Problem

Problem.Identifying collateral

All Purpose Bank (APB) finances everything and everyone. By consulting the definitions in U.C.C. 9-102(a), identify the type of collateral in each of the following transactions.

A. Heather Al-Lami finances the purchase of a car from Khalid's Fine Motor Cars with a loan from APB secured by the car. She purchases the car for her private use.

B. Amy Salfen runs a soccer shop as a sole proprietor. To secure a loan to Amy, APB takes a security interest in the existing wearing apparel, soccer balls, and everything else in the store that Amy sells.

C. Mariko Yoshihara is a psychiatrist. To fund her daughter's college education, she borrows money from APB secured by the couch, lamp, and desk in her office. Normally, those items wouldn't be valuable enough to serve as collateral, but Mariko purchased them at an auction of an estate whose owner had inherited them from Freud.

D. Katie Bowe breeds ostriches for the purpose of harvesting and selling their valuable feathers. She needed money to expand her operation. APB was happy to loan her the money, secured by both the ostriches and, when removed from the ostriches, the feathers.

E. Gina Carniglia needed money to rent facilities for and promote Special Olympics. APB lent her the money, taking a security interest in her credit union account. Also consider U.C.C. 9-109(d)(13), Official Comment 16 to U.C.C. 9-109, and U.C.C. 9-102(a)(26).

F. Timiraos Construction is short of funds to pay its workers and other expenses because the developer of a property on which Timiraos Construction recently built a new soccer stadium has so far failed to make the final progress payment. APB is helping Timiraos Construction with interim financing, secured by the debt owed by the developer. What is the type of collateral? What is the term used to describe the developer (other than "deadbeat" or "slimeball")? Does Article 9 apply to the transaction between Timiraos Construction and APB even if the debt owed by the developer is secured by a mechanic's lien? Also consider UCC 9-109(d)(2), U.C.C. 9-109(d)(11), U.C.C. 9-109(b), U.C.C. 9-203(g).

G. Beth Gutto, a doctor with a specialty in acupuncture, wants to furnish the waiting room of her office with some nice chairs, lamps, rugs, coffee tables, and magazine racks. She buys these items on credit from Rizzo's Furniture Mart, signing a retail installment contract promising to pay the purchase price of the furniture and granting a security interest to Rizzo's Furniture Mart in the items purchased. Needing some immediate cash, Rizzo's sells the Gutto contract as well as many other such contracts to APB. Does Article 9 apply to the transaction between Rizzo's Furniture Mart and APB? See U.C.C. 9-109(a)(3)? Would we call the retail installment contracts "collateral?" What type of collateral? Would we call APB's interest a "security interest?" See U.C.C. 1-201(37). Would APB be a secured party and Rizzo be a debtor? What would we call Gutto? See U.C.C. 9-102(a). What if the Gutto contract consisted of an electronic record that Gutto had authenticated? What if Gutto had leased rather than purchased the furniture?

H. Claire Najour recently won a bundle in the state lottery. She lent her sister Emily Najour $500,000 to purchase and renovate a private tennis club. Emily gave Claire a promissory note calling for repayment of the obligation, with interest, over a five year period. Claire then decided to purchase stock in an initial public offering of TennisNet, Inc., a company selling tennis equipment over the Internet. She didn't have enough money left over from her lottery winnings, so she borrowed funds from APB. APB took a security interest in Emily's promissory note and in the stock of TennisNet, Inc. that Claire purchased. What is the type of collateral? If Emily's promise to repay Claire had simply been oral (the sisters trust each other), a bank would not likely take such an oral obligation as collateral. But if APB did, what would be the type of collateral?

I. Polse Emergency Clinic provides emergency medical services to people in the community. In payment, it takes assignment of patients' insurance claims, both on policies of private insurance and on Medicare. To obtain operating funds, it sold a large batch of insurance claims to APB. Does Article 9 apply to the transaction? What is the type of collateral? See U.C.C. 9-109(a)(3).

J. On October 29, 2001, attorney David Willenzik posted the following inquiry to a UCC law listserv:

     I am curious whether anyone has dealt with the peculiarities of securing a loan to a coin/bullion dealer.

     The borrower is in the business of selling US and foreign gold and other coins, gold and silver buillion, and other precious metals, and has substantial inventory of such items. This inventory is held by the dealer for sale to third persons, and not for the dealer's own investment account, and is lodged in vaults that are owned/leased, operated, and controlled by the dealer.

     The borrower is entering into a loan to be secured by its inventory as described above. The lender would prefer to perfect by filing.

     The problem appears to be that at least some of the inventory, namely certain coinage, may be categoriezed for UCC purposes as "money" (defined under UCC 1-201(24) as a medium of exchange authorized or adopted by a domestic or foreign government as part of its currency). The UCC definitions of goods and inventory necessarily exclude money. UCC 9-102(a)(44) and 9-102(a)(48).

     . . .

     The key question is, "When is a coin "money", and when is it not? Is a US $20 gold coin "money", or is it a numismatic collectable? Is a Krugerand "money" (i.e., legal tender/a medium of exchange in South Africa), or is it a medium of investment in gold?

     Has anyone dealt with this problem? Can anyone come up with some basis to argue that the dealer's coinage inventory held for sale to third persons is not "money", and can be perfected by filing [rather than by taking possession of the money] . . . ?