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59 Cards in this Set
- Front
- Back
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Secured transactions: govered by what?
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Article 9 of the UCC
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Secured transactions analysis
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1. Is transaction within the scope of article 9?
2. Is the security interest attached? 3. Has the security interest been perfected? 4. Does teh creditor have priority? 5. Has there been a default by debtor? |
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What is the scope of article 9?
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applies to consensual security interests in personalty or fixtures. Not real estate.
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What can collateral be in secured transaction?
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consumer goods
equipment inventory farm products fixtures intangibles (patent rights, stocks, bonds, mutual funds, proceeds from sale, accounts-rt to payment for goods or services, promissory notes and drafts) **determine type by looking to primary use by debtor (subjective) |
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Attachment of security interest
1. relevance 2. requirements |
1. attachment means security interest is enforceable
2. VCR - value from creditor - contract (security agreement/record), unless secured party has possession of collateral - debtor must have rights in collateral |
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Contract/security agreement/record
1. relevance 2. requirements |
1. relevant bc necessary for secured interest to attach (VCR)
2. Requires: - signed or electronically marked by debtor - reasonably identifies collateral **not necessary if secured party takes posession of collateral |
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A gives B a security interest in "all of A's inventory, whether now held or hereafter acquired"
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Clause called after-acquired collateral clause. It is enforceable.
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Perfection
1. relevance 2. requirements |
1. Relevant because necessary to establish priority of security interest in collateral. Pupose to put world on notice of secured party's existence
2. Can perfect by: (a) taking possession in collateral (b) automatic perfection for PMSIs (purchase money security interests) (c) file notice of security interest in public records 2. |
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PMSI
1. defined 2. relevance |
1. Purchase money security interests (security interest that enables debtor to buy goods)
2. Perfection is automatic on attachment |
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How does secured party file notice and why relevant?
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1. relevant because perfects interest and establishes priority
2. (a) file financing statement. Can be simple and sparse. Includes debtor's, creditor's names and addresses and description of collateral. (b) file with secretary of state in which debtor is located - if debtor is individual, located in state of her principle residence - if debter organization, located in state under whose laws organized - if collateral is timber, minerals, fixtures, file in county where realty located |
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**Where should financial statement be filed to perfect a security interest?
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file with secretary of state in which debtor is located
- if debtor is individual, located in state of her principle residence - if debter organization, located in state under whose laws organized - if collateral is timber, minerals, fixtures, file in county where realty located |
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Rank of priority for security interests:
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1. Buyer in ordinary course
2. Perfected attached creditor 3. Lien creditor (got judicial lien on collateral from court. 4. Non-ordinary course buyer 5. Attached unperfected creditor 6. General unsecured creditor |
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How is security interest on collateral handled when two perfected, attached creditors?
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First to perfect is satisfied in full.
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Article 9 gives special effect to early filing
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Allows early filing from onset of loan negotiations. If an earlier filer subsequently attaches, she is allowed the benefit of her early filing.
**priority relates back to the early filing date |
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Who gets priority between After-acquired collateral financier
AND Purchase-money security interest |
PMSI has priority when:
1. collateral is equipment 2. Files properly within 20 days after debtor takes possession of equipment OR 1. collateral is inventory 2. PMSI files properly before debtor takes possession of inventory 3. PMSI notifies after-acquired creditor financier before debtor takes possession - purpose to avoid AACF extending more credit to debtor thinking it had priority on prior interest |
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How to tell if a debtor is in default?
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Look to security agreement for definition of default (usually failure to pay)
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What can secured creditor do once debtor defaults?
