| Deals: The Economic Structure of
Transactions and Contracting
L6107, Spring 2009
Professors Avery W. Katz and Ronald Mann
Last updated: Tuesday, 06-Jan-2009 13:39:23 EST
Assignment for the last day of class and announcements for exam week.
On Monday, April 28, the last day of class, we will complete our discussion of preferences in bankruptcy. In addition to reviewing any leftover material, you should read pp. 507-11, and review §547(c) and (e). Our class discussion will focus on the problems at pp. 501-502 and 509.
Also as announced, I will hold additional office hours on Monday the 28rd from 4-5:30 pm, and on Tuesday the 29th from 2-4 pm.
Please do take the time to go onto Lawnet and fill out the online evaluation form for this course. Your comments will be very helpful both to future students, and to the faculty and administration in making curricular decisions.
Assignment for week 14.
- On Monday, April 21, after finishing leftover material on valuation of collateral, we will discuss the trustee's avoidance powers under §§544 and 548. On valuation of collateral, you should reread and be prepared to discuss Associates Commercial Corporation v. Rash. On avoidance powers, you should read pp. 492-494 together with BC §544; and pp. 511-519 together with §548. The A-G panel is on call.
Our discussion of avoidance powers will start with the following problem, which includes a review of some basic priority concepts from Article 9:
Debtor [D] borrowed $100,000 from Bank [B] on June 1, signing a security agreement and a financing statement that gave B a security interest in D's inventory and equipment. B did not file the financing statement until July 15, and in the meantime, on June 5, Debtor borrowed $20,000 from Finance Co. [F] on a unsecured basis. D then defaulted on both loans.
(a) If F subsequently reduces its debt to judgment and obtains a judicial lien on all of D's assets in aid of enforcement, who will have priority in the inventory and equipment? What result if F had obtained its lien on July 10? [See §9-317.]
(b) Suppose instead that a dispute over priority arose on July 1, before F obtained any lien and before B filed. What result? [See §§9-201 and 301.]
(c) Suppose that Debtor filed a bankruptcy petition on July 10, before either creditor had filed or secured a judgment lien. Can either B or F prevail against the assets, or can the trustee of D's estate [T] take the inventory and equipment for the benefit of the estate? [See BC §§ 544(a)(1) and 101(36); UCC §9-317.]
(d) Suppose that D filed its bankruptcy petition on July 17 and F obtained its lien on July 10.
- Can the trustee set aside F's lien under §544(a)?
- Can the trustee set aside B's security interest under §544(a)?
- Can the trustee set aside B's security interest under §544(b)? [Hint: see BC § 506.]
- On Wednesday, April 23, after completing leftover material, we will discuss the trustee's power to avoid preferential transfers. You should read pp. 494-507, together with §547 [and paying special attention to subsections 547(b) and 547(c)]. In class discussion, we will focus on the problems at pp. 496, 500, and 501-502. There will be no discussion panel; I will assume the entire class is available to participate in discussion unless told otherwise.
Assignment for week 13.
- On Monday, April 14, we will have our second midterm quiz, covering material from accounts financing through investment securities. You should arrive promptly at the beginning of the class period in order to leave sufficient time for administration of the exam.
As before, the exam will be supervised by a proctor supplied by Registration Services, who will provide exam numbers, scantron sheets, and pencils. Please direct any further questions relating to the administration of the exam to the Office of Registration Services. I will answer substantive questions on the course material via e-mail up till 6 pm on the 13th.
- On Wednesday, April 16, we will discuss basic issues relating to bankruptcy, and then will turn to a discussion of the bankruptcy treatment of secured claims. You should read pp. 461-491, along with Bankruptcy Code §§362 and 506 [the latter of which you should read with special care.] In class discussion, we will focus on the problems at pp. 468-470, and on Associates Commercial Corporation v. Rash. The Ge-M panel is on call.
Assignment for week 12.
