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74 Cards in this Set
- Front
- Back
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Rights of Debtor & Creditor BEFORE default
Creditor's Rights |
1. If debtor possesses the collateral: to obtain damages if debtor does not properly care for the collateral
2. If creditor possesses the collateral: a. To possess the collateral b. No right to use the collateral |
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Rights of Debtor & Creditor BEFORE default
Debtor's Rights |
1. If debtor possesses the collateral: to possess, use, and sell the collateral, unless prohibited by the security agreement
2. If creditor possesses the collateral: to obtain damages if the creditor does not properly care for the collateral (bailment context) |
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Rights of Debtor & Creditor AFTER default
Debtor's Rights |
If debtor possesses the collateral, creditor may repossess the collateral:
1. By self-help repossession a. Creditor may not breach the peach during the repossession attempt b. Creditor must abandon the self-help repossession attempt if i) the debtor confronts the creditor or ii) the debtor shows the slightest unwillingness to consent to the repossession 2. By asking a court to order the debtor to surrender the collateral: If the creditor uses a government official (e.g. a sheriff) to assist with the repossession attempt, the creditor must have first obtained a court order directing the debtor to surrender the collateral |
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Rights of Debtor & Creditor AFTER default
Creditor's Rights |
If the creditor possess the collateral, such as by repossessing it:
1. Debtor still has title to the collateral, until the creditor takes title to the collateral (see below how creditor takes title) 2. When must the creditor sell the collateral? a. In all contexts, the sale must occur within a reasonable time after the repossession b. If the security interest is in consumer goods and the debtor has paid at least 60% of the purchase price or loan amount, the creditor must sell the collateral no later than 90 days after the repossession |
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What is the procedure for selling the collateral?
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a. Every aspect of the sale must be reasonable: time, manner, notice, and place
b. Notice to debtor of sale i) Public Sale ii) Private Sale |
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Public Sale
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AUCTION
debtor must receive notice of the time and place of the sale |
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Private Sale
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ONE-ON-ONE Negotiation B/W the Creditor & Buyer
Debtor must receive notice of the time after which the collateral will be available for sale |
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How are proceeds from the sale distributed?
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Excess Proceeds: collateral sold for more than the debt & creditor's expenses
Deficiency: collateral sold for less than the debt and creditor's expenses |
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Excess Proceeds
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Excess goes to debtor, unless seller took title to the collateral before the sale
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Deficiency
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Debtor owes the deficiency, unless creditor took title to the collateral before the sale or the creditor otherwise contracted away his rights to the deficiency
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How does the creditor take title to the collateral in satisfaction of the debt?
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1) If the security interest is in consumer goods and the debtor has paid at least 60% of the purchase price or loan amount: Debtor must sign a writing after default relinquishing her rights to the collateral
2) In any other context, the creditor can take title either be: a) the creditor proposing in writing to the debtor to take title to the collateral in satisfaction of the debt and the debtor failing to object within 20 days after the proposal is sent, or b) the debtor signing a writing after default relinquishing her rights to the collateral |
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Debtor's Right to Redeem the Collateral
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1) Exists until the creditor sells the collateral or takes title to it
2) To redeem, the debtor must i) fulfill all obligations secured by the collateral (that is, pay all amounts due at the time of redemption) and ii) pay the creditor's expenses caused by default |
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Consumer Goods Security Interest
When Must Creditor Sell the Collateral? (Less than 60%) |
Within a reasonable time after the repossession of the collateral
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Consumer Goods Security Interest
How may the creditor take title to the collateral in satisfaction of the debt? (Less than 60%) |
Either by:
1) the creditor proposing in writing to the debtor to take title to the collateral in satisfaction of the debt and the debtor failing to object within 20 days after the proposal is sent, or 2) the debtor signing a writing after default relinquishing its rights to the collateral |
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Not Consumer Goods Security Interest
When Must Creditor Sell the Collateral? (60% or more) |
Within a reasonable time and 90 days after the repossession of the collateral
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Consumer Goods Security Interest
How may the creditor take title to the collateral in satisfaction of the debt? (60% or more) |
Only by the debtor signing a writing after default relinquishing its rights to the collateral
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Non-Consumer Goods Security Interest
When must the creditor sell the collateral? (Less than 60% and 60% or more) |
Within a reasonable time after the repossession of the collateral
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Non-Consumer Goods Security Interest
How may the creditor take title to the collateral in satisfaction of the debt? (Less than 60% and 60% or more) |
Either by:
1) the creditor proposing in writing to the debtor to take title to the collateral in satisfaction of the debt and the debtor failing to object within 20 days after the proposal is sent, or 2) the debtor signing a writing after default relinquishing its rights to the collateral |
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Contractual Liability of Parties
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- Exists only if a person signs a NI.
