FL Negotiable insturments- UCC article 3

Question 1

how is it tested

Answer 1

• multiple choice when business organizations tested

Question 2

definitions: note

Answer 2

• 2 parties
• a promise to pay, like to pay a car/house
• maker= person who makes promise to pay
• payee= person who is going to be paid

Question 3

defintion: draft (bill of exchange)

Answer 3

drafts are checks, traveler’s checks or cashiers’ checks which differ from promissory notes

3 parties

draft= order to pay

(1) drawer is the person ordering the (2) drawee to pay the (3) payee

Question 4

definition: checks

Answer 4

a draft is a three party negotiable instrument in which the drawer orders the second party (drawee) to pay sum of money to payee.

common draft
* “i order you to pay someone”
* you (drawee) can put stop payment
* cashiers check= where drawer and drawee are the same bank “I, bank, order myself to pay this person”
* again, the drawee (bank) can stop payment
* in either check type (common or cashiers) only drawee can stop payment

Question 5

promissory note

Answer 5

two party instrument in which maker promises to pay a sum of money to the payee

Question 6

definition: negotiable instrument

Answer 6

• Article 3 designed to treat something like cash, when it is not cash
• paper which is flexible in nature
• 1st person giving it to other people and they use it with the same value= negotiable
• like assignment, but much easier
• negotiable instrument is:
  1. written
  2. signed by maker of note/drawer for draft/check
  3. must contain unconditional promise or order to pay a fixed amount of $ (must be money, not other commodity like gold)
  4. payable to either order or bearer (whoever is in possession of it can seek payment on the note)
  5. payable at definite time
  (order=a named person/persons/identifiable thing. sometimes referred to as “order paper”) (An instrument that does not include a specific date on which payment will occur is deemed to be payable upon demand)
  (bearer= person who hold instrument. can also be check made payable to “cash”, that would be a bearer paper)
  if it does not meet these standards, it is still a contract

(6) without additional undertaking or instruction

Question 7

definition: holder

Answer 7

• a person entitled to enforce the instrument
• they can cash the instrument
• agent can be considered holder

Question 8

enforcement of instruments

Answer 8

persons entitle to enforce an instrument: holder in due course o non-HDC

HDC status (holder with extra protections )
* for value
* in good faith
* without notice of certain infirmities of the instrument like forgery, alteration, or other irregularities

VVVVVVVVVVV

Accord and satisfaction by use of instrument – unliquidated (i.e., disputed) claim can be discharged if the person against whom the claim is asserted in good faith tenders an instrument or an accompanying written statement that contains a conspicuous statement

VVVVVVVVVV

A person may be able to enforce an instrument that has been lost, destroyed, or stolen if the person was in possession of the instrument and entitled to enforce it at the time of loss.

Question 9

special rules: rules of construction

Answer 9

• 3 things in check/note
  1. handwritten= overrules anything typed/printed
  2. typed= overrules printed
  3. printed (pre-printed form)

(in any of these forms, text overrides numbers, two dollars > $2.00)

Question 10

special rules: incomplete instruments –> blank payment dates

Answer 10

• if you forget to put date of payment on check, payable immediately

Question 11

special rules: incomplete instruments –> blank amount

Answer 11

• may still be valid negotiable instrument, if agreement beforehand that payee will fill it out later
• otherwise, invalid

Question 12

negotiation: definition

Answer 12

• Negotiation is the delivery by a person other than the maker or drawer of an instrument to any other person.
• the point where we want to transfer negotiable instrument to someone
• the consequence of a negotiation is that the person receiving the instrument obtains the status of a holder.
• initial issuance of instrument is not negotiation, its issuance
• 1st person in note is never a holder in due course, its typically the 2nd purchasor (negotiated to them, not issued to them)

Question 13

negotiation= bearer instruments

Answer 13

• negotiate= transfer possession
• give it to them
• whoever has it, has $

A bearer instrument names no specific payee, and negotiation of a bearer instrument occurs upon delivery of the instrument.

a bearer instrument can be negotiated by anyone in possession of it, the note is a negotiable bearer instrument.
* even if that person came into possession involuntarily (e.g., by theft).
* This means that the prior holder lost possession involuntarily, not that the thief’s actions were involuntary.

