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CLASS #2
PROFESSOR RULE - SPRING 2018
SANDRA DAY O’CONNOR COLLEGE OF LAW
Assets (liquidation value) & Liabilities
Assets Liabilities
Pro rata?
Four-way even split?
First-in-time?
Equal Loss Rule?
Lottery/winner-take-all?
Race-to-the-assets?
Special priority for certain types of creditors?
UCC Article 9 is a permissive structure that allows parties to
agree ex ante on allocation and priority rules for a debtor’s assets.
UCC Article 9 in Arizona
Debtor* Priority
Creditor Financing Statement*
Unsecured Party Purchase Money
Secured Party* Security Interest
Collateral Control
Personal Property Proceeds*
Fixture*
Security Interest*
Security Agreement*
Attachment
Perfection
*expressly defined in UCC
Scope of Article 9
Creditors
Secured
Parties
In-Class Problem
Is Justin an obligor?
Is Justin a debtor?
Is Justin’s mother an obligor?
Is Justin’s mother a debtor?
In-Class Problem
Assets Liabilities
Allocation:
Bank: $35,000
I.C.E., LLC: $ 0
IRS: $ 0
Landlord: $ 0
TOTAL: $35,000
General Characteristics of UCC Article 9
Assets Liabilities
What if the IRS and I.C.E., LLC were secured parties with
respect to all of the LLC’s assets?
$35,000
Pro rata multiplier = $20,000/55,000 = 0.3636 -$15,000
$20,000
Allocation:
Bank (owed $50,000): $ 18,181.812 $70,000
-$15,000
I.C.E., LLC (owed $10,000): $10,000.00
$55,000
IRS (owed $5,000): $ 5,000.00
Landlord (owed $5,000): $ 1,818.18
TOTAL: $35,000.00
Assets Liabilities
Allocation:
Bank (owed $50,000): $21,775.00*
I.C.E., LLC (owed $10,000): $ 8,871.00
IRS (owed $5,000): $ 2,177.50*
Landlord (owed $5,000): $ 2,177.50*
TOTAL: $35,000.00
Allocation:
Bank (owed $50,000): $25,000
I.C.E., LLC (owed $10,000): $ 5,000
IRS (owed $5,000): $ 2,500
Landlord (owed $5,000): $ 2,500
TOTAL: $35,000
Problem 1.1
Ed to Alexandra:
“Here’s the deal: If you make the loan to me,
I’ll let you have this watch with the
understanding that you can hold onto it
until I fully repay you.”
Problem 1.1(a)
Note;
SI: Watch
(possession)
Ed Alexandra
(Debtor/Obligor) (Secured Party)
$20,000
Problem 1.1(b)
Note;
SI: Watch
(Agreement)
Ed Alexandra
(Debtor/Obligor) (Secured Party)
$20,000