Problem.Collection of receivables
A. Consider the facts in Question D.1. of Problem.Default. Assume, however, that Eliason sold the contract with Gateway to Pinnacle Corp. before the jet developed engine problems.
1. Does Article 9 and Article 9 vocabulary apply to the sale from Eliason to Pinnacle Corp? Prior to engine problems, must Gateway make payments to Pinnacle Corp. and will such payments reduce Gateway's obligation under the contract he signed. See U.C.C. 9-607(a), U.C.C. 9-406(a) - (c). If, prior to engine problems, Gateway refuses to pay Pinnacle Corp., does Pinnacle Corp. have any recourse against Gateway? Against the jet? Against Eliason? See U.C.C. 9-607(a), U.C.C. 9-608(b).
2. At the time Eliason sold the contract, neither he nor any other representative of Pinnacle Corp. had any reason to suspect that the jet might develop engine problems. Pinnacle Corp. immediately notified Gateway that Gateway should thereafter make payments to Pinnacle Corp. When the jet developed engine problems, Gateway notified Pinnacle Corp.of his intention to withhold payments as reimbursement for the cost of repairs. If Gateway withholds for the stated purpose, has he defaulted under the agreement? See U.C.C. 9-404. Would your answer be different if the document signed by Gateway included a clause providing that he would not assert any claim or defense against an assignee that he may have against the seller? See U.C.C. 9-403. Would your answer be different if Gateway signed two documents for the benefit of Eliason: a promissory note and an agreement granting a security interest in the jet to secure payment of the promissory note? See Commentary.Assertion of claims and defenses against assignees; Official Comment 2 to U.C.C. 9-403.
B. Consider the facts in Question D.3 of Problem.Default. Assume, however, that Eliason, in immediate need of funds, sold the note and deed of trust through a mortgage broker to a company that invested in notes secured by junior deeds of trust. Eliason was in possession of Gateway's notice of intended withholding at the time he sold the note and deed of trust but Eliason did notify the broker or investment company of Gateway's notice. If Gateway withholds for the stated purpose, has he defaulted under the note and deed of trust? Again, see Commentary.Assertion of claims and defenses against assignees.
C. Your client financed the purchase of a certified pre-owned (i.e. used) car two months ago under the terms of a retail installment contract executed with the car dealer. The car dealer assigned the contract to its floor plan lender. Pursuant to the requirements of the Federal Trade Commission Holder-in-Due-Course Regulations (16 C.F.R. Part 433), the contract contains the following notice: "Any holder of this consumer credit contract is subject to all claims and defenses which the debtor could assert against the seller of goods or services obtained pursuant hereto or with the proceeds hereof. Recovery hereunder by the debtor shall not exceed amounts paid by the debtor hereunder."
Sale of the car was accompanied by the dealer's 6 month express warranty against defects in material or workmanship. The terms of the warranty provided that in the case of a defect in material or workmanship, the buyer's exclusive remedy would be return of the car to the dealer for repair.
In the first three months following purchase, your client returned the car to the dealer three times for repair of the same two defects: malfunctioning cruise control and inoperative air conditioning. The dealer has not been able to effectuate completely satisfactory repairs and your client has lost faith in the dealer's ability to do so. Your client wants to return the car, get her down payment and monthly payments back, and cancel her obligations under the contract, but the dealer has so far refused her request. Under U.C.C. Article 2, she would be entitled to the remedies she seeks (U.C.C. 2-711(1)) if the exclusive remedy of repair has failed of its essential purpose (U.C.C. 2-719(2)) and if, among other things, the defects substantially impair the value of the car to her (U.C.C. 2-608). Pending resolution of the dispute with the dealer, should she continue to make monthly payments to the floor plan lender? Does she risk repossession and liability for a deficiency if she withholds such payments? Is there anything you can recommend to reduce the risk of repossession? If the dealer becomes insolvent, may she recover the purchase price and her monthly payments to date from the floor plan lender? Would your answers differ if the contract assigned to the floor plan lender did not contain the notice required by the F.T.C. Holder-in-Due-Course Regulations? See U.C.C. 9-403(d) and U.C.C. 9-404(d).