Reading...
Play button
Play button
Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
97 Cards in this Set
- Front
- Back
|
Real Property
|
land and anything firmly affixed to land
|
|
|
Examples of Real Property
|
Land, buildings, trees and other perennial plants, lighting fixtures, chain link fences, some house trailers
|
|
|
Real Property Includes Fixtures
|
Personal property so affixed and adapted to real property that it becomes a permanent improvement to real property and, therefore, is real property
|
|
|
Examples of Fixtures
|
lumber used to make a room addition, shingles attached to a roof, windows installed in a building, wall-to-wall carpeting attached to the floor
|
|
|
Importance of Personal Property becoming a Fixture
|
- Tenant who adds fixture loses ownership to landlord.
- Sale of real property to buyer includes fixtures. - A security interest in the real property includes the fixtures. |
|
|
Personal Property
|
Everything else capable of being owned other than real property
|
|
|
Examples of Personal Property
|
Area rugs, clothing, automobiles, airplanes,businesses, securities, copyrights, trademarks, lumber in a lumber yard's inventory
|
|
|
Personal Property Includes Trade Fixtures
|
Personal property affixed to real property by a business tenant for purposes of carrying on a trade or business
|
|
|
Examples of Trade Fixtures
|
- Manufacturing machinery bolted to a floor
- Display shelves screwed to a wall of a retail store - Walk-in-cooler attached to the floor, wall, and ceiling of a restaurant |
|
|
Importance of Personal Property Being a Trade Fixture
|
- The trade fixture remains the personal property of the affixer
- The affixer may remove the property when he vacates the real property - A security interest in the real property does not include the trade fixture |
|
|
Special note on trade fixture
|
If the trade fixture cannot be removed without causing substantial damage to the real property, the trade fixture becomes a fixture and is part of the real property.
|
|
|
Bailments
|
- Bailor owns or has right to possess personal property
- Bailor delivers exclusive possession and control of the personal property to bailee - Bailee knowingly accepts the personal property with an understanding that the bailee owes a duty to return the personal property or dispose of it as directed by the bailor |
|
|
Consequence of Creation of Bailment
|
Prima facie case against a bailee for damages to bailed property is established by the bailor proving:
- A bailment exists - The bailee failed to return the property as required or returned property in worse condition, reasonable wear & tear excepted |
|
|
Consequence of Creation of Bailment
Bailee Side |
This means that once the bailor has proved the property was not returned or was returned in worse condition, the bailee has the burden of producing evidence that the bailee exercised due care
|
|
|
Consequence of Creation of Bailment
Bailor Side |
Note how this eases the ability of the bailor to prove liability of the bailee compared to an ordinary negligence case in which a plaintiff claims that a defendant has damaged his property.
|
|
|
Elements of an Ordinary Prima Facie case of negligence
|
All these must be proved by the plaintiff:
a. The defendant owed a duty to the plaintiff b. The defendant breached that duty c. That breach proximately caused damages d. Those damages were suffered by the plaintiff |
|
|
Rationale for the distinction between a prima facie case against a bailee and a normal negligence case
|
Bailee is in exclusive possession and control of the bailed property, indicating it is likely that the bailee was responsible for the damage and that the bailee is the person with the best evidence of proving what happened to the property.
|
|
|
Bailment Context
|
1) Bailment Exists
2) Bailee returned property in worse condition, reasonable wear & tear expected |
|
|
Misplaced Property
|
Elements:
1) Owner intentionally placed personal property 2) Owner unintentionally left it Title to/Owner of Property - Misplacer Who has right of possession of personal property until owner recovers it? - Owner of real property where misplaced property was found. |
|
|
Lost Property
|
Elements:
1) Owner intentionally lost possession of personal property 2) Owner has no intent to relinquish rights to it Title to/Owner of Property - Loser Who has right of possession of personal property until owner recovers it? - Finder |
|
|
Abandoned Property
|
Elements:
1) Owner intends to relinquish rights to personal property Title to/Owner of Property - Finder Who has right of possession of personal property until owner recovers it? - Finder is the owner; abandoner has no rights |
|
|
Note
|
1. Promise by a maker
2. To pay a payee |
|
|
Draft
|
1. Order (command) by a drawer
2. Ordering (commanding) the drawee 3. To pay the payee |
|
|
Check
|
1. A draft
2. Drawn on a bank 3. Payable on demand * A check is NOT an assignment of funds in the drawer's checking account |
|
|
Certificate of Deposit (a type of note)
|
1. A bank's acknowledgement of a deposit
and 2. An engagement (promise) to repay it |
|
|
Acceptance
|
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 hte NI is an acceptance. |
|
|
Types of Acceptances
|
Trade Acceptance
Banker's Acceptance Certification Cashier's Check |
|
|
Trade Acceptance
|
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.
