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BAR EXAM > South Carolina - Commercial Law > Flashcards

South Carolina - Commercial Law Flashcards

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1
Q

UCC ARTICLE 9 > Scope of Article 9

A
  1. transactions creating security interests in personal property or fixtures
  2. SALES of accounts receivable (chattel paper; negotiable instruments)
  3. Transactions in the form of a lease that IN REALITY creates a security interest
  4. Agricultural liens: (only Art.9 rules of perfection/priority apply; the rest is statutory)
  5. Consignments: must be an “Article 9 Consignment” or a consignment disguised as a security interest (not c/l consignments)
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2
Q

UCC ARTICLE 9 > Types of Collateral

A

Goods (tangible collateral)

Intangible or Semi-Intangible Collateral

Proceeds

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3
Q

UCC ARTICLE 9 > Types of Collateral > “Goods”

A

CONSUMER GOODS: bought for use primarily for personal, family, or household purposes

INVENTORY:

FARM PRODUCTS: good used in farming operation (other than standing timber)

EQUIPMENT: catchall category ((good other than inventory, farm products, or consumer goods))

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4
Q

UCC ARTICLE 9 > Types of Collateral > ((Intangible or Semi-Intangible Collateral))

A

((Instruments: notes, drafts, and certificates of deposit;

documents:

Chattel Paper: records evidencing both a monetary obligation and a security interest in or lease of goods (e.g. promissory note and written security agreement);

Accounts: right to payment for goods, services, etc.

Deposit Accounts: (Art. 9 only applies (a) nonconsumer deposit accounts and (b) consumer deposit account that are claimed as proceeds of other collateral)

Investment PRoperty: stocks, bonds, mutual funds, brokerage accounts

Commercial Tort Claims

General Intangibles: (e.g., copyrights or goodwill)))

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5
Q

UCC ARTICLE 9 > Analysis on Bar Exam for a Secured Transactions Question

A
  1. SCOPE: does Article 9 apply to transaction/rights involved in the question
  2. ATTACHMENT: does creditor hold a security interest in the collateral that is enforceable against the debtor
  3. PERFECTION: Has a secured party properly perfected its security interest in the collateral
  4. PRIORITY: Is a secured party’s security interest entitled to priority over conflicting claims to the collateral
  5. DEFAULT: what are the rights and obligations of a secured party when the debtor defaults under the terms of a security agreement
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6
Q

UCC ARTICLE 9 > Types of Collateral > Proceeds

A

If secured party’s security interest attaches to any identifiable proceeds of the secured collateral

  1. whatever acquired upon sale, lease, or other disposition
  2. whatever is collected on an account of collateral
  3. Insurance to the collateral (To the extent of the value of collateral, and to the extent payable to the creditor)
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7
Q

UCC ARTICLE 9 > Scope of Article 9 > “Article 9 Consignment”

ELEMENTS

EXCLUSIONS

EFFECT

A
  1. Consignor must deliver goods to the consignee “FOR THE PURPOSE OF SALE”; and
  2. The consignee must be a merchant who “DEALS IN GOODS OF THAT KIND” under a name other than the name of the consignor

EXCLUSIONS
if consignee is an AUCTIONEER
value of goods is LESS than $1,000
Goods were CONSUMER GOODS

EFFECT
Creates a purchase-money security interest in the consigned goods

[[consignor - secured party
consignee - debtor
consigned goods are collateral]]

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8
Q

UCC ARTICLE 9 > Types of Collateral > True Lease vs. Lease as Security Interest

A

Lease is a SI if the rental obligation is NOT TERMINABLE, and either

A. lease term is equal/greater than remaining economic life of goods;
B. lessee BOUND to purchase goods at end of the lease or to renew lease for the remaining economic life of goods; OR
C. at end of lease, lessee HAS OPTION TO purchase goods or renew the lease for remaining economic life of the goods for NO/NOMINAL consideration

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9
Q

*UCC ARTICLE 9 > ATTACHMENT >

Definition

Elements

A

DEFINITION: process by which SI is created and becomes enforceable

ELEMENTS (RAV)
1. Secured party gives VALUE

  1. Debtor has RIGHTS in the collateral
  2. Debtor has AUTHENTICATED/ENCRYPTED (signed) a security agreement that SUFFICIENTLY DESCRIBES the collateral; OR secured party has possession/control
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10
Q

UCC ARTICLE 9 > ATTACHMENT > Sufficient Description of Collateral for Security Agreement Purposes

A 
SUFFICIENT
General descriptions (e.g., "inventory," "equipment")

INSUFFICIENT
Super-generic descriptions (e.g., “all personal property”)

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11
Q

UCC ARTICLE 9 > ATTACHMENT > What is required to attach after-acquired property

A

INVENTORY/ACCOUNTS
after-acquired inventory/accounts are automatically included

OTHER
must be explicitly included

[[Cf. Finance Statement]]

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12
Q

UCC ARTICLE 9 > Scope of Article 9 > Article 9 Consignment

What excludes consignments from being included in Article 9?

A

consignee is auctionee

value of consigned goods is less than $1,000

*goods were CONSUMER GOODS in the hands of the consignor immediately before they were delivered to the consignee

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13
Q

UCC ARTICLE 9 > ATTACHMENT > Proceeds > Identification of commingled cash proceeds

A

Use the “Lowest Intermediate Balance” Method:

  1. withdrawals from a commingled account are deemed made first from non-proceed funds and only when the non-proceed funds are exhausted are proceeds invaded, and
  2. subsequent deposits of non-proceed funds do not replenish invaded proceeds UNLESS the debtor made the deposit with an intent to make restitution
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14
Q

UCC ARTICLE 9 > ATTACHMENT > Attachment of future advances

A

only if the security agreement explicitly provides

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15
Q

UCC ARTICLE 9 > PERFECTION >

How to Perfect?

