Letters of Credit, Docs of Title and Security Interests - UCC 5, 7, 9

Question 1

Letters of Credit UCC5

Answer 1

• Tool used to assure payment - Buyer’s bank agree to pay when requirements met - A way to separate payment from issues with buyer - Bank must pay according to terms - Cannot vary terms - Must verify all requirements and documents for payment

Question 2

Documents of Title UCC7

Answer 2

Bill of Lading - Issued by carrier - given to seller to evidence receipt of goods for storage - Warehouse receipt “pay to order of Bearer” - anyone or specific person can pick up

Question 3

Parties to Document of Title

Answer 3

• Issuer: a person who issues (delivers) the document to to a third person
• Delivery Order: An order by the third person for the issueer to deliver goods
• Consignor: A person who delivers goods to a carrier named in the bill of lading
• Consignee: A person named in a bill of lading to whom the goods are to be delivered

Question 4

Documents of Title

Due Negotiation

Answer 4

Gives Rights:

• Must be the holder (made out to bearer or you)
• Taken in good faith
• Ordinary course of business
• Pays (or promises to pay) value
• no preexisting debt
• No notice of defense

(thieves can’t pass good title)

Question 5

Security Interests UCC 9

Answer 5

Secured Party –> Creditor Debtor - borrowing $ or buying goods on credit Collateral - Secured property Security Agreement - gives creditor rights Security Interest - rights of the creditor Financing Stmt - give public notice of security interest Security for repayment, priority position

Question 6

Attachment of a Security Agreement

Answer 6

1. Security Agreement: - Must be in writing - Signed by the debtor only - Describe the collateral “reasonably identify” or possess/control 2. Debtor must have “rights” in the collateral 3. Must be underlying debt *Secured party may also take possession of the collateral under an oral agreement

Question 7

Perfection of a Security Interest

Answer 7

Perfection - the goal is to have priority 1. File a financing statement - good for 5 years, can be refiled w/in last 6 months 2. Possession - Physical possession - pawn of goods - Transfer of instrument from debtor to creditor - field warehouse - creditor has an agent at debtors place of business (airplane hanger example) 3. Automatic Perfection - PMSI in consumer goods - creditor is selling goods (i.e. best buy) - Proceeds from sale of your collateral (if identified) 4. Temporary Perfection - 4 mo rule, transfer of good across state lines - 21 day rule, negotiable instruments:21 days to decide, if perfected remains perfection for 20 days w/o filing

Question 8

UCC - 60% Rule

Answer 8

Creditor must sell collateral if debtor has paid 60% of cash price of collateral; debtor can demand sale w/in 90 days. Requirements: - Notice to debtor - Notice to other secured parties - Public or private sale - Reasonable Price / Practices - All security interest terminated once sold Distribution of funds rec’d: 1. Expenses 2. First Priority Creditors, second….third… 3. Debtor get any remaining

Question 9

Priority of Secured Interest

Answer 9

1. Secured vs. Unsecured –> Secured 2. Unsecured vs. Unsecured –> drop to bottom, prorate 3. Secured vs Secured –> First to attach, then prorate 4. Perfected vs Unperfected –> perfected 5. Perfected vs Perfected –> first to file, first in right Exceptions: PMSI in non-inventory collateral is first, if: 1. Perfected before debtor takes possession, or 2. within 20 days thereafter