- Liability runs only to subsequent holders |
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Maker
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- Primary liability: Engagement to pay on the due date
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Co - Maker
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- Primary liability: Engagement to pay on the due date
- Liable for full amount of NI - Has right to of contribution against other co - makers |
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Insorder
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- Secondary liability: Eliminated by qualified indorsement
Engagement to pay Upon dishonor by the maker AND Notice of dishonor to the indorser |
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Accommodation Party
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1) Same liability as party accommodated
2) |
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Drawer
(for Drafts - including checks) |
- Primary liability: Engagement to pay upon dishonor by drawee
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Drawee, drawee bank, payor bank
(for Drafts - including checks) |
None
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Acceptor or Certifier of Draft
(for Drafts - including checks) |
- Primary liability: See below under Acceptance
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Indorser
(for Drafts - including checks) |
- Secondary liability: eliminated by qualified indorsement
- Engagement to pay - Upon dishonor by drawee - And notice of dishonor to indorser |
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Accommodation Party
(for Drafts - including checks) |
1) Same liability as party accommodated
2) Has right to collect amount she paid from the party accommodated (right of reimbursement and right of subrogation) |
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Acceptance
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Defined: A drawee's signed engagement to pay the draft
A drawee accepts a draft by signing it with an intent to pay it. The drawee's signature alone across the face or back of the NI is an acceptance. |
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Types of Acceptances
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Trade Acceptance
Banker's Acceptance Certification Cashier's Check |
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Trade Acceptance
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A trade draft drawn by a seller (drawer) ordering its buyer (drawee) of goods to pay the seller or the seller's creditor (payee). When the buyer (drawee) accepts the draft, it becomes an acceptance.
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Banker's Acceptance
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A draft drawn on and accepted by a bank
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Certification
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Bank's acceptance of a check
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Cashier's Check
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Bank is drawer and drawee
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Effect of Acceptance
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a. Makes the Drawee an acceptor
b. Imposes primary contractual liability on the drawee c. Acceptance by a nonbank does not release anyone from contractual liability d. Acceptance by a bank releases the drawer and prior indorsers from contractual liability |
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Secondary Liability
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Engagement to pay the instrument if
1) instrument is dishonored AND 2) the party receives notice of the dishonor (by any reasonable means, oral or written) |
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Dishonor
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Refusal of maker or drawee to pay or to accept on the due date.
However, a bank's refusal to certify a check is NOT a dishonor. |
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Causes of Discharge from Contractual Liability
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1) Payment by a maker, drawer, or drawee to a holder discharges everyone from CL to the extent of the payment. Payment by any another person (such as an indorser) discharges only that person.
2) Tender of payment to a holder releases everyone who has a right of recourse against the party making the tender of payment. 3) Acceptance of draft a) By a nonbank 1) Discharges no one 2) Transforms drawer's liability to secondary liability b) By a bank: discharges the drawer and prior indorsers 4) Reacquisition of an instrument by a party releases all intervening indorsers 5) A holder's intentional cancellation or destruction of the NI discharges everyone 6) A holder's intentional cancellation of a party's signature releases that party 7) A holder's unjustified impairment of collateral discharges a party to the extent that the collateral is impaired 8) A holder's release of a party discharges parties with a right of recourse against the party discharged, to the extent the right of recourse is impaired 9) Unexcused late presentment of a note discharges no one (unless harmed by the late presentment) 10) Unexcused late presentment of a check a) releases indorsers b) releases a drawer only if the drawer suffered a loss due to the late presentment 11) Fraudulent and material alternation of an instrument by a holder discharges all parties whose contract is modified, except as a HIDC, who may enforce the instrument for its original tenor. |
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Types of Indorsements
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1. Special
2. Blank 3. Qualified (without recourse) 4. Restrictive 5. Conditional |
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Special Indorsement
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1. Specifies a person to be paid
2. Makes the instrument an order NI: indorsement & delivery needed for negotiation |
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Blank Indorsement
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1. Does not specify any person who is to receive payment
2. Makes the instrument a bearer NI: delivery only is needed for negotiation |
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Restrictive Indorsement
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a) Requires subsequent parties who pay value to ensure that the restrictive indorsement has been complied with
b) Never prevents further negotiation c) Never affects negotiability of an NI d) Examples: - for deposit only - for collection only - pay any bank |
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Conditional Indorsement
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a) Example: Pay only if my goods are delivered
b) Imposes no duties on subsequent parties c) Never prevents further negotiation d) Never affects negotiability of an NI |
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How does indorsement effect negotiability?
