R7 Flashcards
What is the purpose of Commercial Paper Laws?
Ordinary promises to pay are unsuitable as a substitute for cash since contract defense may apply. Commercial paper laws: convenient and safe substitute for cash.
How does a Holder in due course take paper?
Takes a negotiable instrument for value,
In good faith,
Without notice of any defenses or claims to the instrument.
What is a note?
2 Party Promise to pay to order or bearer. Maker pays Payee.
CD
Promissory Note
What is a Draft?
Order for a Third Party to Pay.
Drawer Orders Drawee to Pay Payee
Checks: Payable on Demand by Drawee Bank
What are the requirements to be a negotiable Instrument?
In Writing Signed by Maker (Note) or Drawer (Draft) Unconditional Promise to pay Fixed Amount of Money -- Words Supersede Payable on Demand or at a definite Time Payable to Order or bearer
What is the process of transferring Negotiable Instruments?
Negotiation.
How does one Become a Holder In Due Course – The negotiation Process
Bearer Paper Requires Delivery
Order Paper Requires Delivery and Endorsement
Last Endorsement Controls Order vs. bearer
What are the Types of Negotiation?
Blank: Become Bearer Paper
Special: Names a Specific Party
Restrictive: Specifies use or conditions; Deposit Only
Qualified: Without Recourse, no guarantee of payment, still have warranty liability.
What is the Shelter Doctrine?
Even Though the transferee might not qualify as an HDC, they can claim the rights of an HDC who held paper before.
What are the defenses a Holder in Due Course Is Subject to?
F Fraud in execution/Forgery
A Adjudicated Insane/ Alteration Materially
I Infancy/Illegality
D Duress Physically/ Discharge in bankruptcy
S Suretyship/Statute of Limitations
Who are the liable parties in a Negotiation?
Maker: Primarily Liable
Drawer: Secondarily Liable
Drawee: Primarily Liable After Acceptance
How is HDC Instrument Liability Discharged?
Payment, Satisfaction, or Tender of Payment to a holder
Cancellation or renunciation; destruction
Impairing recourse or collateral
By delay in presentment or failure to give notice of dishonor;
Acceptance or certification of a draft by a bank.
What are the different Types of Bankruptcy?
Chapter 7: Liquidation – Trustee Appointed
Chapter 9: Municipal
Chapter 11: Reorganization – No Liquidation, Trustee Not Required
Chapter 13: Adjustment of Debts of Individuals with regular income.
Chapter 15: Ancillary and Cross Border Cases
What types of bankruptcy are Voluntary or Involuntary?
Chapter 7 and 11: Voluntary or Involuntary
Chapter 13: Involuntary Only
Must a debtor be insolvent to file for bankruptcy?
No.
What is a Fraudulent Transfer?
2 Years within date of filing
Made with intent to hinder, delay, or defraud creditors or any transfer where the debtor received less than equivalent value while debtor was insolvent.
What is a Preferential Payment
Made to or Benefit of a Creditor
Account of an antecedent debt
90 Days Regular, 1 Year Insiders
What is the Priority of A bankrupt Debtor’s Estate?
Secured, Priority, General (Includes Secured who received collateral).
Secured S Support A Administrative G Gap Claims W Wages to Employees E Employee Benefits G Grain Farmers C Consumer Deposits T Tax Claims I Personal Injury From Intoxicated Driving
What is a secured transaction?
Creditor is able to rely on something other than the debtor’s promise to ensure payment; security interest or collateral.
What is a security interest?
Right of credit to repossess upon default?
When is a security interest effective between a creditor and a debtor?
As soon as the Security Interest is “attached.”
When is a security interest effective against third parties?
Upon Perfection. Attachment is not enough, creditor must perfect, file form of notice.
What is a Purchase Money Security Interest?
Priority over all other types of security in the same collateral, if properly perfected. Arises when:
Creditor sells collateral to debtor on credit, retaining a security interest; or
Creditor advances funds by the debtor to purchase collateral.
Essentially: Did debtor receive the collateral with the creditor’s money or credit?
What are the three requisites for attachment?
Parties must have an agreement, Value must be exchanged, debtor must have rights in collateral.
A security is not enforceable against any party until what?
It has attached to the collateral.
What are the methods of perfection?
Filing Taking possession of the collateral Control Automatic Perfection (PMSI Consumer Goods) Temporary Perfection
What is the Priority ranking between conflicting interests in collateral?
Buyer in ordinary course of business of inventory.
Holder of a properly perfected PMSI
Holder of Perfected Security Interest, or Judicial Lien attached
Holder of unperfected security interest in the collateral;
Debtor
What happens to subordinate claims after the sale of collateral?
They are wiped out.
How does control result in perfection?
Security interests in investment property may be perfected by “control.” Secured party has taken steps to be able to have the investment sold without further action from the owner.
What is a trade acceptance?
A trade acceptance is a “draft” drawn by the seller of goods on the buyer’s account. The trade acceptance orders the buyer or his/her designee to make payment.