|
|
|
Banker's Acceptance
|
A draft drawn on and accepted by a bank
|
|
|
Certification
|
Bank's acceptance of a check
|
|
|
Cashier's Check
|
Bank is drawer and drawee
|
|
|
Effect of Acceptance
|
a. Drawee becomes an acceptor and has primary contractual liability on the draft.
b. Acceptance by a nonbank does not release anyone from contractual liability, but does change the drawer's contractual liability to secondary liability c. Acceptance by a bank releases the drawer and prior indorsers from contractual liablity |
|
|
Elements of Negotiability
|
1. Writing
2. Signed by the Maker or Drawer 3. Unconditional Promise to Pay or Order to Pay 4. A fixed amount of Money (w/ Date) 5. On Demand or at a definite time 6. Payable to Order to to Bearer 7. No other undertaking or instruction by the maker, drawer, or acceptor, (unless permitted by UCC Art. 3) |
|
|
Interpretation of Instruments
|
1. Handwritten terms control typewritten or printed terms
2. Typewritten terms control printed terms 3. Words control figures |
|
|
3 Uses of the Word "Order" in Negotiable Instrument Law
|
1. Order to Pay
2. Order Language 3. Order Paper |
|
|
Order to Pay
|
By being an order to pay, not a promise to pay, the instrument is a draft. By writing, "Pay" not preceded by any other verb or auxiliary verb, the drawer is ordering or commanding someone else (the drawee) to pay the draft when it is due.
|
|
|
Order Language
|
By having the world "order," the instrument can be negotiable, as every negotiate instrument (except for a check) must be payable to order or bearer, that is must include the word "order" or the word "bearer" or its clear equivalent.. In addition, the other elements of negotiability (writing, signed by a maker or drawer, and so on) must also be met for the instrument to be negotiable. So making the instrument payable to the "order" of someone is helpful but not sufficient to make the instrument negotiable.
|
|
|
Order Paper
|
By being payable to a specific person, the instrument is order paper or an order instrument. This means that for the instrument to be negotiated (that is be transferred to the next person and make that next person a holder), the specific person to whom the instrument is payable must indorse that instrument. This is to be contrasted with bearer paper or a bearer instrument, which is not payable at present to any specific person, and therefore can be negotiated to the next holder merely by the next person possessing the instrument.
|
|
|
Types of Indorsements
|
1. Special
2. Blank 3. Qualified (without recourse) 4. Restrictive 5. Conditional |
|
|
Special Indorsement
|
1. Specifies a person to be paid
2. Makes the instrument an order NI: indorsement & delivery needed for negotiation |
|
|
Blank Indorsement
|
1. Does not specify any person who is to receive payment
2. Makes the instrument a bearer NI: delivery only is needed for negotiation |
|
|
Restrictive Indorsement
|
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 |
|
|
Conditional Indorsement
|
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 |
|
|
How does indorsement effect negotiability?
|
No indorsement affects the negotiability of an NI?
|
|
|
Holder in Due Course (HIDC)
|
1. Holder of a negotiable instrument
2. For Value 3. In Good Faith 4. With No Notice (either knew or should have known) of a. Any claim to title, defense, or claim in recoupment against the NI, or b. that the NI is overdue or dishonored. |
|
|
Holder
|
A possessor of a NI payable to him, to his order, to bearer, or in blank
|
|
|
Negotiation
|
The process by which a person becomes a Holder.
