Uniform Commercial Code (Texas Bar)

Front 1

What is the method for analyzing a Commercial Paper question?

Back 1

1. Identify type of paper
2. Identify the parties
3. Determine if the instrument is negotiable
4. Determine if the transfer properly negotiated the instrument
5. Determine if the transferee is a Holder in Due Course
6. Determine plaintiff's causes of action (e.g., contract, warranty, tort, non-payable)
7. Determine defendant's defenses.
8. Can liable defendant pass liability on to another party?

Front 2

How do you identify a Note?

Back 2

There is a promise by one party (Maker) to pay a second party (Payee)

Hint 2

EXAMPLE: Certificate of Deposit - A bank (Maker) promises to repay principal w/ interest to depositor (Payee)

Front 3

How do you identify a Draft?

Back 3

There is an order by one party (Drawer) that a second party (Drawee) should pay a third party (Payee)

Hint 3

EXAMPLE: Check - A bank customer (Drawer) writes a check which orders bank (Drawee) to pay money to person indicated in the check (Payee.

Front 4

How do you identify a Remotely-Created Item?

Back 4

There is an order made by the authority of one party, who did not sign the instrument, (Drawer) that a second party (Drawee) should pay a third party (Payee).

Hint 4

EXAMPLE: Electronic check where the Payee is given the checking information and authority to draw funds from the checking account.

Front 5

What are the elements of negotiability in an instrument?

Back 5

1. In writing
2. Signed by maker or drawer
3. Unconditional promise o order to pay
4. Amount to be paid is fixed
5. Payment is in money
6. Instrument requires no other undertakings or instructions
7. Payable on demand or at definite time
8. Contains language of negotiability

Front 6

What items render an instrument conditional, and therefore non-negotiable?

Back 6

1. Express condition to payment
2. Instrument "subject to" or "governed by another record"
3. Rights/duties relating to the instrument incorporated by reference which burden holder.

Front 7

What items do NOT render an instrument conditional?

Back 7

1. Mere statement of consideration given
2. Instrument referenced "as per" or "in accordance with" another record
3. Rights/duties relating to the instrument incorporated by reference which do NOT burden holder.
4. Limitation of payment to particular source of funds.
5. Requirement of countersignature
6. Consumer protection language.

Hint 7

1. Non-burdensome incorporations by reference: rights over collateral, prepayment, acceleration.
2. Consumer protection language doesn't render instrument non-negotiable but prevents Holder in Due Course status.

Front 8

What is the process of negotiating an instrument?

Back 8

It is the transfer of an instrument such that the transferee attains status of Holder.

Hint 8

Holder status = possession + good title

Front 9

What is a Holder In Due Course?

Back 9

A Holder of an instrument who has obtained better rights than the transferor and takes free of most defenses.

Front 10

What are the elements of HDC status.

Back 10

1. Instrument is negotiable
2. Transferee is a holder
3. Instrument is apparently genuine
4. Holder is BFP w/o notice

Front 11

What are the rights of a HDC?

Back 11

1. Subject only to "Real" defenses
2. Protected from "Personal" defenses
3. Free from other's claims to the instrument

Front 12

What are "Real" defenses?

Back 12

1. Infancy of obligor
2. Duress/illegality/fraud voids obligation
3. Obligation discharged in bankruptcy
4. Required consumer protection language was omitted
6. Statute of Limitations (6 years past due)
7. Payment to former holder by obligor w/o notice
8. Unauthorized signature or forgery

Front 13

What are "Personal" defenses?

Back 13

All defenses which are not Real defenses

Hint 13

E.g.: Failure of consideration, breach of warranty, etc.

Front 14

What is the basis of contract liability on an instrument?

Back 14

Signature of agent, maker, drawer, drawee, indorser, or accommodation party.

Front 15

What is Maker's liability in contract?

Back 15

1. Primary liability for payment according to terms of the instrument.
2. Laible to HDC who paid the instrument
3. Can raise defenses, though effectiveness depends on status of holder

Front 16

What is Drawer's liability on instrument?

Back 16

1. May disclaim liability on drafts, except checks
2. Liable after presentment and dishonor of check

Front 17

What is Indorser's liability on instrument?

Back 17

1. May indorse "without recourse" to limit liability. This merely passes title.
2. Indorsers liable in order of signature
3. Liable after presentment, dishonor, and notice of dishonor

Hint 17

Presentment and notice of dishonor each carry a 30 day limitations period for indorser liability.

Front 18

What is Drawee's liability on instrument?