Question 14

negotiation= order instruments

Answer 14

• made payable to identifiable person
• negotiate= sign the bank indorsement
• then transfer posession to person

requires an indorsement to be properly negotiated. There are two main types of indorsements:
* special indorsement—the current payee signs and names a new payee. This creates an order instrument.
* blank indorsement—the current payee signs the note and does not name a new payee. This turns the order instrument into a bearer instrument.
* and vice-versa, this can go on and on, order paper can become bearer paper and bearer paper can become order paper

Question 15

negotiation: fraudulent indorsement

Answer 15

• if someone makes check payable to me, and someone else comes in and signs for me, this is a forged signature
• no effect on my liability on check

Question 16

holder in due course: memorize requirement

Answer 16

• a holder in due course is a holder:

1. it was negotiated to you
2. for value (you paid)
3. in good faith
4. without notice of defects (defenses/claims)

Question 17

holder in due course: for value

Answer 17

• some sort of value, not gift
• can never be holder in due course if it was given to you as a gift

Question 18

holder in due course: for value==> payment for oversure invoice

Answer 18

considered “For value”

Question 19

holder in due course= “For value”–> birthday gift check

Answer 19

• i give check to a, they negotiate to b for their birthday
• not “for value”

Question 20

holder in due course= good faith

Answer 20

• reasonable commercial standards
• honesty in fact (Check wording with someone else)

Question 21

holder in due course= notice of “Certain things”

Answer 21

• examples
  1. overdue instrument= check issued more than 90 days ago is a defect and you can not be a holder in due course
  2. knowledge of forgery in history of check= cannot be holder in due course

Question 22

defenses

Answer 22

• you have a checknote and you are going to enforce it (cash it in)

Question 23

defenses: real defenses

Answer 23

infancy, incapacity, duress, illegality, fraud in factum
* Fraud in factum–fraud on the instrument

can be raised against HDC
* You can never sue drawee= the bank
* maker of note is always liable
* drawer is always liable
* have to sue them to do this
* they are entitled to defenses, real and personal defenses

Question 24

defenses: real defenses types

Answer 24

Defenses against enforcement by non-HDC

1. fraud in factum (forgery)
2. alteration of instrument
3. adjudicated incompetency at time of making instrument
4. infancy (less than 18 yo at time of making instrument)
5. illegality
6. duress when making instrument
7. discharge in bankruptcy
8. discharge known by HDC
9. surety defenses
10. statute of limitation

FFAAIIDDDSS or IF DAD SAID SFS?

Question 25

defenses: personal defenses

Answer 25

• CANNOT be raised against HDC
• but they can be raised against regular holder
• basic contract defenses, like
  1. no consideration
  2. breach of warranty
  3. breach of condition precedent

Question 26

promissory note

Answer 26

two party instrument in which maker promises to pay a sum of money to the payee

Question 27

enforcement of instrument

Question 28

secured transactions- Artile 9: Security Agreements and Security Interests

Answer 28

security agreement and security interests

An agreement is a bargain-in-fact between the parties

a contract is the obligation that results from the agreement

a security interest is an interest in personal property or fixtures that secures payment or performance of an obligation.

(1) requirements for attachment of security interest (it will be enforceable)
* value has been given by secured party
* The debtor has rights in the collateral (person owning collateral could be 3rd party who agrees and is the party in the agreement with the lender)
* the debtor has authenticated (this on its own makes it enforceable), or secured party has possession or control (perfected) of the collateral pursuant to the security agreement

(2) purchase money security interest (PMSI): a special type of security interest that may be accorded special rules with respect to perfection and priority
* In a sale of goods on credit, the secured party receives a purchase-money security interest (PMSI) in the goods.
* sale of goods on credit occurs when a secured party sells goods to a debtor and the debtor incurs an obligation to pay the secured party all or part of the purchase price at a future date.
* If the goods in the sale are consumer goods (i.e., goods acquired primarily for personal, family, or household purposes), then the secured party’s PMSI is automatically perfected.

A PMSI in inventory (e.g., goods held for resale to customers) or livestock prevails over all other security interests in the same collateral, even if those other interests were perfected first, when:
* the PMSI is perfected by the time the debtor takes possession of the collateral and
* the secured party holding the PMSI sends an authenticated notification of the PMSI to the holder of any conflicting security interest before the debtor takes possession of the collateral.
* A PMSI in inventory is temporarily perfected for 20 days if the secured party makes the goods available to the debtor for the purpose of selling them.

