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169 Cards in this Set
- Front
- Back
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If a sale applies to both goods and services, with Art 2. apply? |
UCC - a court will determine which aspect is dominant and apply the law governing that aspect to the whole contract.
DE Art. 2 - will apply if the cause of action centers onthe goods part of the contract. EXCEPTION: Flowers v. Huang - hospital which implanted a defective medical device not an Art. 2 seller of the device because the essence of the transaction is medical services not sale of device. |
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In DE, is a contract for computer software specifically designed for buyer covered by Art. 2?
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no because services of programmer predominate.
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In DE, there are no implied warranties in the sale of human blood, tissue, or organs OR in grocery bags, why?
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1. human blood etc. are medical services not goods
2. Grocery bags are not "sold" to a buyer |
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In DE, can specific disclaimers under Art. 2-216 be held to be unconscionable?
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No.
Common law: warranties will be tested for lack of bargaining position, lack of choice, and failure to understand |
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Besides the buyer, in DE, to whom does the seller's warranty liability extend?
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any NATURAL PERSON who may reasonably be expected to use, consumer or be affected by the goods and who is injured by breach of the warranty. This covers any type of injury, personal injury, property damage, economic loss.
A limited partnership is NOT a natural person. |
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In DE, does strict tort liability exist for defective goods?
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Yes for goods that are LEASED
No for goods that are SOLD. |
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Under Art. 2-207, what terms are included in an contract, if the parties reached an agreement before the exchange of forms?
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1. Terms actually agreed on before exchange of forms |
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What are considered immaterial terms? (such that if they are additional, they made be included in a contract unless not presented within a reasonable time or objected to by other party) |
1. terms consistent wiith trade usage, course of dealing. |
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What are considered material terms? (such that if they are additional, they made NOT be included in the contract)
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1. term inconsistent with trade usage, course of dealing |
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Under Art. 2-207, what terms are included in an contract, if the parties reached an agreement BY the exchange of forms?
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1. Terms contained in the offer (first form)
2. between MERCHANTS: immaterial terms contained in the acceptance (second form) that are additional to those in the offer UNLESS: (a) the offer expressly limits acceptance to its terms OR (b) the offeror objects to the term (offeror is deemed to object to a term in the acceptance that differs from a term in the offer) 3. any term in a form expressly assented to by the other party (ie one party signs the form) 4. Standard code gap fillers |
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Under Art. 2-207, what terms are included in an contract, if the parties reached an agreement AFTER the exchange of forms?
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1. terms on which the forms agree
2. any term expressly assented to by the other party 3. standard code gap fillers |
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When do goods associated with realty fall under Art. 2?
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If severance can be made to the seller
Crops Removable fixtures |
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What is the merchants' firm offer rule? |
Common law offers generally are revocable unless consideration is given to keep the offer open. Art. 2 provides that a WRITTEN offer SIGNED by a MERCHANT giving assurances that it will be HELD OPEN will be IRREVOCABLE WITHOUT CONSIDERATION for the state time period or for a reasonable time NOT TO EXCEED THREE MONTHS.
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What one term is essential to create a contract for a sale of goods? |
quantity
contracts for ouput or requirements satisfy need for quantity term. |
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What is the confirmatory memo rule?
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In contracts between merchants, if one party w/in a reasonable time after an oral understanding has been reached, sends a WRITTEN confirmation thereof to the other party, it will satisfy the statute of frauds against the sender AND the recepient UNLESS the recepient objects w/in 10 days after receipt.
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When is a writing not required to satisfy the statute of frauds for a sale of goods? (Art. 2)
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Acronym: SWAP |
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Under Art. 2, what is the test for unconscionability? |
whether at the time of execution, the contract or one of its provisions could result in unfair surprise and was oppressive to a disadvantaged party |
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What is required for a contract to be modified under Art. 2 |
Good faith
AND IF modification is w/in statute of frauds then it must be in writing |
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When will a seller of goods be discharged from performing a sales contract under the doctrine of impracticability?
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1. at time parties contract, basic assumption was that a certain burdensome circumstance would not occur
2. circumstance does occur Seller is discharged only to the extent of the impracticability. Subjective impossibility |
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What is the parol evidence rule?
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the terms set out in a final integration between the parties cannot be contradicted by evidence of any prior agreemenet or contemporaneous oral agreement. Such terms may be explained or supplemented by: (1) consistent additional terms (2) course of dealing (3) usage of the trade or business (4) course of performance
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What are the seller of goods, delivery obligations under a shipment contract?
