REG - commercial paper, secured transactions, and property
CPA REG commercial paper secured transaction property
Terms in this set (105)
Are warehouse receipts within UCC Article 3?
No, it is within UCC Article 7, document of title
Are bills of lading within UCC Article 3?
No, it is within UCC Article 7, document of title
Are notes within UCC Article 3?
Are drafts within UCC Article 3?
Which is a two party commercial paper?
A note is.
Is a certificate of deposit a note or a draft?
Is a check a note or a draft?
Is trade acceptances drafts or notes?
Is a remotely created item a draft or a note?
A note "payable on May 1, 2050—
accelerated by the death of my Uncle John," is it negotiable?
An instrument will not be negotiable if it contains any promises in addition to the promise to pay. What is exception?
waivers of the right to jury trial
a statement indicating the instrument is secured
Does a promise to pay in cash destroy negotiability?
Does bearer paper or order paper requires endorsement?
What is the statute of limitations on drafts and notes?
drafts: 3 y
notes: 6 y
Under the UCC, how long is the time period for a stop payment?
Oral: 14 days
Written: 6 months
If debtor defaults, how can creditor have rights to the collateral against both the debtor and most third parties?
If creditor perfects the security interest by filing a financing statement.
How to determine whether it is a PURCHASE MONEY SECURITY INTEREST (PMSI)?
whether the debtor, at the time of the creation of the security interest in the collateral, was involved in purchasing the collateral; and if so, whether the price or credit was
advanced by the secured party for the purchase.
If either one of these factors is missing, there is no PMSI.
What are the requisites for attachment?
the creditor must either take possession or control of the collateral or obtain an authenticated record of a security
If there is a record of the security agreement, it must be authenticated by the debtor not the creditor.
The debtor must have rights in the collateral, but need not necessarily own the collateral.
Value must be given by the secured party in exchange for the security interest
A financing statement is not required. It is related to perfection, not attachment.
What is the timing of perfection?
Perfection can be completed along with or after the attachment.
How long is the period for which filing is effective?
5 years and it can be renewed.
Can a secured party perfect a security interest by taking possession of the collateral?
Yes, but not to intangible property.
What security interests may be perfected by control?
security interests in investment property
What security interests may be perfected automatically?
PMSI in consumer goods
small scale assignment of accounts
How many days is a security interest in proceeds from original collateral perfected?
20 days from the debtor's receipt of the proceeds
How long is the grace period for interstate shipment?
What is a garage sale rule?
If a buyer of consumer goods resells the goods to another consumer buyer, the secondhand buyer will take free of an automatically perfected PMSI in consumer goods as long
as the second-hand consumer buyer had no notice of the security interest.
But if the secured party filed, the second-hand purchaser is subject to the security interest. The secured party can repossess from the second-hand purchaser because the
second-hand purchaser had notice.
The order of priority
(i) Buyer in the ordinary course of business, holders in due course (HDCs) and the like;
(ii) A properly perfected PMSI holder;
(iii) Perfected security interest holders and judicial lienholders once the lien has attached; and finally
(iv) Unperfected security interests.
What are the exceptions of PMSI?
1) second-hand consumer purchaser (garage rule): if the secured party filed, the second-hand purchaser is subject to the security interest. The secured party can repossess from the second-hand purchaser;
2) A PMSI in equipment has priority over other perfected security interests if filed anytime within 20 days of the
debtor getting possession of the collateral. The perfection relates back to the date of possession.
3) There is no 20-day grace period for a PMSI in inventory. To have priority it must be perfected before the debtor gets possession and notice must be given to other perfected parties in the same collateral.
Can the priority under Article 9 be modified?
Yes, by negotiating with other secured creditors for a subordination agreement.
If sale of the collateral does not bring in enough money to pay the expenses of the sale and the debt, who should cover the deficiency?
The secured party may bring a court action to recover the
deficiency from the debtor.
After default, if a secured party wants to keep the collateral, but the value of the collateral cannot fully cover the debt, what can he do?
If the transactions involving consumers, no deficiency may be recovered.
