De Bar - Articles 3, 4, And 9

Front 1

Definition of a signature under UCC?

Back 1

present intent to accept or adopt a writing as authentic

NOTE --> Electronic equivalent of a signature is an authentication.

Front 2

Definition of good faith under the UCC?

Back 2

requires
1. honesty and
2. fairness (the observance of reasonable commercial standards of fair dealing)

Front 3

2a -- What is a lease under article 2A?

Back 3

A K for possession and use for a term.

Front 4

What is a finance lease under article 2A?

Back 4

A three party transaction -->
The lessor (e.g., a bank) does not manufacture or sell the leased item. Rather, the lessor buys the item for the purpose of leasing it to lessee

Front 5

What is a letter of credit under article 5?

Back 5

A financial institution's promise to pay on behalf of its customer.

Front 6

The main parties in an article 5/letter of credit transaction?

Back 6

1. The Issuer of the LOC (e.g., a bank)
2. The Beneficiary for whose benefit the LOC is issued.
3. The Applicant (e.g., bank's customer) who is obligated to repay

Front 7

What happens under article 5 if there is a dispute between the beneficiary and the applicant?

Back 7

Issuer is still obligated to pay because its obligation is independent of the underlying deal.

Front 8

What happens under article 5 if there is a dispute between the issuer and the applicant?

Back 8

Article 5 requires strict compliance by the applicant to the terms of credit extended by the issuer.

Front 9

Two types of docs of title under article 7?

Back 9

1. Those that cover goods that are being transported (e.g., bills of lading, air bills)

2. Those that cover goods that are being stored (e.g., warehouse receipt)

Front 10

Duty of bailee as a result of bailment relationship established by docs of title under article 7?

Back 10

1. Bailee must use reasonable care when storing or shipping goods

2. Bailee must act in good faith

Front 11

Negotiable v. non-negotiable docs of title and what it means under article 7?

Back 11

1. Holder of a negotiable doc of title has the right to that good.

Front 12

"Holder to whom duly negotiated" under article 7?

Back 12

A party who takes DOT(1) in good faith (2) with no notice of any problems with it, gets goods free and clear of any third party claims.

Front 13

Article 8 -- Transfer of Investment Securities: Key Concept

Back 13

Control

Front 14

Scope of article 3?

Back 14

Applies ONLY to negotiable instruments (usually checks and negotiable PNs)

Front 15

3 -- When is a PN negotiable?

Back 15

1. it is signed
2. it is a writing
3. PN--on its face--is an unconditional promise or order
4. to repay a fixed amount of principal
5. payable to bearer or order
6. payable on demand or in a definite time
7. with no other undertaking

Front 16

3 -- Main players in the case of a draft (e.g., a check)

Back 16

1. drawer (person who writes check), 2. drawee (the bank), and
3. the payee (person to whom check is issued)

Front 17

3 -- When does the obligation to pay arise under an article 3 negotiable instrument?

Back 17

When the instrument is signed.

Front 18

What is the effect of a forged signature on an article 3 negotiable instrument?

Back 18

Ineffective as name signed --> victim of forgery is not bound.

NOTE --> party may be precluded by his own negligence from asserting forgery defense

Front 19

Who has the obligation to pay under an article 3 negotiable instrument?

Back 19

Negotiable PN
1. Maker = primary obligor
2. Indorser pays if PN is dishonored and indorser has notice.

Drafts
1. Drawer obligated if drawee dishonors
2. Acceptor --> where bank certifies or signs a draft
3. Indorser pays if draft is dishonored and indorser has notice.

Front 20

Who is a "person entitled to enforce" under article 3? I.e., Who has the right to collect payment?

Back 20

1. One in possession of the instrument if payable to that person or bearer

2. One in possession who received through voluntary transfer from holder (e.g., holder turns over but forgets to indorse)

3. Former holder of lost, stolen, or destroyed instrument (no possession) if he proves: (i) Had a right to instrument; (ii) Instrument was lost, stolen or destroyed. NOTE -->Ct may require security

Front 21

3 -- Who is a holder in due course?

