UCC Flashcards
(202 cards)
1
Q
What is the Uniform Commercial Code (UCC) supplied term (i.e., assumed term) if a contract term has an open time for contracted performance?
A
In absence of agreement, it is a reasonable time.
2
Q
Define “sale of goods.”
A
Passage of title to goods (personal property) from a seller to a buyer for a price.
No passage of title required for a bailment.
No price required for a gift.
3
Q
Define “merchant.”
A
A person who deals in goods of the kind being sold, or a person who by occupation holds himself or herself out as having knowledge or skill
4
Q
What is the Uniform Commercial Code (UCC) supplied term (i.e., assumed term) if a contract term has an open price term?
A
A reasonable or market price at the time of delivery will apply or if price is to be fixed by either party good faith is required in doing so.
5
Q
What law governs the sale of goods?
A
Uniform Commercial Code - Article 2.
6
Q
Define “goods.”
A
All movable and tangible personal property other than money, investments, securities and things in action.
7
Q
What happens to additional terms in acceptance-non-merchants?
A
Additional terms do not become part of the contract - original offer terms control.
8
Q
Is consideration required for the modification of a contract?
A
No consideration required,
good faith is required.
9
Q
List the three methods by which a seller can accept a buyer’s shipment order.
A
Delivery of conforming goods to carrier;
A prompt promise to ship; or
Shipment of nonconforming goods delivery without notice of accommodation.
10
Q
Describe the elements of a merchant’s firm offer.
A
Offer by a merchant;
States that it will be kept open (max of 3 months);
Signed or authenticated by merchant. Irrevocable for time stated or max of 3 months.
11
Q
Describe the concept of a merchant’s battle of the forms.
A
Formation situation in which boiler plate language in merchant’s individual forms adds terms to the original offer
12
Q
What is the Uniform Commercial Code (UCC) supplied term (i.e., assumed term) if a contract term has an open place of payment term?
A
Seller’s place of business or if none residence.
13
Q
What is the result of a shipment of a nonconforming goods delivery?
A
Acceptance and automatic breach;
Not an acceptance if shipper notifies that shipment is only an accommodation.
14
Q
List the requirements for a sale of goods contract.
A
Intent;
Object;
Quantity.
15
Q
What is the Uniform Commercial Code (UCC) supplied term (i.e., assumed term) if a contract term has an open payment term?
A
Payment is due at time and place buyer is to receive the goods.
16
Q
What happens to additional terms in acceptance-merchants?
A
Additional terms become part of the contract unless they are material, the offer is limited, or the party objects.
17
Q
In what special circumstances will an offeree’s additional terms not be valid when both parties in the transaction are merchants?
A
The offeror limits acceptance to his or her terms;
The additional terms materially alter the contract;
The offeror specifically with notice objects to the additional terms.
18
Q
At what point does title/risk of loss pass when the terms are Free on Board the seller’s place (city, business, warehouse, or ship point)?
A
Delivery of conforming goods to carrier.
19
Q
Describe the general rule regarding passage of title and risk of loss.
A
In absence of agreement, the time title and risk of loss to identified goods passes from the seller to the buyer is dependent upon the contract’s delivery terms.
20
Q
Describe the free-on-board place of shipment term.
A
Risk of loss and title pass from seller to buyer when the goods are delivered to the carrier.
21
Q
When does the risk of loss pass in a non-delivery contract?
A
If seller is a merchant, risk of loss passes when buyer has actual receipt.
If seller is a non-merchant, risk of loss passes when goods are tendered to buyer.
22
Q
When does title/risk of loss pass when the shipping terms of cost, insurance, and freight are used?
A
delivers identified conforming goods to the carrier;
obtains a negotiable bill(s) of lading covering transportation to named destination;
procures an insurance policy; and
forwards to buyer all documents.
23
Q
At what point does title/risk of loss pass when the terms are Free on Board the buyer’s place (city, warehouse, or residence)?
A
Upon the seller’s tender of conforming goods at place of contract destination.
24
Q
Define “future goods.”
A
For contracts under which goods are to be manufactured, identification occurs when the goods are in existence and either shipped, marked, or otherwise designated for buyer.
25
Describe the free-on-board place of destination term.
