27 terms

Commercial Paper & Secured Transactions

made based on fine points ergo not as extensive as ones made from notes There is no fine points for secured transactions

Terms in this set (...)

two types of instruments & source of law
*drafts (check)
*UCC article 3
requirements for negotiability
1) a writing
2) payable to order or bearer
3) signed
4) reciting a sum certain (interest okay)
6) payable on demand or at a definite time (acceleration clause ok)
7) no other promise, order, obligation or power given to the maker/drawer
8) Payable in CURRENCY
due negotiation
*proper transfer
*needs to happen to be eligible to be a holder in due course
*if payable to order of specific t'feree negotiated by delivery
*any subsequent negotiation requires payee endorse
*payable to bearer doesn't require indorsement
requisites for holder in due course (HDC) status
1) holder
2) paid value (can be past, can't be mere promise)
3) in good faith (subjective)
4)without notice that the instrument is overdue, has been dishonored, or any defense against or claim to it on the part of any person
Shelter rule & HDC
*t'feree has rights t'feror had
*so if acquire from HDC step into shoes
*allows donee to be an HDC
Advtg of being a holder in due course
*not subject to personal defenses (no consideration, unconscionability, 3rd party claims)
* only subject to real defenses
*take free from claims
Real defenses, ie ones an HDC is subject to (7)
*material alteration
*Fraud in the factum (ie a lie about the instrument)
Liability on Negotiable instrument
*probably will be the drawer or indorser
*has to be dishonored, and maker has to have notice
*"without recourse" negates K liability
BUT NOT warranty liability
Warranty liability- Transfer Warranties (5)
*any t'feror not a donor, in other words a seller, is liable
*5 warranties
1) transferor has good title
2) all signatures genuine
3) instrument has not been altered
4) no defense of any party good ag the t'feror
5) t'feror has no knowledge of any insolvency proceedings ag the maker, acceptor or drawer
Liability for wrongdoing
*forged drawer's sig --> drawee (bank) pays
*forged indorsement --> depository bank pays
*t'fer warranties- HDC & holder get redress from previous party
Secured Transactions statute (*ST= secured transactions cards)
*UCC Article 9
*applies to personalty & fixtures
*applies to voluntary- not mechanics liens
Classifying tangible collateral (5 classes)
*as to do w/ use in the hands of debtor (subjective)
1) consumer goods
2) equipment (items used in a business)
3) inventory
4) farm products
5) fixtures
*how a security interest becomes enforcable
*Three Requirements
1)value given by creditor (ex- a loan of $)
2)Contract- aka record or security. Must be authenticated by debtor and reasonably ID the collateral (alt=secured party takes possession of the collateral)
3)DEBTOR must have rights in the collateral
*puts world on notice of secured party's existence
*if creditor perfects and then the debtor gives someone else a stake in the same collateral the perfected creditor will have first priority
Perfection (how to do it)
1) taking possession OR
2) filing notice in public records
file a financing statement, or the security agreement itself.
3)file statement w/ secretary of state in state where the debtor is located (corp, LLC, ltd p'ship is located in the state under whose laws it is organized)
*if collateral is natural resource having do w/ land, file in county where the land is located
Order of Priority when Multiple creditors
*each claimant satisfied in full before subordinated one takes
*in descending order of priority:
1) buyer in ordinary course (ie from merchant's inventory)
2)Perfected Attached Creditor
3)Lien Creditor (judicial lien on collateral. otherwise unsecured)
4) non-ordinary course buyer (outside ordinary scheme of commerce)
5) Attached Unperfected Creditor (AuPie) (attaches, but doesn't perfect)
6) General Unsecured Creditor (GUC)
what about when 2 perfected attached creditors want the collateral
*the first to file wins
*can file @ the onset of negotiation before the deal is closed
Perfected Attached Creditor (PAC) vs. PMSI
*can arise b/c the PAC has a floating lien and the PMSI allowed the debtor to buy more
*collateral = EQUIPMENT: if PMSI files w/ in 20 days from when debtor gets the property it has first priority
*collateral= INVENTORY: in order to get 1st priority the PMSI must 1) file before the debtor takes possession AND 2) notify the other creditor before debtor takes possession
*when the debtor breaches the security agreement
*breach defined in agreement itself, not article 9
Self-Help Repossession
*after default OK if creditor doesn't breach the peace
*breach of peace= secured party's actions likely to cause violence
*repo. over ANY protest if breach of the peace
*if creditor misuses the color of law (e.g. impersonate police) he has used constructive force --> breach of peace
*civil & criminal penalties for breach of peace
*debtor's HOME is a zone of privacy. secured party can't enter w/o contemporaneous consent
Repossession By Judicial Action
*alternative to self-help for creditors
*get a writ of replevin ordering the sherrif to take possession of the collateral & deliver to secured party
Strict Foreclosure
*AFTER taking possession the creditor retains the collateral in FULL satisfaction of the debt
*must send a written proposal to:
-consumer goods to debtor & 2er obligors
- if not consumer goods to debtor and other secured parties who have told creditor of their interest in the collateral
*if any notified parties object w/ in 20 days of sending notice NO strict foreclosure. dispose of collateral by sale instead
New York 60% rule
*if collateral is CONSUMER GOODS and the debtor has paid 60% of the loan (non-PMSI) or cash price (PMSI) no strict foreclosure
*secured party must sell w/in 90 days
*if secured party does not sell he is liable for conversion
*rationale- prevent windfall to the creditor
Sale of Collateral
*secured party sells collateral and applies proceeds to debt
*every aspect of sale must be commercially reasonable
*reasonable notice must be sent prior to sale
*secured party CANNOT buy if the sale is private. Can buy at a public sale
Reasonable Notice for Sale of Collateral
*UCC has standard forms that are presumptively OK
*CONSUMER GOODs- notice 2 debtor & 2er obligors
*ALL OTHER- notice to debtor, perfected creditors, 2er obligors & secured parties who have advised the foreclosing creditor of their security interest
*4 PUBLIC sale- time & place of sale. PRIVATE just need date after which will be made
*CONSUMER GOODS- mandatory addt'l provisions about how to calcul. deficiencies & how debtor can redeem
*no bright line abt how far in advance
Action for a Deficiency Judgment
*if sale doesn't cover debt
*if sale= low price to insider buyer calc deficiency based on what indy 3rd party would have paid
Debtor's right of redemption
*to redeem:1) may amt owed 2) pay interests 3) pay creditor's reasonable expenses (incl. att fees)
*acceleration clause- can mean have to pay whole value to redeem
*rights ends at resale, strict foreclosure