Secured Transactions And Commercial Paper

Front 1

What are the 3 requirements for attachment?

Back 1

VCR
1. Value must be given by creditor
2. Contract, the security agreement or record, must evidence the secured transaction UNLESS the secured party has taken possession of the collateral, AND
3. Rights in the collateral: Debtor MUST have rights in the collateral

Front 2

What record is necessary to evidence the creditor's interest if the creditor holds onto the collateral?

Back 2

NONE, possesssion of the collateral is sufficient to evidence the secured interest

Front 3

What must a record securing an interest in personalty contain?

Back 3

1. signature or electronic mark, AND
2. reasonably identify the collateral

Front 4

What is perfection?

Back 4

 It is something that the secured party does to put the world on record or constructive notice of the secured party’s existence

Front 5

What are 3 ways for the secured party to attain perfection?

Back 5

1. take possession of the property
2. PMSI-sell the property to the debtor
3. file a financing statement (UCC1)

Front 6

What is PMSI?

Back 6

Purchase Money Security Interest is money loaned to the debtor to purchase the personalty. it has top priority to encourage economic activity.

Front 7

Could a security agreement be filed filed to effect perfection?

Back 7

YES but not commonly done--use UCC-1 financing statement instead.

Front 8

What are the requisite contents of a financing statement? (3)

Back 8

1. Debtors name and address
2. Creditors name and address
3. Description of the collateral
a. Generic descriptions are ok

Front 9

Where is the financing statement filed?

Back 9

Filing is done centrally, w/ the Sect of State, in the state where debtor is located:
• If debtor is an individual, he is located in the state of his principal residence
• If debtor is a registered organization, it is located under whose laws it is organized

Front 10

What is the exception to central filing?

Back 10

if the collateral is timber, minerals or fixtures, file locally, in the county where realty is located

Front 11

What is the difference between attachment and perfection?

Back 11

Attachment means the security interest is enforceable BUT perfection notifies the world of the interest therefore broadens the enforcability.

Front 12

What is the rank of interests?

Back 12

BIOC – buyer in ordinary course
PAC – perfected attached creditor
LC – lien creditor
NOCie – Non-ordinary course buyer
AUPie – attached unperfected creditor
GUC – general unsecured creditor OR->

Hint 12

1. Perfected
2. Secured (by attachment)
3. Unsecured

SQUEEZE IN: BUYER in the oridinary course at top and Buyer in the non ord. course between 1 and 2

Front 13

Describe an attached uperfected creditor's rights in relation to others.

Back 13

AUPie vs the world:
AUPie’s interest is enforceable as against debtor and AUPie will defeat any subsequent AUPie as well as any GUC
AUPie will lose to PAC, to LC and to any buyer w/o knowledge of the security interest

Front 14

Describe a perfected attached creditor's rights in relation to others.

Back 14

PAC vs the world
PAC defeats all, except
• The PAC who filed first
• Certain PMSI holders
• The BIOC

Front 15

Describe the result if 2 competing interest holders vie over the same property.

Back 15

First in time, first in right

Front 16

Can you file before your interest has been realized (before attachment)?

Back 16

YES. perfection will relate back to the date of early filing. this protects creditor during negotiation from constant vigilance

Front 17

Who wins between a PMSI holder and a properly perfected after-acquired collateral financier (AACF)?

Back 17

It depends on whether the dispute is over equipment or inventory.

Front 18

Who wins between a PMSI holder and a properly perfected after-acquired collateral financier (AACF) in a dispute over equipment?

Back 18

the AACF UNLESS the PMSI files w/in 20days after debtor takes possession.

Front 19

Who wins between a PMSI holder and a properly perfected after-acquired collateral financier (AACF) in a dispute over inventory?

Back 19

the AACF UNLESS the PMSI files BEFORE the debtor takes possession of the inventory and specifically NOTIFIES the AACF BEFORE transfer.

Front 20

Who wins--a PAC or a BIOC?