Risk of loss and title pass from seller to buyer when goods have been tendered to the buyer at the destination.
26
What does the acronym CIF mean?
A shipping term - Cost, insurance and freight.
27
When does the title/risk of loss pass for sales on approval?
Title and risk of loss remain with seller until buyer accepts.
28
When does title/risk of loss pass when delivery is required by a seller with no physical movement and the goods are not represented by a document title?
Title passes when the contract is made;
If seller is a merchant, risk of loss does not pass until buyer gets possession;
If seller is a nonmerchant, risk of loss passes upon seller's tender of goods to the buyer.
29
What effect does a breach of a contract have on the passage of risk of loss?
Risk of loss does not pass until goods are conforming; if they never conform, risk of loss does not pass and return is at seller's risk.
30
Define "fungible goods."
Fungible goods are those that cannot be distinguished either because of homogenous qualities or because they are so mixed together; identified when shipped, marked, or otherwise designated.
31
When does title/risk of loss pass when delivery is required by a seller with no physical movement and the goods are represented by a negotiable document of title?
Title and risk of loss pass upon buyer's receipt of document.
32
What does the acronym BFP stand for?
Bona fide purchaser or good-faith purchaser (pure heart and an empty head because they do not know of any problems with the title).
33
Define "voidable title."
Title to goods that has come through a voidable contract, as when a minor purchases a car and then sells it to a third party.
34
Define "void title."
A thief in the chain of title.
35
When does title/risk of loss pass for a sale on approval?
Neither title nor risk of loss pass until acceptance by the buyer.
36
When does title/risk of loss pass when delivery is required by the seller without physical movement and the goods are represented by a nonnegotiable document of title?
Title passes to buyer upon receipt of document;
| Risk of loss passes after buyer receives document and has a reasonable time to present document to receive the goods.
37
Define "identification."
Occurs when goods are shipped, marked, or otherwise designated for the buyer; identification must occur before title and risk of loss pass.
38
What does the acronym C&F mean?
A shipping term - Cost and freight
39
What does the acronym FAS mean?
A shipping term - Free alongside vessel (ship).
40
When does title/risk of loss pass in free alongside shipping terms?
Title and risk of loss pass upon seller's delivery of conforming goods alongside the vessel in the manner usual in that port or on a dock designated and provided by the buyer.
41
What does the acronym FOB mean?
A shipping term - Free on board.
42
List the ways in which a buyer can accept title of goods?
Due notification of acceptance;
Failure to reject within trial period;
Does any act inconsistent with seller's ownership.
43
Describe determination of "place of delivery."
Unless the contract provides for shipment, delivery is the seller's place of business or residence. There are no delivery terms under Uniform Commercial Cod Article 2 unless provided for in the contract.
44
When does the passage of title occur in a non-delivery contract?
If there is a document of title, title passes when buyer has the document.
If there are other documents, title passes when buyer has those documents.
If there are no documents, title passes at the time of contracting.
45
Describe the differences between the timing of risk of loss and the title in shipment contracts and non-shipment contracts.
In shipment contracts, risk of loss and title pass at the same time. In non-shipment contracts, risk of loss and title do not pass at the same time and depends on whether there is a document of title and whether there is a merchant or non-merchant seller for risk of loss.
46
How is the title/risk of loss affected by the passage of goods in a sale or return?
Passes upon possession of Buyer - returns to Seller if Buyer returns properly the goods.
47
When does the risk of loss pass in a warehouse (third party) delivery?
Risk of loss and title pass to buyer when the buyer has all necessary documents and the goods are available for pick-up.
48
Define "tender."
The seller's holding out to the buyer the goods in a reasonable manner, for a reasonable time, to allow the buyer to take possession of the goods.
49
List the protections given by the implied warranty of title.
Seller has a good title and transfer is rightful;
There are no outstanding liens, encumbrances or security interests;
If seller is a merchant, goods shall be delivered free from third party infringement claims.
50
What is the difference between recovery under strict tort liability and recovery under negligence?
Punitive damages are available for negligence.
51
List the justifications that a party in a transaction can use as a warranty defense.
Lack of Privity;
Statute of Limitations;
Failure of Notice of Breach.
52
List three types of express warranties.
