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34 Cards in this Set

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  • Back
What are the requirements of a negotiable insturment
A written and signed; unconditional promise (note) or order (draft); to pay a fixed amount of money; to order or to beare; on demand or at a definite time; which does not state any unauthorized undertaking or instruction by the person promising or ordering payment (promise to maintain collateral or instruction to confess a judgment upon default are ok)
How is a bearer insturment negotiated
by transferring possession
How is an order insturment negotiated
"by the authorized indorsement of the named payee, plus transfer of possession"
How do you determine if an insturment is order paper or bearer paper
"the last indorsement controls (if it names a new payee it is order, otherwise it is bearer)"
What are the requirements for a holder in due course
"Takes for value (one may be a partial HDC); In good faith (subjective and objective); Without notice that (1) the insturment is overdue or has been dishonored, (2) the insturment contains an unauthorized signature or has been altered, (3) there is a claim to the instrument, or (4) any party has a defense on the instrument"
What is the HDC shelter rule
"While a holder might not qualify as an HDC herself, she may take shelter in the HDC rights of a previous holder since a transferee generally acquires whatever rights her transferor had."
What defenses can be raised against a HDC
"Real Defenses (FAIDS): F- Fraud in the factum and Forgery; A - Alteration and Adjudicated Insanity; I - Infancy and Illegality; D - Duress, Discharge through insolvency, and Discharges known to the HDC; S - Suretyship and SOL"
What is the general rule regarding a forged signature
"Generally, the forgery is not effective as the signature of the name forged and is effective only as the signature of the forger, subject to exceptions (imposter or fictitious payee fule and the entrustment rule)"
What is the imposter payee rule
It prevents a drawer or maker who was careless in issuing an insturment from using the forgery defense by making the resulting forgery effective where the drawer or maker issues an insturment to an imposter (one who pretends to be someone else or who pretends to be an agent for someone else)
What is the fictitious payee rule
It prevents a drawer or maker who was careless in issuing an insturment from using the forgery defense by making the resulting forgery effective where the drawer or maker issues an insturment to a payee not intended to have in interest in the insturment (employee furnishes employer with phony names or names of payees to whom employer owes no money)
What is the entrustment rule
"If an employer entrusts an employee with handling checks (or other instruments) and the employee makes a fraudulent indorsement on the check, the indorsement is effective and forgery is not a defense"
Can a payee (bank) be liable on an insturment by a holder
"No, the drawee's duties run to the drawer"
What if the drawee had funds on hand to par a drawer's check and refuses
The drawee (bank) will be liable to the drawer for whatever damages are proximately caused by the wrongful dishonor
If drawee does not have sufficient funds to cover the drawer's check
"The drawee (bank) may, but need not, pay"
What does a bank look to when determining whether funds are available
"The bank does not have to credit a customer's account immediately for deposited items. Even govt, bank, and the like, funds may not be made available for withdrawl until the day after a check is deposited. Availability of funds from other checks follows a longer schedule, and some funds do not have to be made available until five days after a check is deposited."
What can a drawee do once it pays out on an instrument
"Once the drawee pays out on the instrument, payment generally is final and the drawee generally cannot recover from the party paid unless there was a forged indorsement. If there was a forged indorsement, a warranty of presentment was breached. However, a warranty of presentment is not breached in the drawer's signature is forged because the UCC treats such signatures as the genuine signature. By legal fiction the forger becomes a customer of the drawee bank and the drawee must seek to recover from the forger-drawer rather than the person who presented the check."
"When does a cashier's, certified, or teller check discharge the obligation"
Immediately when it is given
When do other insturments discharge the obligation
The giving of other insturments merely suspends the duty to perform the obligation for which it is given. A suspended obligation is discharged on payment or becomes viable again on dishonor.
How may a transferor be held liable
"Every transferor of an instrument who receives consideration makes certain warranties, including that no defense of any party is good against the transferor."