A

Automatic Perfection

Perfection by Possession

Perfection by Control

Perfection by Filing

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16
Q

UCC ARTICLE 9 > PERFECTION >

What automatically perfects

A
  • PMSI in CONSUMER GOODS*

Small-scale ASSIGNMENTS of accounts or payment intangibles

SALES of promissory notes/payment intangibles (sale of note itself, not SI in note)

*Temporary automatic perfection of security interests in PROCEEDS

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17
Q

UCC ARTICLE 9 > PERFECTION > Automatic Perfection

How is a PMSI Created

A

(1) credit advanced or loan made for the PURPOSE of enabling the debtors to ACQUIRE the collateral; AND
(2) the credit or loan proceeds were ACTUALLY USED to acquire the collateral

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18
Q

UCC ARTICLE 9 > PERFECTION > Automatic Perfection > PMSI in Consumer Goods

Limitation of automatic perfection in PMSI in consumer goods (to whom does it not extend?)

A

A buyer of consumer goods from the debtor takes free of a perfected security interest if the buyer buys

  1. without knowledge of the security interest
  2. for value
  3. the goods as a consumer goods: primarily for personal, family, or household purposes, and
  4. before a financing statement is filed covering the goods
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19
Q

UCC ARTICLE 9 > PERFECTION >

Temporary automatic perfection of security interests in proceeds

How can this temporary automatic perfection become permanent

A

For proceeds of secured collateral, secured party gets an automatic perfection in the proceeds for TWENTY (20) DAYS from the debtor’s receipt of the proceeds

CONTINUANCE
(1) Comply with Statutory Requirements: Security interest in the proceeds is perfected within the 20-day period;

(2) Same Office Rule: financing statement would be filed in the same office (as original collateral); OR
(3) Identifiable Cash Proceeds Rule: Proceeds are identifiable cash proceeds

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20
Q

UCC ARTICLE 9 > PERFECTION > FILING

Requirements of a Finance Statement

A
  • Signature is NOT required
  • Authorization from Debtor is required!

REQUIREMENTS (if “seriously misleading,” interest not perfected)

  1. Name of the Debtor;
  2. Name of the Secured Party (or its representative);
  3. Indication of the Collateral Covered
---------
SORTA REQUIREMENTS (if violated/omitted, interest still perfected)
  1. Mailing Address for the Secured Party
  2. Mailing Address for the Debtor
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21
Q

UCC ARTICLE 9 > PERFECTION > Filing > Name of the Debtor

Individuals

Registered Organizations

Other Named Organizations

Unnamed Organizations

Trade Names

A

INDIVIDUALS: name on Driver’s License or ID Card (NOT birth certificate)

REGISTERED ORGANIZATIONS: Name listed on articles of incorporation filed with secretary of state (“name listed on organization’s public organic record”)

OTHER NAMED ORGANIZATIONS (e.g., partnerships): organizational name

UNNAMED ORGANIZATIONS: names of person comprising the debtor

TRADE NAMES: *not effective

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22
Q

UCC ARTICLE 9 > PERFECTION > Filing >

“Indication of Collateral Covered” For financing statement purposes

  • Super Generic Indication
  • After Acquired Property
A

SUPER-GENERIC INDICATIONS (“all assets,” or “all personal property”): is sufficient! (cf. security agreements)

AFTER-ACQUIRED PROPERTY: Automatic–does not need to be included in the after security agreement

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23
Q

UCC ARTICLE 9 > PERFECTION > Information in Financing Statement that is erroneous AT TIME OF FILING

A

Errors must be “serious misleading” to invalidate financing statement (result in unperfected interest)

Errors in name ARE “seriously misleading,” UNLESS filing office’s “standard search logic” would disclose the financing statement

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24
Q

UCC ARTICLE 9 > PERFECTION > Authorization to File Financing Statement

A

Debtor MUST authorize (or ratify) a secured party’s filing of a financing statement

Can be done only in WRITING: by debtor authorizing FINANCING STATEMENT OR by debtor authorizing SECURITY AGREEMENT

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25
Q

UCC ARTICLE 9 > PERFECTION > Security Agreement’s Place of Filing

A

[[With secretary of state in the]] Jurisdiction in which the debtor is located:

  1. individual: principal residence
  2. registered organization: where organized
  3. other organization: principal place of business (if more than one, then chief executive office)
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26
Q

UCC ARTICLE 9 > PERFECTION > Fixture Filings

Fixture Filings Must Include

A

(“FURRY FIXTURES NEED DAIRY”)
FIXTURE FILING MUST INCLUDE

  1. Information necessary for a FINANCING STATEMENT, plus
  2. indication it covers FIXTURES (or timbers or as-collected minerals);
  3. Indicate it is to be FILED for record in the real property records;
  4. provide a sufficient DESCRIPTION of the property
  5. If debtor doesn’t have an interest of record in the real property, provide the NAME of the record owner
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27
Q

UCC ARTICLE 9 > PERFECTION > Fixture Filings

Where to file

A

in state where collateral is located. In office where mortgage covering the related property would be recorded.

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28
Q

UCC ARTICLE 9 > PERFECTION >

How long is a financing statement effective

How to extend the effectiveness of a fixture filing

Effect of a Lapse

A

EFFECTIVENESS
Five (5) years

EXTENSION:
by filing a CONTINUATION STATEMENT within the last six months of financing statement’s effectiveness

LAPSE EFFECT: deemed never perfected

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29
Q

UCC ARTICLE 9 > PERFECTION > Post-Filing Changes that render information in filed financing statement seriously misleading

Debtor Changes location

A

Financing Stt effective for FOUR (4) MONTHS, and must refile against debtor in new jurisdiction.