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1. deliver the goods to a carrier
2. make a reasonable contract for their shipment 3. notify the buyer of the shipment If seller fails to make a contract for shipment or notify the buyer then the buyer has grounds for rejection only if a material loss or delay occurs as a result. |
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What are the seller of goods delivery obligations under a Destination Contract?
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see the goods reach the buyer.
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When does a buyer obtain an interest in goods under a sales contract?
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when the goods can be IDENTIFIED.
Identification is a designation of specific goods as the ones bought. |
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When does identification of goods take place?
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Specific, ascertained and existing goods - takes place at the time the contract is made.
crops and unborn animals - to be harvested/born w/in 12 month, takes place when conceived/planted. Other goods - when the goods are shipped, marked or otherwise designated by the seller as the goods to pass under the contract |
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How is the risk of loss allocated in a noncarrier case (Art. 2)?
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Seller is a MERCHANT - risk of loss passes to the buyer only upon the buyer taking PHYSICAL POSSESSION of the goods.
If the seller is NOT a merchant - risk of loss passes to the buyer upon TENDER OF DELIVERY (ie the seller has the goods ready for the buyer to pick up) |
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How is the risk of loss allocate in carrier cases? (Art. 2)
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In a SHIPMENT CONTRACT - risk of loss passes to the buyer when the goods are DELIVERED TO THE CARRIER.
In a DESTINATION CONTRACT - the risk of loss passes to the buyer when the goods are TENDERED TO THE BUYER at the destination. |
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What is the effect of seller's breach (ie defective goods) on the risk of loss? (Art. 2)
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If the goods are defective (so that the buyer can reject them) the risk of loss DOES NOT PASS to the buyer until the defect are cured OR the buyer accepts the goods in spite of their defects.
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What is the effect of a buyers breach on the risk of loss? (Art. 2)
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any loss above the amount of seller's insurance coverage occuring w/in a commercially reaonalbe time after the seller learns of the breach falls on the buyer.
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When does acceptance of goods occur under Art. 2?
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1. the buyer after a REASONABLE OPPORTUNITY TO INSPECT the goods, indicates to the seller that they CONFORM or that she will keep them IN SPITE OF THEIR NONCONFORMANCE.
2. the buyer FAILS TO REJECT THE GOODS within a reasonable time after tender or delivery of the goods or FAILS TO SEASONABLY NOTIFY, the seller of her rejection or 3.. the buyer DOES ANYTHING INCONSISTENT with the seller's ownership. |
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Under Art. 2, what is a buyer's general right to reject nonconforming goods? in an installment contract?
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reject all, accept all, or accept any commercial units and reject the rest.
the buyer can reject an installment only in the nonconformity substantially impairs the value of that installment and cannot be cured. the whole contract is breached if the nonconformity substantially imapirs the value of the entire contract. |
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What are the requirements under Art. 2 for a buyer to reject a delivery or tender of goods?
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1. Rejection must be w/in a reasonable time before acceptance.
2. seasonably notify the seller of the rejection. |
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What are the buyer's responsibility for goods after rejecting them? (Art. 2)
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hold them w/ reasonable care for the seller to remove them or give instructions. If seller fails to do so, the buyer may RESHIP the goods to the seller, STORE them for the seller's account, OR RESELL them for the seller's account.
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What are a seller's rights to cure rejected goods? (Art. 2)
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1. within the time originally provided for performance: cure by providing notice and tendering conforming goods
2. after time provided for performance: can cure only if the seller sent nonconforming goods that he reasonably believed the buyer would accept. 3. Installment contract - cannot be rejected if it can be cured. |
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When may a buyer revoke her acceptance of goods?
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If the defect SUBSTANTIALLY IMPAIRS their value to her AND
1. she accepted them on the reasonable belief that the defect would be cured and it hasn't been OR 2. she accepted them because of the difficulty of discovering defects or because of the seller's assurance that the goods conformed to the contract. Revocation must occur within a reasonable time after the buyer discovers or should have discovered the defect and before any substantial change in the goods not caused by the defect. |
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What are the buyers damages for nondelivered goods or goods rejected or revoked?
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difference b/w the contract price and either the market price or the cost of buying replacement goods plus incidental and/or consequential damages
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What damages may a buyer get if he accepts the nonforming goods? (Art. 2)
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difference between the value of the goods delivered and the value they would have had if they had conformed to the contract plus incidental and consequential (if allowable)
Must have notified the seller w/in a reasonable time of the breach |
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When does a seller have a right to withhold goods? (Art. 2)
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if the buyer fails to make a payment due on or before delivery.
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When does a seller have a right to recover goods? (Art. 2)
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From a buyer - when a seller learns the buyer who received the goods is insolvent, he may reclaim upon demand made w/in 10 days of receipt.