1. Bearer Paper 2. Order Paper |
|
|
Bearer Paper
|
(not payable to a specific person):
Possession: A person become a holder by possessing the NI |
|
|
Order Paper
|
(payable to a specific person):
2 Requirements: a. Indorsement by that specific person to which the NI is payable and b. Possession |
|
|
Right of a Transferee
|
A transferee for value of an order NI has the right to obtain his transferor's unqualified indorsement. He becomes a holder when the indorsement is made.
|
|
|
Value
|
Consideration or antecedent claims, but not executory promises
|
|
|
Examples of Giving Value
|
1. Issuing or transferring a negotiable instrument is giving value, even though it is an executory promise, because it can be held by a HIDC.
2. Making an irrevocable commitment to a third party is value, even though it is an executory promise, because the commitment is irrevocable. 3. Antecedent (preexisting) claims are value |
|
|
Good Faith
|
Honesty in Fact
- The most common way good faith is proved is the holder paying a reasonable amount for the NI. That is, the discount the holder pays is not so excessive to make the holder suspect that there is a problem with the NI. |
|
|
How a person obtains notice of a NI?
|
NI is:
- Overdue or dishonored - Claim to title, defense, or claim to recoupment |
|
|
How a person obtains a notice that an NI is overdue or dishonored?
|
a. NI is marked NSF (not sufficient funds)
b. Holder takes the NI after the due date: - For check: Due date is 90 days after date of check or issuance of check, whichever is later - For time draft or time note: Due date is the stated due date - For demand draft or demand note: Due date is within reasonable time after date of instrument or date of issuance, whichever is later |
|
|
How a person obtains a notice of defense, claim in recoupment, or claim to title?
|
a. Holder is told of defense or claim
b. Holder should have known of defense from the circumstances Ex. Excessive discount c. Unauthorized Completion of Incomplete Instrument (E.g. payee fills in the wrong dollar amount in a blank check) 1. Holder's merely watching payee fill-in check is not notice to the holder. Holder can be a HIDC of the NI for the amount as completed by the payee. 2. If a holder knows or has reason to know of unauthorized completion, he has notice and is not a HIDC |
|
|
How does a person become HIDC?
|
To be a HIDC,
a. a person must pay value and be a holder before she has notice of a claim or defense or that the NI is overdue or dishonored b. a person obtains notice after she has paid value and become a holder. |
|
|
Extent to which a person is a HIDC
|
a. A HIDC who has paid all the value she has agreed to pay is a HIDC for the face amount of the instrument even if the amount she has agreed to pay is less than the face amount of the instrument.
b. A person who meets all the elements of a HIDC is a HIDC, even if the amount of value he has paid is less than all the value he has agreed to pay. c. However, a HIDC who has paid less than all the value he has agreed to pay is a HIDC only to the protected extent he has paid value. d. Note, however, that a person who agrees to pay too little value for an instrument may not be a holder in due course on the grounds that she has acted in bad faith (a high discount is evidence of bad faith) |
|
|
Special Rules for a HIDC
|
1. A payee is usually a holder
2. A payee may be a holder in due course if it meets all the elements of a HIDC |
|
|
HIDC or a Person with the Rights of a HIDC take an NI free of:
|
a. Personal Defenses and Claims in Recoupment that the HIDC did not create &
b. Claims to Title of parties with whom the HIDC did not deal (that is, a HIDC has title to the instrument) |
|
|
Shelter Provision
|
A transferee of a NI either from:
1. a HIDC or 2. a person with the rights of a HIDC, has the rights of that HIDC. Exception: A person who was a party to the wrongdoing cannot improve his rights by a reacquisition of the NI. |
|
|
Surety
|
a. Makes primary promise to pay the debt
b. Promises to pay the debt on its due date --for strict surety, no need for creditor to ask principal debtor to pay first c. Surety's obligation need not be written to be enforceable against surety |
|
|
Guarantor
|
a. Makes secondary promise to pay the debt
b. Two types: - Guarantor of Payment - Guarantor of Collection c. Guarantor's obligation must be written to be enforceable against guarantor |
|
|
Guarantor of Payment
|
Promises to pay if principal debtor defaults/fails to pay
|
|
|
Guarantor of Collection
|
Promises to pay if creditor's collection attempt against the principal debtor fails
- principal debtor must default, creditor must sue principal debtor, creditor must win the lawsuit, creditor must ask court to seize assets of principal debtor and ask court to order sale of the assets, and the proceeds of the sale of the principal debtor's assets must be insufficient to pay the debt |
|
|
Effect of Modification of Contract by Creditor & Principal Debtor (only if promissory note)
|
1. S/G bound on modification only if S/G agreed to the modification
