Business Law - Secured Transactions/Agency Flashcards
What is a secured transaction?
Where a debtor and creditor get together for a loan agreement where the creditor either provides the goods or provides the money for the debtor to buy the goods.
Secured transactions - attachment refers to what?
The creditor’s rights against the debtor.
Secured transactions - what does PERFECTION refer to?
The creditor’s rights against 3rd parties.
Written Security Agreement
Document that states that debtor has the right to the goods provided he makes the payment.
Attachment = creditor is allowed to repossess if not paid.
Security interest refers to what?
BMW has a security interest in the car once sold. Can repossess in case of default because of attached rights. Non-possessory.
When does attachment take place?
The debtor has to have rights in the collateral for attachment to take place.
Example sign paperwork Saturday, get car on Monday. Monday attachment takes place.
Most common method of PERFECTION?
File a FINANCING STATEMENT in the appropriate public office.
This gives the world “constructive notice” of the arrangement.
Gives them rights against 3rd parties.
4 documents for a sale to have attachment and perfection
1) Contract for sale
2) Note - loan
3) Security Agreement - attachment
4) Financing Statement - perfection
Is a Financing Statement valid when signed or when filed?
Only when filed = PERFECTION.
What is a possessory interest?
Have possession of collateral by the creditor.
No written security agreement needed, no note or financing statement.
Still have attachment and perfection upon possession.
Does the public need to be notified in the case of a possessory interest?
NO
Do you have to file for attachment or perfection?
Perfection only
What is considered default?
Any breach of agreement?
What is the secured party’s 2 rights upon default?
Judgement: sue debtor
Repossession: must be peaceful
What must a secured party do prior to sale of a repossessed item?
Give the debtor notice of the sale.
If there is any surplus after the sale of a repossessed item, whom does it go to?
the debtor
If there is a deficiency after the sale of a repossessed item, who is responsible?
The debtor
If the consumer paid 60% or more of the value of an item, retention by the creditor is
NOT allowed.
Creditor must sell goods within 90 days or be liable for damages.
What is an agent?
Someone who is authorized to act on behalf of another (principal).
Can an agency contract be oral?
Yes, unless it falls under one of the ORGIES categories.
What are the duties of an agent?
- Fiduciary duty (loyalty)
- Confidentiality
- Obedience
- Accounting (if compensation involved)
- Reasonable care
Can a minor act as an agent?
Yes, minors can do lots of thing. Typically not a correct answer on the exam.
Is an employee an agent? An independent contractor?
yes and yes
Who is liable for contracts entered into by the agent?
As long as the agent acted with authority, the principal is.
What is a tort?
A tort is a private wrong for which the remedy is usually money damages rather than jail time.
The agent usually commits the tort of negligence on the job on the exam. Who is liable?
Both the agent and the principal. (as long as during normal business hours)
Can a principal terminate an agent who is under contract?
A principal always has the power to fire, but may not have the right to fire.
If the agent has done nothing wrong, they must still pay.
What types of notice must the principal give when terminating an agency relationship?
Actual notice - current customers
Constructive notice - potential customers
In what situations does notice not need to be given when terminating an agency relationship?
- death of principal or agent
- Insanity of principal or agent
- bankruptcy of principal
- illegality of purpose
- destruction of the subject matter
Attachment and perfection occur simultaneously when the security interest is
upon possession. (Like pawnbroker)
Under the UCC, when does a security interest become enforceable?
The value has been given,
the secured party receives a security agreement describing the collateral authenticated by the debtors,
and the debtor has rights to the collateral.
If the creditor files a financing statement, how long does it typically last?
5 years
What happens when collateral moves from one state to another state. Is the creditor still protected in the new state?
Yes, for 4 months. Then must file in the new state.
What happens if 2 creditors both have a financing statement filed on the same collateral for INVENTORY?
INVENTORY: The first creditor who filed the FINANCING STATEMENT has priority.
What happens if 2 creditors both have a financing statement filed on the same collateral for GOODS/EQUIPMENT?
Whoever is the first to ATTACH, then have a 20 day grace period to PERFECT.
Do surety/guarantor contracts need to be in writing?
yes
If a guarantor signs as “collection guaranteed” what must happen for debt collection?
No primary liability in this case, secondary liability. Must try to collect from original debtor first.
What are the rights of a surety prior to payment?
right of exoneration to be found not liable
-Possible defenses = BREASTS
Possible defenses for a surety
Bankruptcy of surety Raised amount Execution fraud Age/incompetent Signature unauthorized Threat of violence Substance of contract was illegal
What is subrogation?
Right of a surety AFTER PAYMENT.
Surety assumes rights of creditor, can try to collect from principal debtor.
What is the right of contribution for a surety after payment?
This is where there is more than one surety and after payment by one surety, they can go after the other for contribution.
If one co-surety gets released, what happens to the other co-surety?
Will release the other co-surety to the extent that contribution has been impaired.
What is a mechanic’s lien?
When someone fixes up real estate and has the right to be paid.
Under Common Law rules
What is an artisan’s lien?
Someone who improves personal property and has a right to be paid. Can force the sale of the personal property.
Under UCC
What is Writ of Attachment?
Pre-judgement remedy where a creditor asks police to seize debtor’s personal property.
What is Writ of Execution?
post-judgement remedy, allows the sheriff to sell the debtor’s personal property
What is Garnishment?
wages and bank account assets
could be pre-or post-judgement
Veteran, Social security, disability benefits not subject to garnishment
How much gain from the sale of real estate is exclude?
Single - 250,000
MFJ -500,000
The application of the cy pres doctrine in regards to a trust is applied when:
is applied in those situations in which a gift to a charitable trust cannot be carried out in the manner specified by the donor. In that case, the doctrine would allow that the trust be carried out as closely as possible to the intent of the donor.
A court will generally grant SPECIFIC PERFORMANCE for
UNIQUE PROPERTY or PATENT
when subject matter is UNIQUE or RARE
If a buyer rejects the goods, title belongs to
reverts to the seller. Non-conformance.
Unrelated Business Income of tax-exempt organization:
What happens if it is unrelated business activity where all of the work is performed by unpaid volunteers?
then the activity is not considered an unrelated trade or business.
Can an S-corp take a deduction for charitable contributions?
NO.
This includes charitable contributions, dividends, and foreign taxes.
When a trust instrument is silent regarding a trustee’s powers, can the trustee make distributions of PRINCIPAL to the income beneficiaries?
NO, violation of the Uniform Principal and Income Act
An employee who has had social security tax withheld in an amount greater than the maximum for a particular year, may claim
The excess as a CREDIT AGAINST INCOME TAX, if that excess resulted from correct withholding by TWO+ employers
Describe an INTER VIVOS trust funded with cash, what must the grantor do?
Transfer the cash to a TRUSTEE.
Must be done DURING the grantor’s lifetime.
NOT required to be in writing.
what is different about an agency relationship in terms of real estate?
Can’t be an oral agreement, must be in writing.
Is the principal debtor’s lack of capacity a defense available to a surety?
NO