From bailee - when he discovers the buyer is insolvent |
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What are the three measures of damages for a seller if a buyer breaches? (Art. 2)
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1. difference b/w market price and contract price
2. resell the goods and recover the difference b/w contract price and resale price 3. lost profits - difference b/w the list price and cost to the seller. (occurs when seller's supply is unlimited) Plus incidental damages |
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What is the statute of limitation for actions for breach of sales of goods contracts?
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4 years
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What are the four types of warranties under Art. 2?
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1. warranty of title and against infringement
2. implied warranty of merchantability 3. implied warranty of fitness for a particular purpose 4. express warranty |
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If a sale is induced by fraud, what can a seller do? (Art. 2)
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rescind the sale and recover the goods (voidable title) exception: cannot recoover from a good faith purchaser for value.
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Can a seller recover from his goods from a thief? (Art. 2)
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Yes because the thief is unable to pass good title even to a puchaser in good faith for value.
Except when the goods are: (1) money (2) negotiable instruments that were transferred to a holder in due course (3) the buyer has made accessions (valuable improvements) to the goods (4) the true owner is estopped from asserting title. |
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What are the four general concepts of the UCC?
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1. good faith performance and obligations
2. common law & equity supplement UCC (fraud, estoppel, misrepresentation and mistake are not covered by the UCC) 3. modernization, simplification and uniformity 4. encourage commerce & performance of contracts |
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How does the UCC define "signature"?
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very broadly. anything that presents intent to accept or adopt a writing as authentic
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What is authentication?
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electronic equivalent of a signature - intent to adopt or accept record
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What is good faith?
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objective (fair dealing/reasonable commercial standards) AND subjective (honesty in fact) except Art. 5
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What is the difference between knowledge and notice?
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knowledge - actual awareness
notice - based on facts parties are aware of, parties have reason to know (extrapolation) |
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Under Art. 2A, what is a lease?
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Transfer of possession and use for a term (no title)
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Under Art. 2A, what are goods?
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movable items and fixtures (if the lease is separate from real estate)
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How do you know when a lease is a disguised security (and therefore covered under Art. 9 and not Art. 2A)?
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1. lessee is building equity in the good
2. lessee is becoming the owner of the good |
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When do you have a finance lease? (Art. 2A)
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1. Lessor doesn't manufacture, sell or select the goods (usually a financial institution)
2. Lessor buys to lease 3. Lessee aware of terms of contract between lessor and its supplies |
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What are the two types of dispute that arise under Art. 2A?
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1. Lessee v. Lessor
2.Lessor (of Lessee) v. Third Party |
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What does Art. 5 cover?
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Letters of Credit
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What are letters of credit (Art. 5)?
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Financial backing by financial institution.
3 Parties: Issuer - Bank Applicant - Bank's customer, repays bank Beneficiary- person for whose benefit LOC issued. |
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What is the independence principle (Art. 5)?
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Bank's obligation to pay an LOC is independent from any dispute between the applicant and the beneficiary.
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What is the strict compliance principle (Art. 5)?
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If applicant strictly complies with procedures then bank must pay if not, bank won't pay unless customer waives defect.
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What does Art. 7 cover?
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Documents of Title
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What are Documents of Title? (Art. 7)
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(a) warehouse receipts for storage of goods
(b) bill of lading issued by a carrier for transporation - Art. 7 only covers transport of goods w/in a single state or transport from a froeign country directly into a single state. 2. bailments on contract |
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What does Art. 8 cover?
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Investment securities.
Direct (stock ownership) or indirect (brockerage) |
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Who has control of the investment security?
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First to claim.
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What does Art. 2 cover?
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sale of goods
therefore if see a question w/ goods attached to real estate or sale of goods plus a service then have a scope problem |
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What is a sale under Art. 2?
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passing of title for a price
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Under Art. 2, what are goods?
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Movables (at the time you know the good is to be sold)
Fixtures (if good is capable of severage from the real estate w/o material harm to the real estate then it is a fixture) |
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When you have sale of a good combined with a service, does it fall within Art. 2 or the common law?
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the PREDOMINANT PURPOSE of the transaction determines what rule of law applies to the WHOLE transaction.
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What are the three types of merchant? (Art. 2)
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1. Goods merchant - deals in goods of that kind
2. Practices merchant - by occupation, skill or knowledge of goods or practices involved 3. Uses merchant - agent of broker. |
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When a court is interpreting the meaning of a contract under Art. 2, in addition to the contract, what will it look to?