Otherwise, interest deemed never perfected against a purchaser for value

*remember Same Office Rule

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30
Q

UCC ARTICLE 9 > PERFECTION > Post-Filing Changes that render information in filed financing statement seriously misleading

Transfers:
(I) Transferee is in Same State

(II) Transferee is in Different State

A

(I) SAME STATE: interest remains perfected

(II) DIFFERENT STATE: SI remains perfected for ONE (1) YEAR. Must refile against debtor within that time. Otherwise SI become unperfected and deemed never perfected against a purchaser for value

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31
Q

UCC ARTICLE 9 > PERFECTION > Post-Filing Changes that render information in filed financing statement seriously misleading

Name Change

A

Financing Statement filed against original name remains perfected as to collateral and anything acquired within FOUR (4) MONTHS after the name change.

Secured Party not perfected to anything acquired after four months, unless he amends the financing statement

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32
Q

UCC ARTICLE 9 > PERFECTION > Post-Filing Changes that render information in filed financing statement seriously misleading

New Debtor Problem:
(I) Situation
(II) Rule

A

SITUATION: when there is a merger of two entities or the incorporation of a person’s business who operated as a sole proprietor

RULE: if change causes financing statement to become seriously misleading, then secured party must refile against new debtor within FOUR (4) MONTHS

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33
Q

UCC ARTICLE 9 > PERFECTION > Filing

Motor Vehicles

A

follow certificate of title statute (exception: motor vehicles as inventory)

[[“under the state’s certificate of title law, security interests in motor vehicles required to be titled are perfected by notation on the certificate of title issued by the state.” i.e., not within Article 9]]

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34
Q

UCC ARTICLE 9 > PRIORITY > UNPERFECTED SECURITY INTEREST

When will a buyer of goods take free of an UNPERFECTED security interest?

A
  1. gives value
  2. without knowledge of security interest
  3. takes possession
  4. before collateral is perfected

[[don’t know if this beats PMSI perfected within 20 days]]

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35
Q

UCC ARTICLE 9 > PRIORITY > UNPERFECTED SECURITY INTEREST

Lienholders vs. unperfected security interest

A

Lienholder will prevail

Exception: PMSI filed within 20 days of delivery of collateral

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36
Q

UCC ARTICLE 9 > PRIORITY > Conflicts Between Secured Interests

Default Rule

A

First to FILE (financing statement) or PERFECT Rule

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37
Q

UCC ARTICLE 9 > PRIORITY > Conflicts Between Secured Interests

Exceptions to First to File/Perfect Rule

A
  1. After-Acquired collateral: if explicitly included in security agreement
  2. Subsequent Security Interest: if on same collateral as first security interest
    * 3. PMSI
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38
Q

UCC ARTICLE 9 > PRIORITY > Conflicts Between Secured Interests > **Fun Hypo

July 1: SP-1 attaches/perfects interest in debtor’s equipment

August 1: SP-2 attaches/perfects interest in debtor’s equipment

September 1: SP-1 attaches (doesn’t perfect) interest in debtor’s equipment

What is the extent to which SP-1 has priority over SP-2

A

SP-1’s ENTIRE interest is superior to SP-2:

SP-1: filing fixes its priority with respect to ANY LOAN SP-1 makes secured by a SI in debtor’s equipment.

Such loan can be made under a future advance clause in the original agreement, or it can be made because of a subsequent, secondary security agreement

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39
Q

UCC ARTICLE 9 > PRIORITY > Conflicts Between Secured Interests > PMSI Exception

Cross-Collateralization and Transformation Rules
(I) Consumer Goods
(II) Non Consumer Goods

A

(I) Consumer Goods: Issue for the courts (but everyone says it destroys it) [[look to see if they’re independently administered, maybe?]]

(II) Non Consumer Goods: secured party must prove extent to which SI qualifies as a PMSI (usually, the PM collateral must secure a PM debt)

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40
Q

UCC ARTICLE 9 > PRIORITY > Conflicts Between Secured Interests > PMSI Exception

Creating a PMSI in equipment

A
  1. It must be a PMSI, and

2. must be perfected before/within 20 days after debtor receives possession

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41
Q

UCC ARTICLE 9 > PRIORITY > Conflicts Between Secured Interests > PMSI Exception

Creating a PMSI in Inventory

A
  1. Must be a PMSI
  2. Must be perfected when debtor gets possession (no grace period); and
  3. Financer must send AUTHENTICATED NOTIFICATION to holders of conflicting security interests, who must receive the notification BEFORE the debtor receives possession of the new inventory
  4. Holder(s) of conflicting SI must RECEIVE NOTIFICATION BEFORE debtor receives possession of the new inventory; and
  5. Notification includes financer has or expects to acquire PMSI in the inventory described AND must describe inventory
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42
Q

UCC ARTICLE 9 > PRIORITY > Secured Parties vs. Buyers of Goods

General Rule

A

SI continues in sold collateral, unless SP authorizes the sale of the collateral free of the security interest

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43
Q

UCC ARTICLE 9 > PRIORITY > Secured Parties vs. Buyers of Goods

Buyer in the Ordinary Course of Business–Elements

A

Takes free of perfected interest.

