Problem.Strict foreclosure

     Tally Telesforde III collects fine paintings.   He displays them in his home and occasionally loans some of them for display at galleries.  His son, Tally IV, is an aspiring entrepreneur and has approached the local bank with a business plan and request for a loan.  Tally IV has little to offer for collateral but the bank is willing to make the loan if secured by some of Tally III's fine paintings.  Tally III agrees.  Tally III and the bank identify the specific paintings to serve as collateral, they complete the  loan documentation, and the bank makes the loan.  Tally IV's business fails, Tally IV defaults on the loan payments, and the bank obtains possession of the paintings. 

     A.  The bank's officers ask you about strict foreclosure.   Maybe they think that the paintings would be nice decor in some of the bank's newly refurbished branches.  Or perhaps they don't want to undergo the expense and rigor of foreclosure by disposition and prefer to recoup their loss on the loan by selling the paintings at a time and manner of their own choosing.  Is strict foreclosure an option?  U.C.C. 9-620(a), (e), U.C.C. 9-102(a)(23), U.C.C. 9-602(10), U.C.C. 9-624(b).  If strict foreclosure is not an option, what must the bank do and when?  U.C.C. 9-620(e), (f), U.C.C. 9-610.  What if the bank fails to do so?  U.C.C. 9-620(a), (b), Official Comment 12 to U.C.C. 9-620, Official Comment 2 to U.C.C. 9-622, U.C.C. 9-625. 

     B.  If strict foreclosure is an option, what must the bank do to implement the option?  U.C.C. 9-620(a)-(d), U.C.C. 9-621. 

     C.  If  the bank estimates the value of the paintings to be $50,000 and the outstanding secured debt is $100,000, may the bank seek a $50,000 deficiency following strict foreclosure on the paintings?  U.C.C. 9-620(a), (c), (g), U.C.C. 9-102(a)(26), 9-622(a)(1).  If yes, against whom? 

     D.  Assume that the bank accepts the paintings in partial satisfaction of the debt.  Thereafter, the artist who painted the paintings dies and the value of the paintings quadruples.  The bank sells the paintings for $200,000.  Will this affect the bank's action for a deficiency?  Will the bank have to remit $100,000 to Tally III?  U.C.C. 9-622.  If Tally III sees this as a realistic possibility, what, if anything, can Tally III do to prevent it?  Does Tally IV have any say in the matter?

     E.  Suppose the bank had failed to send a proposal for strict foreclosure to a subordinate secured party entitled to notification of the proposal under U.C.C. 9-621(a)?   How might the subordinate secured party be affected economically by the strict foreclosure?  What will be the legal effect of the strict foreclosure?  What will be the remedy of the subordinate secured party  for the bank's failure to send the proposal?  Official Comment 2 to U.C.C. 9-620, U.C.C. 9-622(b), U.C.C. 9-625.