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1. self-help repossession
- permissivle so long as creditor doesn't breach peace - breach of peace includes (a) actions likely to cause violence; (b) repo over any protest by debtor, and; (c) lack of voluntary and contemporaneous consent by debtor when collateral in debtor's home 2) reposession by judicial action 3) strict foreclosure - When secured party retains collateral in full satisfaction of outstanding debt. --- (1) secured party sends written proposal to retain collateral in satisfaction of debt to: (a) debtor and secondary obligors if collateral is consumer goods (b) debtor, any othe known secured parties and secondary obligors ---(2) if any notified parties objects, for any reason, w/in 20 days of notice, no strict foreclosure ---(3) strict foreclosure not allowed if collateral is consumer goods adn debtor has paid 60% of loan or cash price. Then secured party must sell collateral within 90 days or be liable in conversion 4) Sale all aspects of sale must be commercially reasonable - standard notice forms are presumptively commercially reasonable 2. secured party chooses whether public or private sale 3. Reasonable notice must be sent prior to sale (a) if collateral in consumer goods, notice sent to debtor and any secondary obligor (b) if non-consumer good collateral, notice sent to all secured parties and secondary obligors (c) if public sale, notice must state time and place of sale (d) if private sale, notice must state time after which the sale will be made (e) **for consumer goods, notice must also include how any deficiency will be calculated and how debtor can redeem collateral (f) notice deemed reasonable if sent 10 days or more before time of sale in nonconsumer transaction. **Secured party may not buy collateral at private sale |
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Self-help repossession
When permissible? |
- permissivle so long as creditor doesn't breach peace
- breach of peace includes (a) actions likely to cause violence; (b) repo over any protest by debtor, and; (c) lack of voluntary and contemporaneous consent by debtor when collateral in debtor's home |
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Strict foreclosure
1. defined 2. requirements |
- When secured party retains collateral in full satisfaction of outstanding debt.
--- (1) secured party sends written proposal to retain collateral in satisfaction of debt to: (a) debtor and secondary obligors if collateral is consumer goods (b) debtor, any othe known secured parties and secondary obligors ---(2) if any notified parties objects, for any reason, w/in 20 days of notice, no strict foreclosure ---(3) strict foreclosure not allowed if collateral is consumer goods adn debtor has paid 60% of loan or cash price. Then secured party must sell collateral within 90 days or be liable in conversion |
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Sale of collateral when debtor defaults
Requirements: |
1. all aspects of sale must be commercially reasonable
- standard notice forms are presumptively commercially reasonable 2. secured party chooses whether public or private sale 3. Reasonable notice must be sent prior to sale (a) if collateral in consumer goods, notice sent to debtor and any secondary obligor (b) if non-consumer good collateral, notice sent to all secured parties and secondary obligors (c) if public sale, notice must state time and place of sale (d) if private sale, notice must state time after which the sale will be made (e) **for consumer goods, notice must also include how any deficiency will be calculated and how debtor can redeem collateral (f) notice deemed reasonable if sent 10 days or more before time of sale in nonconsumer transaction. **Secured party may not buy collateral at private sale |
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What additional notice provisions must be included in notice for sale of consumer good collateral sent to defaulted debtor?
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1. how any deficiency will be calculated
2. how debtor can redeem collateral |
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when can debtor redeem collateral?
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1. When pays amount owed, including accrued interest, secured party's reasonable expenses
2. If security agreement has acceleration clause, must pay off entire balance, plus accrued interest, plus secured party's reasonable expenses. 3. Right to redeem ends once secured party resells collateral or completes a strict foreclosure |
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What can secured creditor do if sale of collateral does not make enough money to cover debt?
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Bring action for deficiency judgment against debtor.
(if secured creditor sells collateral at low price to inside buyer, price used in calculating deficiency is price that independent third party would have paid.) |
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What additional notice provisions must be included in notice for sale of consumer good collateral sent to defaulted debtor?
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1. how any deficiency will be calculated
2. how debtor can redeem collateral |
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when can debtor redeem collateral?
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1. When pays amount owed, including accrued interest, secured party's reasonable expenses
2. If security agreement has acceleration clause, must pay off entire balance, plus accrued interest, plus secured party's reasonable expenses. 3. Right to redeem ends once secured party resells collateral or completes a strict foreclosure |
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What can secured creditor do if sale of collateral does not make enough money to cover debt?