Back 21

1. instrument not suspicious on its face when holder takes

2. holder has possession

3. holder is payee

4. the instrument is indorsed

5. holder acquired instrument in good faith

6. for value (consideration, past performance, or a promise to the extent it has already been performed)

7. holder takes without notice of any claim against instrument.

Front 22

What are the rights of a holder in due course under article 3?

Back 22

Takes free of
1. all 3rd party claims to the instrument
2. personal defenses
3. counter claims

Front 23

3 -- What defenses can be raised against the obligation to pay?

Back 23

Real Defenses:
1. Adjudication of insolvency
2. Infancy of signator
3. Illegality and duress
4. Fraud rendering signer excusably ignorant that he is signing a negotiable instrument
5. Any discharge of which the holder has notice

Personal Defenses: All other defenses (e.g., a K claim, fraud)

Front 24

The Shelter Principle under article 3?

Back 24

One acquires the rights of a HDC if:
1. he takes by voluntary transfer of possession
2. from one with the rights of a HDC.

Front 25

"Payment in full" checks under article 3?

Back 25

Recipient cannot cover remaining balance if (1) check is cashed, (2) with knowledge or notice of the "payment in full condition, and (3) the debt is disputed in good faith.

Front 26

3 -- What constitutes notice of a "payment in full condition"?

Back 26

1. it is conspicuous (e.g., "PAYMENT IN FULL" written on check)
2. recipient has reasonable opportunity to learn of the conspicuous condition by (i) having designated an office for payment in full checks or (ii) having no such office, if recipient fails to return payment within 90 days.

Front 27

What is a properly payable check under article 4?

Back 27

one authorized by the customer and in accordance with the bank-customer agreement.

Front 28

When must a bank pay out on a check under article 4?

Back 28

1. check is properly payable and there are sufficient funds

2. check is properly payable and there is an overdraft agreement

Front 29

When is payment on a check at the bank's discretion under article 4?

Back 29

1. check is properly payable but there are insufficient funds.

Front 30

Remedies available to customer under article 4?

Back 30

1. If bank pays when it should not have --> customer is entitled to return of the funds

2. If bank failed to pay when it should have --> bank liable for all loss caused by the dishonor (including consequential damages)

Front 31

Customer has notice of repeated forgeries --> when must notice be given to bank under article 4?

Back 31

within 30 days, otherwise bank is not liable outside 30 day period.

Front 32

When must a bank honor a stop payment order under article 4?

Back 32

1. if received within a reasonable time to permit bank to act, and
2. if order to stop payment reasonably identifies the check

Front 33

9 -- What is a security interest?

Back 33

A lien created by contract between the debtor and creditor to secure payment of a debt or performance of an obligation.

Front 34

What is attachment under article 9?

Back 34

The creation of a binding and enforceable security interest as between the debtor and creditor with respect to a particular piece of property.

Front 35

What transactions are subject to article 9?

Back 35

1. security interests in personal property and fixtures
2. agricultural liens
3. Sale of accounts, chattel paper, promissory notes, payment intangibles
4. large commercial consignments

Front 36

What property is subject to article 9?

Back 36

1. Goods collateral:
(a) farm products
(b) consumer goods
(c) inventory - goods held for sale or short-term use by a business
(d) fixtures
(e) equipment - the catch-all

2. Quasi-Intangibles
(a) chattel paper - record evidencing an obligation and SA in goods or a lease
(b) Instruments (negotiable)
(c) Investment property (certificated)

3.Intangibles
(a) accounts
(b) commercial tort claims
(c) deposit accts
(d) investment property (uncertificated)
(e) general intangibles -- including patents, trademarks, goodwill, software, and payment intangibles
(d)

Front 37

Distinguishing a true lease from a "lease intended for security"/disguised sale with financing?

