The Perfection and Priority of the Security in Rabobank Nederland - Assignment Example

Personal Property Securities in the US Table of Contents Scenario 1 2 (a) 2 (b) 3 Scenario 2 4 Scenario 3 5 Scenario 4 & 5 7 Scenario 6 9 Scenario 7 10 Scenario 8 11 References 13 Bibliography 18 Scenario 1 (a) Concerning the perfection and priority of the security interest that Rabobank Nederland (RN) is to receive, it becomes quite important for the organization to prepare certain imperative documents which include a financing statement as well as a security agreement. It is in this context that the financing statement is considered to be a brief and a comprehensive documentation of the agreement in which the collateral along with the name and the address including both the lender (i.e. RN) and the borrower (i.e. Globee Corp. (GC)) must be described. Conversely, the security interest, which is fundamentally formed through a document, is acknowledged as security agreement. From the viewpoint of concerning perfection of the security interest that RN is to receive, preparing financing statement as well as proper filing of the statutory statement is essential (Bailey & Hagedorn, 2000). After preparing the financial statement, the RN must file the financing statement with the Secretary of State, where the debtor or the borrower is registered. In this scenario, RN should file the financial statement with the Secretary of State of California or the registered address of GC in Imperial Valley, California. It should also be considered that according to the personal property security law practiced in the US, the financing statement which is to be filed is valid for a term of five years beyond which, it would get terminated. From the viewpoint of prioritizing the security interest, it has been viewed that in most of the cases, in excess of one creditor might possess security interest in the similar collateral. This particular practice ultimately raises the question about the initial claimant of the collateral (Bailey & Hagedorn, 2000). If one of the contending creditors fails to file a financing declaration, the holder of an ideal security interest will have the claim. Moreover, if more than one creditor intends to file a declaration relating to finance claiming the similar collateral, under the universal regulation of Uniform Commercial Code (UCC), the first who filed the financing report will have the claim for the collateral (Kunkel & et. al., 2009). Hence, based on these concerns and specifications, it can be suggested to RN to file the financial report as early as possible in order to get initial priority of the security interest or become the first claimant to the collateral if more than one creditor in engaged in the financing process . (b) The advice which has been discussed above would remain identical if GC was a general partnership based firm. This is due to the reason that security interests relating to the debtor, whether it is a corporation like GN, limited company or a limited partnership firm, can be amended by implementing the procedure of filing a financing report. Similarly, the prioritization of the security interest that the various debtors are to receive is determined by the general rule which has been formulated in the Article 9 of UCC. It has been apparently observed that if the debtors such as the corporations or the limited companies fail to prepare as well as to file financing declarations, the security interest which the debtors are to receive would be treated as imperfect making other related participants to claim the collateral (American Bar Association, 2012). Scenario 2 In connection with the credit transaction engaging GC and Hive Company (HC), it can be advised to HC that it must be aware of the relevant legal guidelines in generating security interest. This is due to the reason that GC signed a written security agreement in favor of HC as it bought specialized bee hives from HC and the price would be paid within three months or 90 days. While transacting, HC should also be aware that a security interest is enforceable only if the debtor possesses the right in the collateral. Concerning the perfection as well as the priority of the security interest that HC is to receive, HC should file a financing statement with GC as it acquired specialized bee hives from HC for a price of US$25,000 which was entitled to be paid in 90 days. In accordance to the Article 9 of UCC collateral, perfection of the security interests can get effected by several means which include possession or control of the collateral and most importantly filing a financing declaration under the related legal guidelines. It has been apparently observed that the perfection and the priority of the security interest particularly in goods rely upon the filing of a financing report or on obtaining the ownership of the goods. In this similar context, it can be stated that HC