How may an indorser be held liable on an instrument
"In contract: liable to all subsequent holders if the instrument is presented for payment, there is a dishonor, and the indorser is given notice of dishonor; Warranty: liable to all subsequent holders if he transfers for consideration b/c he then warrants (1) that he is a person entitled to enforce the instrument, (2) genuineness of signatures, (3) no material alterations, (4) no defenses are good against the transferor, and (5) that he had no knowledge of insolvency proceedings against the maker, drawer, or acceptor. A transferor who does not indorse makes the warranties only to the immediate transferee."
"Are mortgages, leases, crops, and timber within Article 9"
"Mortgages and true leases are not within Art 9. However, a security interest can be taken in crops or timber growing on real property"
When is a lease within Art 9
"When it is a disguised sale: (1) provisions requiring the lesee to become the owner of the goods at the end of the lear term or allowing the lesee to purchase the leased goods for nominal consideration at the end of the lease term, and (2) the leased goods will have no economic value at the end of the lease"
What is special about consignments
"Because sometimes it can be hard to tell a debtor's inventory from consigned goods, Art 9 requires certain nonconsumer consignors to comply with Article 9 if they want to protect their title to the consigned goods."
What must be done for a security interest to attach
"(1) There must be an agreement to create a security interest evidenced by either possession, control, or an authenticated security agreement; (2) The creditor must give value (which includes the extension of credit and antecedent debts) in exchange for the interest; (3) The debtor must have rights in the collateral"
When do proceeds attach
"Generally, once a security interest attaches to collateral, it generally will automatically attach to the proceeds of the collateral as well."
What is the order of priority under Art 9 (hierarchy of interests in collateral)
"(1) A Buyer in the ordinary course of business; (2) PMSI (consumer goods automatically perfect upon attachment, all others must be perfected in another way, there is a 20 day grace period for filing a noninventory (equipment) PMSI); (3) perfected security interests (first to file or perfect) and judicial liens (b/t perfected security interests and judicial liens, whichever occurred first generally has priority); (4) unperfected security interest; (5) debtor"
Why would a PMSI creditor want to file
A buyer of consumer goods subject to automaticly perfected PMCI from the consumer who created the PMSI takes free of the PMSI unless the PMSI holder filed or the second-hand buyer knew of the PMSI
When can a secured party use self-help
A secured party may use self help to repossess collateral unless there is a breach of the peace (entering a closed garage or repossess over the debtor's protests.
What kind of sales can be held for collateral
Generally collateral can be sold at either a private or public sale as long as the sale is commercially reasonable. Notice of the time and place of a public sale or time of a private sale must be sent within a reasonable time before the sale (at least 10 days before the sale). The debtor has the right to redeem the collateral until the sale by paying the debt plus any additional costs incurred by the creditor in repossessing the collateral.
What special rule applies if the collateral was consumer goods sold under an installment contract that has been assigned by the seller
The sale must be public and 10 day notice is required - certified mail to all interested parties and by publication in a newspaper of general circulation as to all others.
What are the sale requirements if the debtor has paid a substantial amount on the collateral
"If the debtor has paid at least 60% of the price, the secured party must sell the collateral within 90 days unless the debtor waives this right in an authenticated agreemant after default. If the debtor has paid 75% of more of the price, Ohio forbids repossession of the consumer goods collateral, except in cases of motor vehicles and mobile homes."
What happens if the secured party fails to comply with the Art 9 foreclosure sale rules
"The debtor is entitled to actual damages caused, or at a minimum, 10% of the cash price of the goods plus the interest paid over the life of the loan. A rebuttable presumption will also arise that the value of the collateral was equal to the secured debt, so the secured party cannot obtain a deficiency judgment, unless the secured party presents credible evidence that the collateral was worth less."
What happens if the secured party breaches the peace
The secured party will be held liable for conversion and for any damage they may have caused
Can the debtor redeem the secured property