Back 37

1. Lessee has no right to terminate during lease term, AND

2a. There is no economic value in good at end (good is worthless), or
2b. The lessee must buy or renew, or
2c. The lease offers a nominal buyout or renewal (closer buyout comes to lease payment amount --> it approaches nominal)

Front 38

Consignments & article 9

Back 38

Article 9 applies if:
1. value of goods is at least $1K
2. Goods were not consumer goods before turned over to merchant
3. Sold by merchant that deals in goods of that kind

NOTE --> notwithstanding meeting above provisions, article 9 does not apply if:
1. Merchant is an Auctioneer
2. Consignee generally known to be engaged in selling consigned goods
3. Consignee conducts business in name of consignor

Front 39

Requirements for attachment of SI under article 9?

Back 39

1. Value has been given
2. Debtor has rights in the collateral, and
3. There is a security agreement

Front 40

What qualifies as "value" for purposes of attachment under article 9?

Back 40

1. any consideration sufficient to support a simple K.
2. full or partial satisfaction of a pre-existing claim
3. a binding contractual commitment to extend credit
4. a prior loan

Front 41

When does a debtor have rights in collateral for purposes of article 9?

Back 41

A debtor has a securable interest in goods when a K for the sale of goods is made and the K identifies the goods.

Front 42

What types of SAs will satisfy the requirement that there be some form of SA for attachment under article 9?

Back 42

1. A written SA that (i)is authenticated by the debtor; (ii) creates or provides for a security interest in the collateral; and (iii) describes the collateral

2. An oral SA + SP is in possession of the collateral

3. An oral SA + SP is in control of the collateral + collateral is deposit accts., electronic chattel paper, investment property, or LOC rights.

Front 43

When does attachment occur under article 9?

Back 43

When the last of the requirements for attachment has been met.

Front 44

When is a description of collateral sufficient under article 9?

Back 44

If it reasonably identifies the collateral

Front 45

How to identify collateral under article 9 if it has multiple uses?

Back 45

The principal use rules.

Front 46

What is a PMSI under article 9?

Back 46

1. collateral must be goods or software

2. securing a purchase-money obligation

3. incurred as all or part of the price of the collateral OR for value given to enable debtor to acquire rightsin or the use of the collateral if the value is in fact so used.

Front 47

Attachment and proceeds?

Back 47

1. Has SI attached to original collateral
2.Are proceeds identifiable?

Front 48

Continuity of SI under article 9

Back 48

SI continues in the collateral notwithstanding sale, lease, license, exchange or other disposition UNLESS:

1. SP authorized the disposition free of the SI.
2. BIOCOB
3. Holders in due course of negotiable instruments
4. Transferee receiving encumbered money or encumered funds from a deposit acct.

Front 49

What are proceeds under article 9?

Back 49

What a debtor receives in exchange for disposition of the collateral, including claims arising from loss or destruction and insurance payments

Front 50

When has an SP perfected under article 9?

Back 50

1. SI has attached
2. Requirements for perfection are met.

Front 51

What are 4 methods of perfection under article 9?

Back 51

1. filing
2. possession
3. control
4. automatic perfection

Front 52

A SI in what collateral cannot be perfected by filing?

Back 52

1. money
2. deposit accts
LOC rights

Front 53

What property is exempt from perfecting by filing in the UCC system?

Back 53

1. Titled property (e.g., cars not held as inventory)
2. Real property
3. Property subject to federal perfection systems (e.g., copyrights, patents)
4. airplanes, fuselages

Front 54

What must a financing statement include in order to perfect a SI?

Back 54

1. name of the debtor
2. name of the SP, and
3. the collateral covered by the FS

NOTE --> collateral description requirement here is much more relaxed (super generic descriptions are okay).

Front 55

When has the "name of debtor" requirement for perfecting by filing an FS been satisfied?

Back 55

If search of debtor's correct name would reveal SI disclosed on FS with name as entered, even though it fails sufficiently to provide the name of the debtor.

Front 56

What name should be used for the name of the debtor on an FS?

Back 56

The debtor's legal name

- Registered orgs --> name as it appears on registration doc
- Unregistered orgs --> name by which org is known in the community

Front 57

9 -- File where?

Back 57

Sec of State's office in state of debtor's location UNLESS is related to real estate. In such a case, should file in recorded of deeds office where land is located.

