REG 3 Flashcards
Which of the following negotiable instruments is subject to the provisions of the UCC Negotiable Instruments Article?
Article 3 of the UCC governs commercial paper, or negotiable instruments. A negotiable instrument is a writing signed by the maker or drawer giving an unconditional promise or order to pay a sum certain in money on demand or at a definite time payable to order or bearer. A note payable on the first of every month is a negotiable instrument in that it is payable at a definite time.
What is the difference between a draft and a promissory note?
This is a promissory note because it is a promise made between only two parties – Helco and Astor. A draft is an instrument with three parties.
Ball borrowed $10,000 from Link. Ball, unable to repay the debt on its due date, fraudulently induced Park to purchase a piece of worthless costume jewelry for $10,000. Ball had Park write a check for that amount naming Link as the payee. Ball gave the check to Link in satisfaction of the debt Ball owed Link. Unaware of Ball’s fraud, Link cashed the check. When Park discovered Ball’s fraud, Park demanded that Link repay the $10,000. Under the Negotiable Instruments Article of the UCC, will Link be required to repay Park?
This is correct because even a payee can be a holder in due course if the payee meets the requirements: To be a holder in due course of a negotiable instrument and not be subject to personal defenses, the party must be a holder, give value (includes payment for an antecedent debt), take the instrument in good faith, and take the instrument without notice that the instrument is overdue (previously dishonored) or that there is claim or defense against payment. Here Link is a holder, gave value (payment of an antecedent debt), took the check in good faith and without notice the check was overdue or had been previously dishonored or that there was any claim or defense that Park had.
Under the Negotiable Instruments Article of the UCC, which of the following requirements must be met for a person to be a holder in due course of a promissory note?
If a note is nonnegotiable, then by definition no transferee can become a holder in due course.
A $5,000 promissory note payable to the order of Neptune is discounted to Bane by blank endorsement for $4,000. King steals the note from Bane and sells it to Ott who promises to pay King $4,500.
After paying King $3,000, Ott learns that King stole the note. Ott makes no further payment to King.
Ott is
Bane was a holder in due course, because Bane took the note for value in good faith and without notice of the note being overdue, previously dishonored, or of claim or defense. Under the shelter principle, Ott has the rights of a holder in due course, because Ott can trace the note back to a holder in due course. However, since Ott did not pay the full value promised, Ott is only a holder in due course to the extent of $3,000, which is the amount actually paid.
Robb, a minor, executed a promissory note payable to bearer and delivered it to Dodsen in payment for a stereo system. Dodsen negotiated the note for value to Mellon by delivery alone and without endorsement. Mellon endorsed the note in blank and negotiated it to Bloom for value. Bloom’s demand for payment was refused by Robb because the note was executed when Robb was a minor. Bloom gave prompt notice of Robb’s default to Dodsen and Mellon. None of the holders of the note were aware of Robb’s minority. Which of the following parties will be liable to Bloom?
The key to liability in this question is the presence or absence of signatures. When a transfer is made without a signature, as was the case with Dodsen’s transfer, transfer warranty applies only to the immediate transferee and there is no contract signature liability. Therefore, only Mellon has rights against Dodsen, and Dodsen is not liable to Bloom. Mellon, however, has signature liability to Bloom, and must pay the instrument if Robb does not.
Under a nonnegotiable bill of lading, a carrier who accepts goods for shipment must deliver the goods to
When a seller places goods with a common carrier for delivery, a bill of lading is issued which represents title to the goods and the right of the holder to take possession of the goods. The seller who is issued a bill of lading is the consignor and does not get the right to receive the shipment. That right goes to the consignee, the party to whom the carrier has promised to deliver the goods in the bill of lading.
Under the Secured Transactions Article of the UCC, which of the following statements is correct regarding a security interest that has not attached?
It is not effective against either the debtor or third parties.
For a security interest to attach, the following must be present:
Underlying debt/obligation;
Either a security agreement or possession of the collateral by the creditor; and
Debtor must have interest in the property.
Until all three are present, the security interest does not attach.
Under the Secured Transactions article of the UCC, when does a security interest become enforceable?
The value has been given, the secured party receives a security agreement describing the collateral authenticated by the debtor, and the debtor has rights in the collateral.
Under the Secured Transactions Article of the UCC, which of the following security agreements does NOT need to be in writing to be enforceable?
A security agreement where the collateral is in the possession of the secured party.
Under the Secured Transactions article of the UCC, when does a security interest become enforceable?
The value has been given, the secured party receives a security agreement describing the collateral authenticated by the debtor, and the debtor has rights in the collateral.
Mars, Inc., manufactures and sells VCRs on credit directly to wholesalers, retailers, and consumers. Mars can perfect its security interest in the VCRs it sells without having to file a financing statement or take possession of the VCRs if the sale is made to
Without filing, a security interest can be automatically perfected if the value given is “purchase money” for consumer goods. If a store or other seller sells goods to a consumer under a security agreement, it has given the consumer the “purchase money,” and has a perfected purchase money security interest, or PMSI.
Under the Secured Transactions Article of the UCC, which of the following items can usually be excluded from a filed original financing statement?
There need not be the amount of the debt reflected in the publicly filed financing statement. All that needs to be included is which collateral is subject to the security interest, not the value of the collateral or the debt.
Under the UCC Secured Transactions Article, what is the order of priority for the following security interests in store equipment?
All perfected interests take priority over unperfected interests, regardless of when they arose, so II will be last. If more than one perfected interest exists, then the first to be perfected takes priority. Interests I and III are both perfected. The first is obviously perfected on April 15, 2004, and the third is not perfected by filing until April 20, 2004. An exception to the first in time is first in priority rule is when you have a PMSI in collateral other than livestock or inventory (here the collateral is store equipment) where a second in time of perfection takes place before or within twenty (20) days after the debtor takes possession of the collateral.
Vista is a wholesale seller of microwave ovens. Vista sold 50 microwave ovens to Davis Appliance for $20,000. Davis paid $5,000 down and signed a promissory note for the balance. Davis also executed a security agreement giving Vista a security interest in Davis’ inventory, including the ovens.
Vista perfected its security interest by properly filing a financing statement in the state of Whiteacre. Six months later, Davis moved its business to the state of Blackacre, taking the ovens. On arriving in Blackacre, Davis secured a loan from Grange Bank and signed a security agreement putting up all inventory (including the ovens) as collateral.
Grange perfected its security interest by properly filing a financing statement in the state of Blackacre.
Two months after arriving in Blackacre, Davis went into default on both debts.
Assuming Vista is a partnership, which of the following statements is correct?
When the debtor moves to another jurisdiction, a perfected secured party in the old jurisdiction has to perfect in the new jurisdiction within a time limit to preserve its priority to its security interest. The perfected security party must properly file in the new jurisdiction within four months of the date the debtor crossed into the new jurisdiction. Until the four months expires, the perfected secured party in the old jurisdiction retains superior claim, even if the secured party has not yet filed in the new jurisdiction. Only if the four months pass, and there is no new filing does the old secured party lose superior claim.