Back 20

BIOC--is top priority b/c it would upset all expectations to purchase then dishonor purchase later--BIOC is supreme

Front 21

Is self help permissible?

Back 21

YES

Front 22

How is self help limited?

Back 22

You may NOT breach the peace

Front 23

what constitutes a breach of the peace?

Back 23

A repossession made over any protest by the debtor, however mild the protest, constitutes a breach of the peace.
• If the repossessor misuses the color of law by impersonating a law enforcement officer, he has used constructive force and has breached the peace

Front 24

Is the right to self-help curtailed when property in question is in a home?

Back 24

YES--SP may not enter debtor’s home w/o voluntary and contemporaneous consent
• Repossession when the collateral is outside the home
SP may take the collateral so long as there is no debtor ojection

Front 25

What is a writ of replevin?

Back 25

a judicial writ ordering the sheriff to obtain possession of collateral and deliver it to secured party

Front 26

What is Strict foreclosure?

Back 26

Occurs when the secured party retains the collateral in full satisfaction of the debt
• The creditor lawfully retains the collateral and the debt is then canceled

Front 27

In Strict Foreclosure over consumer goods, what process must be followed?

Back 27

Must notify debtor and secondary obligors; If any of the notified parties objects w/i 20 days after the notice is sent, strict foreclosure will not be allowed. (for any reason or no reason)

Front 28

Is there a threshold for strcit foreclosure?

Back 28

YES. if consumer has paid 60% or more of price, Strict foreclosure is barred.

Front 29

What rule in strict foreclosure avoids awarding creditors windfalls?

Back 29

SP MUST sell the collateral w/i 90 days or be liable for conversion

Front 30

May the SP buy at the resale?

Back 30

• If the sale is public, yes
• If the sale is private, absent external market checks, no too much chance for self-dealing

Front 31

For consumer goods, what additional consumer-protective provisions are mandatory to provide protection in strict forelosure?

Back 31

How to calculate a deficiency and how debtor can redeem

Front 32

When is Debtor’s limited right of redemption terminated?

Back 32

Debtor’s right to redeem collateral is cut off once secured party has resold or completed a strict foreclosure

Front 33

What must a Debtor do to redeem?

Back 33

To redeem, debtor must pay the amount owed (missed payments) plus any interest and creditor’s reasonable expenses including atty’s fees

Front 34

Is an acceleration clause enforceable against a Debtor redeeming?

Back 34

YES

Front 35

What is the Bright line rule of Commercial Paper?

Back 35

When a negotiable instrument is duly negotiated to a holder in due course, the holder in due course takes the instrument free of all claims to it, free of personal defenses and subject only to real defenses

Front 36

What are 2 types of Commercial Paper?

Back 36

NOTES AND DRAFTS

Front 37

What are the Requirements for negotiable instruments?

Back 37

WOSSUPP
A WRITING
Payable to ORDER or to bearer
SIGNED by the maker or drawer
Reciting a SUM certain
Containing an UNCONDITIONAL promise or order, and no additional promise or orders
PAYABLE on demand or at a definite time
PAYABLE in currency

Front 38

Is authentication a strict standard in commercial paper?

Back 38

NO a note or draft can be signed anywhere with any mark to be authentic

Front 39

Can notes or draft include conditions?

Back 39

NO--The instrument must contain an unconditional promise to qualify as a note or unconditional order to qualify as a draft.

Front 40

When must a negotiable instrument be payable?

Back 40

ON DEMAND or at a specific time.

Front 41

To whom must a negotiable instrument be payable?

Back 41

To be negotiable, the writing must be payable TO ORDER -OR- TO BEARER

Front 42

Can a negotable insturment pay property?

Back 42

NO

Front 43

Can a negotiable instrument contain additional promises?

Back 43

NO--only the promise to pay in currency upon demand or at a definite time

Front 44

Can an acceleration clause be added to a negotiable instrument?

Back 44

YES--"in case of default, full amount will be due"

Front 45

What is signature liablity?