ELEMENTS
1. buys in Good Faith
2. Without knowledge sale violates the rights of another person (can know of the existence)
+ 3. in the ordinary course of business
+ 4. From a person in the business of selling goods of that kind
5. takes possession (or has right to possession)

((SI must be created by the buyer’s seller))

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44
Q

UCC ARTICLE 9 > PRIORITY > Purchasers of Chattel Paper

What is Chattel Paper

A

Record that evidences a monetary obligation AND provides either an SI in or lease of the goods

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45
Q

UCC ARTICLE 9 > PRIORITY > Purchasers of Chattel Paper

Applicability of Article 9 to chattel paper

A

applies to both SI in chattel paper OR the outright sale of chattel paper

This arrangement is sometimes called a “conditional sales contract” or a “retail sales contract”

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46
Q

UCC ARTICLE 9 > PRIORITY > Purchasers of Chattel Paper

How to perfect an interest in chattel paper

A
  1. financing statement

2. possession

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47
Q

UCC ARTICLE 9 > PRIORITY > Priority in Returned Goods

Setup:

  1. Corporation sells goods to buyer under a conditional/retail sales contract. Corporation gets a PMSI
  2. Corporation sells the conditional sales contract to Financer
  3. Buyer returns goods to Corporation

Who has a security interest? Who has priority

A

SECURITY INTERESTS
Both have perfected Security Interests
Corporation: after acquired inventory
Financer: Proceeds of the conditional sales contract (perfected for 20 days after return–more if it refiles)

PRIORITY: “if chattel paper purchaser has priority in the chattel paper, it has priority in the returned goods, even if its SI is unperfected.

[[This is the only situation in which unperfected beats perfected]]

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48
Q

Article 9 > Random

How to satisfy the statute of frauds

A

security agreement

possession or control

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49
Q

UCC ARTICLE 9 > PRIORITY > Deposit Accounts

How to perfect a security interest in deposit accounts

A

Control is the only way to perfect a SI in deposit accounts (as original collateral–not proceeds)

OBTAINING CONTROL
1. If secured party is the bank that maintains the account–Secured!

  1. Control Agreements: If you’re not the bank, get control through a control agreement–a three-party agreement executed by the debtor, secured party, and bank. Bank agrees to comply with secured party’s instructions on the disposition of the funds w/o further consent by debtor
  2. Become a Customer at the Bank, wrt the deposit account (*this is the only way to beat the bank!)
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50
Q

UCC ARTICLE 9 > PRIORITY > Deposit Accounts

SP’s SI in Identifiable Cash Proceeds VERSUS Bank’s SI Perfected by Control

SP’s SI by control agreement VERSUS Bank’s SI Maintained Perfected by Control

A

Bank wins

“Any SI in a deposit account perfected by control has priority over a SI perfected in some other way”

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51
Q

UCC ARTICLE 9 > PRIORITY > Deposit Accounts

The only way to beat the bank that has control over a deposit account

A

become a customer of the bank

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52
Q

UCC ARTICLE 9 > PRIORITY > New Debtor Priority Issues >
SETUP

  1. SP-1 gets a security interest in ABC Corp for current/after-acquired equipment
  2. SP-2 gets security interest in XYZ Corp for current/after-acquired equipment
  3. ABC merges into XYZ

Do the parties have perfected interests? Who has a superior interest?

A

PERFECTED INTERESTS
SP-1: has perfected interest for 4 months (under 9-508), and longer if refiles
SP-2: has perfected interest

PRIORITY:
Code says that in this situation, a party who is perfected solely because of 9-508 is subordinate to a security interest perfected by a financing statement against the “new debtor” (here, XYZ)

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53
Q

UCC ARTICLE 9 > PRIORITY > Fixtures

General Rule

A

First in time, first in right (wrt filing fixture filing)

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54
Q

UCC ARTICLE 9 > PRIORITY > Fixtures

PMSI

A

Establishes priority over previously recorded mortgage. Requires the following:

  1. Debtor has an interest of record in or possession of the real property;
  2. Fixture financer has a PMSI;
  3. Mortgage/Lien arose before goods became fixtures;
  4. fixture financer’s security interest was perfected by a fixture filing BEFORE 20 days AFTER the goods became fixtures
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55
Q

UCC ARTICLE 9 > PRIORITY > Fixtures

Readily Removable Fixtures

A

Fixture Financer has priority over any REAL PROPERTY ENCUMBRANCER, if

  1. He perfects (by any method) BEFORE the goods become fixtures
  2. The fixture is READILY REMOVABLE
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56
Q

UCC ARTICLE 9 > PRIORITY > Accessions

What’s an Accession

A

Definition: [[It’s like a fixture, but for personal property]] goods physically united with other goods so that identity of original goods are not lost

GENERAL RULE: first to file/perfect; PMSI

*exception: with motor vehicles: just follow certificate of title statute

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57
Q

UCC ARTICLE 9 > PRIORITY > Certificate of Title

Issue: Goods covered by SC certificate of title entered SC subject to a security interest perfected under the law of another jurisdiction

A

If perfected when SC issued certificate of title, the security interest remains perfected

Limited Exception: SP should refile in SC, because if after four months, debtor sells to a purchaser for value, the SI is deemed to have never been perfected

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58
Q

UCC ARTICLE 9 > DEFAULT >

Definition

Waiver

A

Not defined by the UCC. Defined by the security agreement (usually when debtor stops paying)

Lookout for WAIVER: if SP allows for late payment

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59
Q

UCC ARTICLE 9 > DEFAULT >

SP obtaining right to payment after default

A

SP may do so, but must act in a COMMERCIALLY REASONABLE MANNER

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60
Q

UCC ARTICLE 9 > DEFAULT > Taking Possession

A

SP can take possession w/ w/o judicial process, if secured party DOES NOT BREACH THE PEACE–conduct likely to result in physical violence

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61
Q

UCC ARTICLE 9 > DEFAULT >

Disposition of Collateral

A

Every aspect of disposition must be COMMERCIALLY REASONABLE

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62
Q

UCC ARTICLE 9 > DEFAULT >

[[“Commercially reasonable”]]

A

[[Commercially Reasonable: disposition conforms to REASONABLE COMMERCIAL PRACTICES among dealers in that type of property; disposition made in usual manner on recognized market; or disposition at price current on recognized market]]