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No indorsement affects the negotiability of an NI?
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Transfer Warranties
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(implied: based upon reasonable commercial expectations)
A transfer of an instrument makes these warranties: 1) The transferor is a person entitled to enforce the NI = HOLDER 2) No forgeries 3) No alternations 4) No defense or claim in recoupment is good against the TRANSFEROR 5) The transferor does not know of any insolvency proceeding against the maker, drawer, or acceptor |
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Indorsing Transferors
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Make transfer warranties to all subsequent transferees.
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Nonindorsing Transferors
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Make transfer warranties to their immediate transferee only
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Note about Transfer Warranties
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Transfer Warranties are note made to a drawee bank, because a drawee bank is not a transferree.
Transfer warranties are made to depositary banks and other banks that are not drawee banks for the check |
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Requirements to File an Involuntary Petition against a Debtor
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1) Evidence of debtor's insolvency
a. Debtor is not generally paying its debts as they come due OR b. Appoint of custodian 2) Sufficient number of creditor's filing a. <= 11 creditors --> 1 Creditor b. >= 12 creditors --> 3 Creditors 3) Creditor's filing owed >= $14,425 in unsecured claims |
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Assets in the Debtor's Estate
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Debtor's nonexempt, non-excluded assets at the time of the filing plus:
1) Any profits, royalties, rents & other revenue received from the debtor's nonexempt assets during the liquidation proceeding 2) Inheritances, life insurance proceeds, and property from divorce settlements or judgments received by the debtor within 180 days after the filing of the liquidation petition 3) Assets recovered by the bankruptcy trustee because the debtor made a voidable preferential transfer of is property |
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Elements of a Voidable Preference
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1. Debtor transfers an interest (exceeding $5,475 if non-consumer) in its property to a creditor: Usually,
1) Debtor pays a creditor's claim OR 2) Debtor grans a security interest in the debtor's property to a creditor 2) On an antecedent debt (that is, the debt is an old debt) 3) Within 90 days prior to the filing of the liquidation petition (within one year if the creditor is an insider) 4) When the debtor is insolvent (Assets < Liabilities) 5) That prefers the creditor over others in its class (the creditor got a higher percentage of its claim paid than had the creditor's claim gone through bankruptcy) |
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Consequence of a Voidable Preference
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1) If payment of money: the creditor returns the money to the debtor's estate and the creditor's claim against the debtor is revived
2) If a grant of a security interest: the security interest is void, resulting in the creditor being an unsecured creditor and the collateral being sold for the benefit of all creditors |
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Assets in the Debtor's Estate
(Flashcard 2) |
4) Assets recovered by the bankruptcy trustee because the debtor made a fraudulent conveyance (transfer) of its property within 2 years before the filing of the liquidation petition
a. Elements 1) Within 2 years of the filing of the liquidation petition, debtor transfers its property to another person 2) Either with an intent to hinder, delay, or defraud creditors or for less than the reasonable value b. Consequence: The property is recovered by the trustee and returned to the debtor's estate 5) Payments of excessive retention bonuses to an insider 6) Transfers to self-settled trusts within 10 years before the filing date |
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NOT ASSETS IN THE DEBTOR'S ESTATE
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Wages, salaries, and other income earned and received during the liquidation proceeding (other than income on assets in the estate as in part 1 above) and other assets created and received during the liquidation proceeding are NOT in the debtor's estate
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Exempt & excluded assets are NOT in the debtor's estate
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Federal Exemptions:
1. Homestead: real or personal property 2. Motor vehicle 3. Household & other consumer goods 4. Jewelry 5. General exemption: any property 6. Tools of trade 7. Life insurance contracts 8. Cash value of life insurance policies 9. Professionally prescribed health aids 10. Social security, disability, domestic, and other necessary supports 11. Insurance & liability payments 12. Contributions to retirement plans 13. Contributions to educational & tuition plans more than a year before the filing date State Exemptions: 1. Vary greatly from state to state 2. A limit of $136,875 in some cases |
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Drawee Bank's Duty to its Customer (Drawer)
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A. Obey the customer's reasonable instructions
1) Drawee bank must honor (pay) a properly drawn customer's check if the drawer has sufficient funds in its account 2) Drawee Bank must obey a customer's STOP Payment Order 3) Drawee Bank may honor (pay) any check drawn by its customer 4) Drawe Bank may Pay 5) Liability of Drawee Bank to Customer for paying a nonholder or more than the amount authorized by the Customer |
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# 3) Drawee Bank may honor (pay) any check drawn by its customer
Drawee Bank's Duty to its Customer (Drawer) |
a) Even if it overdraws the Customers account, and
