Secured Transactions (Essay) Flashcards
Lender v. Paver
Issue 1: Non-Security Interest- whether Developer’s oral promise to pay contractor an additional $1 million is valid?
a. Preexisting duty rule: at CL, under the pre-existing-duty rule, a promise to increase compensation under the existing contract is an unenforceable modification to an existing contract because there is no consideration offered for the modification.
b. Exceptions: In the case of unforeseen circumstances, where a promise of increased compensation is given in exchange for a performance, and the performance is rendered substantially more burdensome than reasonably anticipated by the parties, the pre-existing duty rule will not apply.
c. No-Oral-Modification clause: unless required by the statute of frauds, modifications can generally be oral or written, however, the enforceability of an oral contract contains a “no oral modifications” clause.
Lender v. Paver
Issue 2: Non-Security Interest- Whether contractor may prevail on a theory of promissory estoppel?
Even where there is no remedy available at law, a party who reasonably relies to his detriment on a gratuitous promise may obtain equitable remedy on a theory of promissory estoppel; promissory estoppel is available where there is:
a. A promise
b. Foreseeable reliance
c. Actual reliance; and
d. Injustice without enforcement
Lender v. Paver
Issue 3: Non-Security Interest- Whether contractor may seek damages from Paver due to Paver’s unilateral clerical mistake.
As a general rule, relief for unilateral mistake will be given unless the mistake is “palpable”, meaning it was known to the party seeking enforcement.
a. However, rescission not based on a finding of “palpability” is often given in situations involving erroneous bids.
b. Whether the bidder’s mistake was due to mechanical oversight, there has been no change of position by the party seeking enforcement, and the performance of the contract would result in financial hardship to the mistaken party, the bidder may cancel his bid, and rescind the contract without paying damages to the party seeking enforcement.
Lender v. Paver
Issue 1: Bank’s Security Interest in Paver’s New Grader.
Secured transactions are governed by Article 9 of the UCC.
i. A written security agreement is necessary for the creation of a security interest unless the secured party has possession of the collateral.
ii. Where the secured party has possession, all that is needed is an agreement, which can be oral, that the secured party is to have a security interest.
iii. Such security interest are frequently referred to as pledges.
iv. Possession may also give rise to perfection of the security interest.
v. With respect to certain types of collateral, the concept of control takes the place of possession, thus, the security agreement may be evidenced by control if the collateral is a deposit account.
vi. A security interest in collateral automatically extends to identifiable proceeds of the collateral; thus, a secured party may end up with a security interest in both the original collateral and the identifiable proceeds of the collateral.
Lender v. Paver
Issue 2: Whether lender has a security interest in Paver’s new grader.
i. Attachment is the process by which the security interest is created.
ii. A security interest is created by a contract between the debtor and the secured party.
iii. Once the security interest has attached, the secured party has all of the enforcement rights provided by Article 9, including the right to repossess the collateral upon the debtor’s default.
iv. A security agreement may provide for an interest in after acquired collateral.
v. Where the debtor grants to the secured party a security interest in all of the debtor’s equipment “now owned and hereafter acquired,” equipment that the debtor acquires after the security agreement is signed will be covered by the security party’s security interest because there is an after-acquired property clause.
Lender v. Paver
Issue 3: Whether lender or bank has priority in the new grader.
The general or “temporal” priority rule holds that the first secured party to file a financing statement covering the collateral or to otherwise perfect will have priority over competing security interests.
i. A security interest attaches to any identifiable proceeds of collateral upon disposition of the collateral.
ii. There is automatic perfection for proceeds for only 20 days thereafter.
iii. If the financing statement is filed within 20 days after the debtor receives delivery of the collateral, perfection relates back to the date the security interest attached upon the debtor’s receipt of the collateral.
