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| HDC takes subject to real defenses |
- material alteration
- duress
- fraud in factum
- incapacity
- illegality
- infancy
- insolvency
"material alteration" = change in the terms of the instrument |
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Robin Tue, 30 Jun 2009 21:53:33 GMT |
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| HDC takes free of personal defenses |
same as in ordinary contract actions, such as:
- lack of consideration
- unconscionability
- waiver
- estoppel
- fraud in inducement |
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Robin Tue, 30 Jun 2009 21:47:19 GMT |
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| HDC takes free of claims |
right to a negotiable instrument because of superior ownership |
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Robin Tue, 30 Jun 2009 21:47:19 GMT |
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| Benefits of holder in due course status |
takes free from claims and personal defenses, BUT subject to real defenses |
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Robin Tue, 30 Jun 2009 21:44:40 GMT |
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| Holder in due course and Shelter Rule |
transferee acquires whatever rights transferor had |
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Robin Tue, 30 Jun 2009 21:42:46 GMT |
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| "without notice" |
holder in due course must take w/o notice that it is overdue, dishonored, or subject to defense/claim (objective test)
notice of principal in arrears NOT ok, but interest payments in arrears ok |
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Robin Tue, 30 Jun 2009 21:37:55 GMT |
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| "in good faith" |
holder in due course must take w/ honesty in fact (subjective test)
- pure heart, empty head
or: reasonable commercial standards of fair dealing (objective) |
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Robin Tue, 30 Jun 2009 21:36:08 GMT |
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| "for value" |
holder in due course must give value for the instrument (NOT consideration=contract)
- NOT mere promise
- but OLD value is good |
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Robin Tue, 30 Jun 2009 21:34:02 GMT |
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| Is the holder eligible to be a holder in due course? |
takes for value in good faith w/o notice that it is overdue, dishonored, subject to claim/defense |
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Robin Tue, 30 Jun 2009 21:34:02 GMT |
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| Has the negotiated instrument been properly transferred? |
*** |
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Robin Tue, 30 Jun 2009 21:34:02 GMT |
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| How do you know it is a negotiated instrument? |
*** |
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Robin Tue, 30 Jun 2009 21:34:02 GMT |
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| Holder in due course: How does a transferee qualify? |
holder in due course is a holder who takes the instrument:
- for value
- in good faith
- w/o notice that it is overdue or has been dishonored or is subject to any defense or claim |
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Robin Tue, 30 Jun 2009 21:31:48 GMT |
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| Types of indorsement |
special OR blank
AND
restrictive OR unrestrictive
* special: must be signed by indorsee
* blank: does not name specific indorsee (delivery suff. for negotiation)
* restrictive: contains a condition |
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Robin Tue, 30 Jun 2009 21:30:42 GMT |
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| Payable to bearer |
indorsement NOT required |
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Robin Tue, 30 Jun 2009 21:26:04 GMT |
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| Payable to order |
negotiated by delivery of instrument to payee
further negotiation requires that payee indorse the instrument and deliver to transferee |
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Robin Tue, 30 Jun 2009 21:25:05 GMT |
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| Due negotiation: How is a negotiable instrument properly transferred? |
there has been a proper transfer of the instrument
then transferee is a holder and may be eligible to be a holder in due course
proper transfer: it is payable to order or bearer |
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Robin Tue, 30 Jun 2009 21:26:24 GMT |
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| Warranty of transfer liability |
seller's liability for selling a defective instrument
warranties run with the instrument: any transferor who SELLS the negotiable instrument may be sued (so long as transferor is not a donor he may be sued), and if D indorsed the instrument then anyone in possession may sue
but if defendant does not INDORSE the check, then warranties do NOT run with the instrument and only the immediate transferee may sue (people may not sue up the chain)
WARRANTIES: D promises
- P has good title to the instrument
- all signatures are genuine and authorized (forgery is a breach)
- instrument has not been materially altered (not defective)
- there is no defense or claim good against D (instrument is enforcement)
- D has no knowledge of any bankruptcy or insolvency action against maker/drawer |
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Robin Tue, 30 Jun 2009 21:25:05 GMT |
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| Contract or signature liability |
promisor / indorser / drawer / drawee
promisor: promises to pay, otherwise may be sued
indorses: signs back of check
drawer: signs the check
--it means that if check bounces he will pay if notified; if fails to honor, can be sued
"without recourse": by indorers and drawers--disclaimer of liability |
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Robin Tue, 30 Jun 2009 21:13:55 GMT |
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| How does defendant get sued? |
- contract or signature liability
- warranty or transfer liability |
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Robin Tue, 30 Jun 2009 21:06:31 GMT |
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| payable to order or bearer |
"order" or "assigns"
"bearer" or "cash" or "order of bearer/cash"
or name IF IT IS A CHECK
otherwise it is just a contract |
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Robin Tue, 30 Jun 2009 21:02:54 GMT |
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| on demand |
- on demand
- at sight
- on presentation
may be silent: will be negotiable
acceleration clauses ok ("or earlier if...")