[[South Carolina Public Sale Procedures are CONCLUSIVELY considered to be commercially reasonable in all aspects]]

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63
Q

UCC ARTICLE 9 > DEFAULT > Notice

When disposing/selling collateral, when is notice required

A

Always, unless collateral is

  1. perishable;
  2. threatens to decline speedily in value; or
  3. is a type customarily sold on a recognized market
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64
Q

UCC ARTICLE 9 > DEFAULT > Notice

Who must be notified

A

Secured party must send an AUTHENTICATED notification of disposition to

the debtor, and
any secondary obligor (e.g., guarantor)

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65
Q

UCC ARTICLE 9 > DEFAULT > Notice

Timeliness of notification

A

AFTER: default

Before: 10 days before the earliest time of disposition, as set forth in notification

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66
Q

UCC ARTICLE 9 > DEFAULT > Notice

Notification must include

A

Make up the rest, the important one is

the method of disposition (notice must state whether disposition will be private or public)

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67
Q

UCC ARTICLE 9 > DEFAULT >

SP’s Liability for Deficiency

A
  1. If SP purchases
  2. and proceeds are significantly below what a person other than the SP would pay,

Then, the amount of deficiency is calculated on the hypothetical sale to an unrelated secured party.

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68
Q

UCC ARTICLE 9 > DEFAULT >

Debtor’s Right of Redemption: when must it occur

A

Must occur before disposition, acceptance, or collection of the collateral

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69
Q

UCC ARTICLE 9 > DEFAULT > Debtor’s Remedies

A

Actual Loss: For SP’s failure to comply with Article 9

Statutory Damage: $500 for each violation of

  • failing to properly release collateral
  • failing to properly release an account debtor from obligations to SP
  • filing of UNAUTHORIZED financing statement
  • failure to cause the SP of record to file or send a termination statement
70
Q

UCC ARTICLE 9 > DEFAULT >

[[Statutory Minimum Damage]]

A

[[If the collateral subject to the disposition was CONSUMER GOODS, a debtor can recover the statutory minimum damages:

  1. Credit Service Charge, plus 10 percent of the principal of the obligation in the case of a LOAN, OR
  2. the time-price differential, plus 10 percent of the cash price in the case of a sale]]
71
Q

UCC ARTICLE 9 > DEFAULT >

Presumption Rule

Absolute Bar Rule

A

PRESUMPTION RULE: (nonconsumer transactions): Arises if SP breaches Part 6, and wants to recover a deficiency judgment. A rebuttable presumption arises that goods would have sold for full amount of the debt had there been no breach

ABSOLUTE BAR RULE (consumer transactions): Arises if SP breaches Part 6 and seeks to recover a deficiency judgment. A rebuttable presumption arises that the collateral would have sold for the full amount of the secured obligation had there been no breach

72
Q

UCC ARTICLE 9 > DEFAULT >

Strict Foreclosure definition

A

After default, SP can send debtor an AUTHENTICATED PROPOSAL to retain the collateral in full/partial satisfaction of the secured obligation

73
Q

UCC ARTICLE 9 > DEFAULT >

Notice require for strict foreclosure

A

Authenticated Notice to debtor and other perfected secured parties

74
Q

UCC ARTICLE 9 > DEFAULT >

Debtor’s consent to strict foreclosure

A

For Partial Satisfaction: requires debtor to actively consent

For Full Satisfaction: debtor can actively consent, or debtor’s silence may act as acceptance

75
Q

ARTICLE 2 > SCOPE > Which ones of these fall within Article 2?

Installation of electrical switchboard

Contract for design, government approval, and sale of an incinerator

contract for sale and installation of shutters with a writing entitled “terms of sale”

Contract for the sale and erection of an airplane hangar

Doctors who insert breast implants

Counterfeit surgical mesh

home security system

A

Installation of electrical switchboard: Not a sale of goods

Contract for design, government approval, and sale of an incinerator: Sale of goods

contract for sale and installation of shutters with a writing entitled “terms of sale”: sale of goods

Contract for the sale and erection of an airplane hangar: sale of goods

Doctors who insert breast implants: not a sale of goods

Counterfeit surgical mesh: sale of goods

home security system: not a sale of goods

76
Q

ARTICLE 2 > SCOPE > Predominant Factor Test

A

For hybrid contracts, look to predominant purpose of transaction. Consider:

  1. Contract’s language
  2. Nature of supplier’s business
  3. Relative value of goods versus services
77
Q

ARTICLE 2 > WARRANTIES > Language or Conduct that Creates an Express Warranty

A
  1. Affirmation of fact or promise relating to the quality of the goods
  2. Description of the goods
  3. Sample of the goods
  4. Model of the goods

Lacy says look for reliance on the warranty

78
Q

ARTICLE 2 > WARRANTIES > “Merchant” for purposes of Implied Warranty of Merchantability

A

Definitionally higher standard: must have expertise in respect to the goods sold (not just based on business practices)

79
Q

ARTICLE 2 > WARRANTIES > “Merchantability”

A

Fit for ordinary use; pass without objection in the trade

80
Q

ARTICLE 2 > WARRANTIES > When does Warranty for Fitness for a Particular Purpose arise

A

Seller has reason to know buyer is relying upon seller’s skill or judgment to select suitable goods

Seller has reason to know of the particular purpose for which the buyer was purchasing the goods

Buyer relied upon seller’s skill or judgment to select suitable goods

81
Q

ARTICLE 2 > WARRANTIES > Disclaimer of Express Warranties

A

In SC, you CANNOT disclaim express warranties

(be on guard of a seller using the PER to (ineffectively) disclaim an oral express warranty)

82
Q

ARTICLE 2 > WARRANTIES > How to disclaim the implied warranty of merchantability

A
  1. must mention the word merchantability
  2. If in writing, must be conspicuous