Affirmations of fact or promises;
Sales by description;
Sales by sample or model.
53
List the requirements for establishing negligent product liability.
Product is in a defective condition that is unreasonably dangerous by design, production, or lack of warning.
Seller is in the business of manufacturing, distributing, or selling the product.
The product reaches the buyer in the same condition as when it left the seller's possession (i.e., it has not been altered)
Seller had knowledge that the product was defective and did not take steps to fix the problem.
54
What are the necessary requirements for a party in a transaction to disclaim an implied warranty of fitness for a particular purpose?
Must be in writing;
| Conspicuous.
55
Can an express warranty be withdrawn?
It is not possible to make an express warranty and then withdraw it when it has been a basis of the bargain.
56
List the criteria required for an implied warranty of fitness for a particular purpose.
The seller must expressly or impliedly know the purpose or buyer's use;
The buyer must rely on seller in making selection.
57
List the requirements for establishing strict tort liability.
Product is in a defective condition that is unreasonably dangerous by design, production, or lack of warning.
Seller is in the business of manufacturing, distributing, or selling the product.
The product reaches the buyer in the same condition as when it left the seller's possession (i.e., it has not been altered).
58
Give examples of language that effectively disclaims implied warranties of merchantability and fitness for a particular purpose.
"As is" sale;
"Sold with all faults;"
Any other language brought to Buyer's attention plainly making a disclaimer.
59
Describe the elements of a disclaimer of an implied warranty of merchantability.
If written, must be conspicuous. Must use terms such as "No warranty of merchantability" or general disclaimer of "As is," "With all faults," or "As they stand."
60
Describe the elements of a disclaimer of a warranty of title.
Must be in writing and conspicuous or be obvious from the nature of the goods or the transaction that there is no warranty of title.
61
What are the requirements for a disclaimer of oral express warranties?
Specific;
Unambiguous;
Clearly and conspicuously drawn to attention of buyer.
62
Describe the elements of a disclaimer of an implied warranty of fitness for a particular purpose.
Must be written; must be conspicuous; General disclaimer of "As is," "With all faults," or "As they stand" disclaims this and warranty of merchantability.
63
Explain when the implied warranty of merchantability is given.
Seller is a merchant; and
| Goods are warranted to be fit for ordinary use, of proper kind, properly packaged, and conform to the label.
64
What are the necessary requirements for a party in a transaction to disclaim an implied warrant of merchantability?
Must mention word merchantability or general disclaimer of "As is," "With all faults," or "As they stand." ;
Can be in writing or oral;
If in writing, must be conspicuous.
65
List the four types of warranties that are given under Article 2 sales contracts.
Express Warranties;
Implied Warranty of Title;
Implied Warranty of Merchantability;
Implied Warranty of Fitness for a Particular Purpose.
66
When does an implied warranty that arises from a course of dealing or trade usage apply?
When both parties have a knowledge of a well-recognized usage of trade, or by numerous past performances, infer a warranty course of action intended to be performed.
67
Describe the general rules of performance for a seller and a buyer.
Seller obligated to ship or tender delivery of conforming goods;
Buyer a duty to accept and pay for conforming goods.
68
Describe the concept of "right to demand assurances."
Right of one party to demand additional guarantees of performance under the contract when none has taken place or cannot take place.
69
Define "substituted performance."
If without fault of the seller the agreed facilities or type of contract carrier is not available or delivery impractical, but a commercially reasonable substitute carrier is available, seller must use substitute carrier and buyer must accept delivery and pay.
70
List the conditions that must exist to revoke a previous acceptance of goods.
Buyer was given reasonable assurance of cure and cure has not occurred;
Buyer was assured goods were conforming and later discovered they were not;
Buyer's discovery of the nonconforming was difficult to detect.
71
Describe the perfect tender rule.
Seller must deliver goods to buyer that conform in every respect; no standard of material breach here but, rather, any breach.
72
List the rights and duties of a seller or buyer upon either party's failure to perform
Right of assurance to performance;
| Duty of cooperation.
73
List the rights of a buyer upon delivery of the goods.
Right of inspection unless agreed to the contrary;
| Right to reject any nonconforming tender.
74
Define "anticipatory breach."
