2015 Commercial & Bankruptcy Law Seminar

UCC Update

8:15 a.m.- 9:15 a.m.

Presented bySteven Turner

1700 Farnam StreetSuite 1500

Omaha, NE 68102

Friday, May 29, 2015

UCC Case Law Update

Steven C. Turner Eric J. Adams

Emily Z. McElravy

Steven C. Turner 1700 Farnam St Set 1500 Omaha, NE 68102-2068 sturner@bairdholm.com

(402) 636-8256 (Phone) (402) 344-0588 (Fax)

Steven C. Turner practices primarily in the areas of commercial and agricultural

financing transactions, bankruptcy and workouts, banking, and the Uniform Commercial Code. Mr. Turner frequently lectures on bankruptcy, financing and banking, loan documentation, and the Uniform Commercial Code.

Mr. Turner is a member of the American Bankruptcy Institute, served on its Board of Directors, and is a past Chair of its UCC Committee. He is a Fellow in the American College of Bankruptcy and a member of the Nebraska State Bar Association, the American Bar Association (ABA), the ABA’s Uniform Commercial Code Committee, Commercial Financial Services Committee, Subcommittee on Agricultural and Agri Business Finance (former Chairperson from 1987 to 1994), and the Task Force on Revision to Article 9 of the UCC Relating to Agricultural Financing (Chair).

Eric J. Adams 1700 Farnam St Set 1500 Omaha, NE 68102-2068

emcelravy@bairdholm.com (402) 636-8357 (Phone)

(402) 344-0588 (Fax)

Eric J. Adams is an Associate at Baird Holm LLP. Mr. Adams received a B.A. Degree from Simpson College located in Indianola, Iowa in 2007 and his law degree magna cum laude from Creighton University in 2010.

Mr. Adams is a member of the American Bar Association, the Nebraska Bar Association, the Iowa Bar Association, and the American Bankruptcy Institute. He is currently serving as the chairman of the bankruptcy section of the Nebraska State Bar Association. Mr. Adams represents clients as secured creditors in bankruptcy proceedings and litigation involving commercial transactions. Mr. Adams also assists clients with both commercial and residential real estate foreclosures, non-judicial repossessions and sales of personal property.

Emily Z. McElravy

1700 Farnam St Ste 1500 Omaha, NE 68102-2068

emcelravy@bairdholm.com (402) 636-8357 (Phone)

(402) 344-0588 (Fax)

Emily Z. McElravy is an Associate in Baird Holm’s Bankruptcy and Creditors Rights section. Emily received her Juris Doctor from the University of Nebraska College of Law, with highest distinction, in 2012. While in law school, she served as Executive Editor for the Nebraska Law Review. Emily earned her B.A. in Political Science from the University of Nebraska-Lincoln in 2009, serving as Student Body President-Student Regent. Ms. McElravy's practice includes assisting lending institutions work out problematic loans and collect on overdue commercial accounts. Her practice focuses on litigation regarding commercial transactions and presenting creditors' interests in bankruptcy. Additionally, Emily assists clients with both commercial and residential real-estate foreclosures and evictions. Her practice includes non-judicial repossessions and sales of personal property and non-judicial workouts and settlements.

ARTICLE 1

Gen. Elec. Capital Corp. v. FPL Serv. Corp., 989 F. Supp.2d 1029 (N.D. Iowa Dec. 3, 2013).

• GECC and FPL entered into a contract called a “Lease Agreement,” under which GECC provided FPL with two copiers; FPL agreed to make 60 rental payments.

• Hurricane Sandy destroyed the copiers. FPL stopped payment. • Was the contract a lease or a secured transaction? • If it was a secured transaction, GECC needed to dispose of

the repossessed copiers in a commercially reasonable matter and give FPL notice of the disposition.

• By definition, if an agreement creates a security interest, it cannot qualify as a lease. Iowa Code § 554.13103(1)(j).

Gen. Elec. Capital Corp. v. FPL Serv. Corp. (cont.) • A transaction in the form of a lease creates a security interest if:

– The consideration for possession and use of the goods is for the term of the lease;

– Is not subject to termination by the lessee; and – The lessee has an option to become the owner of the goods for no

additional or nominal consideration upon compliance with the lease agreement. Iowa Code § 554.1203(2)(d).