but NOT a future event linked to a date certain |
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Robin Tue, 30 Jun 2009 21:02:54 GMT |
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| currency |
must be money, NOT goods |
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Robin Tue, 30 Jun 2009 20:57:13 GMT |
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| sum certain |
can be "interest" because Art. 3 will insert judgment rate
can be variable or indexed interest rate; need not be determinable from the face of the instrument
may reference outside data |
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Robin Tue, 30 Jun 2009 20:56:02 GMT |
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| limitation to certain source or fund |
ok, still negotiable |
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Robin Tue, 30 Jun 2009 20:56:02 GMT |
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| reference to another writing |
ok, not necessarily conditional |
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Robin Tue, 30 Jun 2009 20:56:02 GMT |
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| "conditional" or express condition |
contract term! |
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Robin Tue, 30 Jun 2009 20:56:02 GMT |
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| Negotiable instrument requirements (distinction from contract): note or draft |
- writing
- payment to order or bearer
- signed by maker (note) or drawer (draft)
- reciting a sum certain
- containing an unconditional promise (note) or order (draft), and no additional promises or orders
- payable on demand or at a definite time
- payable in currency |
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Robin Tue, 30 Jun 2009 20:49:48 GMT |
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| Types of negotiable instruments |
writings calling for payment of money
PROMISSORY NOTE: affirmative promise to pay (not mere IOU) from maker to payee
DRAFT: command/order (e.g., check) from drawer to drawee to pay the payee |
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Robin Tue, 30 Jun 2009 20:45:28 GMT |
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Negotiable instrument
vs.
Contract |
anticipate defenses:
- contract or signature liability
- warranty or transfer liability |
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Robin Tue, 30 Jun 2009 20:44:00 GMT |
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| Art. 3 Commercial Paper |
when a negotiable instrument is duly negotiated to a holder in due course, the holder takes free of all claims to it, free of personal defenses, and subject only to real defenses |
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Robin Tue, 30 Jun 2009 20:44:00 GMT |
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| Default: what can Art. 9 secured creditor do? |
SELF-HELP REPOSSESSION permitted IF: creditor does not breach the peace (actions likely to cause violence--provocative, NOT that actual fight broke out; debtor-protective standard)
- ANY protest of debtor constitutes breach of peace
- incl. constructive force (e.g., impersonating police)
* HOME: enjoys a zone of privacy--creditor must get voluntary and contemporaneous consent to enter
REPOSSESSION BY JUDICIAL ACTION: get a judicial writ in court ordering sheriff to get possession and deliver to secured party
STRICT FORECLOSURE: creditor lawfully retains the collateral in full satisfaction, debt is discharged; requires that secured creditor sends written proposal to retain in satisfaction to:
--consumer goods: debtor + secondary obligor
--other goods: debtor and other secured parties who give notice + perfected creditors + secondary obligors
* if any parties object w/in 20 days, then strict foreclosure NOT allowed and goods must be SOLD
* if consumer goods and 60% paid, then secured party must sell w/in 90 days--NO strict foreclosure allowed
SALE:
- may be private or public (notify time + place)
- must be commercially reasonable
- reasonable notice must be sent
--consumer goods: debtor + secondary obligors
--other: debtor + secured parties who have told secured party + perfected creditors + secondary obligors
* consumer goods: debtor must be told how to calculate deficiency + how to redeem
- secured party may buy at PUBLIC sale but NOT at private sale
ACTION FOR DEFICIENCY JUDGMENT:
- limited if sold low to insider to independent third party price
- right to redeem cut off once sold or after strict foreclosure
- debtor must pay missed payments + accrued interest + reasonable expenses incl. atty fees
- acceleration clause: debtor must pay entire debt + interest + expenses |
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Robin Tue, 30 Jun 2009 20:39:55 GMT |
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| Default: definition |
debtor has breached terms of the record (typically failure to pay) |
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Robin Tue, 30 Jun 2009 20:18:56 GMT |
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Perfected attached creditor
vs.
world |
PAC defeats all EXCEPT:
- PAC who filed first
- certain PMSI-holders
- buyer in the ordinary course of business (BIOC) |
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Robin Tue, 30 Jun 2009 20:15:10 GMT |
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Attached unperfected creditor
vs.
world |
Attached unperfected creditor may enforce against debtor and subsequent attached unperfected creditor and general unsecured creditor |
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Robin Tue, 30 Jun 2009 20:14:25 GMT |
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Perfected attached creditor
vs.
