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Secured Transactions / CP HIGHLIGHTS
Terms in this set (13)
Secured Transactions Governing Law
Article 9 of the UCC, which applies to CONSENSUAL SECURITY INTERESTS in Personalty and Fixtures (collateralization in things).
How a creditor creates an enforceable security interest in debtor's collateral
VCR: value, contract, rights
- Value (e.g. loan)
- Contract (authenticated written record evidencing the transaction; not needed if secured party takes possession)
- Rights in Collateral (debtor must have rights in the collateral; after-acquired collateral clauses enforceable)
Once attached, creditor attains PERFECTION***
By putting the world on notice of its existence. Perfection = Publicity. Perfection assures prioritization in "line" if debtor defaults.
Filing notice in public records.*** Filing is done centrally, w/ Sec. of State, in state where debtor located. If debtor individual, principal residence. If org., state under whose laws it originated.
- Exception to central filing: timber, minerals, or fixtures, file in county where located.
PMSIs: a purchase money security interest in consumer goods is AUTOMATICALLY perfected. To encourage lending / stimulus. UCC favors.
When more than one creditor has a stake in the same collateral, the rules of priority are: first in time, first in right. The first to PERFECT takes first; second, second.
Concept: For purposes of determining priority, Art. 9 gives special effect to filing. It allows for early filing, even at onset of negotiations. If an early filer subsequently attaches, she is allowed benefit of her early filing. Priority will RELATE back to the early filing date.
If the debtor defaults on the debt, the Article 9 Creditor has statutory and judicial remedies. This is the reason lenders comply with Article 9.
A. Self help repossession (one of last remaining vestiges of self-help): allows, so long as creditor does not breach the peace, i.e. likely to cx violence. Not whether fight took place, but whether provocative or likely to cause violence.
* If ANY protest made, however mild, repossession breaches the peace. Home enjoys special zone of privacy; must be voluntary/contemporaneous consent. Outside home more flexible; ok in absence of objection.
B. Judicial action: In NY**, a Writ of Replevin.
C. Strict foreclosure. Works where collateral is full satisfaction of debt still owed. Retain, and cancel debt.
- Notice required, and if any notified parties objects within 20 days after, strict foreclosure not allowed; instead, collateral must be by sale.
CONSUMER GOODS and 60% Rule*. If collateral is consumer goods and debtor has paid 60%, Strict foreclosure NOT allowed. Must sell or be liable for conversion.
D. SALE. Must be commercially reasonable. ("Commercially reasonable.")
- Secured party may buy at public sale; but not at private; too much risk of self-dealing.
E. Action for deficiency judgment
Limited Right to Redemption
Cut off once resold or strict foreclosure.
If available, debtor must pay the missed payments, plus costs (including attorneys fees). If acceleration clause -- full amount due, plus interest, plus expenses.
COMMERCIAL PAPER: GOVERNING LAW***
Article 3 of the UCC
Rule: 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 only to real defenses.
Negotiable instrument versus K:
- Order, payable to
- Signed by maker/drawer
- Sum certain
- Unconditional promise (& no others)
- Payable on demand
- Payable in currency
Acceleration clauses OK, do not destroy negotiability.
Defendant Liability re: Commercial Paper
(1) Contract/Signature Liability
- D signed, i.e. promised to pay, and therefore may be sued.
- "Without recourse" disclaims liability
(2) Warranty/Transfer Liability
- Selling defective instrument
- Proper transfer requires DUE NEGOTIATION.
Holder in Due Course: How transferee may qualify
HDC is holder who takes the instrument:
(1) For value (including old) and
(2) In Good faith (subjective!)
(3) W/o notice that its overdue or dishonored or subject to any claim/defense.
A transferee acquires whatever rights transferor had; i.e. transferee Takes Shelter in status of transferor ("steps into the shoes of"). So a transferee can be a HDC even if a donee or otherwise fails to qualify.
Holder in Due Course: BENEFITS
• Free from claims and personal defenses. Including:
- Any ordinary K defense
- Lack of consideration
- Fraud in the inducement
• Still subject to real defenses: MADFIFI^4
- In the
Duties of Drawee Bank
Honor customer's check (if funds; if not, customer may be L for overdraft)
Forgery of Neg. Instrument
Writing a check without authority
Properly payable rule: drawee bank that honors forged check must recredit drawer's account, so long as not negligent.
Bank Statement rule: N includes failure to examine one's own bank statement in reasonable time.
Ficticious payee rule (RIDUCLOUS!): if an imposter induces the drawer to write the check, the drawer is N.
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