A Question of Ethics-The IDDR Approach and Priorities. Roger Rand loaned funds to Frank Welte to buy farm equipment. Security agreements were executed for the loans, and under these agreements, Welte could not transfer the equipment without Rand's consent. Rand perfected his security interest in the collateral by filing a financing statement with the office of the Iowa secretary of state. Welte later sold two tractors bought with the funds to his son Matthew for about $20$ percent of the tractors' market value. Rand died several years later. On behalf of his estate, the Security National Bank of Sioux City, Iowa, filed a petition in an Iowa state court to obtain possession of the equipment that secured the loan to Welte. Regarding the tractors in Matthew's possession, Welte argued that his son had acquired them free of Rand's interest under an implied course of dealing with the lender that allowed Welte to sell equipment in which Rand had a security interest without Rand's permission.

(a) Use the IDDR approach to evaluate the ethics behind Welte's argument that his "course of dealing" with Rand allowed him to sell collateral for much less than its market value.

(b) Suppose that First State Bank had loaned Matthew the funds to buy the tractors in exchange for a purchasemoney security interest. Could Welte successfully assert that this interest was superior to any interest Rand might have in the tractors? Explain.

Perfecting a Security Interest. Thomas Tille owned M.A.T.T. Equipment Co. To operate the business, Tille borrowed funds from Union Bank. For each loan, Union filed a financing statement that included Tille's signature and address, the bank's address, and a description of the collateral. The first loan covered all of Tille's equipment, including "any after-acquired property." The second loan covered a truck crane "whether owned now or acquired later." The third loan covered a "Bobcat mini-excavator." Did these financing statements perfect Union's security interests? Explain.

Disposition of Collateral. PRA Aviation, LLC, borrowed $\$ 3$ million from Center Capital Corp. to buy a Gates Learjet $55$B. Center perfected a security interest in the plane. Later, PRA defaulted on the loan, and Center obtained possession of the jet. The market, design, and mechanical condition of similar aircraft were reviewed to estimate the jet's value at $\$ 1.45$ million. The jet was marketed in trade publications, on the Internet, and by direct advertising to select customers for $\$ 1.595$ million. There were three offers. Center sold the jet to the highest bidder for $\$ 1.3$ million. Was the sale commercially reasonable? Explain.

Paul Barton owned a small property-management company, doing business as Brighton Homes. In October, Barton went on a spending spree. First, he bought a Bose surround-sound system for his home from KDM Electronics. The next day, he purchased a Wilderness Systems kayak and roof rack from Outdoor Outfitters, and the day after that he bought a new Toyota 4-Runner financed through Bridgeport Auto. Two weeks later, Barton purchased six new iMac computers for his office, also from KDM Electronics. Barton bought each of these items under an installment sales contract. Six months later, Barton's property-management business was failing. He could not make the payments due on any of these purchases and defaulted on the loans. Using the information presented in the chapter, answer the following questions.

Suppose that after KDM Electronics repossesses the surround-sound system, it decides to keep the system rather than sell it. Can KDM do this under Article $9$? Why or why not?

Paul Barton owned a small property-management company, doing business as Brighton Homes. In October, Barton went on a spending spree. First, he bought a Bose surround-sound system for his home from KDM Electronics. The next day, he purchased a Wilderness Systems kayak and roof rack from Outdoor Outfitters, and the day after that he bought a new Toyota 4-Runner financed through Bridgeport Auto. Two weeks later, Barton purchased six new iMac computers for his office, also from KDM Electronics. Barton bought each of these items under an installment sales contract. Six months later, Barton's property-management business was failing. He could not make the payments due on any of these purchases and defaulted on the loans. Using the information presented in the chapter, answer the following questions.

Which of these purchases would qualify as a PMSI in consumer goods?

The Scope of a Security Interest. Edward owned a retail sporting goods shop. A new ski resort was being constructed in his area, and to take advantage of the potential business, Edward decided to expand his operations. He borrowed a large sum from his bank, which took a security interest in his present inventory and any after-acquired inventory as collateral for the loan. The bank properly perfected the security interest by filing a financing statement. Edward's business was profitable, so he doubled his inventory. A year later, just a few months after the ski resort had opened, an avalanche destroyed the ski slope and lodge. Edward's business consequently took a turn for the worse, and he defaulted on his debt to the bank. The bank then sought possession of his entire inventory, even though the inventory was now twice as large as it had been when the loan was made. Edward claimed that the bank had rights to only half of his inventory. Was Edward correct? Explain.

Perfection of a Security Interest. Marsh has a prize horse named Arabian Knight. Marsh is in need of working capital. She borrows $\$ 50,000$ from Mendez, who takes possession of Arabian Knight as security for the loan. No written agreement is signed. Discuss whether, in the absence of a written agreement, Mendez has a security interest in Arabian Knight. If Mendez does have a security interest, is it a perfected security interest? Explain. (See Perfection of a Security Interest.)

