1. Debtor owed First Bank $10,000, secured by a security interest in all of the Debtor’s equipment (now owned and after-acquired).  First Bank duly perfected its security interest by filing.  Subsequently, Debtor borrowed $25,000 from Finance Co., which also took and perfected a security interest in all of the Debtor’s equipment (now owned and after-acquired).  When Debtor’s loan from First Bank came due, Debtor borrowed $25,000 from Second Bank.  Debtor used $10,000 of the loan proceeds to pay off First Bank, and used the rest of the loan to pay its taxes and its payroll.  Contemporaneously with this loan, Debtor granted Second Bank a security interest in all of its equipment (now owned and after-acquired), and Second Bank perfected this security interest by filing.  One month later, Debtor defaulted to both Finance Co. and Second Bank.  Debtor still owes each $25,000.  All of Debtor’s equipment is sold and generates $25,000. How should the $25,000 be distributed, and why?

2. Payment Protection Systems, Inc. manufactures and markets a device (known as “On Time”) that is a fully electronic starter interruption system. The On Time device, which uses microprocessor technology, is marketed to car dealers. Upon selling a car to an installment purchaser, the dealer can attach the On Time device to the car. The device will warn the occupant when an installment payment on the vehicle is about to be due. If the installment payment is overdue, the On Time device disables the starting of the car, preventing the car from being driven.

Your client, Easy Ed’s Auto Sales, wants to use the On Time device, but has asked for your advice regarding the legality of doing so. Does Article 9 permit a secured party such as Easy Ed’s to use the On Time device? What advice would you give Easy Ed’s?

3. Henning owns a sawmill. Last year, Firstbank took and perfected a security interest in all of Henning’s equipment, including after-acquired equipment. All last year, Henning was considering buying a new PowerRip 5000 saw for his sawmill. On January 1 of this year, Henning signed an agreement with PowerRip Company to lease the saw for one month in exchange for a modest lease payment. During this time, Henning would decide whether or not to buy the saw. On January 31, Henning agreed to buy the saw and signed an installment contract. The PowerRip Company applied his rent payment to the contract as a down payment, and Henning granted a security interest in the saw to secure payment of saw’s remaining price. The PowerRip Company filed a financing statement covering the saw on February 8.

Henning later defaulted to both PowerRip and Firstbank. Each claims first priority in the saw. On what basis can each claim priority in the saw, and how should the court resolve this priority dispute? Explain.

4. You are general counsel to Local Bank, a small community-based bank that has three branches, all located in New City. Local Bank makes three primary types of secured loans: (a) home mortgage loans, (b) purchase money loans secured by consumer goods (typically automobiles, applicances and electronics), and (c) small business loans typically secured by all business assets. Local Bank’s board of directors is considering a proposal to establish a policy that following default by one of its borrowers, Local Bank will in all cases dispose of the defaulting borrower’s collateral by auctioning it off on E-Bay. Would you recommend to the Board of Directors that they adopt this policy for Local Bank? Why or why not?

5. On July 1, A borrowed $25,000 from Bank and granted Bank a security interest in its deposit account maintained at Bank. On August 1, Finance Company filed an authorized financing statement covering A’s equipment. On August 10, Finance Company loaned A $25,000, and A granted Finance Company a security interest in all of A’s present and after-acquired equipment. On November 1, A bought a new drill press and placed it into operation in A’s manufacturing plant. A paid the $10,000 price of the drill press using a check drawn on its account at Bank. On November 15, Bank learned of the purchase and filed a financing statement covering A’s equipment.

On January 1, A defaulted to both Bank and Finance Company. Both Bank and Finance Company claim the right to possession of the drill press. Explain on what basis (if any) Bank and Finance Company may claim an interest in the drill press, and explain which party has the superior right to possession of the drill press (and why).

6. Bank is considering a $200,000 loan to Fisk, a local entrepreneur. The loan would be secured by Fisk’s equipment, inventory, and accounts (including after-acquired). Fisk wants to borrow the money no later than December 15, 2003.

On November 30, 2003, Bank conducts a search of the UCC records in the Secretary of State’s office. This search reveals that on December 20, 1998, Finance Company filed a financing statement covering Fisk’s “inventory.” After inquiring of Finance Company, Bank discovers that Fisk owes Finance Company $2,000 and that Finance Company holds a security interest in 150 “Weed-Whacker” trimmers (Fisk sells them door-to-door using college students as salespersons). Finance Company’s security agreement with Fisk does not contain a future advances clause.

What advice would you give to Bank regarding the steps they could or should take in making the loan to Fisk and documenting the transaction?