PERSONAL PROPERTY SECURITIES IN THE US
Background facts:
The following facts (supplemented or varied as specified below) apply to all of the scenarios:

The Globee Corp. (GC) is a New Jersey corporation with its headquarters in the Imperial Valley, California. GC has operations at numerous sites in California and Oregon. GC operates two different but related lines of business. One line is the production and sale of honey and honey products to retailers and also to distributors, who resell the honey to retailers. Its route to profitability has been the application and use of its patent on a process to cross honey bees with fireflies (so that they can work at night), with the resulting offspring being known as globees. (Like mules, the globees themselves cannot reproduce.) The process requires sophisticated and expensive electronic equipment that induces the bees to think the fireflies look like bees and the
fireflies to think the bees look like fireflies. The second line of business is the selling and leasing of commercial bee hives to the bee industry. GC buys some of the hives for resale or lease and also manufactures some of the hives.

On August 26, 2011, GC entered into a $10 million committed revolving credit facility with Rabobank Nederland (RN), a prominent global agricultural lender. GC executed a security agreement granting to RN a security interest in Aall equipment, inventory and rights to payment (earned or unearned, including accounts, chattel paper, payment intangibles, and instruments), now owned and existing or hereafter acquired or arising@ to secure all existing and future obligations of GC to RN. On September 1 RN loaned $2 million to GC under the credit facility.
1. Assume that on August 26, 2011, you represented RN in connection with the credit facility.
a. What advice would you give concerning perfection and priority of the security interest that RN is to receive?

b. Would your advice be different if GC was a general partnership?

For purposes of the remainder of this exam you should assume that GC is a New Jersey corporation, as stated in the Background Facts, and that GC followed your advice.

2. In order to replenish its inventory, on September 10, 2011, GC bought 30 specialized bee hives from Hive Co. (HC) for a price of $25,000, payable in 90 days. GC also signed on that date a written security agreement in favor of HC covering the new hives and securing the price. On September 21 HC delivered the new hives to GC.

Assume that on September 10 you represented HC in connection with this transaction. What advice would you give concerning perfection and priority of the security interest that HC is to receive?

 
advice.

For purposes of the remainder of this exam you should assume that HC followed your
On November 20, 2011, GC sold one of the new hives to B-1 for $1,000 cash (paid by check) and sold another to B-2 for $1,000 on 30-day credit terms.

3. On September 23, 2011, GC entered in to a Lease Agreement with Lease Co. (LC) covering some electronic equipment for tricking the bees and fireflies. The agreement provided that GC was to make 36 monthly rental payments of $1,000 each. At the expiration of the term GC was to have an option to purchase the equipment for $5,000. The agreement also provided that after the first 18 payments had been made GC could terminate the agreement upon 30 days’ notice.

Assume that on September 23 you represented LC in connection with this transaction. What advice would you give concerning its rights and interests under the Lease Agreement?

 
advice.

For purposes of the remainder of this exam you should assume that HC followed your
4. On October 10, 2011, GC entered into a sale agreement with Bire Co. (BC) under which GC was to sell 25 standard teak and fiberglass bee hives for $10,000 and calling for an advance payment of $3,000. GC has set aside the hives for BC, but BC advised it that it could not take possession until late November. On October 14 BC made the advance payment to GC.

5. By mid-October 2011 GC was canceling sales of honey and honey products because its supply was shrinking week after week. The problem was that the global bee shortage was making it difficult to find enough bees to mate with the fireflies. RN denied GC’s request for another $2 million advance, taking the position that RN had experienced a material adverse change resulting in GC’s representations as to its financial condition, triggered by the loan request, being materially inaccurate. Needing cash, On October 20 GC sold to Factor Co. (FC) several promissory notes, made by GC customers and payable to GC, for a discounted price of
$750,000. As a part of the deal, FC insisted on receiving a guaranty of payment of the notes by
GC.

Assume that on October 20 you represented FC in connection with this transaction. What advice would you give concerning the interests in the promissory notes that HC is to receive?

 
advice.

For purposes of the remainder of this exam you should assume that FC followed your
6. 4. By the first week in November 2011 GC was very short on cash. On November 7
GC sold some office furniture and some unnecessary shop equipment to a farmer (F) who lived near GC’s headquarters. F wrote a check to GC for $10,000, which GC promptly deposited to its bank account with RN. The check cleared and was paid by F’s bank a few days later.

Assume that on November 7 you represented F in connection with this transaction. What advice would you give to F concerning its rights and interests?

 
advice.

For purposes of the remainder of this exam you should assume that F followed your
7. By November 21, 2011, several Events of Default had occurred under GC’s credit facility with RN. On that date RN commenced an action against GC to recover the outstanding amount of its loans, interest, costs, and expenses and to enforce its security interests.

Assume that HC, B-1, B-2, LC, BC, FC, and F each properly joined this action and in proper pleadings asserted their respective claims against GC and its assets. What are the respective rights and interests of RN, these other claimants, and GC?

8. Instead of the facts of scenario 7, on November 21, 2011, GC filed a petition under Chapter 7 of the Bankruptcy Code. What are the rights, if any, of the parties mentioned in scenario 7 and GC’s trustee in bankruptcy (armed with its avoidance powers and as successor to GC’s property interests