- On Monday, April 7, after completing leftover material on personal property leases, we will discuss guaranties and loan covenants. All the readings are in the coursepack. You should read the excerpt from my article as background, and then read Pentax v. Boyd and ESL v Bovee more carefully. We will use Pentax to discuss the basics of suretyship defenses, and ESL to discuss the relationship between guaranties and secured lending. The N-Z panel is on call.
- On Wednesday, April 9, we will discuss security interests in investment securities under UCC Article 8. You should read pp. 407-444, consulting statutory sections as needed. The First National Bank of Palmerston and Pfautz cases are optional but useful reading. In class discussion, we will focus on Layne v. Bank One and on the problems at pp. 426-428. The A-Ga panel is on call.
- Remember that our second midterm quiz, covering material through this week, will be given on Monday the 14th.
Assignment for week 11. As promised, I have finalized the schedule for the rest of the term. This week we will complete our discussion of the enforcement of security interests, and then discuss the relationship between security interests and leases. The following week we will discuss third-party guarantees, and then security interests in investment property [see the syllabus page for details].
- On Monday, March 31, after completing leftover material, we will discuss strict foreclosure, the effect of foreclosure on competing creditors, and the special rules governing foreclosure on accounts. You should read pp. 296-322, together with §§9-607, 9-608, 9-620, and 9-626. In class discussion, we will focus on the problem at p. 308 and on the Major's Furniture Mart case. The A-Ga panel is on call.
- On Wednesday, April 2, we we will discuss the relationship between security interests and leases. You should read pp. 323-349, and should study 1-201(37) with particular care. [The casebook authors refer in the text to revised 1-203, but there is no substantive difference betweeen this provision and current 1-201(37).] In class discussion, we will focus on the problem at p. 331, and if there is time, on the problems at p. 348-349. The Ge-M panel is on call.
Assignment for week 10. When we return from spring break, we will take up the topic of enforcing security interests following debtor default. There are many statutory provisions relating to default and enforcement, and we will not be able to cover them all. Instead we will focus on big-picture issues and a number of representative provisions. In this regard, you should begin your reading for the week with the coursepack excerpt from Robert Scott's "Rethinking the Regulation of Coercive Creditor Remedies," which provides important conceptual background for our discussions.
- On Monday, March 24, we will discuss doctrinal and practical issues relating to default. You should read pp. 247-266, together with §§9-601, 9-602, 9-603 and 1-208. In class discussion we will focus on KMC v. Irving Trust and Moe v. John Deere. The Ge-M panel is on call.
- On Wednesday, March 26, we'll discuss creditors' duties in foreclosing on and disposing of collateral. You should read pp. 266-303, and look at §9-609, 9-610, and 9-611, together with 9-625, 9-626, and 9-627. You will not be able to digest all these statutory sections at once; fortunately you do not have to. Just try to get a sense of Article 9's general scheme for regulating creditor behavior, and the strategic possibilities that can arise under it. Our class discussion will focus on the problem at pp. 269-70, and on General Electric Capital Corporation v. Stelmach Construction. The N-Z panel is on call.
Assignment for week 9. This week we will finish our discussion of priorities in receivables, completing the unfinished material from last week. We'll start with default and enforcement the week after spring break, as originally planned.
- On Monday, March 10, we will discuss rights and duties of the account debtor, and the priority rules governing chattel paper and instruments. The reading is the same as assigned for last Wednesday [Artoc Bank & Trust v. Apex Oil together with §9-404 et seq., pp. 186-196 together with §§9-330 and 9-331]; those on the panel should be sure to review it in preparation for class discussion. You should also consider what protection §§9-330 and 9-331 might offer against the payment-stripping technique at issue in Commercial Money Center. The N-Z panel is on call.
- On Wednesday, March 12, we'll complete our discussion of security in rights to payment. You should read pp. 196-223 together with §§9-327 and 9-340. In class discussion we will focus on the review problems at pp. 201, 202, and 214. The A-Ga panel is on call.
Assignment for week 8.