Back 18

1. Liable if it certified the draft
2. Liable for conversion if it paid a forged draft

Front 19

What are the Transfer Warranties?

Back 19

Warranties made by transferor (who receives consideration) to:
1. Immediate transferee
2. Subsequent transferee if transferor indorsed
Warrants that:
1. Transferee is a holder
2. Signatures authentic & authorized
3. No defenses against transferor

Hint 19

1. Drawer and maker cannot sue for breach of transfer warranty
2. Warranties may be disclaimed (except on checks)

Front 20

What are Presentment Warranties?

Back 20

Made by presenter or prior transferors to party who pays (maker, drawee, acceptor) that:
1. Warrantor could enforce instrument
2. Instrument not altered
3. Belief in drawer's authorization

Hint 20

Presentment and transfer warranties are mutually exclusive

Front 21

Warranty v. Contract claim

Back 21

1. If P is Holder: claim for indorser's contract
2. If P is Payor: claim for warranty

Front 22

What is the effect of forged signature?

Back 22

1. If Maker: Forger, not Maker, is liable.
2. If Drawer: Forger & Drawee bank liable, not Drawer.
3. Indorsement: Drawee, not Drawer, liable.

Hint 22

If Drawer negligently contributed to forgery, or failed to inspect/report forgery w/in 1 year, or sue for conversion w/in 3 years, then Drawee not liable.

Front 23

What is the effect of alteration of the instrument?

Back 23

1. Altered obligation: HDC may enforce original obligation
2. Altered completion: HDC may enforce alteration.
3. Alteration by holder discharges obligor

Front 24

What is a blank indorsement?

Back 24

The unconditional signature of an instrument by payee.

Hint 24

This changes order paper to bearer paper.

Front 25

What is the Shelter Rule?

Back 25

A transferor receiving from HDC takes the HDC's rights against the maker.

Front 26

What is a special indorsement?

Back 26

The signature of payee plus the designation of transferee.

Hint 26

Transfers title of order paper and creates contract liability in transferor (unless disclaimed)

Front 27

What is the Impostor Rule?

Back 27

Drawer / maker may be estopped from denying liability where he did not confirm the identity of the impostor payee

Hint 27

E.g.: Mike pretends to be Paul and has Dan write check to him, as Paul. Drawee's acceptance of check to impostor is effective.

Front 28

When is an agent liable on an instrument?

Back 28

1. If principal is not named in the instrument AND
2. Signature does not indicate agency

Hint 28

HDC cannot enforce against agent if he had notice of agency. Holder cannot enforce against agent if original parties did not intend agent would be liable.

Front 29

What are the options of a potential creditor?

Back 29

1. Refuse
2. Obtain a mere promise to repay (unsecured creditor)
3. Obtain surety (from guarantor or accommodation party)
4. Obtain interest in collateral (secured creditor)

Front 30

What is the analysis of a Secured Transaction?

Back 30

1. Within scope of Article 9?
2. Classify the collateral
3. Has a security interest attached?
4. Has any security interest been perfected?
5. Who is making claims against the collateral?
6. What is the order of priority?
7. Has any repossession been proper?

Front 31

What transactions are within scope of Article 9?

Back 31

1. Any security interest in personal property or fixtures owned or to be acquired by debtor
2. Sale of accounts, chattel paper, payment intangibles, and promissory notes
3. Consignment of non-personal goods over $1,000
4. Statutory agricultural liens
5. Lease-purchase agreement

Hint 31

Not covered: rights under federal law, real property, non-commercial tort claims, consumer deposit accounts, statutory liens, and wage assignments.

Front 32

What are the classifications of collateral?

Back 32

1. Goods: moveable items & fixtures (may be consumer goods, equipment, inventory, farm products)
2. Intangibles (may be instruments, documents, chattel paper, accounts, investment property, commercial tort claims, and intellectual property)
3. Proceeds: stuff received upon sale of other collateral or proceeds
2.

Front 33

What are the elements of attachment?

Back 33

1. Creditor gave value
2. There is a valid Security Agreement (oral or authenticated)
3. Debtor has rights in the collateral

Hint 33

if the SA is oral, the creditor must be in possession of the collateral.

Front 34

What are the elements of an authenticated Security Agreement?

Back 34

1. Evidenced in writing
2. Signed by debtor
3. Reasonably identifies collateral

Hint 34

Descriptions of "consumer goods", "commercial tort claims", and super-generic descriptions ("all personal property") don't reasonably identify the collateral.

Front 35

What are the elements of perfection?

