have a security interest in all ‘merchandise’ purchased with the credit card.” page 152. [T]he phrase “all merchandise” is . . . too liberal, too imprecise, and is not a description. . . . [I]t does not set forth a graphic or detailed account of the purported collateral.” A “sufficient description might have been a refrigerator” p 153-4

“One of the primary reasons for creating a security agreement . . . is to give notice to a third party. This can only be achieved by describing what property is subject to the security interest.”

What can we do to satisfy Judge Bohanon?

16 CFR 444.1 prohibits taking . . . a nonpossessory security interest in household goods other than a purchase money security interest.

Problem 9.4, page 161

46

Description: “crops growing on the debtor’s farm in Osprey County, about 14 miles from Tilanook”

NowPlanting HarvestSA

signed

Crop in ground

Problem 9.4, page 161

47

Description: “crops growing on the debtor’s farm in Osprey County, about 14 miles from Tilanook”

a. Does First National have a SI in these crops?

NowPlanting HarvestSA

signed

Crop in ground

Problem 9.4, page 161

48

Description: “crops growing on the debtor’s farm in Osprey County, about 14 miles from Tilanook”

a. Does First National have a SI in these crops? Make any difference if there were crops in the ground when the security agreement was signed?

NowPlanting HarvestSA

signed

Crop in groundCrop in ground

Problem 9.4, page 161

49

SAsigned

Description: “crops growing on the debtor’s farm in Osprey County, about 14 miles from Tilanook”

a. Does First National have a SI in these crops? Make any difference if there were crops in the ground when the security agreement was signed?

NowPlanting Harvest

Crop in groundCrop in ground

Problem 9.4, page 161

50

SAsigned

Description: “crops growing on the debtor’s farm in Osprey County, about 14 miles from Tilanook”

a. Does First National have a SI in these crops? Make any difference if there were crops in the ground when the security agreement was signed? Future crops or none!

NowPlanting Harvest

Crop in groundCrop in ground

Problem 9.4, page 161

51

Description: “crops growing on the debtor’s farm in Osprey County, about 14 miles from Tilanook”

a. Does First National have a SI in these crops? Make any difference if there were crops in the ground when the security agreement was signed? Future crops or none!

Charles v. Fidelity State Bank (D. Kan. 1987) (“Crops growing” is present tense; for future crops the security interest should say “crops to be grown.”)

NowPlanting HarvestSA

signed

Crop in groundCrop in ground

Problem 9.4, page 161

52

Description: “crops growing on the debtor’s farm in Osprey County, about 14 miles from Tilanook”

a. Does First National have a SI in these crops? Make any difference if there were crops in the ground when the security agreement was signed? Future crops or none!

Charles v. Fidelity State Bank (D. Kan. 1987) (“Crops growing” is present tense; for future crops the security interest should say “crops to be grown.”)

b. What advice for the Gillams?

NowPlanting HarvestSA

signed

Crop in groundCrop in ground

Description: “crops growing on the debtor’s farm in Osprey County, about 14 miles from Tilanook”

a. Does First National have a SI in these crops? Make any difference if there were crops in the ground when the security agreement was signed? Future crops or none!

Charles v. Fidelity State Bank (D. Kan. 1987) (“Crops growing” is present tense; for future crops the security interest should say “crops to be grown.”)

b. What advice for the Gillams? Who is right is not determinative. Title to the crops is “clouded.”

Problem 9.4, page 161

53

NowPlanting HarvestSA

signed

Crop in groundCrop in ground

Problem 9.6, page 162

61

We are advising a secured creditor on the coverage of its security interest.

Problem 9.6, page 162

62

We are advising a secured creditor on the coverage of its security interest.

The description: “All of Debtor’s equipment, including replacement parts, additions, repairs, and accessories incorporated therein or affixed thereto. Without limitation the term ‘equipment’ includes all items used in recording , processing, playing back, or broadcasting moving or still pictures, by whatever process.”

Problem 9.6, page 162

63

We are advising a secured creditor on the coverage of its security interest.

The description: “All of Debtor’s equipment, including replacement parts, additions, repairs, and accessories incorporated therein or affixed thereto. Without limitation the term ‘equipment’ includes all items used in recording , processing, playing back, or broadcasting moving or still pictures, by whatever process.”

The disputed collateral: Video equipment similar to that owned at time of security agreement signing, but acquired later.

Problem 9.6, page 162

64

We are advising a secured creditor on the coverage of its security interest.

The description: “All of Debtor’s equipment, including replacement parts, additions, repairs, and accessories incorporated therein or affixed thereto. Without limitation the term ‘equipment’ includes all items used in recording , processing, playing back, or broadcasting moving or still pictures, by whatever process.”

The disputed collateral: Video equipment similar to that owned at time of security agreement signing, but acquired later.

The issue: Does the description cover the disputed collateral?