b) Even if the check is postdated (unless the customer has notified the Drawee Bank) |
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# 4) Drawe Bank may Pay
Drawee Bank's Duty to its Customer (Drawer) |
a) Only a holder of the check
b) Only the amount authorized by the customer |
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# 5) Liability of Drawee Bank to Customer for paying a nonholder or more than the amount authorized by the Customer
Drawee Bank's Duty to its Customer (Drawer) |
a) If the Drawee Bank pays a nonholder, the Drawee Bank must recredit the customer's account for the entire amount of the check
b) If the Drawee Bank pays more than the amount authorized by the Customer, the Drawee Bank must recredit the Customer's account for the excess amount |
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Fraudulent Indorsement by a Employee Entrusted with Responsiblity over the Check Element
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a) Indorsement made in the name of the payee or substantially similar is not a forgery
b) Employee must have responsibility to sign, indorse, process, prepare, supply payee's names, or control disposition of the check c) Consequence: because the indorsement is valid, the drawee bank has paid a holder |
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Drawee Bank's Remedies when it must recredit the customer's account because of an alteration or forgery
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Presentment Warranties
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Presentment Warranties
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Made by the presenter and prior transferors to a drawee bank
3 Presentment Warranties: a) Warrantor is entitled to enforce the check b) No alterations to check c) Warrantor has no knowledge that the drawer's signatures has been forged |
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Operation of Presentment Warranties
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a) Forged Indorsement (forgery of an indorsement necessary to negotiation)
b) Stolen Bearer Check c) Altered Check d) Forged Check (forgery of drawer's signature) |
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Forged Indorsement
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1) Drawee Bank has paid a nonholder: must recredit the customer's account
2) Drawee Bank has recourse against the forger and any transferor or presenter after the forgery for breach of PW #1 3) Person whose signature was forged has recourse against the forger, subsequent possessor, and drawee bank for conversion 4) If the forger can't be found, the person who dealt with the forger bears the loss |
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Stolen Bearer Check
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1) Drawee bank need not recredit customer's account, since it paid a holder
2) Person from whom check was stolen has recourse only against the thief for conversion 3) If the thief can't be found, then the person from whom it was stolen bears the loss |
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Altered Check
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1) Drawee Bank has paid more than the authorized amount: must recredit the customer's account for the excess amount
2) Drawee Bank has recourse against the alterer and any transferor or presenter after the forgery for breach of PW #2 3) If the alterer can't be found, the person who dealt with the alterer bears the loss |
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Conversion
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DEFINED: Taking control over a NI with no right to take control. It is irrelevant whether the person knows it has a right to control the NI.
EFFECT: Allows a person with title to a NI to recover the NI or its FMV from someone who has stolen the NI, taken possession of the NI without having title and the right to enforce the NI, or paid someone who does not have title and the right to enforce the NI |
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How to obtain title to a NI
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1) Receive the NI from someone who has title who intends to transfer title
OR 2) Be a HIDC or have the rights of a HIDC |
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Rights of a HIDC
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Takes a NI free of
1) personal defenses and claims in recoupment that the HIDC didn't create AND 2) claims to title of parties with whom the HIDC didn't deal |
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The Payee is a Fictitious Payee
(subset of payee not Intended to Have an Interest) |
a) Check Payable to fictitious payee is bearer paper
b) Anyone may indorse in name of payee and no forgery occurs |
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The Payee is an Imposter
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An imposter is a person not acting in behalf of the drawer who induces the drawer to a check payable to the imposter in the name of the person the imposter is impersonating)
a) Anyone may indorse in name of payee and no forgery occurs b) Consequence: drawee bank has paid a holder |
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The Payee is not Intended to Have an Interest in the Check
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A person is acting on behalf of the drawer - usually a drawer's employee - either draws a check for the drawer or supplied a payee's name to the drawer intending that the payee will never own the check
a) Check payable to a payee not interest to have an interest is bearer paper b) Anyone may indorse in name of payee and no forgery occurs c) Consequence: drawee bank has paid a holder an amount authorized by the drawer |
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Breach during Self-Help Repossession
DO'S |
- Get Permission/Consent
- Use Deception Unless causes emotional distress - Call Police |
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Breach during Self-Help Repossession
DON'TS |
- Trespass
- Breaking & Entering - Inasion of Privacy - Continue if there is confrontation - Impersonate Government Official - Inflict Emotion Distress -Intimidation -Assault -Battery |