should file a financing declaration with GC relating to the transaction in order to obtain perfection as well as prioritization of security interests in the collaterals. HC should remain much careful while preparing financing statements and handle the statements with great care in order to evade any sort of errors particularly in the registered name of the debtors. With regard to the transaction, HC should focus upon preparing financing statement along with paying utmost attention towards the registered name of the debtor i.e. GC. It is owing to the fact that by obtaining adequate knowledge regarding the registered name of the debtor i.e. GC, HC can avoid the probable chance to lose the priority of the security interest in goods. Thus, on the basis of the above discussion, concerning the priority as well as the perfection of the security interest, it is advised to HC that it must carefully prepare financing statement by taking into consideration the registered name of the debtor (Flack, n.d.). Scenario 3 According to the Article 2A of the Security Interests in Personal Property, the aspect of lease is fundamentally described as the transference of the possession right as well as the utilization of the goods for a particular period in order to obtain the value of credit facility. It has been viewed that any transaction which takes place as a kind of a lease, often generates a security interest if the consideration is not entitled for termination. Moreover, the security interest is also generated at the time when the consideration, relating to the payment of the lessor by the lessee regarding the possession as well as the use of goods, becomes obligatory for the period of the lease undertaken. In addition, the transaction, which comprises the option available to the lessee in order to become the possessor of the goods for no extra consideration upon the compliance with the lease agreement, tends to generate security interests. Besides, the choice, which is accessible to the lessee in order to renew a particular lease for the outstanding monetary life of the goods, also creates a security interest (Native American Constitution and Law Digitization Project, n.d.). In relation to the lease agreement signed by GC with Lease Co. (LC), it can be stated that LC, the lessee, should remain much conscious about the agreement. The agreement affirmed the payments that would provide by the lessor (i.e. GC) for purchasing electronic equipments from LC to trick the bees and the fireflies. The lease agreement between LC and GC deliberated that GC would make 36 monthly rental payments of US$1,000 each, to completely repay the credited amount. At the expiration of the term of the agreement, GC would possess the right to purchase the electronic equipments for US$5,000. Moreover, the agreement also stated that after the initial 18 installments that would be paid by GC, it can end the lease agreement by serving notice of 30 days or else the amount would be forfeited. It has been viewed that the lease has been formed for tenure in excess of one year which affirms that LC shall retain the uninterrupted ownership of the goods (Ontario, 2012). Concerning the rights and the interests of the lessee (i.e. LC), the lessee possesses the right of execution or possession of the goods prior to the enforcement of the lease agreement. Additionally, LC (the lessee) also bears the right or interest in acquiring the goods at fair market value if GC (the lessor) is unsuccessful to pay its monthly hiring charges. Furthermore, if the lessor fails to meet the monthly rental payments, GC would not possess the option to buy the equipments at the expiration of the term of the lease agreement. Moreover, the agreement restricts GC to terminate the contract by serving any notice period to LC under any circumstance. In this regard, LC would possess the full right towards the acquisition of the goods that purchased by GC from LC by a significant extent (The Mississippi Code, n.d.). Scenario 4 & 5 The term ‘promissory note’ is fundamentally described as an appliance which confirms a promise to disburse financial obligation relating to a debtor (Mooney, 2012). The major facets of a promissory note are that it should be appropriately stamped, ought to be in the form of writing, appropriately signed by the payer and paying amount must be specified clearly (Siddiqui, 2007). Moreover, the other important features of a promissory note comprise of unconditional undertaking of payments, specifically mentioning the place as well as the date of the payments and explicitly indicating the party’s name to whom the money is to be paid (Shah, 2010). According to the scenario of 4 & 5, it has been viewed that GC established a sale agreement with Bire Co. (BC) under which GC was entitled to sell its standard teak and fiberglass bee hives and urged for an advance payment to BC. However, GC was forced to cancel the