Reference no: EM133362104

Annie decided to start her own food truck business. Annie created Annie Snacks LLC, purchased an old food truck, and decided to take out a loan to repair the food truck.

Annie went to Bank to seek a $50,000 loan. She brought the title of her food truck, a detailed list of the equipment that she wanted to purchase, a mechanic's estimate for the cost of repairing the food truck, and samples of her Annie Snacks desserts. The Manager agreed to give Annie Snacks LLC the $50,000 loan in exchange for executing a Promissory Note and Security Agreement.

The security provision of the Security Agreement provided as follows:

The Promissory Note, which is incorporated by reference, is secured by all of Annie Snacks LLC's assets, including but not limited to Annie Snacks LLC's food truck, the title for which is attached to this agreement as Schedule A. Should Annie Snacks LLC default, Bank has all rights and remedies under the UCC.

After the Manager attached the title and list of the equipment Annie wanted to purchase to the Security Agreement, Annie-on behalf of Annie Snacks LLC-executed the Security Agreement and the Promissory Note. One week later, Bank filed a financing statement that included the same description of the collateral that was in the Security Agreement. However, the security interest was never noted on the title itself.

Annie made the repairs to the food truck and installed the equipment described on the list she gave Bank. Unfortunately, not all of the equipment fit as Annie hoped, so the food truck had to undergo modifications that made it impossible to remove the equipment without damaging the food truck.

Annie Snacks was an overnight success. Rather than repaying the loan, Annie bought a second food truck to expand her business.

However, Annie failed to maintain the second food truck and was cited for several health code violations. After an extremely poor on-site inspection, the local health inspector shut down the second food truck. Annie Snacks' reputation was ruined.

Annie was so distraught from her failing business that she missed a curve in the road and ran her original food truck into a tree. Annie and all of the equipment in the food truck were fine, but the food truck could no longer be driven. Annie had the truck towed back to her house, and locked it in her garage.

Unable to operate either food truck, Annie defaulted on her monthly loan payments with $40,000 still owed. Bank tried unsuccessfully to contact Annie about the default.

Bank wants to know its options moving forward to enforce the terms of the Security Agreement and Promissory Note.

Questions

1. Analyze whether the bank has a valid security interest in any of Annie Snacks LLC's assets. Identify which ones, if any, and discuss whether the Bank perfected its security interest(s).
2. Discuss by what methods the Bank may legally gain possession of the assets.
3. Describe what rights and duties the Bank would have in the collateral presuming it obtains possession of assets belonging to Annie Snacks LLC. Describe what might happen if the Bank sells the collateral for less than full market value?