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1. Usage of trade - trade practices (usually limited to merchants b/c to constitute trade usage must be familiar enough to know about and follow)
2. Course of dealing - prior contracts between these parties 3. Course of performance - this contract; these parties (can only occur if contract requires performance over time) |
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What are the four potential issues under contract formation? (Art. 2)
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1. statute of frauds
2. firm offers 3. indefiniteness 4. acceptance by shipment |
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What is the general rule of the Statute of Frauds? (Art. 2)
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A contract must be:
1. signed (by the party who is asserting the SOF defense) 2. indicate a contract was made 3. indicate quantity (output/requirements contracts are ok but must then include how to calculate buyers needs) |
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What are the 4 situations where a writing is not necessary to satisfy the statute of frauds? (Art. 2)
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1. Merchants & confirmatory memos - if in a transaction between merchants, one party sends a CONFIRMATORY MEMO that complies with the statute of frauds and the other party receives the memo and doesn't object w/in 10 days, the SOF is satisfied
2. Specially manufactured goods - if the seller has made a substantial beginning on the good and is unable to get rid of it in the ordinary course of business then SOF satisfied 3. Party admissions - SOF satisfied when a party admits under oath that the contract existed 4. Partial performance - any goods/payments accepted. |
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What the Firm offer rule requirements? (Art. 2)
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1. Merchant offeror (practices)
2. signed writing 3. writing states that the offer is not revocable or will be held open NO CONSIDERATION needed |
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How long is a firm offer allowed to be held open? (Art. 2)
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for the time stated in the contract not to exceed 3 months
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What does a contract need to meet the definiteness requirement under Art. 2?
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1. intent to be bound
2. reasonable basis to provide remedy Does not needd all essential terms b/c have gap fillers |
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What are the potential issues that arise around the terms of a contract? (Art. 2)
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1. battle of the forms
2. parol evidence 3. modification 4. warranties 5. gap fillers 6. unconscionability |
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How do you identify a battle of the forms issue? (Art. 2)
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1. one or more forms
AND 2. party relying on term in their own form to which the other party didn't expressly agree |
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If a contract is formed (oral) BEFORE the forms sent out, what terms are included? (Art. 2 - Battle of the Forms)
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1. Terms in form that are DIFFERENT than oral contract dropout and oral contract controls
2. Terms in form that are DIFFERENT from each other - neither forms' terms included (look to gap fillers) 3. ADDITIONAL terms are included UNLESS they materially alter the contract OR there is a prior (differing term in their form) or subsequent objection from the other party. |
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If a contract is created BY the forms, what terms are included in the contract? (Art. 2 - Battle of the Forms)
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1. ADDITIONAL terms are included UNLESS materally alters the contract or objection
2. terms DIFFERENT between forms are knocked out - use gap fillers |
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If a contract is created by performance INSTEAD of the forms, what terms are included in the contract? (Art. 2 - Battle of the Forms)
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1. Terms in BOTH forms
2. Terms expressly agreed to 3. Terms provided by UCC: gapfillers, warranties, UOT, COD, COP |
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What is the test to determine if a term material alters a contract? (Battle of the Forms - Art. 2)
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If the term will cause SURPRISE or UNDUE HARDSHIP to the other party.
Considerations: 1. Custom in Industry 2. Past Practices 3. Reasonableness 4. Consistent with Code Ex. of material alterations: (a) full disclaimer of implied warranties (if there's a disclaimer in a seller's form) (b) unilateral power to cancel Examples of terms that are NOT material alterations: (a) limit remedy to repair or replace (b) reasonable time limits (c) interest (d) reasonable credit terms |
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When does Art. 2 permit introduction of CONSISTENT parol evidence?
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to explain or supplement an integration if the evidence is:
- usage of trade, course of dealing or course of performance - evidence is consistent term agreed to by parties as long as writing is NOT completely integrated (partial integration). |
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How do you tell the difference between SOF, PRE and Battle of the Forms questions?
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1. Statute of Frauds - if one party denies contract AND contract has NOT been performed
2. Parol Evidence - if party relying on oral term or UOT, COD, COP 3. Battle of Forms - If party relying on a term in its own form |
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What is required for parties to modify their contract under Art. 2?
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1. good faith (consideration is NOT needed)
2. If the modification is within the statute of frauds then the modification must satisfy the SOF 3. If writinng prohibits oral modification then must be in writing, unless waived |
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What are the four types of warranties?
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1. Warranty of Title
2. Express Warranties 3. Implied Warranty of Merchantability 4. Implied Warranty of Fitness of a Particular Purpose |
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What does the warranty of title include? (art 2.)