- On Monday, March 3, we will begin discussing accounts financing, an important category of secured finance that ranges from simple contractual assignments to complex securitization transactions. You should read pp. 160-186, together with §§9-109 and 9-315 . In class discussion, we will focus on In re Commercial Money Center Bank and on the problems at pp. 180-181. If you feel you do not fully understand the transaction at issue in Commercial Money Center, do not panic; I will provide an introductory lecture. The discussion panel consists of students with last names beginning with letters between A-Ga.
- On Wednesday, March 5, after completing leftover material, we will continue our discussion of accounts financing, focusing on the rights and duties of the account debtor, and if we have time, on the priority rules governing chattel paper. For rights of the account debtor, you should read the coursepack case of Artoc Bank & Trust v. Apex Oil, together with §9-404. For chattel paper, you should read pp. 186-196 and study 9-330 and 9-331. In class discussion we will focus on the review problems at pp. 195-96 [but certainly will not finish them]. The discussion panel consists of students with last names beginning with letters between Ge-M.
Assignment for Week 7.
- On Monday, February 25, after completing leftover material, we will take up the issues raised by priority conflicts between secured parties and persons who buy or lease from the debtor. You should read pp. 148-159, and study §§9-315(a) and 9-320. In class discussion, we will focus on the problems at pp. 149 and 152. The N-Z panel is on call.
- On Wednesday, February 27, we will have our first quiz, covering material up through Monday's class. In order to provide sufficient space for administration of the exam, the registrar has arranged for an extra room. Students with surnames beginning with letters between A-N will take the exam in our ordinary classroom. Students with surnames beginning with letters between O-Z will take the exam in room JG 546. Please arrive at the exam room promptly at 9:30 am.
Assignment for Week 6. This week we will begin discussing Article 9's system of creditor priorities. Keep in mind that the first midterm quiz is coming up next Wednesday, February 27.
- On Monday, February 18, after completing the problems at p. 104 on auto-perfection, we will turn to the two most basic priority rules of Article 9: §9-317(a), which governs the relative priority of secured parties and lien creditors, and 9-322, which deals with the relative priority of successive secured creditors. You should read pp. 117-129 and 146-148, as well as §§9-317(a)and 9-322, In class discussion we will focus on the problems at pp. 119, 120-21, and 146. The discussion panel consists of students with last names beginning with letters between A-Ga.
- On Wednesday, February 20, after completing leftover material, we will take up the topic of purchase money priority -- that is, the priority enjoyed by a lender who finances the acquisition of new assets. The Scott  excerpt in the coursepack is useful background on policy and planning issues; for statutory details you should read pp. 129-146, the definition of "purchase money" in §9-103, and the priority rules found in §9-324. In class discussion we will focus on the problems at pp. 134-35. The discussion panel consists of students with last names beginning with letters between Ge-M.
Assignment for Week 5. This week we continue our discussion of the Article 9 filing system, and then move to other methods of perfecting security interests.
- On Monday, February 11, after completing material from last time, we will discuss some problems that can arise after a financing statement has been filed, including filing-office errors and other events that can degrade the accuracy of the information in the statement. You should review the Pankratz case, and then read pp. 83-95 in the casebook, together with sections 9-507 and 9-508. We will focus in discussion on the problems at pp. 85 and 93, augmented by some in-class hypotheticals. The discussion panel consists of students with last names beginning with letters between Ge-M.
- On Wednesday, February 13, we will complete our discussion of the Article 9 filing system, and then consider the rules governing security interests that are perfected by possession, by control, and automatically. You should read pp. 95-105, together with §§ 9-309, 9-312(a) and (b), and 9-313. We will focus in discussion on In re Rolain, and if there is time, on the problems at pp. 104-105. The discussion panel consists of students with last names beginning with letters between N-Z.
Assignment for Week 4. As indicated in class, I have adjusted the composition of the three discussion panels to bring them into roughly equal size. The panels are now A-Ga, Ge-M, and N-Z. Of course, you should feel free to participate on days your panel is not on call if you are so inclined.
- On Monday, February 4, we will discuss attachment Article 9's term of art for the creation of a valid security interest. You should read pp. 18-50 and §9-203 (including the official comments). Our discussion will focus on the Bollinger and Filtercorp cases. The Grabowski and Swets Motor Sales cases will not be taken up in class, but you are responsible for the material contained in them. In particular, Swets Motor Sales provides a useful review of the material from the first two weeks of class The discussion panel consists of students with last names beginning with letters between N-Z.
