Chapter 7 Bus Law: Commercial Paper, Secured Transactions, Flashcards
Under negotiable instruments UCC (article 3), what makes an instrument negotiable?
Be in writing
Be signed by the maker or drawer (not drawee)
Contain an unconditional promise or order
Be for a fixed amount of money
Be payable on demand or at a definite time
Be payable to order or bearer
Contain no additional undertaking/instruction not authorized by the UCC
what notes are subject to Article 3 of UCC?
Checks, Drafts, promissory notes, CoD
what instruments are subject to Article 7 of UCC?
Bill of lading
Warehouse reciept
what determines whether an instrument can be further negotiated?
depends on to whom the instrument was drawn in the first place. If the instrument here was payable to bearer or to the order of Faye Smith, it may be further negotiated, but if it was payable to the order of anyone else, it could not be further negotiated without that person’s endorsement.
what is an Order paper (Draft)?
Is three party paper. Where a signer orders a bank (person with money) to pay a third person
Person A ORDERS Person B to PAY person C
What makes a Holder in Due Course
- negotiable note
- negotiable note PAYABLE TO ORDER
- transferee’s can be hdc
- he is 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
Real vs personal defenses
Real: 10 FAIDS F - Fraud in execution OR Forgery A - Adjudicated insanity OR Material Alterations I - Infancy OR Illegality D - Duress OR Discharge for Bankruptcy S - Suretyship (Someone will pay for you) OR Statute of Limitations (3 years after dishonor, 6 years after demand) Personal: (All NOT FAIDS defences) Breach of Contracts
Endorsement (SPecial vs Restricted vs Qualified vs Blank)
Restricted = "For COllection" SPecial = Names NEW Payee Blank = DOES NOT NAME New Payee Qualified = Contains words "Without recourse" eliminating contract liability
what is necessary for a security interest to attach? (A(CCC)-DR-CV)
A(CCC) - Parties make AUTHORIZED AGREEMENT to create security interest OR CREDITOR CONTROLS COLLATERAL
DR - DEBTOR must have RIGHTS in the collateral
CV - CREDITOR Must give VALUE
What is Purchase Money Security Interests (PMSI)?
Have priority over every other type of Security interest in that piece of collateral
What is scope of Article 9 (Secured Transactions) of UCC?
Personal property or fixtures (or AR sales) ONLY
Who gets PMSI?
1) Creditor selling collateral on credit (Kia selling me car on credit)
2) Creditor advances funds used by debtor to purchase collateral (If Bank of America gave me money to buy Sophia)
How to spot PMSI in problems?
Did the debtor purchase the collateral with creditor’s money or creditor’s credit? Was it perfected within 20 days of debtor recieving goods
When multiple security interests in the same collateral who gets top priority?
The person who filed or perfected first. EXCEPT PMSI HAS PRIORITY OVER NONINVENTORY GOODS
Perfection of AR?
Only automatic when not a substantial amount of AR has been assigned.
What does it take to perfect? (FPCAT)
Perfection can be acheived by: F - Filing a financing statement P - taking POSSESSION of collateral C - taking CONTROL of collateral A - AUTOMATICALLY (PMSI AND Small scale assignment) T - TEMPORARILY
What is set aside in preference period under bankruptcy chapter 7?
mortgages and secured interests
Preferential payments include (within 90 days)
1) transfer made to or for benefit of creditor
2) Antecedent debt
3) within 90 days prior to filing or 1 year if insider
4) Made when debtor was insolvent
5) Results in creditor receiving more than they would have in proper bankruptcy proceedings
Who can file chapter 11 bankruptcy?
CPA partnerships
(Retail and Wholesale) Sole proprietorships
Advertising partnerships
What must happen before approval of Chapter 11 reorg?
provision to pay administrative expenses must be made
Objections to a discharge of most debts under chapter 7
1) Debtor NOT an individual
2) Fraudulent transfers or concealment of property
3**) didn’t keep books and records straight
4) prior discharge in past 8 years
5) commission of bankruptcy crime
6) Failure to explain loss of assets
7) improper conduct of an insider’s case
8) Failure to complete financial management course
What Proceeds after filing petition are included in estate for liquidation bankruptcy?
Life insurance
Divorce settlements
Inheritance
WITHIN 180 DAYS
Which creditor has priority in bankruptcy cases?
- Secured Claimants
- Priority Claimants (SAG-WEG-CTI)
- General Creditors
Bankruptcy Priority claimants? (SAG-WEG-CTI)
S - Support to Spouse and children
A - Administrative Expenses
G - Gap Claims (Ordinary business from filing date to relief date)
W - Wages up to $12,475 per employee (within 180 days)
E - Employee Benefit plans up to $12,475 per employee
G - Grain Farmers and Fisherman up to $6,150
C - Consumer Deposits up to $2,775
T - Tax claims
I - Injury from Drunk driving
Preferential payments (taken back from creditor and set aside for payments)
1) Transfer made to or for the benefit of a creditor
2) On account of an antecedent (pre-existing) debt of the debtor
3) payments made within 90 days of filing; 1 year if creditor is an insider
4) made while debtor was insolvent
5) results in creditor getting more than they would have in Bankruptcy
Types of Bankruptcy
Chapter 7 - Liquidations
Chapter 13 - Adjustment of Individuals with Regular Income
Chapter 11 - Reorganization
Individual, Partnerships, Corporations applied to which of the following Bankruptcy
Liquidations Chapter 7 (IPC)
Adjustment of Individuals with Regular Income Chapter 13 (I only)
Chapter 11 Reorg - (IPC)
when can creditors file involuntary chapter 7 bankruptcy?
when the debtor isn’t making payments as they become due.
If at least one (need not be 12 or more) UNSECURED CREDITOR is owed at least $15,325.
Does a debtor need to be insolvent to file chapter 7 bankruptcy?
NO, but must pass income tests
What is included in the bankruptcy property estate? (DII)
DII received within 180 days of filing
Divorce
Inheritance
Insurance
What debts will NOT be discharged by bankruptcy? (WAFTED)
W - Willful and Malicious Injury
A - Alimony and other marital support
F - FINES and FRAUD
T - Taxes due within three years of filing
E - Educational loans unless hardship
D - Debts undisclosed at time of bankruptcy filing
Under which Bankruptcy filing is a trustee appointed?
Chapter 7 always
NOT CHAPTER 11 (Reorg)