Occurs when either the seller or the buyer repudiates the contract prior to the required contract date of performance.
75
What actions constitute the acceptance of a product by the buyer?
After opportunity to inspect signifies goods are conforming or will accept anyway;
Fails to reject after inspection or reasonable opportunity to do so;
Does act inconsistent with seller's ownership of product.
76
List the options that a buyer has when a seller tenders goods that fail to conform to the contract (i.e., the perfect tender rule).
Reject the entire shipment;
Accept the entire shipment;
Accept any commercial unit and reject the rest.
77
What option does the buyer have for tender of payment?
Can be by any customary means;
| Seller could demand cash.
78
Describe a buyer's right of inspection.
Available to buyer for reasonable time; right to open packages, examine goods and conduct tests.
79
List the possible actions of a non-breaching party if an anticipatory breach has occurred
For a commercially reasonable time await performance;
Treat breach as final and resort to remedies;
Suspend their own performance without liability for breach.
80
What actions should occur to ensure a proper rejection of nonconforming goods?
Must do so within reasonable time after tender;
Must be known by Seller - generally with specific reasons for rejection;
If Buyer in possession - Buyer needs to exercise reasonable care of goods;
If goods need to be sold (e.g., perishable) - Buyer must make reasonable effort to do so; Buyer to receive reimbursement for cost plus 10% sales commission.
81
Define "cure."
If a seller tenders delivery of nonconforming goods prior to the contract date, and buyer rejects the goods, the seller can with notice indicate the intent to cure, and the seller is not in breach if the seller tenders conforming goods within the contract time period.
82
Upon a buyer's breach, what remedies does the seller have when the seller retains possession of the goods?
```
Withhold delivery;
Identify Goods to Contract and proceed with other remedies;
Cancel and/or rescind contract;
Resell the goods;
Sue for breach of contract.
```
83
What are the seller's remedies if the buyer is insolvent or in breach when the goods are in transit?
If buyer insolvent, can stop any quantity shipped;
| If not, and Buyer is in breach, can only stop if shipment is a carload, truckload, planeload, or larger shipment.
84
What are the buyer's remedies when the seller tenders nonconforming goods or refused to deliver conforming goods?
```
Cancel and with notice Rescind;
Cover;
Sue for breach of contract;
Specific performance;
Replevin;
Buyer can recover prepayment if Seller becomes insolvent within 10 days of receipt or pay balance and get the goods.
```
85
When is a seller entitled to lost profits?
In situations in which no other remedy provides compensation, such as when specially manufactured goods are ordered but the buyer breaches prior to production beginning. Lost profits compensate for the downtime in the seller's production facilities.
86
When can a buyer recover consequential damages?
When the buyer has to pay penalties or damages for being late on performance owed to third parties.
87
When is a seller entitled to the full contract price when the buyer breaches?
When the goods cannot be resold, such as in specially manufactured goods.
88
What are the buyer's remedies when the buyer accepts nonconforming goods with notice?
Sue for ordinary damages;
Sue for breach of warranty;
Deduct damages from purchase price
89
Upon a buyer's breach, what remedies does the seller have when the seller retains possession of the goods?
```
Withhold delivery;
Identify Goods to Contract and proceed with other remedies;
Cancel and/or rescind contract;
Resell the goods;
Sue for breach of contract.
```
90
What are the seller's remedies if the buyer is insolvent or in breach when the buyer has possession of the goods?
Can reclaim the goods within 10 days if buyer received the goods on credit while insolvent;
Can sue for purchase price.
91
Describe the concept of replevin.
If seller refuses to tender delivery of identified goods to the buyer, and the buyer cannot cover, the buyer can file a suit in equity requiring the seller to deliver the goods to the buyer.
92
What types of limitations may be put in place on remedies of a breach?
Liquidated damage agreements;
Contract limitations - such as limited to repair or replacement;
Statute of Limitation time runs out.
93
What is the statute of limitations used to file actions against a party that breached a contract?
Four years from cause of action - by agreement can be shortened to not less than one year but not extended;
For breach of warranty action - cause of action starts with tender of delivery - not discovery of breach.
94
When can a buyer have specific performance as a remedy?
When the goods are rare or unique.
95
Give an example of language that results in bearer paper.
