Flashcards in Secured Transactions/Commercial Paper Deck (72):
What is the scope of Article 9?
Art 9 applies to CONSENSUAL interest in PERSONALTY and FIXTURES
How does a creditor create enforceable security interests in debtor's collateral, meaning how does the creditor ATTACH?
Contract (be authenticated by debtor AND reasonably identify the collateral)
Rights in Collateral
Once attached, how does the creditor attain perfection?
by putting the world on record notice of his existence
When more than one creditor has a stake in the same collateral, what are the rules of priority?
First to perfect, takes first
What if the debtor defaults on the debt or obligation?
The Art 9 creditor has statutory and judicial remedies
What is an After Acquired Collateral Clause?
When creditor takes a security interest in "all inventory hereafter acquired". Is enforcible. AKA "floating lien"
Perfects, is something that the secured party does to put the world on_______ OR ____________ notice of the secured party's existence.
How does a creditor obtain perfection?
A: the secured party takes possesion of the collateral
B: Purchase Money Security Interests (PMSI) are automatically perfected
C: Most common method - Files notice of security interest in public records
i) called FINANCING STATEMENT - purpose is to provide interested parties with sufficient info to make FOLLOW-UP INQUIRIES
ii) Requirements: Simple & Sparse
- need only contain 1) debtor's name and address 2) Creditor's name and address AND 3) Declaration of the collateral
iii) Filed in the State Corporation Commission
What is the order of priority?
and what is the Article 9 relate back rule?
1) Buyer in Ordinary Course
2) Perfected Attached Creditor
3) Lien Creditor (judicial lien)
4) Non-ordinary course buyer
5) Attached Unperfected Creditor
6) General Unsecured Creditor
*If PAC against PAC - First in time first in right
*If an early filer subsequently attaches, she is allowed the benefit of her early filing. Priority will relate back to the early filing date.
If the secured party chooses not to resort to self-help repossession, he or she may __________, ordering the sheriff to obtain possession of the collateral and deliver it to the secured party.
get a judicial writ
What is strict foreclosure?
occurs when the secured party retains the collateral IN FULL SATISFACTION OF THE DEBT. creditor lawfully retains collateral and the debt in turn is cancelled.
To accomplish Strict Foeclosure, the secured party must send a written proposal to retain the collateral in satisfaction of the debt. To whom is proposal sent?
Collateral Goods: debtor and scondary obligor
Not Consumer Goods: Debtor and other secured parties who have told the foreclosing creditor of their security interest
If any notified party to a strict foreclosure objects within_______ after the notice is sent, SF will not be allowed, instead collateral must be disposed of by sale.
If debtor has paid 60% of the loan in the event of a non-PMSI or 60% cash price in the event of a PMSI, SF is not allowed. Instead secrued party has _____ to sell the collateral or be liable in conversion
What are the two governing guideposts for when a secured party sells collateral and applies the sale proceeds to the debt:
1) Every apect of sale must be COMMERCIALLY REASONABLE
2) Prior to sale, notice must be sent
How does a writing qualify as a negotiable instrument?
Order ("assigns") or bearer -(payable to anyone who has it)
Signed by maker
reciting a Sum certain
containing an Unconditional promise and additional promise
Payable on demand or within a definite time (acceleration clauses ok)
Payable in Currency ( not goods)
If a note says "Pay to Andy Garcia" is it negotiable?
NO - does not contain order, or assigns, or bearer (would be ok if it were a check though)
What does it mean when an indorser signs "without recourse"
This is a disclaimer of all signature liability.
What are the 5 warranties made by the Defendant transferor of a note?
*has good TITLE
*all SIGNATURES ARE GENUINE and authroized
*instrument has NOT BEEN MATERIALLY ALTERED (if its been tampered with its defective)
*NO DEFENSE OR CLAIM AGAINST D, it is Enforcible
*no knowledge of ANY bank or insolvency action against the maker or drawer
If instrument is payable to bearer, _________is not required.
How does a Holder in Due Course transferee qualify?
1) for value (not consideration- old value ok)
2) in good faith (honesty in fact-subjective and reasonable commercial standards-objective)
3) without notice that it is overdue or has been dishonored or is subject to any defense or claim (objective test)
What are the personal Defenses?
ordinary K actions. lack of consideration; unconscionable; waiver; estoppel; fraud in the inducement
*HDC not subject to these actions
What are the real defenses?