sales of the aforementioned products to BC due to the reason that its supply of honey related products were shrinking gradually. In the meantime, GC requested a loan of another $2 million as advance from RN but the bank denied its request due to changes in the business policies of GC. Hence, in order to comply with the funding requirements, GC sold a few of its promissory notes to Factor Co. (FC). In connection with this particular transaction made by GC with FC, it can be stated that GC sold numerous promissory notes to FC with the motive of acquiring substantial amount of funds so as to operate its extended business functions efficiently. It is worth mentioning in this context that promissory notes are usually regarded as one of the easiest procedures to accumulate enough funds in the form of loans which are often subjected to the repayment capability of the creditor. In other words, it can be stated that a promissory note is regarded to be a confirmation of loan (Banerjee, 2010). As RN denied approving loan to GC, it sold several promissory notes to FC. With regard to this transaction, FC can be held as entitled to attain benefits in the form of interests by purchasing promissory notes from GC. In this similar context, the major interest or benefit of FC in relation to the purchase of promissory notes from GC is that FC can save substantial costs in the occurrence of early deliverance of the acquired promissory notes. Moreover, another significant interest that FC is entitled to receive is regarding the utilization of its current funds. By issuing or buying the promissory notes from GC, FC can defer the payment to GC without diverting its existing funds that can ultimately result towards costs saving by a considerable level (PSC Prominvestbank, 2012). With due consideration towards the interests in the promissory notes that FC is entitled to receive, it can be stated that a possibility of arising significant risks while issuing or buying promissory notes from the buyers exists. In this regard, it can be advised to FC that it should remain much conscious regarding the prevailing risks which involve the issuing of promissory notes to the seller. There also pertain significant risks while buying promissory notes from the seller as no such provision exists for the holder of a promissory note for attaining a second collateral position in the assets of the company. Moreover, the risk also arises due to the non-appearance of any protection rights of a promissory note holder at the time of a default by the company. In addition, no such guarantee exists for the repayment of the loan acquired through selling promissory notes at the time when a particular organization merges or winds-up. From the perspective of the company, there does not lay any sort of provision for issuing additional debts relating to the promissory notes. With regard to the scenario, as GC sold promissory notes to FC with the motive of availing loans, FC should be aware about the conditions relating to the payment of loans along with concerning the aforesaid risks. Apart from accomplishing significant benefits, FC can also face crucial challenges due to the appearance of the risks resulting from the issuance as well as the buying of the promissory notes from the seller (Manulife Financial, n.d.). Scenario 6 According to Article 2 of UCC, a buyer is regarded to be an entity who agrees to purchase any goods. A buyer is also referred as a consumer under the legal provision of UCC who purchased valuable goods or equipments for his/her family, household or individual purposes. In this similar context, Article 2 of UCC defines the perception of ‘consumer contract’ as a sort of concord which occurs between a seller and a buyer or a consumer. Conversely, the article described a ‘seller’ as an individual who agrees to vend any goods (Cornell University Law School, n.d.). With regard to the given scenario, GC can be identified as the seller of office furnitures as well as unnecessary shop equipments to a buyer which is a farmer (F) residing near the headquarter of GC. As F purchased the aforesaid goods from GC, he wrote a check to GC which the company promptly deposited to its bank account. In connection with this transaction, concerning the rights and interests of the buyer (i.e. F), it can be stated that F must possess the right of inspecting the goods which were sold by GC. Moreover, the buyer (i.e. F) can accept the goods only when he conveys to the seller (i.e. GC) that the goods have been accepted. Furthermore, relating to the rights and interests of the buyer, it has been apparently observed that the buyer possesses the right of refusing the rejected goods and is not bound to return them to the seller. Hence, it is suggestible that in order to avail the aforementioned rights or interests, the buyer should remain much conscious while making a sale agreement with the seller (British