"Pay to cash" or "Pay to the order of cash" or "Pay to Jane Downs or bearer."
96
Define "order payer."
Instrument made payable to individual or entity
| transferred by indorsement and delivery.
97
Define "accommodation party."
A "person" who signs an instrument in any capacity for the purpose of lending his or her name as credit to another party on the instrument.
98
Describe the various types of checks that can be used to pay money.
Cashier's check (bank is drawer and drawee);
Teller's check (draft drawn by one bank on another bank);
Traveler's check (draft payable on a bank that requires a counter signature);
Certified check (check accepted by a drawee bank; obliges drawee bank to pay);
Money order (is a check if drawn on a bank and payable on demand).
99
Define "negotiation."
The transfer of possession of a negotiable instrument to a party who becomes a holder.
100
Define a "demand instrument."
Those that are payable immediately upon issue, such as "payable at sight" or "payable upon presentation," or those for which no time period is specified.
101
List the requirements of a negotiable instrument.
In writing;
Signed by Maker or Drawer;
Contain an unconditional promise or order to pay;
State a sum Certain in Money;
Be payable on demand or at a definite time;
Be payable to order or bearer (words of negotiability).
102
List the parties who draft negotiable instruments.
Drawers - for checks or drafts;
| Makers - for notes and Certificates of Deposits.
103
Give an example of language that results in order paper.
"Pay to the order of Jane Downs."
104
Give an example of language on an instrument that would affect negotiability
Language that makes the date of payment uncertain (Payable when I pass the CPA Exam).
Language that affects the certainty of the sum due (Payable at a rate to be determined later).
105
Describe the writing requirement of a negotiable instrument.
Must have be on something with a degree of permanence and be readily transferable.
106
Define "bearer of paper."
Instrument made payable in blank, to bearer, or to cash; transferred by delivery only
107
List the parties to a draft or a check.
Drawer;
Drawee;
Payee
108
List the parties to a note or certificate of deposit (CD).
Maker;
Payee.
(Note: there is no maker of a check, only notes and CDs; liability of these parties is different so use terms carefully.)
109
List the types of drafts that can be used to pay money.
Sight Draft (on demand);
Time draft;
Trade acceptance.
110
List the two types of negotiable instruments.
Orders to Pay (checks and drafts);
| Promises to Pay (notes and CDs).
111
Define "indorsement."
Signature by payee for purposes of negotiation.
112
List some examples of nonnegotiable instruments.
```
Letters of Credit;
Warehouse Receipts;
Bills of Lading;
Stocks and Bonds;
Contracts.
```
113
What is the legal effect of a restrictive indorsement ("For Deposit Only")?
Does not prohibit further negotiation;
| Except for conditional indorsement, liability to subsequent holders is limited to restriction being met.
114
How are order instruments negotiated?
By delivery plus indorsement.
115
What is the legal effect of a qualified indorsement?
Disclaims contract signature liability;
| Still extends transfer warranties to all subsequent holders.
116
When does a time instrument become overdue?
If taken one minute after due date.
117
Describe the concept of qualified indorsement.
Usually includes words "without recourse" or similar words.
118
Describe the shelter rule.
Any holder who cannot qualify as an holder in due course (HDC) but took the instrument through a HDC, has the same rights as if a HDC.
119
Define "holder in due course".
A holder who takes possession of a negotiable instrument for present value, in good faith and without notice of any defense or claims to ownership of the instrument.
120
How are bearer instruments negotiated?
By delivery.
121
True or false: If the holder is not a holder in due course for failure to give value, the holder can ship through to another, take back for value, and step up to the holder in due course classification.
This is a true statement. However, the holder cannot ship through and eliminate knowledge of problem on the instrument.
122
When does a demand instrument become over-due?
After an unreasonable amount of time has lapsed or on the day after the day a demand for payment is made.
123
Define "holder".
A party in possession of an instrument, To be a holder of bearer paper requires delivery. To be a holder of order paper requires delivery and proper indorsement.
124
List the three kinds of restrictive indorsements that can be used on negotiable instruments.
Conditional;
Prohibitive;
For Deposit or Collection.
125
What is the legal effect of a special indorsement?
