Jay Cutler obtains a $960,000 loan from Dick Vermeil in order to open up a day spa. Vermeil obtains (and properly perfects) a security interest in all of Jay's equipment, now owned or after acquired. Cutler specifically approached Vermeil because Vermeil has a reputation as being a very sympathetic lender, though Cutler has no hard evidence or examples to back this up. In the security agreement, Vermeil inserted the clause, “Upon any default by Debtor and at the option of the Secured Party after notification, all obligations secured by this agreement shall immediately become due and payable in full. Debtor will be in default when payment is due, but no payment has been received by the due date. Upon acceleration, the Debtor may redeem the collateral only by payment of the accelerated balance.” As per the agreement, over a period of four years, Cutler would make equal monthly payments of $20,000 until the loan was paid off.
For one year, Cutler was prompt with his payments and only missed one deadline, for which Vermeil accepted a late payment. Cutler was even able to pay $25,000 each month, which would enable him to pay off the loan sooner; Vermeil accepted this amount. After a year had passed, Cutler missed the three consecutive payments after being stranded in Green Bay, Wisconsin which has no telephone, internet access, or reputable bank to speak of. Upon returning to his home in Chicago, Cutler finds that all of the equipment for his day spa is gone and a note was left stating that Vermeil repossessed all of the equipment as collateral on the debt owed due to the security agreement. Cutler quickly paid Vermeil the amount due ($60,000) on the three late payments, which Vermeil accepted but still refused to return Cutler’s equipment and cried.
What is Cutler’s best argument to regain his lost equipment?
1. Vermeil failed to notify Cutler prior to acceleration and repossession
2. Vermeil and Cutler established a course of performance with Cutler which allowed for late payments
3. When Vermeil accepted the payment for the three missed periods, Vermeil effectively agreed to reinstate the loan.
4. By accepting payments of $25,000 for the past year, Vermeil had received an extra $60,000, and thus Cutler is not really in default for the past three months of payments (which have already been made).