If not, he may seek to recover the difference from the debtor.
But in either case, the secured party must give notice of its intent to keep the collateral to the debtor and other secured parties.
In what circumstances, the secured party cannot keep the collateral even default occurred?
In consumer goods cases where the debtor has paid at least 60% of the loan, the secured party must sell the collateral within 90 days after repossession, unless the debtor waives this right.
What is a fee simple of estates in land?
This is absolute ownership of all rights in the land. The holder can sell it, divide it, or devise it in his will. The fee simple has a potentially infinite duration with no limits on transferability. A conveyance from "A to B" is presumed to pass a fee simple interest if A owned one.
What is life estate?
lasts as long as the life of a person
What is a remainder?
A remainder is a future interest created in a transferee that follows a life estate. If A conveys "to B for life, then to C," C has a remainder.
What is an easement?
Limited Right to Use the Land of Another
What is a license related to land?
A license is a revocable and nontransferable privilege to go upon the land of another (e.g., to watch a concert).
What can a profit holder do to the land?
He can enter a tract of land to take a substance (e.g., soil,
minerals, timber, game, etc.) from the land.
What is the distinguishing feature of a joint tenancy?
The right of survivorship.
When one joint tenant dies, the property passes to the surviving joint tenants by operation of law. Transferee can only become a tenant in common. The remaining joint tenants remain joint tenants with respect to one another.
What is a tenancy in common?
If a tenant dies, the property does not pass by operation of law to the other tenants, but rather goes to the decedent's heirs or the persons named in the decedent's will.
What is a tenancy by the entirety?
A joint tenancy between husband and wife.
The right of survivorship may be severed by death, divorce, or mutual agreement.
Does lease of land need to be in writing?
<1 year, no
>1 year, yes
Is the rent due at the beginning or end of the period if the time of rent payment is not specified?
The end of the period.
Is the termination of periodic tenancies require proper notice?
Is the termination of tenancies at will require proper notice?
Can a tenant freely transfer his leasehold interest in whole or in part?
Yes, Unless expressly prohibited by the lease.
What is a fixture?
A fixture is personal property that has been so affixed to land that it has become part of the realty. It cannot be removed from the property at the end of the lease term.
What is General Warranty Deed?
It is the Best Protection. A general warranty deed is one in which the grantor covenants against title defects created by himself and by all prior title holders.
What is Special Warranty Deed?
only two assurances:
(1) Prior to the time of the conveyance, the grantor has not conveyed the same estate to anyone, and
(2) The estate conveyed is free from encumbrances made by the grantor.
What is Bargain and Sale Deed?
Only Warrants Grantor Has Title
What is Quitclaim Deed?
No Warranties. It basically releases whatever claim the grantor may have in the property.
What is the difference between a notice and race-notice statute?
under a notice statute, the subsequent purchaser need not record in order to prevail.
Under a race-notice statute, the first in time prevails until a subsequent purchaser records first.
What are most commonly recorded instruments?
deeds and mortgages
Are mortgages assignable without the mortgagor's consent?
Which is required for a valid mortgage? acknowledgement and signature of mortgagor or of mortgagee?
acknowledgement and signature of mortgagor
Is the amount of the debt required for a valid mortgage?
Is delivery required for a valid mortgage?
Is consideration required for a valid mortgage?
Is a promissory note required for a valid mortgage?
Does the first mortgagee to obtain and record a mortgage have priority over all subsequent mortgagees and purchasers?
Is a third party assumes an existing mortgage, who can the mortgagee sue upon default?
Does the mortgagor have a right of redemption after foreclosure sale?
Half the states allow. Usually 6 months.
If a buyer purchases property subject to an existing mortgage of the seller, is he liable for the existing
No, if he is not willing to. But the buyer runs the risk of
foreclosure if the seller defaults.
What are junior interests in the property?
all interests recorded subsequent to the interest being foreclosed
What are senior interests in the property?
all interests recorded prior to the mortgage
What is the difference between a surety and a guarantor?