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1. good title
2. the seller has the right to transfer. 3. no lien unknown to buyer (knowledge) |
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Can a warranty of title be disclaimed? (art. 2)
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very difficult but yes in clear and specific language OR circumstances let buyer know seller is not claiming title
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How is an express warranty created? (art. 2)
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by the seller's affirmative act (statement of fact, promise, model, sample OR description - NOT simply puffing) which is the basis of the bargain
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Can an express warranty be disclaimed (art. 2)?
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No
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What is an implied warranty of merchantability?
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a warranty that the goods are FIT FOR THEIR ORDINARY PURPOSE.
Seller must be a merchant OF THAT TYPE OF GOOD |
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What are the requirements to have an implied warranty of fitness for a particular purpose? (art. 2)
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1. any selller
2. seller has reason to know of buyer's needs 3. seller selects goods to suit buyer's needs 4. buyer RELIES on seller to select the goods Then an implied warranty arises that the goods are fit for the buyer's particular needs. |
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How do you disclaim the implied warranties? (art. 2)
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1. conspicous writing
2. contract states "as is" 3. disclaimer for defects a buyer should have discovered through inspection 4. uot, cod, cop (very RARE) |
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What are the art. 2 gap fillers?
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1. reasonableness
2. good faith 3. UCC presumes seller has no duty to deliver 4. UCC persumes simultaneous exchange of goods and money by seller and buyer |
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What is unconscionability? (art 2.)
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1. general adhesion contract/no choice
2. oppressive (more then unfair) 3. disclaimer of liability for personal injuries in a consumer contract. |
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What are a seller's performance obligations under art. 2?
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1. tender conforming goods
2. identification of the exact goods to be sold 3. tender of delivery 4. if goods are non-conforming, has a right to cure in 3 situations: (a) installment contract (absolute) (b) if the time for performance hasn't passed (absolute) (c) any time seller reasonably belived it was going to be ok that seller to send nonconforming goods (very liberal) |
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What are a buyer's performance obligations under art. 2?
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if receives conforming goods: accept and pay
if receives non-conforming goods right to reject all, whole or part for: ANY breach if one lot SUBSTANTIAL IMPAIRMENT that can't be CURED if installment contract |
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When may a buyer revoke acceptance of a good? (art 2.)
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Non-conformity
AND substantially impairs value to buyer AND buyer accepted because: seller promised to cure and didn't OR defect was difficult to discover OR seller induced buyer to accept by assurances. 4. revocation must occur w/in a reasonable time of buyer knowing or should know of non-conformity and notice must be given to seller. |
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Describe when a party may demand adequate assurance from another party and how it occurs. (art. 2)
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when the party has reasonable grounds for insecurity ie reasonably belive that other party cannot or will not perform. The other party's performance is not yet due.
Party must make a written demand for adequate assurance. Other party has no more than 30 days to respond. If doesn't provide requesting party with assurance, then the contract is repudiated. |
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Who bears the risk of loss to the contracted goods? (art. 2)
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depends on the type of contract entered into:
1. Delivery contract (seller ships using a 3rd party carrier): (a) Shipment contract - risk of loss shifts from seller to buyer when seller delivers to carrier (b) Destination contract - risk of loss shifts from seller to buyer when the goods arrive at their destination. 2. Bailee in possession of goods (warehouse) - shifts from seller to buyer when the bailee is in receipt of the doc of title, if no doc when the bailee acknowledges. 3. All other contracts - If the seller is a merchant risk shifts to buyer when the goods are in the buyer's possession. If the seller is not a merchant then risk shifts when seller tenders the delivery. |
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What happens to the risk of loss if the seller breaches the contract before the loss occurs? (art 2)
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ROL is on the seller until buyer accepts the goods or seller cures the non-conformity.
If buyer accepted goods, then revokes, ROL treated as if had been on seller from beginning to the extent loss not covered by insurance. |
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If a buyer breaches before loss occurs, what is the result on the risk of loss? (art 2)
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ROL on buyer if conforming goods, identified to contract, not covered by insurance at time of loss
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What are a seller's remedies when a buyer is insolvent before payment? (art 2)
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1. withhold delivery except for cash
2. stop in transit 3. recover goods w/in 10 days after receipt |
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What are a seller's remedies when a buyer fails to make the required payment?
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1. withhold delivery
2. stop in transit |
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What types of remedy limitations are allowable under art. 2?
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1. limitations that are NOT unconscionable ie can't limit personal injury damages in a consumer transaction or limit commerical consequential damages
2. can repair, and replace or refund 3. liquated damages clauses are permissible if not a penaly and are a reasonable forecast of damages |
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What does Art. 3 cover?
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negotiable instruments
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What is a negotiable instrument?