ALSO

specific language which calls buyer’s attention to the exclusion and makes it plain that there is no implied warranty

PREsale inspection of sample or model (mere opportunity is sufficient)

Course of dealing, course of performance, and between merchants, trade usage

83
Q

ARTICLE 2 > WARRANTIES > How to disclaim the implied warranty of fitness for a particular purpose

A
  1. Must be in writing and must be conspicuous

ALSO

specific language which calls buyer’s attention to the exclusion and makes it plain that there is no implied warranty

PREsale inspection of sample or model (mere opportunity is sufficient)

Course of dealing, course of performance, and between merchants, trade usage

84
Q

ARTICLE 2 > WARRANTIES > If language of a disclaimer creates ambiguity

A

construed against the seller

85
Q

ARTICLE 2 > WARRANTIES > Warranties that can be made before/after sale

A

Express warranties can be made before or after the sale

Implied warranties CANNOT be made after the sale

86
Q

ARTICLES 3/4 > Elements of a Negotiable Instrument

A

(“Wesley Snipes Unconditionally Understood Fair Public Policy”)

  1. Signed writing
  2. Unconditional Promise or Order
  3. A fixed amount of money (w/ or w/o interest or other charges)
  4. Payable to Order or Bearer (when issued or first in possession of a holder)
  5. Payable on demand or at a definite time
  6. Contains no undertaking or instruction given by the maker/drawer except as authorized by the code
87
Q

ARTICLES 3/4 > Define

Note

Draft

A

NOTE: Maker’s promise to pay Payee

DRAFT: Drawer’s order to Drawee/Payor to pay Payee

88
Q

ARTICLES 3/4 > Define

Issue

Present

Negotiate

Holder

A

Issue: when drawer delivers check to payee

Present: when holder attempts to enforce the check against the drawee.

Negotiate: When a transferee (other than maker/drawer) transfers possession of an instrument to another person

89
Q

ARTICLES 3/4 > Legal Doctrines

Merger Doctrine

A

when a person obligated to pay money in an underlying transaction issues an instrument, the underlying obligation is merged into the instrument

((Effect: obligation is suspended until it is paid/dishonored–it has to be by someone entitled to enforce the instrument: so stolen checks are no good to discharge underlying obligation))

90
Q

ARTICLES 3/4 >

Authorization of Altered/Blank Checks

A

If check is altered: it is authorized to the initial amount

If check is blank- it is authorized to the amount filled in

91
Q

ARTICLES 3/4 > Liability on an Instrument: Signature

Unauthorized Signature

A

Ineffective to render person whose name was signed liable on the instrument;

Can be effective to make the unauthorized signer liable

92
Q

ARTICLES 3/4 > Liability on an Instrument: Signature

Liability of a Principal for Agent’s Signature

A

IF AUTHORIZED: Liable whether agent signs her own name or principal’s name.

IF UNAUTHORIZED: Liable only if ratified or estoppel

93
Q

ARTICLES 3/4 > Liability on an Instrument: Signature

Liability of an Agent for Agent’s AUTHORIZED signature

A

AUTHORIZED: agent is NOT liable if it UNAMBIGUOUSLY shows it was made on BEHALF of the Principal and it IDENTIFIES the Principal

Otherwise (if agent signs own name and doesn’t disclose principal): Agent is liable to HDCs. Agent liable to other holders (unless agent shows original parties did not intend)

94
Q

ARTICLES 3/4 > Liability on an Instrument: Signature

Liability of an Agent for Agent’s UNAUTHORIZED signature: Fictitious Payee/Imposter

A

Indorsement of the instrument by any person in the name of the payee is effective as the indorsement of the payee –> in favor of a person in GF payee the instrument or take it for value or collection

95
Q

ARTICLES 3/4 > Liability on an Instrument

Maker signs, but does not deliver a NOTE

A

constitutes a personal defense (cannot be asserted against a HDC)

96
Q

ARTICLES 3/4 > Liability on an Instrument: Drawer’s Liability

A

Only obligated after presentment and dishonor (presentment to and dishonor by the drawee)

“Without Recourse”: usually works for drawer, but not on checks

97
Q

ARTICLES 3/4 > Liability on an Instrument

Each person’s liability on an instrument

Maker:

Drawer:

Drawee:

Acceptor:

Indorser:

Transferor:

Accommodation Party:

A

Maker: primarily

Drawer: secondarily (if drawee signs, drawer is discharged)

Drawee: none (if drawee signs, becomes primarily liable)

Acceptor: primarily

Indorser: Secondarily

Transferor: secondarily

Accommodation Party: depends

98
Q

ARTICLES 3/4 > Liability on an Instrument: Indorser’s Obligation

A

Secondarily liable

Liability is conditioned upon dishonor of the receipt

Indorser can disclaim liability by indorsing “without recourse” ((exclusion must be express if using it for transfer warranty))

99
Q

ARTICLES 3/4 > Liability on an Instrument: Accommodation Party

Definition

A

signs an instrument for the purpose of incurring liability on the instrument without being a direct beneficiary of the value given for the instrument.

100
Q

ARTICLES 3/4 > Liability on an Instrument: Accommodation Party

Guaranty of Payment

Guaranty of Collection

A

GUARANTEE OF PAYMENT: Holder can go after either the accommodation party or the accommodated party first

GUARANTEE OF COLLECTION (must be explicit): can only go after accommodation party after seeking judgement from accommodated party or if seeking such judgment would be futile

101
Q

ARTICLES 3/4 > Liability on an Instrument: Accommodation Party

What cool, special defenses can an accommodation party assert?

