Flashcards in Business Law Deck (33):
Six elements for negotiable instrument
1. In Writing
2. Signed by maker or drawer
3. Unconditional promise or order
4. Sum of certain money
5. Payable on demand or at a certain time
6. Words of negotiability ("Payable to order or bearer" - except on check)
2 classifications of negotiable instruments
1. Order to pay: drafts and checks
2. Promise to pay: notes and certificates of deposit
4 Characteristics of Holder in Due Course (HDC)
2. Gave Value
3. Good Faith
4. Without Notice
What liability is disclaimed on a check with a qualified endorsement "without recourse"?
Contract Liability and/or Warranty Liability
Contract liability refers to the quality of the title.
Warranty liability refers to guaranty of payment.
"Without recourse" only disclaims contract liability (good title) and does not guarantee payment.
Name 5 universal defenses that can be asserted against a Holder in Due Course (HDC)
Fraud in the Execution
Void events (illegality, capacity, duress)
Name 6 personal defenses that cannot be asserted against a Holder in Due Course (HDC)
Fraud in the inducement
Lack of consideration
Breach of contract
Product warranty issues
When is a negotiable document of title duly negotiated (4 requirements)?
Holder gives value
Takes document in good faith
Takes without notice of defense or claim
Takes the ordinary course of business
To be effective as a title of goods, a warehouse receipt must contain these 5 elements.
Location of warehouse where goods are stored
Indicate to whom goods are to be delivered (bearer, specified person, etc.)
Rate and description of goods
3 requirements for a security interest to attach
Writing - signed by debtor; description of collateral
Value given to debtor by secured party (commitment to extend credit)
Debtor must have rights to the collateral
When is a buyer protected from a secured party's security interest?
Must be purchased in seller's ordinary course of business
No knowledge of security interest
What type of security interest has priority over previously perfected security interests?
Purchase Money Security Interest (PMSI) has priority over other forms of perfected security interests.
How much time does a secured party have to perfect it's security claim in a new jurisdiction?
When must a creditor sale confiscated collateral?
Consumer goods, and >60% purchase price repaid
What is the order of distribution of proceeds from the sale of collateral (4 steps)?
Expenses to cease and resale collateral
Remaining debt of secured party
Debt owed to junior security holders
Remaining balance returned to debtor
What are 4 rights of a surety or guarantor?
Exoneration - order creditor to exhaust recovery from debtor
Reimbursement & Indemnity - from principle debtor for debt and fees incurred
Subrogation - stands in the place of the creditor
What is the difference between mechanic's lien and artisan's lien?
Mechanic's lien is for unpaid work on real property.
Artisan's lien is for unpaid work on personal property.
What 7 types of organizations cannot file for chapter 7 relief?
Savings & Loans
Small business investment units funded by SBA
Name 5 types of bankruptcy? Briefly describe.
Chapter 7* - straight bankruptcy or liquidation
Chapter 9 - adjustment of debts of a municipality
Chapter 11* - reorganization of debtor to pay debts; rehabilitation of debtor
Chapter 12 - adjustment of debts of family farmer/fisherman
Chapter 13* - adjustment of debts of individual with regular income
What are the 2 requirements of an involuntary petition in bankruptcy?
What is a debtor's challenge of involuntary petition?
> 12 unsecured creditors w noncontingent claims; petition signed by 3 or more creditors with aggregate claim greater than $15,325
< 12 unsecured creditors w noncontingent claims; only 1 creditor with claim greater than $15,325
Challenge: Creditor must prove that debts are not being paid as they come due (not insolvency); that property in receivership; or that assignment made to benefit of creditor with 120 days of filing involuntary petition.
What is a preferential transfer in a bankruptcy proceeding (3 parts)?
A payment made towards a debt that existed prior to bankruptcy (as opposed to contemporaneous exchange for new value);
that was paid within 90 days of the bankruptcy petition filing;
and was an amount greater than would have been rendered under bankruptcy relief.
What is the order of the distribution of estate in bankruptcy (12)?
Perfected secured parties
Domestic support obligations
Ordinary course of business
Employee benefit plans
Farm producers and fishermen
Government units for various taxes
Death or personal injury
Remainder goes to debtor
What debts cannot be discharged in bankruptcy? (4)
Debts incurred though fraud, larceny, embezzlement
Judgments for willful/malicious injury
Debts for DUI
Alimony, Maintenance, Child Support
Fines and penalties to government
Student loan debts/benefits
SOX bonuses and incentives
Consumer debts within 90 days
Reasons a debtor can be denied a discharge of debt in bankruptcy.
Partnership or corporation debts
If discharge granted within 8 years
Fraud, lack of cooperation, incomplete credit counseling course
Consumer debt within 90 days; Cash advance within 70 days
Subchapter S requirements
Consent of all shareholders
100 shareholders max (family treated as 1)
Shareholders must be individuals, estates, or certain trusts or exempt orgs
One class of stock
4 Elements of an Investment Contract
1. Investment of money
2. In a common enterprise
3. With an expectation of profit
4. To be earned primarily by the actions of others
What 3 things must a plaintiff show to win a Section 10(b) case of the Security Exchange Act of 1934?
The CPA must have:
1. Intentionally or recklessly
2. Made a misstatement of material fact or omitted a material fact
3. That was relied on by the plaintiff.
Exempt Securities due to alternate forms of regulation (4) under Regulation D
1. Bank and government securities
2. Federally regulated common carriers
3. Bankruptcy receivers/trustees
4. Insurance and annuity policies
Primarily 3 types of security exemptions under Regulation D
1. Small offering exemptions
2. Private placement exemptions
3. Intrastate offering exemptions
3 Regulation D exemptions (Rules) for small offering and private placement offerings
1. Rule 504 - (small offering) up to $1M in 12 mo period without registering; not thru general advertisement; SEC notified within 15 days of 1st sale
2. Rule 505 - (small offering) up to $5M in 12 mo period without registering; no more than 35 non-accredited investors or unlimited accredited
3. Rule 506 - (private placement) raise unlimited amount without register if sell to no more than 35 non-accredited investors and/or unlimited number of accredited investors
4 Requirements for Intrastate Offering (Rule 147)
1. All offerees must be in the state
2. 80% issuer's assets in the state
3. 80% issuer's revenues in the state
4. 80% of proceeds used in the state
What types of securities are exempted by the Securities Act of 1933?
2. Government entities
3. Banks, savings and loans
4. Farmers' co-operatives
5. Some issues by insurance companies are exempt, but only if the issuing company is a state-regulated company.
What amount can a seller withhold from a deposit for liquidated damages?
$500 or 20% of purchase price; whichever is less.