Back 35

Attachment plus:
1. Possession of collateral by creditor
2. Filing of Financing Statement
3. Automatic perfection
4. Control OR
5. Notation of SI on Certificate of Title

Front 36

What collateral cannot have SI perfected by possession?

Back 36

Accounts, intangibles, electronic and non-negotiable documents

Front 37

What collateral cannot have SI perfected by filing of FS?

Back 37

Deposit accounts and money require possession for perfection of SI

Front 38

What are the elements of a valid FS?

Back 38

1. Names of Debtor & Creditor
2. Addresses of Debtor & Creditor
3. Debtor's authorization in signed record
4. Any description of the collateral
5. Filed w/ Sec of State

Hint 38

1. Authorization of 1 FS is implied by authenticated SA.
2. FS valid for 5 years unless "continued" w/in 6 mos. prior to expiration.

Front 39

When is perfection automatic?

Back 39

Permanent: 1) PMSI in consumer goods, 2) promissory notes, 3) sale of tiny part of debtor's account.
Temporary (20 days): 1) proceeds 2) new value for instrument / negotiable document / certified security

Front 40

When is perfection had through control (present right to sell)?

Back 40

1. investment property
2. Nonconsumer Deposit Account
3. Electronic Documents
4. Electronic Chattel Paper

Front 41

What state's UCC governs multi-state transaction?

Back 41

Where debtor located, unless:
1. perfection by possession, fixture, timber, agricultural lien (law where collateral located)
2. Certificate of title (law where COT most recently issued)
3. Deposit account (law where chief office of holder bank)

Front 42

What law if debtor or collateral changes state?

Back 42

1. If debtor moves, perfection remains for 4 months
2. Perfection by possession continues per the new states law

Front 43

Priority: Secured party v. Secured party

Back 43

1. Both unperfected: first to perfect wins
2. One perfected: that creditor wins
3. Both perfected: first to either file or perfect

Hint 43

EXCEPTIONS:
1. PMSI in goods wins if perfected: by possession or w/in 20 days
2. PMSI in inventory or livestock wins if perfected: by debtor's possession or w/ proper notice to conflicting creditors
3. Deposit account or investment property: controlling party wins

Front 44

Priority: SP v. Purchaser

Back 44

Generally SP wins, unless:
1. Debtor has permission to sell
2. BFP of goods in OCB wins
3. BFP wins v. unperfected SP
4. BFP of consumer goods wins v. unfiled SI

Front 45

Priority: SP v. Lien creditor

Back 45

1. SP unperfected at attachment of lien: lien creditor wins
2. SP perfected at attachment of lien: SP wins

Front 46

When is SP's collateral for future advances at risk?

Back 46

1. Against buyer not in OCB after SP learns of purchase OR 45 days after purchase
2. Against lien creditor after SP learns of lien AND 45 days elapse from lien attachment

Front 47

When will an SP prevail over mortgage holder in fixture collatera?

Back 47

1. If perfected by fixture-FS prior to recording mortgage
2. If PMSI perfected by fixture-FS w/in 20 days

Front 48

What are the rules of repossession?

Back 48

1. Creditor may repossess upon default
2. It is a self-help remedy
3. No notice to debtor needed
4. Cannot be a breach of the peace
5. Creditor may resell or strictly foreclose

Front 49

What are the requirements for sale of collateral after repo?

Back 49

1. Notice generally required
2. Debtor may have right to redeem collateral
3. Sale must be commercially reasonable
4. Creditor cannot purchase unless sale is public

Front 50

What notice is required before sale of collateral after repo?

Back 50

1. Not required if collateral is perishable, declining in value, or traded commodity
2. Must describe debtor, SP, collateral, & method of sale
3. Given at least 10 days prior to sale
4. Given to debtor, sureties, and other known creditors
If consumer goods: explain deficiency /redemption and give contact info.

Front 51

When may creditor redeem?

Back 51

1. Creditor hasn't foreclosed, sold, or committed to sale
2. Debtor hasn't waived right after default
3. Debtor fulfills all obligations secured by collateral and pay reasonable costs of sale

Front 52

How are resale proceeds applied?

Back 52

1. Costs of sale
2. Satisfaction of debt
3. Subordinate creditors
4. Debtor

Front 53

Damages for improper resale?

Back 53

1. Actual damages
2. If consumer goods: finance charge plus 10% of principal
3. If consumer transaction: ban on deficiency recovery
4. If non-consumer transaction: presumption of no deficiency

Front 54

What are the requirements for strict foreclosure?

Back 54

1. Debtor consents
2. Creditor sends authenticated notice
3. No objection within 20 days
4. Debtor has less than 60% equity if consumer goods