Commercial paper, secured transactions, and misc. contracts/prof responsibility Flashcards
All contracts in MA are subject to
an implied covenant of good faith and fair dealing
Courts will read in conditions to a K when they can be
inferred from facts (implied-in-fact condition) or should be read in on the basis of fairness (implied-in-law condition)
Specific performance is the appropriate remedy for a breach of K when _______ and ___________ but never when ________________ or _____________.
subject of K is unique; money damages are insufficient
never when it’s a K for services OR when subject of K has been sold to a subsequent BFP
Anticipatory repudiation is
generally not recognized in MA, unless in suits for specific performance of a land K
When is anticipatory repudiation a valid theory in MA?
In suits for specific performance of a land conveyance.
The four options for the nonbreaching party when the other party commits an anticipatory repudiation are:
- treat K as breached and sue immediately
- wait until time for performance, then sue for breach
- treat the repudiation as invitation to rescind and thus treat K as discharged
- ignore repudiation and urge party to perform
The difference between quasi-contract and promissory estoppel is
Quasi-contract (restitution) is about preventing unjust enrichment; promissory estoppel is about compensating a party who justifiably and foreseeably relied to her detriment on a promise.
Two requirements to be able to discharge K duties due to illegality:
- Illegality must make the SUBJECT of the K illegal, not merely some secondary purpose illegal
- Illegality must arise AFTER the K is made to discharge duties.
Can frustration/impossibility/impracticability arise because of a condition that developed before the K was made?
NO. These are things that discharge K duties only if they happen after the K was made. If before, look to mistake.
Referral fees among attorneys in MA are
generally unethical, but attorneys may divide fees with outside attorneys if the client consents AND the total fee is reasonable. The split need not be in proportion to the work done, and the split need not be revealed to client unless client asks.
Lawyer may reveal confidential client information for the following 7 purposes:
- To rectify client fraud in which the lawyer’s services have been used
- To prevent reasonably certain death…
- …SBI…
- …incarceration of another…
- …or serious injury to the property/financial interests of another
- to collect lawyer’s fee, OR
- to protect lawyer’s reputation
(think of these as 4 ways to protect others, 1 way to prevent fraud, and 2 ways to protect lawyer)
What types of collateral are governed by UCC Art. 9?
- consumer goods
- equipment
- inventory
- farm products
- fixtures
- intangibles – patents, trademarks, copyrights, stocks, bonds, accounts, promissory notes
How does one create an enforceable security interest in goods or fixtures?
BY ATTACHING. Need VCR to attach:
- Value given by creditor
- Contract – signed by debtor and reasonably identifying the collateral (NB: no K needed if secured party has possession of collateral! “I got you, Babe.”)
- Rights in collateral – debtor must have them! (No Mick Jagger & Brooklyn Bridge)
What’s a floating lien?
Are they enforceable?
an “after acquired security interest” – security interest in “all inventory acquired in future” kind of thing.
YES.
Is a contract always needed to create an enforceable security interest in personalty or fixtures?
Not always – if the creditor has possession of the collateral, no K is needed. (“I got you, Babe.”) Rationale: Unlikely to be fraud if creditor possesses the collateral – why else would she have it unless there was a security interest?
Perfecting a security interest in goods or fixtures means that
you’ve put the world on constructive notice of your existence as a secured party.
What are the three ways to perfect a security interest in goods or fixtures?
- By taking possession of the collateral (“I’ve got you, Babe.”). This puts world on constructive notice, because why else would you have the collateral??
- PMSIs: automatically perfect upon attachment
- Filing notice in public records (most common way)
What is a PMSI?
purchase money security interest – security interest that allows the debtor to buy the goods.
To perfect a security interest by filing in public records, you file a
financing statement. (Could also file security agreement (contract) but this is rare.)
What does an Art. 9 financing statement contain?
- Debtor’s and creditor’s name and address
2. Description of collateral (generic descriptions are OK here, but NOT in the security agreement (contract))
What is the purpose of an Art. 9 financing statement?
To give interested parties enough information to make follow-up inquiries.
Can you file an Art. 9 financing statement electronically?
YES. Art. 9 encourages this but is “media neutral.”
An Art. 9 financing statement should be filed with…
the secretary of state in the state where the debtor is located, UNLESS the collateral is timber, minerals, or fixtures. Then, file in county where the realty is located.
PMSI holders in fixtures have priority over
interests in those fixtures arising under real property laws (i.e. interest of a buyer of a house in the fixture within the house), AS LONG AS PMSI holder filed within 20 days of affixation.
A filing in the public records for a security interest is good for how long?
5 years, but secured party can continue the authorization by filing for another 5 years thereafter.
How early can a secured party file in public records to perfect her security interest?
As soon as negotiations begin, and the priority date will relate back to the date that you filed, even if you filed before the collateral was attached.
Rankings of priority among secured/unsecured parties with interest in collateral
- BIOC (buyer in ordinary course)
- PAC (perfected attached creditor)
- LC (lien creditor – no attachment but got judicial lien)
- NOCie (non-ordinary-course buyer)
- AUPie (attached unperfected creditor)
- GUC (general unsecured creditor)
What happens when a later PMSI holder clashes with a first-in-time holder of an after-acquired security interest in (a) equipment or (b) inventory?
(a) equipment – PMSI holder WINS as long as she files within 20 days of when the debtor takes possession of the collateral
(b) inventory – PMSI holder wins ONLY if she files before debtor takes possession of inventory, AND notifies the after-acquired-security-interest holder of her interest before the debtor takes possession. (Stricter requirements because fraud is easier with inventory as collateral)
A secured party can engage in self-help repossession of the collateral on default if
he does not breach the peace – which means he can’t repossess over ANY protest of creditor, however mild.