Converts bearer into order or continues order instrument;
Transfer with consideration extends transfer warranties to all subsequent holders;
Indorser has secondary liability to pay all subsequent holders.
126
Describe the concept of blank indorsements.
Indorsement specifies no particular person to receive payment.
127
List the criteria for becoming a holder in due course (HDC) of a negotiable instrument.
Must be a holder;
Must take instrument for value;
Must take in good faith; and
Must take without notice that the instrument is overdue, has previously been dishonored, or of any claim or defense on the part of any person.
128
When does a check become overdue?
More than 90 days after its date.
129
What is the legal effect of a blank indorsement?
Converts order instrument into bearer instrument;
For transfer with consideration warranties are extended to all subsequent holders;
Blank indorser has a secondary liability to pay all subsequent holders.
130
Describe the concept of special indorsements.
Indorsement specifies a person to whom payment or to whose order payment is to be made
131
Indorsement specifies a person to whom payment or to whose order payment is to be made
Different from consideration.
Seller gives value if receives note from buyer who already owes money for goods delivered but has not paid FIFO concept for banks and giving value on deposited checks.
132
Define "presentment warranty."
Person who presents instument is authorized to receive payment.
133
Define "presentment."
Negotiable instrument presented for payment. ID can be required.
134
When must a notice of dishonor be given?
Must be given within 30 days of dishonor or notice of dishonor
for banks must be given by midnight of the next banking day.
135
List the warranties given by transferors.
Transferor is entitled to enforce the instrument;
All signatures are genuine or authorized;
Instrument has not been altered;
Instrument not subject to defenses;
Transferor has no knowledge of any insolvency proceeding.
136
Define "dishonor."
Primary party refuses to pay the instrument.
137
What is a “Special Endorsement”?
When a check is signed with the additional words “Pay to ...” or “pay to the order of ...”
138
When an authorized agent signs on behalf of a principal, who is liable for the instrument?
An authorized agent can bind his principal on an instrument by signing the instrument in such a way as to clearly show that he is signing on behalf of the principal. In such a case, the principal, rather than the agent, will be liable on the instrument.
139
Define the "material alteration" of an instrument.
Changing the instrument in a manner that materially affects the nature of the instrument or payment terms.
140
Who is liable for an imposter payee?
The drawer has liability.
141
List the two forms of negotiable instrument liability.
Contract (signature liability);
| Warranty liability.
142
List the real or universal defenses available for not honoring an instrument.
```
Forgery;
Fraud in execution or fraud in factum;
Minority;
Discharge in bankruptcy;
Illegality;
Mental incapacity;
Duress (to the extent conduct is illegal).
```
143
List the three personal defenses against liability on negotiable instruments.
Breach of contract;
Failure of consideration;
Fraud in the inducement.
144
Define "fraud in factum".
Fraud in factum occurs when a party is deceived into signing something that he does not know is a contract. Fraud in factum is used interchangeable with fraud in execution.
145
List the two types of holder defenses that may be used against having to pay an instrument.
Personal;
| Real or Universal.
146
Who are the secondary parties to an instrument?
Payees;
Drawers;
Indorsers
147
List the transferor warranties associated with negotiable instruments.
Transferor is entitled to enforce the instrument;
All signatures are genuine or authorized;
Instrument has not been altered;
Instrument not subject to defenses;
Transferor has no knowledge of any insolvency proceeding.
148
What is the effect of material alteration on an instrument?
Discharges obligation of payment to either holder and holder in due course (HDC). If maker or drawer was sloppy in creating instrument and allowed alteration, obligation of payment according to original terms remains to HDC.
149
List the presentment warranties associated with negotiable instruments.
Person presented is authorized to receive payment;
The instrument has not been altered;
Person has no knowledge instrument is unauthorized.
150
Who are the primary parties to an instrument?
Makers;
| Drawees.
151
What are the requirements for transferring a letter of credit?
Cannot transfer unless stated in letter;
| Proceeds from letter are assignable.
152
What purpose do letters of credit serve?
To ensure performance and payment under a contract.
153
Describe what happens if a bank ignores the requirements for payment on a letter of credit.
The bank is liable for any damages because it cannot vary the terms of the letter of credit.
154
Describe the process of letters of credit in an international setting.