• Here, FPL’s obligations to pay for the copiers was absolute, and FPL could buy the copiers for $1.00 if it complied with the lease.

• Holding: Even though the parties called it a lease, it was a secured transaction.

• The Court deferred ruling on the issue of damages until the parties had an opportunity to present evidence regarding whether GECC sold the copiers in a commercially reasonable manner.

Revisiting Gen. Elec. Capital Corp. v. FPL Serv. Corp., 995 F. Supp. 2d 935 (N.D. Iowa 2014).

• GECC “leased” FPL copiers, which Hurricane Sandy destroyed. Under Article 1 of the Iowa UCC, the Court held it was a secured transaction, not a lease, so GECC had to dispose of the property in a commercially reasonable fashion and give notice to FPL.

• Court held GECC acted in a commercially reasonable manner by utilizing a remarketing agency to resell the copiers.

• GECC failed to provide FPL notice of disposition of the second copier so the “rebuttable presumption” rule applied.

• Rebuttable presumption rule requires the court to presume the deficiency damages are zero, unless the creditor can prove that had it properly notified the debtor, the resale proceeds would have been less than “the amount of the secured obligation, together with expenses and attorney's fees.” Iowa Code § 554.9626, cmt. 3.

Revisiting Gen. Elec. Capital Corp. v. FPL Serv. Corp. (cont.).

• GECC rebutted the presumption because GECC had notified FPL of its plans to resell the first copier, and GECC resold the second copier in exactly the same manner, for the same price. The fact that the second copier sale yielded the same result as the first is evidence that GECC would have received the same price had GECC notified FPL.

• Since GECC would be in the same deficiency position if it had notified FPL of the sale of the second copier, GECC is entitled to deficiency damages.

Household Fin. Indus. Loan Co. of Iowa v. Rasmus, 841 N.W.2d 355 (Iowa Ct. App. 2013).

• Household accelerated payments on the loan and foreclosed on the Drees’ residential mortgage.

• Iowa Code § 554.1309: a term providing that a party may accelerate payments “at will” or when it “deems itself insecure” means the party has that power only if it in good faith believes the prospect of payment is impaired. The burden of establishing a lack of good faith is on the party against which the power has been exercised.

• The Drees argued there was a genuine dispute of fact whether Household had a good faith belief the prospect of payment was impaired.

• Holding: The restriction on the right to accelerate payments in the UCC does not apply to real estate mortgage transactions.

ARTICLE 2

- Terms Disputes (§ 2-207) - Warranties

- Misc.

McCaulley v. Neb. Furniture Mart, Inc., 21 Neb. App. 125 (Neb. Ct. App. 2013).

• Nebraska Furniture Mart (“NFM”) and customer disagreed as to whether additional terms contained in NFM’s invoice to the customer were included as part of the parties’ contract.

• The parties orally agreed to purchase furniture; NFM thereafter sent a written invoice to the customer. Invoice included additional clause stating “[p]ricing or mathematical errors are subject to revision by [seller] upon written notice to Buyer.”

• Customer never assented to the pricing error clause.

• Neb. UCC § 2-207(1) – A written confirmation of an oral agreement sent within a reasonable time satisfies the UCC’s written contract requirement.

McCaulley v. Neb. Furniture Mart, Inc. (cont.)

• Neb. UCC § 2-207(1) – Written confirmation sent after oral negotiations operates as an acceptance even though it states terms additional to those agreed upon, unless acceptance is expressly made conditional on asset to the additional terms.

• Written notices sent from NFM were effective to serve as acceptance and written confirmation of oral agreement of the parties. The additional terms NFM’s invoice were not part of the parties’ contract.

Bartlett Grain Co., LP v. Sheeder, 829 N.W.2d 18 (Iowa 2013).

• An oral agreement to sell corn was modified by later signed writings, which included arbitration clauses.

• Iowa Code § 554.2202 - Terms of the written confirmation, intended by the parties as the final expression of their agreement, could not be contradicted by evidence of the terms of the prior oral agreement.