Columbia Laws, 2012). Scenario 7 There exist considerable rights as well as interests for RN in order to recover its substantial amount of loans, costs, enforceable security interests along with interests at the time of Events of Default which were identified in accordance with the credit facility obtained by GC from RN. In this similar context, when concerning the rights and the interests, the bank (i.e. RN) will have to provide a written notice to the borrower, declaring all the outstanding amounts associated with the loan which includes expenditures, interests and principals among others. With regard to the Events of Default, RN shall possess the right to pull through the entire amount of dues relating to loan, defer any withdrawal affecting the loan account and obtain security possession through the aid of Attorneys or Recovery Agents duly appointed by the bank (Axis Bank, n.d.). Apart from RN, the rights and interests of other claimants such as HC, F, B-1, LC, BC, B-2 and FC include foreclosure of the personal property and the right to terminate the sale as well as the lease agreements (Fullerton Law, 2012). Moreover, the other imperative rights of the claimants comprise their authority to restrict the transaction of promissory notes and most significantly oppose any written security agreements (Crown, 2009). Contextually, it is worth mentioning that according to the given scenario, at the incidence of Events of Default, one of the imperative rights and interests of the borrower (i.e. GC) is to reimburse the principal sum which is outstanding relating to the loan in full to the bank along with other claimants. Moreover, GC must also pay the interests on the principal sum of the loan which has been provided as an advance to the company within a specific time period. In this regard, in relation to the background of Events of Default, GC shall make the payments to RN as well as other claimants without any tax inference (Citigroup Inc., n.d.). Scenario 8 According to Chapter 7 belonging to Bankruptcy Code, in order to be eligible for disbursing financial obligation, the debtor should be a particular individual, business and an entity. One of the aims of Bankruptcy Code is to discharge significant debts to the debtors for assisting them while facing financial trouble (U.S. Bankruptcy Court for the Southern District of California, 1995). The other purposes of the Bankruptcy Code include eliminating increased level of community debts and most significantly prohibiting foreclosures (US Financial Freedom, 2009). The preliminary stage of Bankruptcy Code instigates with the filing of an appeal of bankruptcy by the debtors. It is expected in this context that the Bankruptcy Code would ultimately facilitate the debtors who are involved in filing an appeal of bankruptcy in order to retain their valuable ‘exempt’ properties (United States Courts, n.d.). In relation to the scenario, GC can possess several significant rights by filing a bankruptcy appeal under the Chapter 7 belonging to Bankruptcy Code. In this regard, GC possesses the right to obtain discharge of debts which would support it to recover from financial issues as well as release from any sort of personal liabilities. Moreover, the debtor also possesses the right to pull through their personal properties which are detained by any of the third parties (IRS, 2012). Moreover, the other significant rights of GC within the circumstances presented under the guidelines of Bankruptcy Code can be identified as retaining the existing personal properties, not favoring the discharges which are not absolute and granting the relief that is offered under the specified provision (Parkes Law Group LLC, 2011). After acquiring a brief idea regarding the rights of the debtors linked with the Bankruptcy Code, it can be stated that the discharge which was obtained by the debtors may often seem to be non-dischargeable and thus risk of bankruptcy exists. However, this significant problem can be minimized by suitably filing a bankruptcy petition under the provision of Bankruptcy Code (Carroll, 2007). References American Bar Association, 2012. It's a Matter of Collateral. Business Law Section. [Online] Available at: http://apps.americanbar.org/buslaw/blt/2005-01-02/soukup.shtml [Accessed October 09, 2012]. Axis Bank, No Date. Events of Default. Download. [Online] Available at: http://www.axisbank.com/download/Lease_Rental_Discounting.pdf [Accessed October 09, 2012]. Banerjee, B. K., 2010. Accountancy for Class XI. PHI Learning Pvt. Ltd. Bailey, H. J. & Hagedorn, R. B., 2000. Secured Transactions in a Nutshell. West Group. British Columbia Laws, 2012. Performance of the Contract. Sale of Goods Act. [Online] Available at: http://www.bclaws.ca/EPLibraries/bclaws_new/document/ID/freeside/00_96410_01#section38 [Accessed October 09, 2012]. Crown, 2009. Judgment. Documents. 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