agreements, (3) breached the duty of good faith and fair dealing and (4) imposed improper acceleration. 

 

             The Court dismissed the improper penalty claim because as long as the penalty was an express term of the note agreement, it was enforceable, provided that the “parties involved were ‘knowledgeable, had a reasonable chance to understand the terms of the agreement and were sufficiently sophisticated and experienced to be aware of the import of the agreement.’”  The Court found that both Chillicothe and the lenders were sophisticated commercial entities and that Chillicothe failed to assert that it did not expressly bargain for the loan’s terms.  Regarding the second and third counts, the Court stated that Ohio law is “crystal clear that an actor does not act in ‘bad faith’ when it decides to enforce its contractual rights [and a] party may even enforce contractual rights to the ‘great discomfort’ of the other party without violating its duty of good faith.”  Because the note agreement expressly included terms that allowed for the prepayment premium, the lenders were not in breach, even when they rejected Chillicothe’s tender of only the principal balance of the loans.  The Court granted the lenders motion to dismiss the case against them. 

 

             The case above is cited as Chillicothe Telephone Co. v. Variable Annuity Life Insurance Co., et al., No. 2:05-CT-00973 (S.D. Ohio 01/31/07)

             One of the articles in this month’s Bulletin focused on issues faced by lenders when dealing with security interests in non-real estate collateral.  When it comes to perfection of this type of collateral, lenders need to be extra careful to be certain that the security interest is properly perfected.  In most instances, it is sufficient to properly file a UCC-1 financing statement in the proper filing offices.  However, some collateral requires different methods of perfection.  For example:

 

· In the instance of motor vehicles, most, if not all, states require that motor vehicle liens be perfected through a lien filing with the state motor vehicle bureau.  However, to the extent that collateral includes truck bodies, under the UCC it may also be necessary to file a UCC-1 filing as well.  Most automobiles and other vehicles held for sale on a dealer’s lot may be subject to a floor plan financing arrangement which can be perfected by filing a financing statement.

 

· In the instance of brokerage securities held by a stock brokerage firm or a bank, in most instances it is necessary to enter into a control agreement with the firm that has custody and control of the stock certificates or mutual funds.

 

· A security interest in a bank account is deemed perfected if the bank that has the account relationship is also the secured party.  If the account relationship is with another banking institution, here again, it is necessary to enter into a control agreement.

 

· A security interest in boats and aircraft is also perfected by filing against the certificate of title with the appropriate governmental agency.

 

             Not all collateral is created equal when it comes to perfection.  Feel free to contact us to the extent that you have any questions concerning proper perfection of a lien.

 

            

Tip of the Month:  The Proof Is In The Perfection