SP may NEVER enter home without debtor’s voluntary, contemporaneous consent
When may a secured party enter a debtor’s home to repossess collateral after default?
Only with consent of debtor.
What happens if a debtor sells the collateral that a secured party has an interest in?
If interest is perfected, creditor has a 20-day perfected security interest in whatever proceeds the debtor receives in the sale. Can go beyond 20 days in certain circumstances that I’m not going to remember.
Once a secured party has repossessed collateral, she can do one of two things with it:
- Strict foreclosure – secured party keeps the collateral in full satisfaction of debt
- Sells via public auction OR private sale (secured party’s choice, as long as everything about the sale is commercially reasonable)
Either way, must provide NOTICE to debtor and cosignors
Strict foreclosure is not allowed if
- any notified party (debtor or cosignors) objects within 20 days
- if collateral is consumer goods, no strict foreclosure if debtor has paid 60% or more of the loan or, if PMSI, of cash price.
In either of these cases, secured party must SELL collateral.
In a sale of collateral by a secured party, reasonable notice includes
- for auctions – time and place of sale
2. for private sales – date after which sale will be made
In a sale of collateral by a secured party, reasonable notice must be given ___ days before sale
10 or more
Art. 9’s standard notice forms are
presumptively commercially reasonable.
In a sale of consumer goods collateral by a secured party, reasonable notice must be given to _______ and include ___________.
debtor & cosigners
additional consumer protections, like how deficiency was calculated and how debtor can redeem collateral
An action for a deficiency judgment can be made when
a sale of collateral doesn’t cover all of the debtor’s outstanding debt (true in both mortgages and secured transactions).
How can a debtor in a secured transaction redeem?
by paying the missed payment(s), plus accrued interest, plus creditor’s reasonable expenses, including attorney’s fees.
How to tell if an instrument is negotiable or if it’s merely a contract?
WOSSUP
- Writing
- payable to ORDER or to bearer
- SIGNED by maker or drawer
- reciting a SUM certain
- UNCONDITIONAL promise – and no other promises or orders! Any conditions make it a contract.
- PAYABLE on demand or at definite time (not, e.g., “upon birth of my first grandchild”)
- PAYABLE in currency (not goods).
Signature liability for negotiable instrument is
D’s liability when he signs a negotiable instrument. When he signs, he promises to pay, and if he doesn’t he can be sued.
Who is liable under signature liability theory for a negotiable instrument?
Primarily, the promisor (if promissory note) or the drawer (if a draft). Secondarily, the indorser.
The effect of a draft that’s signed “without recourse” is
to disclaim signature liability but still pass title.
Warranty or transfer liability for a negotiable instrument is
A SELLER’S liability for selling a defective negotiable instrument (sellers only, not people who give it away)
The five warranties made by someone who sells a negotiable instrument are
- he has good title to it
- it hasn’t been materially altered
- all signatures are genuine
- there aren’t any defenses or claims against D
- D has no knowledge of bankruptcy or insolvency actions against maker or drawer.
If a negotiable instrument is payable to order of a specific payee, it is properly transferred
by delivery to that payee, and further negotiation requires payee’s indorsement and delivery to new transferee.
If a negotiable instrument is payable to bearer, it is properly transferred
by delivery. No indorsement is required.
The requirements to be a holder in due course of a negotiable instrument are that you take it
for value, in good faith, and without notice that the instrument is overdue, has been dishonored, or is subject to any claim or defense.
Three ways a holder of a negotiable instrument can take with notice that something is wrong with it are
- It’s overdue
- Principal (but not interest) is in arrears
- There’s notice of claims or defenses – e.g. says “void,” notice of competing claim, notice that a fiduciary has breached duty
A person who was given a negotiable instrument (and didn’t pay for it) can still get benefits of HDC status by
taking from someone who was an HDC (“shelter”).
The benefits of holder in due course status are that you
take free from personal defenses, subject only to real defenses.
Real defenses are
MAD FIFIIII:
material alteration duress fraud in factum infancy insolvency illegality incapacity
A bank must honor a customer’s check if
there are sufficient funds in the account. Customer may recover damages if the bank doesn’t.
A bank must honor a customer’s check as it’s drawn, which means:
Bank can’t charge customer’s account if signature of drawer was forged, if check was for more money than original order, if check was postdated, or if wrong person tries to withdraw funds.
Two obligations of a bank when it is ordered to pay a customer’s check are
- bank must honor check if sufficient funds in customer’s account
- bank must honor check as it’s drawn.
A bank that improperly honors a forged/materially altered check must
recredit the drawer’s account, as long as drawer was not negligent.
Four ways a drawer of a negotiable instrument can be negligent are
leaving blanks or spaces on the check, failing to follow internal procedures designed to avoid forgeries, failing to report forgery within a reasonable time, being lured into writing a check to a fake payee when she should’ve known better.
“Future advance” clauses in security agreements are
clauses that provide that future loans between the parties will be secured by current (or after-acquired) collateral mentioned in the security agreement.
They are enforceable.
FIXTURES: As between a creditor with a security interest in a fixture and a creditor with a security interest in the underlying real property that the fixture is on, who prevails?
Usually, the first to record (either by recording a real property interest OR by filing a fixture filing). But, if the creditor with the interest in the fixture has a PMSI, she will prevail as long as she files a fixture filing within 20 days after “affixation.”