Fraud in the Factum
*HDC subject to these
Writing checks without authority is______
What is the employee indorsement rule?
an employer is liable for the forgeries by an employee who was entrusted with responsibility for handling checks
Financing statement covering equipment must be filed______________; and a corporate debtor is located in the state__________
in the state where the debtor is located;
where it is incorporated
If a company CEO, or SH that signs a security interest contract in his personal capacity, YET, the equipment still belongs to the company company_______
Agreement is not properly authenticated and the creditor has no security interest. However, estoppel may apply (but probably not in Virginia)
What type of PMSI is automatically perfected? Which are not?
PMSI in Consumer Goods is automaticall perfected
PMSI in equipment can be perfected any time wihtin 20 days after debtor get possession
PMSI in inventory MUST be perfected by the time the debtor gets possesion of the collateral, no 20 day grace period
What is equipment?
Equipment means goods that are not consumer goods, farm products, or inventory (e.g., durable goods used in a business, paintings on an office wall).
What is Inventory?
includes goods held for sale or lease, goods furnished under a contract of service, supplies used in manufacturing, materials consumed in a business (e.g., fuel used to run a factory), and work in progress.
What are consumer goods?
Consumer goods are goods used or bought for personal, family, or household purposes.
What are Farm Products?
Farm products are crops, livestock, unmanufactured products of livestock (e.g., eggs), and supplies used or produced in farming operations and either in the possession of or used by a farmer.
Instruments are pieces of paper that represent:
The right to be paid money
Proceeds” include whatever is received upon the sale, lease, exchange, license, collection, or other disposition of collateral or proceeds. This can include:
cash received from a lease of the collateral, an item traded for the collateral, and money received from an insurance company for damage to the collateral. Funds the secured party has agreed to loan the debtor in the future are future advances, not proceeds.
A repossession made over __________by the debtor constitutes a breach of the peace, even though no violence or significant disturbance occurs
A PMSI in inventory has priority over a conflicting security interest in the inventory if:
(i) The PMSI in inventory is PERFECTED at the time the DEBTOR GETS POSSESION; and
(ii) Any secured party who has filed her security interest in the same inventory receives an AUTHENTICATED NOTIFICATION of the PMSI before the debtor receives possession of the inventory, and the notification STATES that the purchase money party has or EXPECTES TO TAKE A PMSI in inventory of the debtor described by kind or type.
If a negotiable instrument calls for payment in foreign money, may it be paid instead with U.S. dollars?
Yes, at the bank exchange rate in effect when and where the instrument is paid, unless otherwise specified.
If an instrument states that it is payable with interest but does not state the rate, it:
payable at the rate on a court judgment
Peter writes a note that states “payable to all the colors in the rainbow” and gives it to Cassandra as a joke. The note is:
Payable to bearer.
(blank check also payable to bearer)
Negotiation is defined as the ____________________ transfer of an instrument by a person other than the issuer to a person ____________________.
Voluntary or involuntary;
who gains possession of the instrument and has the right to enforce it.
A promise to babysit the maker of a note's children in exchange for the note ____________________ value, and taking the note as payment for past babysitting services ____________________ value.
If the name of the ____________________ is forged, no subsequent taker can become a holder in due course ("HDC") unless the person whose name was forged ____________________.
Payee or any special indorsee; ratifies the unauthorized signature or is estopped from denying it.
A written stop payment order is binding on a bank for ____________________, but an oral stop payment order lapses after ____________________ if it is not confirmed in writing during that period.
Julie gave a $500 promissory note to Michelle in exchange for a $400 loan. The note included a promise from Julie’s father to “guarantee against loss by reason of the nonpayment of this note.” Julie’s father ____________________ be liable on the note if she declares bankruptcy, and ____________________ be liable on the note if she cannot be served with process.
An alteration is an unauthorized ____________________ that purports to modify the obligation of ____________________ in any respect.
change or addition;
The forgery of which party's signature will destroy good title?
either the payee or special indorsee's
Allie borrowed $500 from Joey. If Allie gives Joey a $500 ____________________ check, her obligation to repay the loan will be suspended.
If a claim is disputed, it ____________________ be discharged in full with a check stating “Paid in Full” if the claimant obtains payment, and the claimant ____________________ avoid an accord and satisfaction by altering this notation.
When may a bank choose to honor a check according to its terms as presented?
The drawer's account has insufficient funds.
Which action does NOT constitute impairment of collateral sufficient to discharge a guarantor to the extent of the impairment?
A Release of collateral without substitution.
B Collateral is lost, damaged or destroyed.