NOTE --> SI in fixtures can be perfected by either method

Front 58

How long is FS good for?

Back 58

5 years.

Front 59

9 -- A SI in what types of collateral can be perfected by possession?

Back 59

1. tangible negotiable docs
2. goods
3. instruments
4. money
5. tangible chattel paper
6. certificated investment property

Front 60

9 -- For what type of collateral is possession the only method of perfection?

Back 60

1. Money (NOTE --> differentiate from proceeds)

Front 61

When will a SP perfected by possession ALWAYS have priority?

Back 61

If collateral is negotiable docs, tangible chattel paper, or investment securities.

Front 62

A SI in what types of collateral can be perfected by control?

Back 62

1. Investment property
2. Deposit accts
3. LOC rights
4. Electronic chattel paper

Front 63

For what types of collateral is control the only method of perfection?

Back 63

1. Deposit accts (Not proceeds though)
2. LOC rights

Front 64

How does SP perfect by control?

Back 64

1. SP is the bank with which deposit acct is maintained

2. debtor, SP, and bank agree that bank will follow SP's directions regarding disposition of funds

3. SP becomes bank's customer with respect to the acct.

Front 65

automatic perfection under article 9?

Back 65

1. A PMSI in consumer goods is automatically perfected when it attaches.

2. SI in proceeds automatically perfected if SI in original collateral was perfected (but only for 20 days)

Front 66

Determining whether a good is a consumer good?

Back 66

Look to actual or intended use of the good.

Front 67

Perfecting a SI in proceeds after the automatic 20 days period?

Back 67

Perfection continues past 20-day period if:

1. proceeds are identifiable cash proceeds

2. same office rule applies:
(a) SI in original collateral was perfected;
(b) proceeds are not acquired with cash proceeds; and
(c) proceeds = collateral in which a SI could have been perfected by filing FS in office where FS for original collateral is already filed

Front 68

What are fixtures under article 9?

Back 68

GOODS that have become so related to particular real property that an interest in them arises under property law.

Front 69

Additional requirements of a "fixture filing"?

Back 69

1. must indicate that it covers fixtures
2. must indicate that it is to be filed in the RP recording system
3. describes the real property to which the fixture is affixed.
4. names owner of RP if debtor has no interest in it

Front 70

Priority disputes between SPs and lien creditors?

Back 70

SP wins if, before attachment:
1. SP perfects, or
2. SP files FS and debtor executes an SA, or
3. it is a PMSI & SP files within 20 days of delivery of collateral to debtor, or
4. collateral is fixtures & SP perfects by any method before levy.

NOTE --> Lien creditor includes a bankruptcy trustee

Front 71

Priority disputes between SP and another SP

Back 71

1. Both SPs are perfected --> First to file or perfect wins

2. One SP is perfected, one is not --> Perfected beats unperfected.

3. Neither SP has perfected --> First SI to attach wins.

Exceptions to rules:
1. Double debtor rule - SP2 retains SI in collateral transferred by D2 to D1 despite SP1's after-acquired property clause
2. Collateral-specific exception-->
(a) Deposit accts & Investment property -- Who is in control?
(b) Chattel paper & instruments -- who has possession?
(c) Fixtures -- who filed in RP system first?

Front 72

Priority disputes between PMSI holder and SP?

Back 72

1. Non-inventory collateral: PMSI holder has priority if he files within 20 days of debtor taking possession of collateral

2. Inventory collateral: PMSI holder prevails if:
(a) holder of PMSI perfects before debtor takes possession, and
(b) PMSI holder provides notice to the conflicting SP.

Front 73

Priority disputes between PMSI holder and PMSI holder?

Back 73

1. PMSI-seller prevails over a PMSI-financier.

2. Otherwise, first to file or perfect rule applies

Front 74

Priority disputes between SI in fixtures and Holders of interests in RP?

Back 74

1. FF has priority over any subsequently recorded encumbrance of the RP.

2. PMSI in fixtures prevails if:
(a) debtor's interest in collateral arose before it became a fixture, and
(b) SP files a FF within 20 days of collateral becoming a fixture.