Problem 9.6, page 162

65

We are advising a secured creditor on the coverage of its security interest.

The description: “All of Debtor’s equipment, including replacement parts, additions, repairs, and accessories incorporated therein or affixed thereto. Without limitation the term ‘equipment’ includes all items used in recording , processing, playing back, or broadcasting moving or still pictures, by whatever process.”

The disputed collateral: Video equipment similar to that owned at time of security agreement signing, but acquired later.

The issue: Does the description cover the disputed collateral?

The law: “§9-201(a). [A] security agreement is effective according to its terms . . . .”

Problem 9.6, page 162

66

We are advising a secured creditor on the coverage of its security interest.

The description: “All of Debtor’s equipment, including replacement parts, additions, repairs, and accessories incorporated therein or affixed thereto. Without limitation the term ‘equipment’ includes all items used in recording , processing, playing back, or broadcasting moving or still pictures, by whatever process.”

The disputed collateral: Video equipment similar to that owned at time of security agreement signing, but acquired later.

The issue: Does the description cover the disputed collateral?

The law: “§9-201(a). [A] security agreement is effective according to its terms . . . .”

Problem 9.6, page 162

67

The court: "Addition" is defined in Black's Law dictionary as an "[e]xtension; increase; augmentation." This definition in no way contemplates that "additions" is sufficient to reasonably identify the after-acquired collateral.“

Problem 9.6, page 162

68

The court: "Addition" is defined in Black's Law dictionary as an "[e]xtension; increase; augmentation." This definition in no way contemplates that "additions" is sufficient to reasonably identify the after-acquired collateral.“

Additions" . . . is listed among the words "replacement parts . . . repairs, and accessories,"

Problem 9.6, page 162

69

The court: "Addition" is defined in Black's Law dictionary as an "[e]xtension; increase; augmentation." This definition in no way contemplates that "additions" is sufficient to reasonably identify the after-acquired collateral.“

Additions" . . . is listed among the words "replacement parts . . . repairs, and accessories," and . . . clearly and unambiguously refers to items like replacement parts, repairs, and accessories, which can be incorporated in or affixed to the existing equipment . . .

Problem 9.6, page 162

70

The court: "Addition" is defined in Black's Law dictionary as an "[e]xtension; increase; augmentation." This definition in no way contemplates that "additions" is sufficient to reasonably identify the after-acquired collateral.“

Additions" . . . is listed among the words "replacement parts . . . repairs, and accessories," and . . . clearly and unambiguously refers to items like replacement parts, repairs, and accessories, which can be incorporated in or affixed to the existing equipment . . .

Had the parties chosen to do so, they could have easily included language clearly stating that after-acquired equipment would be included . . . .

Default assignment changes

In Assignment 10, add problem 10.7 to the default set.

Problem 9.7, page 162

72

A riddle (real case):

Problem 9.7, page 162

73

A riddle (real case):

1. Wisconsin Bank makes loan against the “fixtures and equipment” of a lessee bar (no after acquired property clause)

Problem 9.7, page 162

74

A riddle (real case):

1. Wisconsin Bank makes loan against the “fixtures and equipment” of a lessee bar (no after acquired property clause)

2. Six years later, the debtor absconds to Minnesota.

Problem 9.7, page 162

75

A riddle (real case):

1. Wisconsin Bank makes loan against the “fixtures and equipment” of a lessee bar (no after acquired property clause)

2. Six years later, the debtor absconds to Minnesota. The Bank retakes possession and finds no collateral.

Problem 9.7, page 162

76

A riddle (real case):

1. Wisconsin Bank makes loan against the “fixtures and equipment” of a lessee bar (no after acquired property clause)

2. Six years later, the debtor absconds to Minnesota. The Bank retakes possession and finds no collateral.

3. Bank prosecutes debtor for the crime of removing collateral from the state in violation of a security agreement

Problem 9.7, page 162

77

A riddle (real case):

1. Wisconsin Bank makes loan against the “fixtures and equipment” of a lessee bar (no after acquired property clause)

2. Six years later, the debtor absconds to Minnesota. The Bank retakes possession and finds no collateral.

3. Bank prosecutes debtor for the crime of removing collateral from the state in violation of a security agreement

Debtor admitted taking the fixtures and the equipment from the bar to Minnesota, but said he had taken no collateral to Minnesota.

Problem 9.7, page 162

78

A riddle (real case):

1. Wisconsin Bank makes loan against the “fixtures and equipment” of a lessee bar (no after acquired property clause)

2. Six years later, the debtor absconds to Minnesota. The Bank retakes possession and finds no collateral.

3. Bank prosecutes debtor for the crime of removing collateral from the state in violation of a security agreement

Debtor admitted taking the fixtures and the equipment from the bar to Minnesota, but said he had taken no collateral to Minnesota. How can that be?