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Bring action for deficiency judgment against debtor.
(if secured creditor sells collateral at low price to inside buyer, price used in calculating deficiency is price that independent third party would have paid.) |
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Rules governing commercial paper
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Article 3 of the UCC
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Rule governing commercial paper
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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, subject to only real defenses |
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On what theories might a defendant be sued in commercial paper fact pattern?
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1. contract or signature liabiltiy
2. warranty or transfer liability |
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Types of negotiable instruments
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Writings calling for the payment of money
1. promissory note 2. draft |
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Promissory note
1. contains 2. parties involved |
1. contains affirmative promise to pay
2. promisor= maker promisee= payee |
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Draft
1. contains 2. parties |
Typically a check
1. contains order or command 2. drawer gives order drawee is ordered to pay payee is beneficiary of order |
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When is a writing a negotiable instrument (promissory note or draft)
and NOT a contract |
WOSSUPP
1. writing 2. payable to order or bearer 3. signed by maker/drawer 4. sum certain 5. unconditional promise & no additional promises 6. payable on demand or at definite time 7. payable in currency |
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Draft
1. contains 2. parties |
Typically a check
1. contains order or command 2. drawer gives order drawee is ordered to pay payee is beneficiary of order |
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When is a writing a negotiable instrument (promissory note or draft)
and NOT a contract |
WOSSUPP
1. writing 2. payable to order or bearer 3. signed by maker/drawer 4. sum certain 5. unconditional promise & no additional promises 6. payable on demand or at definite time 7. payable in currency |
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signature requirement of negotiable instruments
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Can be found anywhere on note or draft.
Can be initials, defining mark, nickname, etc. |
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Contract v. negotiable instrument
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1. contract is conditional
- "if" - "subject to" - "governed by" 2. Drafts and notes contain unconditional promises to pay - ok if references outside document for tangential matter (e.g. note secured by secuirty interest described elsewhere) - ok if limits payment to certain type of fund (e.g. I promise to pay from funds from my next wheat crop) |
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Sum certain requirement for notes and drafts
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1. must be calculable
2. interest need not be fixed |
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requirements for notes and drafts that sum certain be payable in currency
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This means money, not goods.
Foreign currency is ok. |
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Requirement that draft or note not contain any additional promises or orders
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E.g. contract and not negotiable instrument if "I promise to pay 5000 and give you my vintage Beatles collection."
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Requirement for negotiable instruments that they be payable
1) on demand AND 2) at definite time |
1. On demand if says payable
"on demand" "at sight" "on presentation" Or is silent re time of payment 2. Definite time if: - payable on or before stated date OR - at fixed period after stated date - acceleration clauses do not destroy negotiable instruments - but "payable when my first kid born" is not negotiable |
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Payable to order/bearer requirement for negotiable agreements
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1. if order, must use word "order" or "assigns" in connection with payee's name
2. if bearer, must use word "bearer" or "pay to cash" or "pay to the order of cash" - NOT "pay to andy garcia"--then contract **Not necessary to use magic words on checks |
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Contract or signature liability
1. defined 2. potential defendants |
1. when d signed negotiable instrument and then didn't pay, can be sued
1. maker in promissory note 2. indorser 3. drawer who signs check NOT drawee (bank) bc doesn't sign NOT someone who signed "without recourse" as this disclaims liability |
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Warranty or transfer liability
1. defined 2. potential defendants |
1. liability for seller of defective instrument
2. any transferor who SELLS the negotiable instrument (not donor) (a) indorser can be sued by any plaintiff in possession of instrument (b) when no indorsement, d's immediate transferee may sue. (warranties don't run with the instrument without indorsement) |
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Warranties made by a seller of negotiable instrument
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1. that good title being transferred
2. that all signatures genuine and authorized 3. that instrument has not been materially altered 4. that no defense or claim good against the defendant, meaning that instrument is enforceable 5. that d has no knowledge of any bankruptcy or insolvency proceeding against maker or drawer |
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when is a negotiable instrument duly negotiated?