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1. signed writing (must be on paper - art. 3 doesn't recognize electronic signatures)
2. that contains an unconditional promise or order. 3. fixed amount of money (only principal need be fixed, accural of interest is allowable) 4. payable to bearer or order (can be payable to cash or blank) 5. payable on demand or definite time 6. no other undertaking |
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What are the two major types of negotiable instruments covered by art. 3?
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promissory notes - 2 parties
drafts (including checks) - 3 parties |
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When is someone obligated to pay a negotiable instrument?
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when they sign it
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What happens is a signature on a negotiable instrument is forged/unauthorized?
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- ineffective to impose liability on the principal
- may be ratified after the fact by the principal - principal may be precluded by own neggligence from asserting forgery. |
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Who is entitled to enforce payment on a negotiable instrument?
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1. one in possession if instrument payable to that person or bearer
2. one in possession who recieved through voluntaray transfer from holder 3. former holder of lost, stolen or destroyed instrument if can prove it in court |
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What defenses may an obligor raise if they signed a promissory note/check and now don't want to pay?
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Real Defenses (asserted against anyone): (1) insolvency (2) infancy (3) illegality, physical duress (4) fraud rendering a signer excusably ignorant that he's signing a negotiable instrument (5) discharge of which holder has notice
All other defenses on instrument or contract (allowable except against a holder in due course) |
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What is a holder in due course? (art 3)
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Holder - party in possession of an instrument
Due Course - (1) instrument not suspicious on face (2) good faith (3) value - includes performed promise (4) no notice |
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Holder in Due Course takes free of.... (art 3)
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all 3rd party claims to instrument
personal defenses claims in recoupment (counterclaims) |
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What is the shelter principle? (art 3)
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non-HDCC acquires rights of HDC if non-HDC takes by voluntary transfer of possession from one with rights of HDC
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What is a full payment check? (art 3)
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A check conspicuously designated full payment for resolution of a disputed claim. Must have: a good faith tender of check AND bona fide dispute or unliquidated amount
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What does a full payment check do? (art 3)
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discharges obligation when payment on check received UNLESS receipient has designated office for receipt of such checks and the check wasn't sent to that office OR the recipient returns money in 90 days (not appliable if sent to designated office)
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What does art. 4 cover?
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check collection and bank accounts
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What is the definition of properly payable? (art 4)
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authorized by customer & in accordance w/ bank/customer agreement.
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When must a bank pay under art. 4?
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when properly payable & sufficient funds
OR properly payable & overdraft agreement |
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When must a bank NOT pay under art. 4?
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if not properly payable ie forged, altered, not endorsed.
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When MAY a bank pay under art 4?
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when properly payable but insufficient funds
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What is a customer's remedy when a bank pays when it shouldn't? (art. 4)
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recredit customer's account
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What is a customer's remedy when a bank doesn't pay when it should (wrongful dishonor)? (art 4)
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all loss caused by dishonor AND consequential damages
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What are a bank's obligations if a customer orders a stop payment?
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1. must honor if received w/in reasonable time to act and reasonably identifies the check
2. bank is liable foor actual damages caused BUT if customer would have had to pay check anyway, no damages. |
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What does Art. 9 cover?
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secured transactions
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What are secured transactions? (art 9)
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1. security interests - interests in personal property or fixtures that secures payment or performance based on contract
2. agricultural lien - statutorily created non-possessory lien 3. sale of accounts, chattel paper, promissory notes, payment intangibles - monetary obligations 4. consignments - delivery of goods to another person for that person to sell 5. security interests under art. 2 or 4. |
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How is a good defined under Art. 9?
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things that are movable at the time the security intereest attaches.
Fixtures - defined the same way as property law |
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What are the four exclusive subcategories of goods under art. 9?
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1. consumer goods
2. inventory 3. farm products 4. equipment |
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How do you determine what subcategory a good fits into? (art 9)
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by the owners primary use for the good:
- consumer goods - only people have for their own use - inventory - goods held for sale and used (like raw materials or other goods that a business will use to manufacture or in the general course of business) - farm products - crops, livestock, etc. ONLY farmers can have farm products. - equipment - default category. Generally goods used in a business (not used up) |
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What are documents of title? (art 9)
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bills of lading, warehouse receipts etc. issued by a common carrier or a storage facility so cover transportation and storage of goods
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What types of personal property does art. 9 apply to?
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1. goods
2. documents of title 3. instruments 4. chattel paper 5. accounts 6. investment property 7. commercial tort claim (cannot be personal injury) 8. commercial deposit account 9. letter of credit/letter of credit rights 10. general intangible 11. proceeds |
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What kind of accounts qualify as personal property under art. 9?