• Iowa Supreme Court determined that the signed writings were “intended by the parties as a final expression of their agreement.” As such, the arbitration clause was part of the parties’ contract, and such a clause could not be contradicted by evidence of the prior oral agreement.

Dumont Tel. Co. v. Power & Tel. Supply Co., 962 F. Supp. 2d 1064 (N.D. Iowa 2013).

• Parties disputed which writings formed the parties’ contract for the sale of telecommunications equipment.

– There were a number of price quotes and invoices exchanged between the parties.

• Conduct by both parties recognized the existence of a contract and per Iowa Code § 554.2207(3), the terms upon which the parties agreed, plus “any supplemental terms incorporated under any other provisions of the [UCC]” make up the contract.

• Seller’s invoice (which included arbitration clause) served as a written confirmation under § 2-207(1), forming a written agreement.

Dumont Tel. Co. v. Power & Tel. Supply Co. (cont.)

• Since both parties are merchants, any additional terms in the written confirmation become part of the contract if the additional terms do not “materially alter it.” § 2-207(2).

• Arbitration clause did not “materially alter” the deal because of the prior course of dealing between the parties.

– 510 previous invoices from Seller to Buyer included an arbitration clause, and Buyer never before objected to it.

– Buyer was not excused simply because of its failure to read the terms included in any of the prior 510 invoices.

Neb. Mach. Co. v. Cargotec Solutions, LLC, 762 F.3d 737 (8th Cir 2014).

• Defendant sent purchase order to Plaintiff incorporating indemnification and arbitration provisions.

• Plaintiff subsequently sent Defendant an invoice for the sale which incorporated separate terms and conditions that did not contain indemnification or arbitration provision.

• After lawsuit by a third party against Defendant, Defendant filed a demand for arbitration. Defendant alleged that Plaintiff had agreed to indemnify Defendant for losses associate with the third-party suit.

• Plaintiff commenced this action seeking a declaration that demand for arbitration and indemnification was improper.

• On summary judgment, district court held that the arbitration and indemnification provisions were not part of the parties’ contract.

Neb. Mach. Co. v. Cargotec Solutions, LLC (Cont.) • In a battle of the forms, expression of acceptance operates as

acceptance even if it contains additional/different terms unless acceptance is expressly made conditional on assent to the additional /different terms. UCC 2-207(1).

• If writings do not form contract but parties’ actions indicate a contract, the contract consist of terms on which the writings of the parties agree and terms supplied by the UCC . UCC 2-207(3)

• The parties each disputed whether they had received the other’s terms and conditions. Each party argued that they could not have assented to the other’s terms.

• The 8th Circuit vacated the district court’s order and remanded the case for a trial to determine what documents each party received and apply the appropriate UCC provisions in light of those facts.

– There has been no subsequent decision on this issue.

Lincoln Sav. Bank v. Open Solutions, Inc., 2013 U.S. Dist. LEXIS 36260, 2013 WL 997894 (N.D. Iowa Mar. 13, 2013). • Article 2 of the UCC, § 2-313, provides for the creation of an express

warranty based on affirmation of fact, promises, or descriptions of goods by seller that are “part of the basis of the bargain.”

• Contract between the parties contained an integration clause that explicitly disclaimed any warranties not included in the agreement.

• Plaintiff sued Defendant, asserting that Defendant made oral representations and promises (i.e. warranties) which Plaintiff understood to be part of the contract, but were not reduced to writing.

• The Court viewed the integration clause, particularly in light of other express warranties contained in the agreement, as clear evidence that oral representations were never “part of the bargain” between the parties.

Lincoln Composites, Inc., v. Firetrace USA,LLC, 2015 U.S. Dist. LEXIS 85 (D. Neb. Jan. 2, 2015).

• Defendant seller included an express warranty that limited plaintiff buyer’s remedy to repair or replacement of any defective product and excluded consequential and incidental damages.

• Sellers are free to establish exclusive, limited written warranties that limit the availability of damages. Neb. UCC § 2-719.

• However, Neb. UCC § 2-719(2) provides that where the limited remedy fails its essential purpose, remedy may be had as provided in UCC.

