Problem.Perfection as to proceeds

     A.  Dukellis and Jones, a law firm, borrowed $250,000 from Springs Bank to finance a class action.  Springs Bank took a security interest in all equipment and accounts of the law firm and perfected its security interest by a sufficient and effective financing statement filed in the correct location.  Several years later, an employee of the law firm obtained a judgment against the firm for sexual harassment.  To enforce the judgment, the successful plaintiff, now a judgment creditor, caused the sheriff to levy a writ of execution upon a securities trading account held by the law firm with a brokerage house.  Most of the securities held in the securities account consisted of common stock that a client of the firm had given to the firm in payment for legal services rendered. 

     Would Springs Bank necessarily learn of the levy?  How?   Would it care?  In what circumstances?  Would the levy be a default under the security agreement with the law firm?  See our sample security agreement.  If the bank chose not to go after the stock, should it do anything to protect itself?

     Assume that Springs Bank learned of the levy and wanted to obtain possession of the stock.  Through the appropriate state law procedure (e.g., in California, a third party claim under Cal. Code Civ. Pro. 720.210 et. seq.), it sought to prevent the sale of the stock pursuant to the levy and sought turnover of the stock.   Assume that Springs Bank would be entitled to this relief if it had priority in the stock over the claim of the levying creditor and that Spring Bank would have such priority if it held a  perfected security interest in the stock at the time of the levy.   Does Springs Bank have a security interest in the stock, enforceable against the debtor?  U.C.C. 9-315(a)(2).  If yes, was the security interest in the stockperfected?   When?  If perfected, for how long does the perfection last? U.C.C. 9-315(c), (d), (e). 

     (B) Suppose that Dukellis and Jones sold most of their office furniture to another law firm for $20,000, $10,000 by a check and the balance payable in one year under a promissory note.  Would this sale be a default under the security agreement with the bank?  See our sample security agreement.  If yes, and if the bank wished to recover collateral in response, would it prefer the furniture from the buyer or the check and the promissory note?  What would Dukellis and Jones most likely have done with the check?  With the promissory note?  Would Springs bank have a security interest in the check?  In the promissory note?  U.C.C. 9-315(a)(2).  Would its security interest in them be perfected?  U.C.C. 9-315(c), (d), U.C.C. 9-312(a), U.C.C. 9-102(a)(9).  What should Springs Bank do to realize on the check and the promissory note?  U.C.C. 9-607.