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all debits - accounts receivable
Credit Device Account - accounts that arise from the use of credit cards. If the bank transfers that debt it is a credit device account Health care insurance receivable - only type of direct interest in insurance included in Art. 9. Right to collect ehalth care insurance proceeds if transferred from health care insurance. |
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What kind of investment property qualifies as personal property under Art. 9?
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stocks, bonds, etc. anything held by a broker
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What is a commercial deposit account under Art. 9 personal property?
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bank account of a business
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What is a general intangible under art. personal property?
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default category
usually intellectual property. 2 types: 1. payment intangible - monetary obligation that doesn't fit in other categories 2. non-embedded software |
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What items are excluded from Art. 9?
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1. Real estate exception fixtures
2. wages 3. transfer of accounts if (a) for collection (b) part of sale of business (c) performance obligation w/ right to collect money (d) only one for prior debt. 4. Insurance except: health care insurance receivable and proceeds 5. non-commercial tort claims 6. consumer depost accounts except proceeds 7. material or service liens (non-consenual) 8. matters covered by Federal law - only to the extent that the federal law conflicts w/ or preempts Art. 9 9. set-off rights 10. assignment of judgments |
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When are leases controlled by art. 9 and NOT art. 2A?
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Lease intended for security - disguised sale w/ financing.
Look for: Lessee has no right to terminate lease AND: no economic value in good at end of the lease OR nominal buyout or renewal (ie would be crazy not to buy) |
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When are consignments covered by Art. 9?
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- value is at least $1000
- not consumer goods - sold by merchant that deals in goods of that kind |
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When are consignments excluded from art. 9?
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when everyone knows a consignment is happening ie
- auctioneer - consignee generally known to be engaged in selling consigned goods - consignee conducts business in name of consignor |
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When is a security interest created (attached?) (art. 9)
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1. Agreement
2. value given by creditor - includes any consideration, anticident indebtness (past debt) and prior performance 3. debtor has rights in collateral - any legalized property right doesn't have to be title |
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How is an agreement created to satisfy the first element for a security interest to attach? (art. 9)
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Authenticated record describing collaterial and evidencing an intent to create a security interest
OR Possession by creditor or its agent OR control - intangible equivalent of possession |
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What rights does attachment give a credit under art. 9?
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Rights to enforce (less than debtor's rights unless he defaults) by:
repossession, collect on collateral right to assert interest against 3rd party, unless 3rd party has priority |
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What is a purchase money security interest? (art. 9) |
security interest that secures purchase money (seller financing)
- must attach if have agreement - taken by seller for price of good - taken by financing party who lent for puchase of goods |
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What is an art. 9 default?
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breach of security agreement only need attachment. ex. failure to pay, or to insure collaterial, unauthorized sale of collaterial or bankruptcy
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What are a creditor's rights on default?
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repossession
resell collaterial retain collaterial in satisfaction of debt collect directly from 3rd party obligor on collateral judgment and execution on collateral |
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What are the rules on repossession under art. 9?
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Can use self-help if can do so without breaching the peace (parties can not set standard for what breaches).
Creditor is liable if breaches peace for conversion, any tort committed, loss suffered by debtor, potential punitive damages (if there is a separate tort or statute that permits punitive damages) |
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What are the requirements for reselling or leasing collateral after repossesion? (art. 9)
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1. all aspects must be commercially reasonable
2. notice to debtor of sale (waived ONLY after default, can't be waived in security agreement) |
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In a commercial transaction, what are the requirements for notice before sale under art. 9?
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Creditor must give notice after default and 10 days before sale.
Notice is sufficient if it: (1) describes debtor & secured party, (2) describes collateral, (3) includes method, time and place of public sale or method & earliest time of private sale (4) right to accounting (debtors optional right to know what the cost of the sale was and how money was used) If notice doesn't meet all of the above requirements it becomes for the court to decide if it is reasonable |
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In a consumer transaction, what are the requirements for notice before sale under art. 9?
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- must be sent w/in a reasonable time (at least 10 or more days)
- notice must include: (1) everything from commercial transaction AND (2) describe liaiblity for deficiency (ie debtor's responsible for any money still owed after sale) (3) phone number for payoff (4) phone number or address for more information. |
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What happens if creditor fails to comply with sale/notice requirements?
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- responsble for damages suffered by debtor
- in commercial transactions: rebuttable presumption of no deficiency ie that a complying sale would have made enough $ to pay off the debt. If rebuttable presumption wiped out debtor must should that sale would have resulted in extra money. - in consumer transactions: creditor loses the right to deficiency AND statutory minimum damages (entire interest paid on debt and 10% of principal) Regardless a good faith purchaser is protected ie a debtor can't get collateral back |
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What are a creditor's obligations if he chooses to retain the collateral to wipe out the debt in full?