3. SI in fixtures prevails if SP perfects by any method before an involuntary lien is placed on property.

4. SI in fixtures prevails if SP perfects by any method before goods become fixtures AND the fixtures are readily removable

Front 75

Priority disputes between SPs and buyers?

Back 75

General rule: SI continues despite disposition

Exceptions -->
1. BIOCOB - Who is it? A person (i) who buys goods (ii) in good faith (iii) without knowledge that the sale violates the rights of another person (iv) in the ordinary course of the seller's business and (v) takes possession or has the right to take possession

2. Garage sale exception - Buyer of consumer goods from seller who used goods as consumer goods takes free of SI so long as: (i) B had no knowledge of SI, (ii) B gave value for goods, (iii) B will use as consumer goods, and (iv) SP has not filed FS prior to purchase

3. Buyer who (i) gives value, (ii) has no knowledge of SI takes free of any SI not perfected before delivery to the buyer.

Front 76

What is a default by debtor under article 9?

Back 76

SA will define default. In general, a failure to make payments as they become due or other breach of contractual promises.

Front 77

How may a SP go about repossessing collateral?

Back 77

1. via judicial process (replevin)
2. via self-help if no breach of the peace

Front 78

What is a breach of the peace?

Back 78

1. Violence or threat of violence
2. Entry onto premises without consent (driveway is okay)

NOTE --> Parties cannot contractually set breach of peace standard

Front 79

Effect of SP's breach of the peace?

Back 79

SP is liable for actual damages and forfeits any claim to a deficiency.

Front 80

Duty of SP electing to collect from debtor's account debtors?

Back 80

1. SP must provide notice to account debtors consisting of:
(a) reasonable identification of the rights assiged
(b) requirement that account debtor pay SP, and
(c) authentication

Front 81

Duty of SP electing to resell collateral?

Back 81

1. Every aspect of the disposition must be commercially reasonable.

2. Debtor must be notified

Front 82

9 -- Notice requirements for resale of collateral pledged as security in a non-consumer transaction?

Back 82

1. Notice is given after default and at least 10 days prior to sale
2. Describes the debtor and SP
3. describes the collateral
4. states the method of disposition
5. states that debtor is entitled to an accounting
6. states time and place of public sale or method and time of earliest private sale.

Front 83

Notice requirements for resale of collateral pledged as security in a consumer transaction

Back 83

1. Notice is sent within a REASONABLE TIME (at least 10 days prior to sale)
2. Describes the debtor and SP
3. describes the collateral
4. states the method of disposition
5. states that debtor is entitled to an accounting
6. states time and place of public sale or method and time of earliest private sale.

PLUS

7. Description of debtor's liability for a deficiency
8. Phone number debtor can call to determine the payoff amount

9. Phone number/address where debtor can get more info

Front 84

Distribution of proceeds from resale of collateral?

Back 84

1. reasonable expenses
2. debt owed to SP
3. debt owed to junior creditors
4. debtor.

Front 85

Effect of SP non-compliance with resale provisions of article 9?

Back 85

1. SP liable for actual or liquidated damages

2. Loss or reduction of deficiency --> In non-consumer transactions, there is a presumption that damages suffered as a result of non-commercially reasonable sale = amount of deficiency.
--> In consumer transaction, SP forfeits right to deficiency entirely.

Front 86

Requirements for acceptance of collateral in full satisfaction of a debt?

Back 86

1. Must give notice to debtor and any other secured creditor who requests notice

2. No objection is made by any of above parties within 20 days

3. Debtor is not in possession of the collateral if consumer goods

4. Debtor has not paid 60% or more of debt if collateral is consumer goods

5. Debtor has not consented to acceptance in full satisfaction BEFORE default.

Front 87

Requirements for acceptance of collateral in partial satisfaction of a debt?

Back 87

1. No consumer goods
2. Debtor must expressly agree in an authenticated record
3. Agreement is reached after default
4. Notice was given to other SPs and secondary obligors