C Failure to dispose of collateral as required by law.
D Failure to perfect a security interest.
Collateral is lost, damaged or destroyed
what is the garage sale rule?
a consumer purchaser who buys consumer goods from another customer takes free of a perfected security interest if he buys the goods without knowledge of the security interest and before a financiny
What are the issues you should look for in problems involving multiple checks?
1) payment date, is it a payment in the future - if so not valid
2) discrepancies between written amount and numbered amount. WRITTEN WORDS PREVAIL.
3) blank spaces - if blank check, or too much space that would allow the check to be altered. PERSON failed to EXERCISE ORDINARY CARE and thereby SUBSTANTIALLY CONTRIBUTES to an alteration of an instrument, and MAY BE LIABLE if somebody materially alters
Under Article III if tge UCC as adopted by VA, what is the SoL for actions on notes payable at a definite time or on demand?
Under Article III if tge UCC as adopted by VA, if no demand for payment is made on the maker of a note payable on demand or at a definite time, an action to enforce the note is barred if no interest or principal has been paid on the note for ____ years.
What is Fraud in the Factum?
Fraud that INDUCED THE OBLIGOR to sign the instrument wiht neither KNOWLEDGE NOR REASONABLE OPPORTUNITY to learn of its CHARACTER OR ESSENTIAL TERMS.
When can a person avoid accord and satisfaction even if they already deposited a check that said paid in full?
If they tender repayment of the entire check amount within 90 days.
When can a bailee limit his liability?
Only when the bailor consents. (A tow truck operator can't notice his bailor of the limited liability AFTER he has towed is truck).
Cannot limit himself of liability for his own negligence.
When are parking garages bailee?
Only when you turn your keys over to them.
When would payment terms make a note not negotiable?
when the payment terms are AMBIGUOUS.
What is an easement appurtenant and why should I care?
An easement is appurtenant when it benefits the holder in her physical use or enjoyment of another tract (there must be dominant and servient tenement) - these transfer with the land when it conveys to someone else
How are security interests in bank accounts perfected?
automatically perfected by the bank who is in control of the account, assuming it has attached a secutiry interest. Filing a financing statement is not possible to perfect security interest in an account.
How are security interests in fixtures perfected?
Only by making a FIXTURE FILING, describing the Real Property to which the fixture is affixed. - Fixture Filings must be filed in teh LOCAL OFFICE WHERE A MORTGAGE REAL PROPERTY WOULD BE FILED - NOT the SCC
How are security interests in Crops in the ground perfected?
These are agricultural liens, governed by UCC art 9. Perfected by filing financing with the SCC.
How are purchase money security interestes (PMSI)s perfected?
If it is a PMSI in consumer goods (personal or household use), AUTOMATICALLY PERFECTED upon attachment.
EQUIPMENT - not automatically perfected. 20 day grace period to perfect.
INVENTORY -Must be perfected by the time debtor gets possession of inventory. No 20 day grace period.
What is breach of INDORSERS CONTRACT?
A person who signs a note other than as maker or acceptor incurs SECONDARY LIABILITY AS AN INDORSER, BECOMING OBLIGATED TO PAY ON ITS TERMS IF THE MAKER DOES NOT PAY.
Priority goes to the first to PERFECT, even IF:
attachment doesn't occur until after perfection.
Are restrictive indorsements effective on a negotiable note (I.e. "PAY to Jake Blue ONLY")?
NO, restrictive inodorsements are not enforcible.
What should you discuss in a Secured Transactions essay question regarding default and sale if the question raises the issue of reasonableness of the sale?
1) SUFFICIENCY OF THE ADVERTISING
2) if collateral had a limited market, whether PEOPLE IN THAT MARKET WERE CONTACTED
3) whether the collateral needed CLEANING OR REPAIR; and
4) if the sale was by public auction, the CONVENIENCE OF THE TIME AND PLACE
Does a bank have to re-credit an account upon request, if they paid a forged check?
Yes, banks can only charge against a customer's account if it is PROPERLY PAYABLE (forged check is not properly payable not authorized)
UNLESS the person raising the forgery did not EXERCISE ORDINARY CARE IN PREVENTING THE FORGERY
The effect of a stop order payment on a check is mererly to prohibit the____________. it has no effect on teh drawer's ___________
drawee from paying the check.
drawer's liability on the check.
Drawer's are liable for unaccpeted checks, even if_______
the person demanding payment is NOT a HOLDER IN DUE COURSE