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- notice sent to debtor and creditors w/ interest in the property who request notice
- no objection w/in 20 days - entire debt satisfied, debtor has no further liability - not available if consumer has paid 60% of the debt thenn creditor must sell the collateral - after default. |
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What are a creditor's obligations if he chooses to retain the collateral to wipe out the debt partially?
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- only allowed in commercial transactions
- debtor must expressly agree in authenticated record (can't use notice) - after default - debtor liable for balance of the debt |
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If the creditor fails to comply with any of the requirements to retain collateral, what occurs?
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- creditor has no right to retain the collateral and must sell
- liable for any damages |
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What are the four ways to perfect a security interest? (art 9)
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1. filing
2. possession 3. automatic 4. control |
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What types of collateral can be perfected through filing? (art. 9)
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all collateral EXCEPT: money, deposit accounts, and letter of credit rights
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What is filed to perfect a security interest? (art 9)
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financing statement which must include: name of debtor & secured creditor and description of the collateral
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Where is a financing statement filed? (art. 9)
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most collateral: secretary of state in the state of debtor's location (state of incorporation if registered, if not state where the ceo's office is located)
real estate related collateral: recorder of deeds whhere land is (financing statement must include a description of the real estate) fixtures: either above method but generally must file in recorder of deeds (fixture filing w/ description of the real estate) to defeat interests in land. |
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When is perfection by possession (by creditor, agent or bailee, NOT debtor) permissible? (art. 9)
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All collateral except: non-negotiable documents, accounts, general intangibles, comemrcial tort claims, deposit accounts, letter of credit rights
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When is perfection automatic (perfected as soon as attached)?
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Permanent:
1. purchase money security interest in consumer goods 2. sale of notes or payment intangibles Temporary (at the end of 20 days have to perfect in another way) 1. negotiable documents & bailed goods if taken for sale, shipment etc. to debtor 2. instruments, certif. seucrities if taken for collection, renewal or sale by debtor 3. instuments, negotiable documents, certified securities if new value given for security interset or authenticated record. |
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When must perfection be achieved by control? And when may perfection be achieved by control?
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Must:
1. Deposit Accounts 2. Letter of Credit Rights May: 1. Investment property 2. electronic chattel paper. |
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When are proceeds perfected? (art. 9)
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- if the original collateral perfected AND cash or other liquid asset OR file in same office as original
- perfect directly in proceed w/in 20 days |
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What are the priority rules for secured creditors vs. secured creditors? (art. 9)
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1. perfected beats unperfected
2. first to file or perfect wins (race statute) 3. both unperfected, first to attach wins 4. proceed priority same as original collateral if creditor has continuous perfection in proceed. 5. future advance same as first advance if made when filed or perfected. |
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Secured Creditor has priority over a lien creditor if....? (art. 9)
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secured creditor perfected before lien attaches OR security agreement authenticated and SI filed before lien attaches.
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When does a Secured creditor have priority over a bankruptcy trustee?
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when the secured creditor perfected before the bankruptcy
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Who has priority between a buyer/lessee of goods and a secured creditor?
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1. buyer/lessee in ordinary course of business defeats even a KNOWN perfected SI
2. buyer of consumer goods from consumer, without knowledge, before filing defeats a security interest 3. other buyers defeat unperfected SI if pays and take possession w/o knowledge |
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Who has priority a holder in due course or a secured creditor? (art 9)
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Holder in Due course always defeats a secured creditor
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When does a puchaser of chattel paper have priority over an early perfected SI? (art. 9)
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1. gives new value AND
2. has possession (control if electronic) AND 3. ordinary course of purchaser's business AND 4. either: without actual knowledge of violation of SI OR chattel paper/instrument claimed as proceed of inventory and no indication of assignment. |
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What kind of security interest does an attached perfected consignor beat? (art. 9)
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all other security interests
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When does control have priority over non-control? (art. 9)
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1. deposit accounts
2. investment property 3. letter of credit rights |
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When does possession beat non-possession? (art. 9)
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negotiable instrument (under Art. 3) if good faith and no knowledge of violation of SI.
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Who wins between a security interest in fixtures and a real estate lender?
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the real estate lender always wins UNLESS
Fixture filing before real estate interest recorded OR PMSI & fixture filing w/in 20 days of becoming a fixture OR RE Interest is a lien creditor or trustee & SI perfected by any means first OR Readily removable machines/replacement of domestic appliances & perfected by any means first OR crops OR debtor has right to remove fixture against the real estate interest |