• Purpose of an exclusive repair or replacement remedy is to give the buyer goods which conform to the warranty within a reasonable time after a defect is discovered.

Lincoln Composites, Inc., (cont.)

• Defendant seller failed to provide buyer with satisfactory goods over 18 month period after first notified of defect (although seller did attempt repair/replacement over this period, goods were still malfunctioning)

• Sufficient evidence was presented that the limited warranty failed its essential purpose and thus, direct, consequential, and/or incidental damages under UCC were appropriate.

– Direct = Difference between value of product as delivered and value of product if it had been delivered as warranted.

– Consequential = Reasonably foreseeable loss resulting from failure of other party to meet contractual obligation.

– Incidental = Damages incurred in inspection, receipt, transportation, and care and custody of goods rightfully rejected.

Other Notable Article 2 Cases

• Is the contract for the sale of goods?

• Has the contract been breached?

• Does a party have the right to cancel the contract?

Land O’Lakes Purina Feed LLC v. Jaeger, 976 F. Supp. 2d 1073 (S.D. Iowa 2013).

• LOL delivered 2,276 weaned pigs to Jaeger. Jaeger’s check bounced.

• Jaeger conceded that he did not pay the amount due; however, he argued that LOL failed to mitigate its losses.

• Is a contract for weaned pigs a sale of goods under Article 2 of the UCC?

• “Goods” are “all things . . . which are movable at the time of identification to the contract for sale[,] . . . includ[ing] the unborn young of animals. Minn. Stat. § 336.2-105(1) (emphasis added).

• Weaned pigs are “goods”, and therefore, the UCC governs.

Land O’Lakes Purina Feed LLC v. Jaeger (cont.)

• Did the UCC require LOL to mitigate its damages? • When a buyer fails to pay, the seller may recover the price (a) of goods

accepted or conforming goods lost or damaged . . . and (b) of goods identified in the contract if the seller is unable after reasonable effort to resell them or the circumstances indicate such effort will be unavailing.

• Subsection (a) applies to goods already accepted. • Subsection (b) applies to goods not yet accepted and merely identified

in the contract. • Here, Jaeger accepted the weaned pigs, so LOL could recover the price

of the pigs without any additional requirement of mitigating its damages. • Under Minnesota UCC 9-601(c), a seller may choose its remedy, i.e., LOL

could seek the purchase price and elect not to repossess the pigs.

Nautilus Ins. Co. v. Cheran Invs. LLC, 2014 Neb. App. LEXIS 31, 2014 WL 292809 (Neb. Ct. App. 2014). • Case involved dispute between multiple parties as to their right to

insurance proceeds for destruction of personal property. – One party (“Buyer”) had bought a bar from another party

(“Seller”) as a going concern. Another party (“Lender”) had a security interest in the assets of the Seller.

• Priority as to insurance proceeds hinged on whether the contract to purchase the assets of the bar was a transaction in goods, and thus controlled by the UCC, Neb. UCC § 2-102.

• Lender had argued it had superior right to proceeds, because of its security interest in Seller’s assets, granted post-sale of the bar to the Buyer.

Nautilus Ins. Co. v. Cheran Invs. LLC (cont.)

• Court held the transaction was predominately for goods, since the contract provided for the purchase of business assets that were movable at the time of the contract. Notably, the contract did not include purchase of the real estate, intellectual property, or goodwill.

• Under UCC, unless explicitly agreed otherwise, when delivery of the goods is made without moving the goods, like in this case by taking over operation of a bar, then title passes at the time and place of contracting.

• Thus, the Buyer, who had purchased the business assets, was entitled to the insurance proceeds since title passed when the contract was executed, regardless of the fact that the Buyer never paid the contract price.

Humboldt Specialty Mfg. Co. v. Vanderheiden, 2013 Neb. App. LEXIS 136, 2013 WL 3940627 (Neb. Ct. App. July 30, 2013). • Humboldt brought a breach of contract claim against Marketing

Management & Associates (“MMA”).

• The UCC applied to the contract despite Humboldt’s arguments that it was a contract for services, not goods, because Humboldt was manufacturing goods for MMA.