A

Can assert accommodated party’s defenses

Can obtain reimbursement from accommodated party

SURETYSHIP DEFENSES: accommodation party discharged if

  • holder releases principal obligor
  • holder party extends time for payment
  • holder party modifies the instrument, or
  • holder party impairs the collateral securing payment
102
Q

ARTICLES 3/4 > Persons entitled to enforce the instrument: Holders

Negotiation of Order instruments

Negotiation of Bearer Instruments

A

ORDER INSTRUMENTS: negotiated by transfer of possession AND indorsement of the holder

BEARER INSTRUMENTS: negotiated by transfer of possession alone

103
Q

ARTICLES 3/4 > Persons entitled to enforce the instrument: Holders

SETUP:
1. Buyer gives Seller a check for $1,000 payable to the order of seller.

  1. Thief steals check from seller before seller indorses it.
  2. Thief forges seller’s indorsement and cashes the check at Country Store.

Is Country Store Liable?

A

NO

Indorsement is unauthorized

Once you have an unauthorized indorsement, NO subsequent transferees can be holders.

104
Q

ARTICLES 3/4 > Persons entitled to enforce the instrument: Holders

Missing indorsement on order paper

A

Not valid

exception: If seller deposits in his account, his depository bank is still a holder

105
Q

ARTICLES 3/4 > Persons entitled to enforce the instrument: Holders

Restrictive Indorsement

A

Limiting payment to a particular purpose or prohibiting further transfers/negotiations: INVALID

Limiting indorsement “for deposit”/”for collection”: VALID. If cashed at a non-bank, non-bank will be liable for conversion

106
Q

ARTICLES 3/4 > Persons entitled to enforce the instrument:

Who is entitled to enforce the instrument?

A
  1. Holders
  2. Nonholders in possession with rights of a holder; or
  3. Person not in possession, but entitled to enforce (e.g., lost, stolen, or destroyed)
107
Q

ARTICLES 3/4 > Persons entitled to enforce the instrument: Nonholders in Possession w/ Rights of Holder

who/what are they

A

Persons that receive a check from a holder. (can’t be a thief).

108
Q

ARTICLES 3/4 > Persons entitled to enforce the instrument: Person not in possession, but entitled to enforce

A

Must post bond, and show

  1. that you (or a direct transferor to you) was entitled to enforce when it was stolen/lost/destroyed
  2. must establish you didn’t lose possession of the instrument by transfer or legal process, and
  3. Must establish why you can’t obtain possession of the instrument
109
Q

ARTICLES 3/4 > Persons entitled to enforce the instrument:

Discharge Defense: Definition

Who does it work for and defend against?

Rebuttable PResumption arises when…

A

DEFINITION: when instrument is already paid to a party entitled to enforce the instrument

WORKS FOR: party who signed an instrument
WORKS AGAINST: party looking to enforce (except Holder in Due Course w/o notice)

REBUTTABLY PRESUMED IF: maker has possession of the note

110
Q

ARTICLES 3/4 > Persons entitled to enforce the instrument:

SETUP

  1. Maker issues note to payee for underlying obligation
  2. Payee assigns note
  3. Maker pays underlying obligation

Is Maker discharged

A

Yes, in SC he sure is. This is an exception for notes in SC

111
Q

ARTICLES 3/4 > Accord and Satisfaction

Elements

A

Conspicuous statement that instrument is being tendered as full satisfaction of the claim, and

  1. Tendered in GOOD FAITH as full satisfaction of the claim
  2. Claim was unliquidated or subject to a BONA FIDE DISPUTE
  3. claimant obtained payment of the instrument (you get 90 days to change mind)
112
Q

ARTICLES 3/4 > Accord and Satisfaction

Exception

A

Claimant is an organization that gave prior notice that full satisfaction tenders were to be sent to a designated person/place, and the obligee didn’t send it to that person/place.

113
Q

ARTICLES 3/4 > DEFENSES

REAL DEFENSES

A

(“FFAIIIDDDSS”)

Fraud in Factum
Forgery

Alteration

Inancy
Illegality
Incompetency

Duress
Discharge through Bankruptcy
Discharges known by HDC

Suretyship Defenses
Statute of Limitations

114
Q

ARTICLES 3/4 > DEFENSES

Personal Defenses

A 
HDC Does not take subject to these defenses
--------
Lack/Failure of consideration
Breach of Warranty
Fraud in the inducement
Misrepresentation
Mistake
115
Q

ARTICLES 3/4 > DEFENSES

Claims to an instrument

A

These are “ownership” or “possessory” claims:

Right to rescind negotiation of an instrument (i.e., must show you have a possessory right)

If Trustee deposits check payable to trust in Trustee’s personal account, and bank has knowledge of this

116
Q

ARTICLES 3/4 > HOLDER IN DUE COURSE

Effect of HDC Status

A

Takes clear of claims of recoupment, personal defenses, and claims of ownership/possessory claims

117
Q

ARTICLES 3/4 > HOLDER IN DUE COURSE

How to become a holder in due course

A

(HAVING W)

  1. Person is a HOLDER of a NEGOTIABLE INSTRUMENT
  2. Instrument does not bear APPARENT forgery/alteration and is not so IRREGULAR or INCOMPLETE as to call its authenticity into question
  3. Must take for VALUE
  4. Must take in GOOD FAITH
  5. Must take WITHOUT notice [[ACK]]
    - overdue or been dishonored
    - unauthorized signature or alteration
    - any defense or claim to it
118
Q

ARTICLES 3/4 > HOLDER IN DUE COURSE

Voluntary transferees of HDCs

A

Aren’t HDCs, but have rights of a HDC

119
Q

ARTICLES 3/4 > HOLDER IN DUE COURSE

“For Value” for the purposes of HDC Status

A

If instrument is taken in exchange for a promise of performance, holder gives value to the extent the promise has ALREADY been performed