2. If S/G not bound on the contract as modified, S/G may nonetheless still be liable on the original contract a. Modification that extends the due date - S/G not discharged from original contract unless S/G proves it suffered a loss due to the modification b. Any other modification S/G discharged from original contract unless Credit proves S/G did not suffer a loss due to the modification |
|
|
Right of Exoneration
|
a. Right to force a financially able debtor to pay the debt to the creditor
b. Enforced by suing the debtor and creditor c. Creditor is stayed from taking any action against the S/G until the court has ruled on the debtor's obligation to pay the creditor |
|
|
Right of Reimbursement (indemnification)
|
a. Right to collect from the debtor all payments and other expenses associated with the S/G's payment of the debt or enforcement of the right of exoneration
b. Arises inherently from the nature of the relationship between the debtor and the S/G |
|
|
Right of Subrogation
|
a. Right to assert against the debtor all right that the creditor had against the debtor
b. S/G obtains this right only after the creditor has been paid in full |
|
|
Right of Contribution
|
a. Right to obtain a portion of the amount paid by the S/G from another S/G
b. S/GI's Share of Liability = ( S/GI's Liability / S/GI's liability + S/G2's liability ) * Debt |
|
|
Security Interests in Real Property
|
1. By Operation of Law
2. By Agreement of the Debtor |
|
|
By Operation of Law
(Real Property) |
Defined: Created automatically when:
1) Creditor is owed a debt by the debtor for work the creditor performed or materials the creditor provided for the debtor's real property at the request of the debtor, 2) Creditor has given notice to the debtor that the creditor is claiming a lien against the debtor's real property, and 3) Creditor has filed a notice of the lien with the country recorder |
|
|
Examples of
"By Operation of Law" (Real Property) |
1) Mechanic's Lien: e.g. roofer puts a new roof on a building
2) Materialman's lien: e.g. lumber yard provides shingles that are put on a building's roof |
|
|
By Agreement of the Debtor
(Real Property) |
Mortgage: Debtor signs a writing granting the creditor a security interest in the debtor's real property
Land Sale Contract: a. Seller of real property sells land to buyer on credit b. Buyer has right to posses & use land c. Seller retains title to property until the buyer makes all payments to creditor d. In most states, if buyer defaults to seller after paying a substantial portion of the purchase price (usually 10%), seller may recover property only by action-and-sale. |
|
|
Security Interests in Personal Property
|
1. By Operation of Law
2. By Agreement of the Debtor |
|
|
By Operation of Law
(Personal Property) |
a. Defined: Created automatically when
1) Creditor is owed debt by debtor for work that the debtor agreed the creditor would perform for the debtor's personal property 2) Creditor possesses the debtor's personal property b. Consequence: 1) Creditor may retain possession of the debtor's personal property until the debt is paid 2) Creditor may sell the property after X months if the debt is still unpaid (6 months is common) |
|
|
By Operation of Law
(Personal Property) Examples: 1) Artisan's Lien 2) Tower's Lien |
1) Artisan's Lien
e.g. Held by an automobile repair shop 2) Tower's Lien e.g. Held by a company that tows cars |
|
|
By Agreement of the Debtor
(Personal Property) |
Article 9 Security Interests (
|
|
|
Article 9
Attachment Effect |
Creditor has an enforceable right against specific property of the debtor, permitting the creditor to seize the property (the collateral) and sell it if the debtor defaults
|
|
|
Article 9
Attachment Elements |
1. Debtor's agreement to grant a security interest to the creditor:
Provable in either of 2 ways: a. Formal Written Security Agreement 1) Writing singed by the debtor 2) Granting a security interest to the creditor 3) In reasonably described collateral b. Any agreement plus the creditor's possession of the collateral 2. Debtor has rights in the collateral 3. Creditor gives value = Consideration (including executory promises) + antecedent claims (preexisting claims) |
|
|
Purchase Money Security Interest (PMSI)
Elements |
1. Creditor extends credit or lends money to the debtor
2. Debtor purchases personal property with the credit or loan 3. Debtor grants to creditor a security interest in the purchased property 4. Grant of SI must be countemporaneous with the purchase of property |
|
|
Purchase Money Security Interest (PMSI)
Consequence |
PMSI creditor gets elevated priority status and some perfection advantages
|
|
|
Perfection
|
An action by a secured creditor that gives buyers from the debtor and other creditors of the debtor notice of the creditor's security interest
|
|
|
Priority
|
The elevated status by which the claim of a secured creditor of the debtor or a buyer of the collateral from the debtor is superior to the claims against the collateral of the other creditors or buyers.