A guarantor of collectibility is liable only if the creditor is unable to collect from the debtor after exhausting all legal remedies. But a surety is the liable as the creditor.
There are three solvent and two insolvent sureties. How much debt is each surety liable?
Each solvent surety is liable for one-third of the debt.
Under what circumstances, a gratuitous surety is released?
any variation of surety's risk or change in the contract
If an unauthorized person fill out a blank in a warehouse receipt, is the receipt enforceable?
If an unauthorized person fill out a blank in a bill of lading, is it enforceable?
How can someone become a holder in due course?
He must be a holder who takes the instrument for value, in good faith, and without notice that the instrument is overdue or has been dishonored or of any defenses on or claims to the instrument.
Is an antecedent debt a consideration?
Does an antecedent debt constitute value for HDC purposes?
Is an executory promise a consideration?
Does an executory promise constitute value for HDC purposes?
If someone purchased a note at a discount, does this prevent him from becoming a holder in due course of an instrument?
f someone purchased an instrument which is antedated or postdated, does this prevent him from becoming a holder in due course of an instrument?
What is THE SHELTER DOCTRINE?
Most subsequent transferees of an HDC can "succeed to" or "take shelter in" the rights of the HDC, unless the transferee is a party to the fraud affecting the instrument.
What are the maker's or drawer's defenses to payment if the holder has the rights of an HDC?
Only real defenses is applicable.
Fraud in the execution
Forgery of a necessary signature
Statute of limitations
Is fraud in the inducement a personal defense or real defense?
Is fraud in execution a personal defense or real defense?
Is failure of consideration a personal defense or real defense?
Is theft of an instrument after it was signed a personal defense or real defense?
Is breach of contract a personal defense or real defense?
Is mistake a personal defense or real defense?
Is impossibility a personal defense or real defense?
Is unauthorized Completion a personal defense or real defense?
An endorsement of an instrument "for deposit only" is an example of what type of endorsement?
An endorsement of an instrument "without recourse" is an example of what type of endorsement?
An endorser indicates a specific person who needs to subsequently endorse it, what type of the endorsement is it?
To become a holder of bearer paper, is endorsement required?
To become a holder of order paper, is endorsement required?
How to decide whether a commercial paper is order or bearer paper?
A blank endorsement does not name a special endorsee. This
makes the instrument bearer paper. It can be negotiated by
The missing of magic words (payable "to bearer" or "to the order of" a specific payee) does not prevent a commercial paper from negotiable in what circumstances?
Only if it is a check or in endorsements
Do special conditions prevent a commercial paper from negotiable?
If it is on the fact of the paper, it is not negotiable.
If it is on the endorsement, it is negotiable.
Any other language added to an endorsement creates what type of endorsement?
A "restrictive" endorsement.
An endorsement of an instrument "pay Tim Trustee in trust for Benny Beneficiary" is an example of what type of endorsement?
A "restrictive" endorsement.
An endorsement of an instrument "pay Paula Payee only if she has mowed my lawn" is an example of what type of endorsement?
A "restrictive" endorsement.
What kind of fraud is a real defense?
Only fraud in the execution—where a person is tricked into signing something that he does not know is a negotiable instrument.
What kind of instrument is negotiable even though it does not identify any payee?
Identification is not necessary for a negotiable instrument. It simply converts the commercial paper into a bearer paper.
An individual postdates the check he fills out. If a bank pays on this check before its stated date, is the bank liable to the drawer?
No, unless the drawer has given the bank prior notice of the postdating.
A gives B a promissory note. B endorses it to C and C becomes a holder in due course. Then A informs C that the instrument was induced fraudulently by B. Knowing this, D still buys the instrument from C. Who are liable to D on this instrument?
A, B, and C
How can the secured party perfect the secured interest?
(ii) taking possession of the collateral;
(iv) automatic perfection; and
(v) temporary perfection.
What is eminent domain?
It is the power of the government to take, with just compensation, private property for public use.
What is adverse possession?
It allows a person to gain title to real property if the person has continuously and openly occupied the land of another for a statutory period of time.