1. Buyer and Seller contract to sell with Letter of Credit to finance; 2. Buyer applies to bank for Letter of Credit; 3. Bank issues Letter and forwards to correspondent bank - Seller's country; 4. Correspondent bank sends Letter to Seller; 5. Seller prepares shipment and sends documents to correspondent bank; 6. If in order, bank sends to Buyer's bank and pays Seller; 7. Buyer's bank charges Buyer's account, releases documents, and reimburses correspondent bank.
155
List the basic characteristics of a letter of credit.
Issued in any form that is a record;
Consideration is not required to issue;
Can be revocable (International is irrevocable);
Letter expires one year after date of issue - five years if time is perpetual.
156
What effect does a document of title for stolen goods have?
Documents of title for stolen goods do not pass title. A thief can never pass good title.
157
Describe the concept of carrier's duty of care.
Absolute or strict liability with some exceptions.
158
Define the terminology "through bill of lading."
More than one carrier.
159
What are the effects of forgery on negotiable documents?
Defeats rights of any holder to either the document or the goods.
160
List the most common documents of title.
Bills of Lading;
| Warehouse Receipts.
161
What degree of care should a warehouse company meet regarding shipment of goods?
High degree of care.
162
Define "warehouse receipt."
A receipt issued by a person engaged in the business of storing goods.
163
List the types of documents of titles.
```
Bills of Lading;
Air Bills;
Warehouse Receipts;
Dock Warrants;
Others Where Document in Business Evidences Person in Possession Has Title and Right to Receive the Goods.
```
164
Describe the concept of duty of care and right of payment regarding possessions of goods.
Carriers and warehouse must exercise care over the goods in their possession;
Warehouses and carriers can place possessory liens on the goods to get payment.
165
Define the terminology "destination bill of lading."
One to be issued at destination - place of delivery.
166
What requirements must be met for a document to be negotiable?
By its terms the goods are to be delivered to the bearer or order of the consignee or person to whom delivery is to be made;
If is an international document, and it runs to a named person or assigns.
167
How are negotiable and nonnegotiable documents of title transferred?
Negotiable Documents of Title - through due negotiation; transfer through due negotiation by delivery or indorsement;
Nonnegotiable Documents of Title - transfer by assignment.
168
Define "bill of lading."
A document evidencing the receipt of goods by a carrier for shipment.
169
Define "attachment."
Time when security interest becomes valid: requires security agreement and debtor with interest in the property and creditor gives value.
170
Define "chattel paper."
Writing(s) which evidence both a security interest in good(or software) and a monetary obligation to pay - example of a security agreement.
171
Define "security agreement."
Agreement which creates a security interest.
172
Describe when a creditor can have a valid oral security agreement.
When the creditor is in possession of the collateral.
173
Describe the criteria necessary for a security interest attachment when the collateral is not in possession of the secured party.
Written or authenticated agreement describing collateral, signed or authenticated by the debtor;
Secured party must give debtor something of value;
Debtor must have rights in the collateral.
174
Define "collateral."
Subject of the security interest.
175
Define "intangibles."
Any personal property other than goods, accounts, chattel paper, documents, instruments, money, deposit accounts, letters of credit, and investment property - examples, oil or book royalties, patents, copyrights.
176
Describe what happens to a security interest when a debtor has signed and executed a security agreement, but the collateral has not been shipped to the debtor from the seller.
The security interest does not attach until the debtor has an interest in the goods; i.e., identification has occurred.
177
What type of property is subject to a security interest?
Personal property, Fixtures, Sales of accounts, Chattel, Paper, Promissory notes, General Intangibles.
178
Define "security interest."
The interest in the collateral which secures payment or performance of an obligation.
179
Define "secured party."
The creditor who has a security interest in the debtor's collateral.
180
List the methods of perfection.
```
Attachment (automatic upon creation of security interest);
Possession – Control;
Filing;
Automatic;
Temporary.
```
181
Define "financing statement."
Document that is filed
needs adequate description
names of debtor and secured party.
182
List the two situations in which perfection by attachment is automatic upon creation of a security interest.
Purchase money security interest in consumer goods;
| Security interest created by assignment of a beneficial interest in a decedent's estate.
183
Describe filing locations.