Back 45

The drawer, the party who signs, SIGNED the negotiable instrument
When you sign it, you promise to pay, that’s how you get sued

Front 46

Can you disclaim signature liablity?

Back 46

Yes--When the words “w/o recourse” accompany the signature
“W/O recourse” is a term of art used by indorsers and drawers Represents a disclaimer of liability, therefore indorser passes title but assumes NO signature liability

Front 47

Who can sue D for breach under warranty or transfer liability?

Back 47

If D indorsed the instrument, any P in possession may sue
• When D indorses, warranties run w/ the instrument (memorize this);
If D did NOT indorse the instrument, then only the D’s immediate transferee may sue
• Warranties will NOT run w/ the instrument

Front 48

Who might be sued for breach under warranty or transfer liability?

Back 48

Any transferor who sells the negotiable instrument
• If transferor is not a donor, he CAN be sued

Front 49

What are Five warranties made by D under warranty liablity?

Back 49

1. D promises that P has good title to the instrument
2. D promises that all signatures are genuine and authorized
• Forgery is a breach of warranty
3. D promises that the instrument has not been materially altered
• When the facts tell you that the instrument has been tampered w/ it is defective
4. D promises no defense or claim good against the D, the instrument is enforceable
5. D promises has no knowledge of any bankruptcy or insolvency against maker or drawer

Front 50

HOW IS A NEGOTIABLE INSTRUMENT PROPERLY TRANSFERRED?

Back 50

Due negotiation or “duly negotiated” means there has been a proper transfer of the instrument
If the instrument has been PROPERLY transferred, the transferee IS A holder and may be eligible to be a holder in due course (HDC)

Front 51

What two magic terms must be used to negotiate an instrument?

Back 51

payable to ORDER OR BEARER

Front 52

When the instrument is payable to the order of a specific payee, how is it negotiatied?

Back 52

it is negotiated by delivery of the instrument to that payee

Front 53

If the instrument is payable to bearer, is indorsement required?

Back 53

NO

Front 54

What are the 3 types of indorsements?

Back 54

1. Special indorsement – one that names a particular person as “indorsee”
The indorsee MUST SIGN in order for the instrument to be further negotiated
2. Blank indorsement – is one that DOES NOT NAME a specific indorsee
May be negotiated by delivery alone
3. Restrictive indorsement – contains a condition
Check indorsed “for deposit only”

Front 55

What characterizes an HDC or a holder who takes the instrument in due course?

Back 55

AN HDC MUST TAKE:
1. For value AND
2. In good faith AND
3. w/o notice that instrument is overdue OR has been dishonored OR is subject to any defense or claim

Front 56

Define Value in the context of a HDC

Back 56

The holder must give value the instrument
Giving value does NOT mean giving consideration, which is a contract principle
Consideration and value differ in 2 ways:
• A mere promise is NOT value
• Old value is good value

Front 57

What happens if a buyer of a negotiable instrument knows of or should have known of a problem with the instrument?

Back 57

Holder MUST acquire the instrument w/o notice that it is overdue, has been dishonored or is subject to any defense or claim

Front 58

If holder has notice or reason to know instrument should have already been paid, what result?

Back 58

Holder is not a HDC

Front 59

If instrument is lost/stolen and later negotiated, what result?

Back 59

If instrument is lost/stolen from true owner, transferee could still qualify as HDC if instrument has been duly negotiated and transferee did not have notice or reason to know of the theft or loss

Front 60

What defeats HDC Status?

Back 60

Real defenses

Front 61

List the Real defenses to HDC rights in an instrument

Back 61

MADFIFI4
 Material Alteration – is a change in terms of the instrument
 Duress
 Fraud in the factum
 Incapacity
 Illegality
 Infancy
 Insolvency

Front 62

What is the Difference btw “real” fraud and personal fraud

Back 62

“Real” fraud – fraud in the factum is assertable against an HDC
Means there has been a lie about the instrument
Personal fraud – fraud in the inducement, is a personal defense
It is INEFFECTIVE against a HDC