(3) Security interest in proceeds and commingled property
* To create a security interest in personal property, there must be a security agreement between the secured party and the debtor
* A security interest in collateral automatically attaches to identifiable proceeds
* if the security interest in the original collateral is perfected, then a security interest in the proceeds is temporarily perfected for 20 days from when it attached.
* the debtor in a security agreement is a person who has an interest, other than a security interest or other lien, in the collateral.
* Commingled goods are goods that are physically united with other goods in such a manner that their identify is lost individually

(4) Perfection of security interest – gives secured party rights in the collateral that are superior to any rights claimed by third party

Perfection by financing statement – most common method of perfection. The primary purpose of filing is to give interested parties notice of the secured interest. Financing statement contains:
* debtor’s name
* Name of secured party
* collateral covered by the financing statement

A financing statement is generally effective for five years after the date of filing unless a termination statement is filed.
* When the debtor is located in Florida, the financing statement for all collateral not related to real property must be filed with the Florida Secured Transaction Registry.
* Additionally, a financing statement can be extended to after-acquired collateral so long as that collateral falls within the description of the collateral found in the financing statement.
* A financing statement may also be extended by filing a continuation statement within six months of the financing statement’s expiration.
* A continuation statement extends the effect of the financing statement for another five-year period.

Perfection by possession can only be used on goods, instruments, negotiable documents, money, and tangible chattel paper

(5) Description of collateral – agreement must describe the collateral in sufficient detail to make it possible to identify the collateral

References to all of debtor’s assets or property–in a security agreement “all the debtor’s assets” or “all personal property” is usually not a sufficient description
* Description needs more specificity such as “all debtor’s equipment” so that the collateral can be reasonably identified
* BUT a financing statement, unlike the security agreement, CAN contain a broad statement to the effect “all of the debtor’s assets” or “this financing statement covers all of the debtor’s personal property” without identifying each of the types of collateral covered

After-acquired property - a security interest may apply to collateral the debtor acquires in the future
* However, such provisions do not apply to consumer goods unless the debtor acquires the goods within 10 days after the secured party gives value to the debtor.

Question 29

goods

Answer 29

Goods are anything movable at the time that a security interest attaches.

Goods are classified based on the debtor’s usage of the goods when the security interest arises.

Goods may be classified as:
* consumer goods
* farm products
* inventory or
* equipment.

Equipment consists of goods that are not consumer goods, farm products, or inventory.

The term usually refers to goods that are used or bought for use primarily in or by a business, such as employees’ desks or machinery used in manufacturing.

VVVVVVVVVV

A consumer buyer of consumer goods goods acquired for personal, family, or household purposes) generally takes free of a security interest in the goods even if the security interest has been perfected.

However, if a secured party files a financing statement covering the goods prior to purchase, the consumer buyer will take it SUBJECT TO the security interest.

For purposes of the consumer buyer rule, a consumer buyer is a person who:
* buys consumer goods for value
* for her own personal, family, or household use
* from a consumer seller and
* without knowledge of the security interest.

Question 30

security transactions- article 9: Priority among Multiple Security Interests

Answer 30

Perfected security interest: has priority

Perfected has priority over unperfected security interest

two unperfected security interests – whoever attached first (date)

Two PMSIs – first to file

Question 31

security transactions- article 9: default and remedies

Answer 31

default not defined in Article 9 but generally occurs when debtor fails to make timely payments to the secured party

Secured party’s rights after default – seek possession of collateral and sell or return collateral

Repossession – no notice required

replevin: judicial process to obtain possession unless possession can be obtained without breach of peace

Secured party’s rights to dispose of collateral – sell, lease, license, otherwise dispose
* Requirement of commercial reasonability–usual manner in market, at current market price, reasonable commercial practice
* Notice to debtor–reasonable notice as to contents, manner in which sent, and timeliness
* Acceptance of collateral to satisfy debt–in lieu of disposing the collateral, secured party may accept the collateral in full satisfaction of the obligation.
* Deficiency and surplus – any surplus after sale of collateral generally must be paid to the debtor. If there is a deficiency, then obligor generally is liable to the creditor

After default, a secured party may sell, lease, license, or otherwise dispose of the collateral publicly or privately. A secured party may purchase the collateral at a public sale.
* However, a secured party cannot purchase the collateral at a private sale unless the collateral is of a kind that
(1) is customarily sold on a recognized market (e.g., the New York Stock Exchange) or
(2) is the subject of widely distributed standard price quotations.

Question 32

security transactions- article 9: redemption

Answer 32

redeemer must fulfill all obligations secured by the collateral and reasonable expenses