– Contract regarding the sale of raw materials and manufactured finished products, both of which are within the definition of “goods” under Neb. UCC § 2-105

• Under the UCC, the Court considered the parties’ course of performance when analyzing the contract.

– Additionally, Humboldt, as seller, had the burden to prove it made efforts to resell the goods identified in the contract.

ARTICLE 4

Sarachek v. Luana Sav. Bank (In re Agriprocessors, Inc.), 490 B.R. 852 (Bankr. N.D. Iowa 2013). • Chapter 7 Bankruptcy Trustee sought to have debtor’s bank

repay into the bankruptcy estate overdrafts honored by the debtor’s bank within 90 days of the bankruptcy.

• Trustee argued the overdrafts paid on behalf of the debtor by the bank were short-term loans, i.e., avoidable preferential transfers. – Bankruptcy Code 11 U.S.C. § 547(b) – for a transfer to constitute an

avoidable preferential transfer, the transfer of an interest of the debtor must be on account of an antecedent debt, so the Court considered whether the intraday overdrafts were short term loans creating a debt.

Sarachek v. Luana Sav. Bank (In re Agriprocessors, Inc.) (cont.)

• General rule = intraday overdrafts are not extensions of credit under the UCC

– However, the 8th Circuit in Laws v. United Missouri Bank of Kansas City, N.A., 98 F.3d 1047 (8th Cir. 1996) held it is possible for a bank and customer to enter into a special arrangement that creates a debtor-creditor relationship.

• Court denied the bank’s motion for summary judgment, allowing the question of whether the bank’s honoring of the intraday overdrafts constituted extensions of credit, thus making them recoverable preferential transfers.

• After an adversary trial, the Court awarded the trustee over $1.5 million for preferential transfers (out of over $5 million demanded). Trustee has appealed and the appeal is pending before the District Court.

ARTICLE 4A –

Funds Transfer

Choice Escrow & Land Title, LLC v. BancorpSouth Bank, 754 F.3d 611 (8th Cir. 2014).

• Internet fraudsters stole $440K from Choice’s bank account at BancorpSouth using a phishing scam.

• Bank offered Choice four security measures, including dual control, which required two users to authorize and send a payment order. Choice declined dual control.

• The customer bears the risk of a fraudulent payment if (1) the security procedure is commercially reasonable; and (2) the bank accepted the payment order in good faith and in compliance with the security procedure and any written agreement or instruction of the customer. Miss. Code Ann. § 4A-202(b).

Choice Escrow & Land Title, LLC v. BancorpSouth Bank (cont.)

• “Commercially reasonable” does not include human review for irregularities or an analysis of the size, type, or frequency of payment orders.

• The “good faith” inquiry is distinct from the “commercially reasonable” inquiry and focuses on the aspects of a wire transfer left to the bank’s discretion.

• BancorpSouth’s security procedures were automated, so the Court’s “good faith” inquiry was narrow.

• Choice knew dual control was a reliable safeguard against internet fraud, and it assumed the risks of less stringent security procedures, e.g., IP address, username, and passwords.

• Outcome: The loss of funds fell on Choice.

ARTICLE 9

Fjellin ex rel. Leonard Van Liew Living Trust v. Penning, 41 F. Supp. 3d 775 (D. Neb. 2014).

• Trustees sought to recover damages from defendant debtor Penning and Penning’s attorney for breach of Neb. UCC § 9-509. – Neb. UCC § 9-509(d) permits a debtor or debtor’s agent

(such as attorney) to terminate the secured party’s financing statement only if “the secured party of record authorizes the filing”

• Debtor sold the trust’s collateral and terminated the UCC-1 without the trust’s consent

Fjellin ex rel. Leonard Van Liew Living Trust v. Penning (cont.)

• Trustees brought an action against the debtor Penning and Penning’s attorney, alleging Neb. UCC § 9-625 made the debtor liable for the amount of loss caused by the debtor’s failure to comply with Neb. UCC § 9-509.

• Neb. UCC § 9-625 provides remedies for only a secured party’s failure to comply with article 9.

• Plaintiffs could not assert a cause of action against the debtor and his attorney under Neb. UCC § 9-625, because the remedies under 9-625 are only available for a secured party’s violation of article 9.