- On Wednesday, February 6, we will begin discussing perfection Article 9's term of art for the enforceability of a security interest against most third parties. You should read pp. 51-83 in the casebook, together with §§9-308(a), 9-310(a), 9-502(a), and 9-516. The first two provisions are fairly straightforward reading; the last two are complicated and will require closer attention, both to the text, and to the relevant official comments. In class discussion we will focus on the problems at p. 53 and p. 55, followed by the Pankratz case. The discussion panel consists of students with last names beginning with letters between A-Ga.
Assignment for Week 3. Based on final class enrollment, I have divided the class into three panels, each of which will be primarily responsible for class participation on any given day. You may trade slots, either permanently or on a one-time basis, so long as you let me know of the trade via e-mail. Similarly, if you cannot attend or prepare for class on the day your panel is on call, please arrange with a fellow student from another panel to trade with you, and have your substitute contact me before class.
- On Monday, January 28, we will complete our discussion of UCC § 2-403. In reviewing the material from last week, you should consider whether the reliance purchasers in Porter v. Wertz have a plausible estoppel argument under §1-103. Then, we will begin our discussion of secured transactions under UCC Article 9. You should read pp. 1-18 in the Jordan, Warren and Walt casebook, together with § 9-201. In class discussion we will focus on the case of Knox v. Phoenix Leasing. Note that this case contains many citations to the previous version of Article 9, but at this point you do not need to concern yourself with them. The discussion panel consists of students with last names beginning with letters between A-F.
Here are some questions that you should consider as you study the Knox case:  What are the essential business purposes of the underlying transaction?  How does 2-403 apply to the case?  Does the outcome make sense, either in functional terms or in terms of fairness?
- On Wednesday, January 30, we will discuss basic principles of transactional planning in secured credit contracts. You should read the coursepack excerpts by Honnold et al.  and Schwartz/Scott . Don't worry about understanding all the complexities of the transactions that Honnold describes; they are provided to give you a sense of the scope of the material we are covering. We will devote class discussion to a series of hypotheticals intended to explore the ideas in the Schwartz/Scott excerpt. The discussion panel consists of students with last names beginning with letters between G-M.
To get you started thinking about these issues, here is a warmup question. Consider a commercial bakery that is taking out a new loan from a bank in order to acquire a new piece of machinery for its factory. The bakery also buys on 30-day credit (payable at the end of each month) from a variety of suppliers, the most important of which is a manufacturer of flour. If the amount of debt outstanding to the flour manufacturer is roughly the same as the amount being lent for the new machine, which creditor should take the security interest: the bank, the flour supplier, or neither? [Variation: would your answer change if the lending bank was the same bank in which the bakery deposited its cash accounts?]
Assignment for Week 2.
- On Monday, January 21, class will not meet due to the Martin Luther King, Jr. Day university holiday.
- On Wednesday, January 23, after completing leftover material, we will discuss the remaining text of UCC §2-403 [subsections (2), (3) and (4)] together with associated comments 3 and 4.] Please also read the third coursepack case, Porter v. Wertz, and be prepared to discuss how these additional statutory materials apply to it.
Assignment for the first week of class.
The required texts are Warren and Walt, Secured Transactions in Personal Property (Foundation Press, 7th ed 2007), and Baird, Eisenberg and Jackson's Commercial And Debtor-Creditor Law: Selected Statutes, 2007 ed. (West Group). There is also a short supplementary coursepack, available for purchase in hard copy from University Printing Services, Room 401 International Affairs, and also available online for registered and waitlisted students.
- For the first class meeting on Monday, January 14, please read and be prepared to discuss the first case in the coursepack, O’Connor v. Clark.
- For Wednesday, January 16, please study carefully the text of UCC §2-403 together with its comments. Please also read and be prepared to discuss the second coursepack case, Alamo Rent-A-Car v. Mendenhall.