(properly transferred) |
Relevance is that a duly negotiated negotiable instrument creates a holder in due course
1. When payable to order, negotiated by delivery by instrument that that payee. Further neotiation requires teh payee to indorse instrument and deliver to transferee. 2. payable to bearer does not required indorsement to be duly negotiated |
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Types of indorsements
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1. special or blank
-- special names a particular person as indorsee. That person must sign in order for instrument to be further negotiated. -- blank indorsement can be negotiated by delivery alone 2. restrictive or unrestrictive -- restrictive indorsement contains a condition such as "for deposit only" |
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When does a transferee qualify for holder in due course status?
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1. takes instrument for value
- not just a promise - old value is good value 2. in good faith - honesty (subjective test) - observance of reasonable commercial standards of fair dealing (objective test) 3. without notice that it is overdue or has been dishonored or is subject to any defense or claim. - objective test--whether knew or had reason to know e.g.: (a) notice of competing claim to the negotiable instrument (b) notice that any obligation of any party is voidable |
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when is a negotiable instrument duly negotiated?
(properly transferred) |
Relevance is that a duly negotiated negotiable instrument creates a holder in due course
1. When payable to order, negotiated by delivery by instrument that that payee. Further neotiation requires teh payee to indorse instrument and deliver to transferee. 2. payable to bearer does not required indorsement to be duly negotiated |
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Types of indorsements
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1. special or blank
-- special names a particular person as indorsee. That person must sign in order for instrument to be further negotiated. -- blank indorsement can be negotiated by delivery alone 2. restrictive or unrestrictive -- restrictive indorsement contains a condition such as "for deposit only" |
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When does a transferee qualify for holder in due course status?
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1. takes instrument for value
- not just a promise - old value is good value 2. in good faith - honesty (subjective test) - observance of reasonable commercial standards of fair dealing (objective test) 3. without notice that it is overdue or has been dishonored or is subject to any defense or claim. - objective test--whether knew or had reason to know e.g.: (a) notice of competing claim to the negotiable instrument (b) notice that any obligation of any party is voidable |
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when is a negotiable instrument duly negotiated?
(properly transferred) |
Relevance is that a duly negotiated negotiable instrument creates a holder in due course
1. When payable to order, negotiated by delivery by instrument that that payee. Further neotiation requires teh payee to indorse instrument and deliver to transferee. 2. payable to bearer does not required indorsement to be duly negotiated |
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Types of indorsements
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1. special or blank
-- special names a particular person as indorsee. That person must sign in order for instrument to be further negotiated. -- blank indorsement can be negotiated by delivery alone 2. restrictive or unrestrictive -- restrictive indorsement contains a condition such as "for deposit only" |
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When does a transferee qualify for holder in due course status?
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1. takes instrument for value
- not just a promise - old value is good value 2. in good faith - honesty (subjective test) - observance of reasonable commercial standards of fair dealing (objective test) 3. without notice that it is overdue or has been dishonored or is subject to any defense or claim. - objective test--whether knew or had reason to know e.g.: (a) notice of competing claim to the negotiable instrument (b) notice that any obligation of any party is voidable |
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Shelter rule and holder in due course
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A transferee acquires whatever rights her transferor had
E.g. a donee or person who otherwise fails to meet requirements or due course holders are holders in due course if get negotiable instrument from holder in due course |
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What does it mean that a holder in due course takes free of claims?
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Holder in due course defeats superior owner
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what does it mean that a holder in due course takes free from personal defenses?
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defenses available in ordinary contract actions:
lack of consideration unconscionability waiver estoppel fraud in the inducement |
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What does it mean that holder in due course takes subject to real defenses?
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Mad FIFI4
material alteration (change in terms of agreement) duress fraud in teh factum (misrepresentation about what the instrument is, not about what the object being paid for is) incapacity illegality infancy insolvency |
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When does holder in due course keep negotiable instrument even when material alteration defense?
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When maker was negligent, eg. left blanks or left wide spaces on check
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