In re Tri-State Financial, LLC, 526 B.R. 311 (Bankr. D. Neb. 2015). • June 2006 – Tri-State Financial borrowed $18 million from

Centris and Centris filed a UCC-1, covering rights to payment of money and general intangibles, including all payment intangibles.

• Tri-State Financial had previously filed a proof of claim in a related entity’s bankruptcy in 2005 for money Tri-State Financial lent to the related entity.

• Tri-State filed bankruptcy in November 2008.

In re Tri-State Financial, LLC (cont.)

• Because both the loan and the claim for reimbursement were filed prepetition. The fact that the related entity’s bankruptcy estate did not receive the funds until after Tri-State Financial filed for bankruptcy does not convert the prepetition asset and claim to after-acquired property.

• Further, even if the payment is considered after-acquired property, the Court held that the payment falls within the broad definition of “proceeds” under Neb. UCC § 9-315 and Neb. UC§ 9-102.

In re Sandpoint Cattle Co., LLC, 2014 U.S. Dist. LEXIS 83780, 2014 WL 2741542 (D. Neb. June 10, 2014).

• Debtor obtained bankruptcy court approval to abandon a large number of cattle.

• Issue was whether creditor liquidated in a commercially reasonable manner by taking to nearby sale barn and other quick sales methods, under Neb. UCC § 9-610(b).

• Debtor argued creditor should have cared for the cattle and waited for the market to improve.

• Court held creditor was not obligated to incur expenses to keep cattle for extended period of time, in order to maximize value.

In re Sandpoint Cattle Co., LLC (cont.)

• Court held that debtor created some of the problems with sale of the cattle and that factored into the commercial reasonableness of creditor’s actions. – Debtor only provided creditor with a short time to make

arrangements to move and provide temporary housing for a large number of cattle.

– Debtor refused to allow the creditor to leave the cattle at the debtor’s ranch and refused to authorize the creditor to sell the cattle under the debtor’s name.

• Defects in notice under Neb. UCC § 9-611(b) and 9-613(1) factored into the reasonableness inquiry but were not an absolute bar to recovery of a deficiency.

Irwin v. West Gate Bank, 288 Neb. 353 (2014).

• Irwin leased warehouse space to Shade, Inc. to store its personal property.

• West Gate held notes payable from Shade secured by its personal property.

• Shade defaulted on the notes and its rent. • Irwin found a new tenant, needed to move Shade’s property, and

West Gate did not object, signing an Abandonment: “For good and valuable consideration, . . . including the financial responsibility for the expense of dismantling, moving and storage, West Gate abandons all of its right, title and interest in the personal property of Shade.”

• Shade filed bankruptcy, and Irwin filed a claim asserting West Gate abandoned its security interest in Shade’s property to Irwin.

Irwin v. West Gate Bank (cont.)

• The bankruptcy trustee moved to sell Shade’s personal property free of all liens. Irwin resisted but lost and thereafter sued West Gate claiming it breached the “Abandonment” contract.

• West Gate had a security interest in the property but had not taken possession of it. “A secured party has a right but not a duty to take possession of collateral.” Neb. UCC § 9-609.

• Because West Gate had no control or possession of the property, the Abandonment document’s purported consideration of relieving West Gate of the duty to dismantle, move, and store Shade’s property was meaningless.

• The Court held there was no consideration for the contract between Irwin and West Gate, the contract was unenforceable, and thus there was no breach of contract between Irwin and West Gate.

Farm Credit Servs. of Am., PCA v. Cargill, Inc., 750 F.3d 965 (8th Cir. 2014).

• Farm Credit Services (“FCS”) brought a replevin action against Cargill to recover corn that FCS had a security interest in, delivered to Cargill by FCS’ borrower.

• FCS had previously filed its interest in Nebraska’s central filing system. • Cargill argued UCC § 9-404 should apply, making Cargill an “account debtor” able

to offset FCS’s claim against Cargill because it had a defense against FCS’s borrower.

• The Court held § 9-404 does not apply because FCS’s suit to recover the corn (or its proceeds) was not a suit to collect on a “right to payment”.