Central (state level) except for fixtures and crops (local with property records).
184
Explain when a creditor has temporary perfection.
When a debtor has moved to another state, the creditor has four months of perfection in the new state, which can be continued with filing a financing statement in the debtor's new state.
185
Describe possession as a means of perfection.
Instruments can be perfected by possession
| creditor can be in possession by controlling when title can be passed (field warehousing).
186
Define "perfection."
A means by which a secured party gains priority to a debtor's collateral over other third parties who also claim to have an interest in the same collateral.
187
What parties do perfected security interests have priority to?
```
Unsecured creditors;
Unperfected secured parties;
Subsequent lien creditors;
Trustees in bankruptcy;
Most buyers.
```
188
```
List the priorities for the following:
Unsecured vs. secured
Secured vs. secured
Secured vs. perfected
Perfected vs. perfected
```
Unsecured vs. secured: Secured.
Secured vs. secured: First to attached.
Secured vs. perfected: Perfected.
Perfected vs. perfected: First to perfect (Exceptions: buyer in ordinary course; inventory; fixtures).
189
What types of buyers takes precedence over perfected secured interests?
Buyers in the ordinary course of business.
190
What is the general rule when there are two perfected secured parties and something other than inventory is used as collateral?
If collateral other than inventory - if first in time is a nonpurchase security interest and second in time is a purchase money security interest, the second in time purchase money interest prevails if the purchase money security interest holder perfects before or within 20 days after debtor takes possession of the collateral.
191
What is the general rule when there are two perfected secured parties and something other than inventory is used as collateral?
If collateral other than inventory - if first in time is a nonpurchase security interest and second in time is a purchase money security interest, the second in time purchase money interest prevails if the purchase money security interest holder perfects before or within 20 days after debtor takes possession of the collateral.
192
What is the general rule of priority between two perfected security interests?
First in time of perfection is first in right.
193
What is the general rule when there are two perfected secured parties and inventory is used as collateral?
If collateral inventory - if first in time is a nonpurchase security interest and second in time is a purchase money security interest, the second in time purchase money interest prevails if the nonpurchase secured party receives written or authenticated notice of the purchase money security interest before debtor receives possession of the collateral.
194
What is the general rule when there are two perfected secured parties and inventory is used as collateral?
Generally, when two parties have perfected security interests in the same collateral, the first to either file or perfect has priority. When a purchase money security interest exists in the collateral, however, the general rule may vary, depending on whether the collateral is inventory or noninventory. In this case the collateral is inventory. A purchase money security interest in inventory may obtain priority over previously perfected conflicting security interests if (1) the purchase money security holder perfects his interest in the inventory at the time the debtor receives the inventory, and (2) the purchase money security holder provides written notice of his purchase money security interest and a description of the inventory to all holders of conflicting security interests who have filed financing statements covering the same type of inventory. If the purchase money security holder does not take these steps, the general rule applies.
195
What are the debtor's rights when the debt is paid in full?
The debtor can demand that the creditor file a release of the collateral.
196
List the rights upon possession by a secured party.
Secured party with proper notice to Debtor and others and no objection can keep the collateral in satisfaction of the debt. Cannot keep if collateral is consumer goods and debtor has paid 60% or more;
Can always sell in a reasonable commercial manner.
197
Describe the right of redemption.
If the secured party is not allowed to keep the collateral in possession in full satisfaction of the debt, until there is a sale the debtor or any other secured party has a right of redemption and by doing so can regain possession of the collateral
198
Explain what a breach of the peace is.
A violation of the law in repossessing collateral, such as a trespass to take the property.
199
List the rights of peaceful possession upon the debtor's default.
Possession without committing:
Trespass;
Assault and/or battery;
Breaking and entering.
200
What is the purpose of the Soldiers and Sailors Relief Act?
Creditor cannot repossess goods from active duty military debtors.
201
List the order of distribution of proceeds from the sale of collateral.
Expenses in repossession, keeping, and resale;
Balance of debt owed to secured party;
Junior lien holders who have made written demands;
Debtor unless collateral is accounts or chattel paper.
202
Describe the 60% rule as it relates to a secured party.
If the collateral is consumer goods and 60% or more of the debt or price has been paid then creditor must sell the goods.