Buyer in the ordinary course of business |
BIOC always wins |
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Robin Tue, 30 Jun 2009 20:14:25 GMT |
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After-acquired collateral financier
vs.
PMSI |
EQUIPMENT: PMSI wins if PMSI-holder files properly w/in 20 days of debtor taking possession
INVENTORY: PMSI wins if PMSI-holder files properly AND notify AACF BEFORE debtor takes possession |
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Robin Tue, 30 Jun 2009 20:14:25 GMT |
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| Priority |
subordination (NOT sharing)
rank order:
- buyer in ordinary course
- perfected attached creditor
- lien creditor
- non-ordinary course buyer
- attached unperfected creditor
- general unsecured creditor
priority relates back to early filing date |
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Robin Tue, 30 Jun 2009 20:14:25 GMT |
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| Perfection: steps |
publicity device: puts world on record or constructive notice of the security interest; helps protect the secured party against competing creditors
how to attain perfection:
- taking POSSESSION
- PURCHASE MONEY SECURITY INTEREST in consumer goods is automatic
- central filing of FINANCING STATEMENT (UCC-1) in public records of Sec. of State where debtor located (record or constructive notice) EXCEPT timber, minerals, fixtures (file locally); may be electronic--Art. 9 is media-neutral--requires: debtor's name/address, creditor's name/address, description of collateral (may be generic: "all assets") |
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Robin Tue, 30 Jun 2009 19:53:38 GMT |
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| After-acquired collateral clauses |
enforceable
"floating lien"
creditor typically attaches current and subsequently-acquired assets |
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Robin Tue, 30 Jun 2009 19:42:20 GMT |
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| Possession |
authenticates a deal: takes place of requirement for a contract / security agreement |
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Robin Tue, 30 Jun 2009 19:39:38 GMT |
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| Attachment: definition |
security interest is enforceable
requires:
- value
- contract (security agreement / record) (UNLESS party has taken possession!)
- rights in collateral
* record / security agreement must be:
- authenticated by debtor (signed or electronically marked)
- reasonably identify the collateral |
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Robin Tue, 30 Jun 2009 19:39:38 GMT |
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| Collateral: definition |
personalty or fixtures creditor may look to for satisfaction
- primary use in hands of debtor (subjective: may be inventory/consumer good/etc depending on debtor)
may be:
- consumer goods
- equipment
- inventory
- farm products
- fixtures
incl. (semi-)intangibles:
- patents, trademarks, copyrights
- stocks, bonds, mutual funds
- proceeds form sale of collateral
- accounts
- promissory notes, drafts |
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Robin Tue, 30 Jun 2009 19:35:14 GMT |
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| Security interest: definition |
right creditor has in debtor's personalty or fixtures |
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Robin Tue, 30 Jun 2009 19:28:01 GMT |
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| Art. 9 scope |
applies to consensual security interests (NOT statutory or mechanics liens) in personalty (goods) or fixtures
- depends on debtor's willing participation
(i.e., in real estate: apply mortgages law) |
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Robin Tue, 30 Jun 2009 19:24:43 GMT |
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| If debtor defaults |
Art. 9 creditor has STATUTORY and JUDICIAL remedies |
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Robin Tue, 30 Jun 2009 19:22:50 GMT |
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| Rules of priority |
generally, first-to-perfect takes first
(first in time, first in right) |
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Robin Tue, 30 Jun 2009 19:22:30 GMT |
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| Perfection: definition |
creditor places world on record notice of its claim |
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Robin Tue, 30 Jun 2009 19:32:02 GMT |
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| How does a creditor attach (i.e., create an enforceable security interest in debtor's collateral)? |
- value
- contract
- rights in the collateral |
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Robin Tue, 30 Jun 2009 19:21:58 GMT |
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| Art. 9: application |
applies to consensual security interest in personalty and fixtures |
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Robin Tue, 30 Jun 2009 19:21:04 GMT |
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