• Section 9-404 does not apply to a suit for repossession or conversion. • Cargill’s sale of the corn did not convert FCS’s suit from one seeking corn to one

seeking a right to payment on an account. Cash proceeds are not “accounts” within the UCC.

• Further, FCS’s borrower’s breach of contract with Cargill did not cut off FCS’s security interest in the corn.

Crozier v. Wint, 736 F.3d 1134 (8th Cir. 2013).

• Scott and Jamie Miller signed a promissory note to the Croziers for $150K. Wint cosigned the note.

• The note stated it was secured by a UCC-1. The filed financing statement was initialed only by Scott Miller.

• The listed collateral was a trailer home, its furnishings, a Chevy pickup, and kennels and training equipment for a bird-dog business.

• The Millers defaulted, and the Croziers sued Wint on the balance of the note.

• Was this a secured transaction? Was this a consumer transaction, i.e., did Missouri’s “no-notice, no deficiency” rule apply.

Crozier v. Wint (cont.).

• At issue were R.S.Mo. § 400.9-203(b) (a security interest is enforceable if the debtor has authenticated a security agreement that describes the collateral) and R.S.Mo. § 400.9-102(a)(26) (a transaction is a consumer transaction when the obligation is “primarily for personal, family, or household purposes”).

• Under Missouri law: a note does not create a security interest; no lien may arise from one spouse’s pledge (Jamie did not sign the UCC-1); and you cannot imply a security interest from multiple documents (the note and the UCC-1 could not be used together).

• The Croziers won. There were fact questions whether Jamie owned the collateral, and if she did, the UCC-1 alone did not secure the collateral. A jury could also find the loan was primarily for a non-consumer purpose--to fund a dog-training business.

Rolling Hills Bank & Trust v. Mossy Creek Farms Ltd. P’ship, 828 N.W.2d 325 (Iowa Ct. App. 2013).

• Mossy Creek Farms executed five promissory notes in favor of Southwest Iowa Cattle Feeders (“Southwest”).

• Southwest assigned the notes to Rolling Hills Bank.

• Iowa Code § 554.9406(1) - without authenticated notice of assignment, an account debtor may discharge its obligation by paying the assignor or the assignee.

• Iowa Code § 554.9404(1) - assignee is subject to any defenses the account debtor has against the assignor, including payment, prior to notice of assignment.

Rolling Hills Bank & Trust v. Mossy Creek Farms Ltd. P’ship (cont.).

• Because Southwest failed to timely notify Mossy Creek Farms of the assignment of the notes to Rolling Hills Bank, Mossy Creek’s payments to Southwest discharged its obligations under the note. – Iowa Code § 554.9406(1).

• Mossy Creek could assert the defense of payment against Rolling Hills Bank. – Iowa Code § 554.9404(1).

Bank of the West v. Damon Pursell Constr. Co. (In re Damon Pursell Constr. Co.), 490 B.R. 367 (B.A.P. 8th Cir. 2013).

• National Bank of Kansas City (“NBKC”) had a purchase money security interest (“PMSI”) in Trommel 1008.

• Kraus-Anderson had a PMSI in Trommel 1007.

• Debtor sold the 1008, but applied the proceeds to the Kraus-Anderson loan, secured by the 1007.

• NBKC sought an equitable lien on the 1007.

• The Court denied NBKC’s equitable lien, finding NBKC had an adequate remedy at law—to pursue the proceeds pursuant to 9-315(a)(1) or file unsecured proof of claim in bankruptcy, which included a confirmed plan proposing 100% payment of unsecured creditors.

BancorpSouth Bank v. Hazelwood Logistics Ctr., LLC, 706 F.3d 888 (8th Cir. 2013).

• Bank brought an action for breach of contract and guaranty against a property tax firm and a debtor.

• Bank also claimed priority over real property tax refunds owed to the debtor.

• The Eighth Circuit held the bank’s perfected security interest in the refund took priority under Article 9 regardless of whether the firm’s interest in the refund was classified as an unperfected security interest or an after-acquired lien.

– The Eighth Circuit rejected the tax firm’s argument that its lien for property tax review was the equivalent of an artisan or mechanic’s lien.