|
|
|
Perfection
|
Attachment + 1 of the following:
1) Creditor's Files a Financing Statement 2) Creditor's Possession of Creditor 3) Creditor takes control of a security entitlement or bank account 4) Attachment of Security Interest Alone 5) Creditor notes Security Interest on Certificate of Title of Motor Vehicle |
|
|
1) Creditor's Files a Financing Statement
|
OK for any SI
except money, non-inventory motor vehicles, and letters of credit Only way to perfect SI in A/R & general intangibles Content of Financing Statement Writing singed by debtor Description of the collateral Names of debtor and creditor |
|
|
2) Creditor's Possession of Creditor
|
OK for any SI
Except A/R and general intangibles Only way to perfect SI in money |
|
|
3) Creditor takes control of a security entitlement or bank account
|
OK for security, deposit account, letter of credit rights, and electronic chattel paper
Only way for letter of credit rights Two ways for creditor to take control of security entitlement: 1) Security intermediary lists creditor as a beneficial owner of the security 2) Security intermediary agrees to act on instructions of creditor |
|
|
4) Attachment of Security Interest Alone
|
For PMSI in Consumer Goods
(not available if consumer goods are motor vehicles) |
|
|
5) Creditor notes Security Interest on Certificate of Title of Motor Vehicle
|
OK only for motor vehicles
|
|
|
Secured Transactions - Article 9 Priority Rules
|
1) Between Two or More Secured Creditors
2) Between Secured Creditors and a Buyer from the Debtor |
|
|
1) Between Two or More Secured Creditors
|
General Rule: First to file or to perfect has priority
Exceptions: 1) PMSI in Inventory 2) PMSI in Noninventory 3) PMSI in fixtures 4) SI in fixtures that are removable equipment or readably removable replacements of domestic appliance consumer goods 5) SI in securities perfected by possession or control 6) Artisan's lien |
|
|
2) Between Secured Creditors and a Buyer from the Debtor
|
General Rule: Buyer beats only an unknown, unexpected SI
Exceptions: 1) Buyer in the ordinary course of business (BITOCOB) of his seller 2) Bona fide purchaser of consumer goods for value 3) Bona fide purchaser of a negotiable instrument |
|
|
Attachment
|
Must be able to define and apply elements of attachment to fact pattern
Must know the effect of attachment |
|
|
Types of Security Interest
|
PMSI or not
Type of Collateral |
|
|
Perfection
|
Must be able to identify how to perfect security interests in all types of collateral
- Filing a Financing Statement - Possession of Collateral - Taking Control of a Security Entitlement or Bank Account - Attachment Only - Notation on the Certificate of Title of a motor vehicle |
|
|
Priority Rules
|
- Define & apply priority rules to a fact pattern
- Know how to maximize priority over other secured creditors - Identify which secured creditors and buyers can beat a secured creditor that has maximized its priority - General rule for priority between two or more secured creditors - PMSI in inventory - PMSI in noninventory - SI in securities - General rule for priority between secured creditor & buyer from the debtor - BITOCOB (buyer in ordinary course of business) - Bona fide purchaser of consumer goods for value |