Paul Barton owned a small property-management company, doing business as Brighton Homes. In October, Barton went on a spending spree. First, he bought a Bose surround-sound system for his home from KDM Electronics. The next day, he purchased a Wilderness Systems kayak and roof rack from Outdoor Outfitters, and the day after that he bought a new Toyota 4-Runner financed through Bridgeport Auto. Two weeks later, Barton purchased six new iMac computers for his office, also from KDM Electronics. Barton bought each of these items under an installment sales contract. Six months later, Barton's property-management business was failing. He could not make the payments due on any of these purchases and defaulted on the loans. Using the information presented in the chapter, answer the following questions.

Suppose that Barton's contract for the office computers mentioned only the name Brighton Homes. What would be the consequences if KDM Electronics filed a financing statement that listed only Brighton Homes as the debtor's name?

Security Interests. Nick Sabol, doing business in the recording industry as Sound Farm Productions, applied to Morton Community Bank for a $\$ 58,000$ loan to expand his business. Besides the loan application, Sabol signed a promissory note that referred to the bank's rights in "any collateral." Sabol also signed a letter authorizing Morton Community Bank to execute, file, and record all financing statements, amendments, and other documents required by Article $9$ to establish a security interest. Sabol did not sign any other documents, including the financing statement, which contained a description of the collateral. Two years later, without having repaid the loan, Sabol filed for bankruptcy. The bank claimed a security interest in Sabol's sound equipment. (See Creation of a Security Interest.)

(a) The first group will list all the requirements of an enforceable security interest and explain why each of these elements is necessary.

(b) The second group will determine if Morton Community Bank had a valid security interest.

(c) The third group will discuss whether a bank should be able to execute financing statements on a debtor's behalf without the debtor being present or signing them. Are there are any drawbacks to this practice? Explain.

Paul Barton owned a small property-management company, doing business as Brighton Homes. In October, Barton went on a spending spree. First, he bought a Bose surround-sound system for his home from KDM Electronics. The next day, he purchased a Wilderness Systems kayak and roof rack from Outdoor Outfitters, and the day after that he bought a new Toyota 4-Runner financed through Bridgeport Auto. Two weeks later, Barton purchased six new iMac computers for his office, also from KDM Electronics. Barton bought each of these items under an installment sales contract. Six months later, Barton's property-management business was failing. He could not make the payments due on any of these purchases and defaulted on the loans. Using the information presented in the chapter, answer the following questions.

For which of Barton's purchases (the surround-sound system, the kayak, the $4$-Runner, and the iMacs) would the creditor need to file a financing statement to perfect its security interest?

Priorities. Redford is a seller of electric generators. He purchases a large quantity of generators from a manufacturer, Mallon Corp., by making a down payment and signing an agreement to make the balance of payments over a period of time. The agreement gives Mallon Corp. a security interest in the generators and the proceeds. Mallon Corp. properly files a financing statement on its security interest. Redford receives the generators and immediately sells one of them to Garfield on an installment contract, with payment to be made in twelve equal installments. At the time of the sale, Garfield knows of Mallon's security interest. Two months later, Redford goes into default on his payments to Mallon. Discuss Mallon's rights against Garfield in this situation. (See Priorities.)

Sales constituted 90 percent of Saldona's work time. Saldona worked an average of fifty hours per week but received no overtime pay. Saldona had worked for Aimer for ten years when his new supervisor, Caesar Braxton, claimed that he had been inflating his reported sales calls and required him to submit to a polygraph test. Saldona reported Braxton to the U.S. Department of Labor, which prohibited Aimer from requiring Saldona to take a polygraph test for this purpose.

Shortly after that, Saldona's wife, Venita, fell from a ladder and sustained a head injury while employed as a full-time agricultural harvester. Saldona presented Aimer's Human Resources Department with a letter from his wife's physician indicating that she would need daily care for several months, and Saldona took leave for three months. Aimer had sixty-three employees at that time. When Saldona returned to Aimer, he was informed that his position had been eliminated because his sales territory had been combined with an adjacent territory. Using the information presented in the chapter, answer the question.

What is the maximum length of time Saldona would have been allowed to take leave to care for his injured spouse?

Sales constituted 90 percent of Saldona's work time. Saldona worked an average of fifty hours per week but received no overtime pay. Saldona had worked for Aimer for ten years when his new supervisor, Caesar Braxton, claimed that he had been inflating his reported sales calls and required him to submit to a polygraph test. Saldona reported Braxton to the U.S. Department of Labor, which prohibited Aimer from requiring Saldona to take a polygraph test for this purpose.

Shortly after that, Saldona's wife, Venita, fell from a ladder and sustained a head injury while employed as a full-time agricultural harvester. Saldona presented Aimer's Human Resources Department with a letter from his wife's physician indicating that she would need daily care for several months, and Saldona took leave for three months. Aimer had sixty-three employees at that time. When Saldona returned to Aimer, he was informed that his position had been eliminated because his sales territory had been combined with an adjacent territory. Using the information presented in the chapter, answer the question.

Would Aimer likely be able to avoid reinstating Saldona under the key employee exception? Why or why not?

Suppose that the name Red Rhino Market Group, LLC, had not been included on the note. Would Evans have been personally liable for its payment? Discuss.