I.e., an unperformed promise is NOT value

120
Q

ARTICLES 3/4 > HOLDER IN DUE COURSE

“Good Faith” for purposes of HDC status

A

Honesty in Fact

Observance of Reasonable Commercial Standards of Fair Dealing

121
Q

ARTICLES 3/4 > HOLDER IN DUE COURSE

When is a check overdue

When is a demand note over due

A

Check is overdue 90 days after its date

demand note is overdue one day after demand for payment is made

122
Q

ARTICLES 3/4 > PRESENTMENT/TRANSFER WARRANTIES

To whom are presentment warranties made

Who makes presentment warranties

A

MADE TO: the ONLY person to whom a presentment warranty is made is the Drawee/Payor Bank

MADE BY: when check is presented to drawee/payor bank for payment, and the person presenting the check obtains payment upon presentment, THAT PERSON, as well as ALL PRIOR TRANSFERORS of the check make presentment warranties to the drawee/payor bank

123
Q

ARTICLES 3/4 > PRESENTMENT/TRANSFER WARRANTIES

Presentment Warranties for a check

A

(“UAE”)

  1. Warrantor is or was at the time of the transfer a person ENTITLED to enforce the draft;
  2. Draft has not been ALTERED; or
  3. Warrantor has NO KNOWLEDGE that the signature of the drawer of the draft is UNAUTHORIZED
124
Q

ARTICLES 3/4 > PRESENTMENT/TRANSFER WARRANTIES

Presentment Warranties for a Note

A
  1. The warrantor is or was at the time of the transfer a person entitled to enforce the draft
125
Q

ARTICLES 3/4 > PRESENTMENT/TRANSFER WARRANTIES

Who makes Transfer Warranties

Who is a transfer warranty made to

A

MADE BY:
If indorsed, transfer warranty made to all subsequent transferees

If no indorsement, but consideration is made, warranty is made to immediate transferee

MADE TO:
Only made to people who take by transfer–NOT drawee/payor bank

126
Q

ARTICLES 3/4 > PRESENTMENT/TRANSFER WARRANTIES

Transfer Warranties

A

(A CUBE)

  1. Transferor is ENTITLED to enforce the instrument
  2. Instrument has not been ALTERED
  3. All signatures ARE AUTHORIZED/authentic
  4. Instrument not subject to any DEFENSE/CLAIM
  5. Transferor has no KNOWLEDGE of insolvency [BANKRUPTCY] (wrt maker/drawer/acceptor)
127
Q

ARTICLES 3/4 > CHECK COLLECTION PROCESS > The Midnight Deadline

General Rule

Midnight Deadline Definition

Regulation CC

A

GENERAL RULE: If a (payor/drawee) bank is presented with a check, it is accountable for it if it FAILS TO RETURN IT prior to the bank’s “midnight deadline”

“MIDNIGHT DEADLINE”: midnight on the banking day following the banking day on which it received the check

Regulation CC: protects payor bank by extending midnight deadline if payor bank uses a means of delivery that would ORDINARILY get the check to the presenting bank ON THE NEXT BANKING DAY AFTER THE DEADLINE [[essentially personal courier or same day delivery on day following midnight deadline]]

128
Q

ARTICLES 3/4 > CHECK COLLECTION PROCESS

Checks drawn on insufficient funds

A

Not properly payable unless payor bank has agreed to pay overdrafts. (payor bank may elect to pay anyway)

129
Q

ARTICLES 3/4 > CHECK COLLECTION PROCESS > Wrongful Dishonor

Who may bring it

When does it arise

A

WHO MAY BRING IT: only the drawer/customer

WHEN DOES IT ARISE: when bank wrongfully dishonors check

130
Q

ARTICLES 3/4 > CHECK COLLECTION PROCESS > Stop Payment Order

Rule

When does Stop Payment Not Work?

A

Requires timely and sufficient notice

DOESN’T WORK WHEN:

  • HDC
  • Drawer would be liable on check anyway
  • Cashier’s checks, certified checks, teller’s checks
131
Q

ARTICLES 3/4 > CHECK COLLECTION PROCESS

Postdating check

A

Payor bank can pay postdate check prior to date on the check, UNLESS

Customer gives timely and sufficient notice

132
Q

ARTICLES 3/4 > CHECK FRAUD

When must payor Bank recredit Drawer’s account for payments it makes on the defective check

A
  1. forged drawer’s signature
  2. Material Alteration; or
  3. Forged Indorsement
133
Q

ARTICLES 3/4 > CHECK FRAUD

Situations when check fraud risk is shifted to the customer/drawee

A

Imposters
Fictitious Payees
Padded Payroll

134
Q

ARTICLES 3/4 > CHECK FRAUD > Imposters (INDORSEMENTS)

Situation

Rule

A

Imposter Impersonates Payee

Indorsement in name of the payee is effective as the payee’s indorsement

135
Q

ARTICLES 3/4 > CHECK FRAUD > Fictitious Payee (INDORSEMENTS)

Situation

Rule

A

Person identified as payee: (a) is not intended to have any interest in the instrument OR (b) is a fictitious person

Indorsement in the name of the payee is effective as the payee’s indorsement

136
Q

ARTICLES 3/4 > CHECK FRAUD > Forged Drawer’s SIGNATURE

Rule

A

These checks are not properly payable. Unless the bank has a valid defense, a payor bank that charges a customer’s account for payment of a forged check MUST RECREDIT THE CUSTOMER’S ACCOUNT for the amount of the forged checks.

137
Q

ARTICLES 3/4 > CHECK FRAUD > Forged Drawer’s SIGNATURE

Bank’s Defense to Forged Drawer’s Signature (3-406 exclusion)

Customer’s Counter Defense to Bank’s Defense

A

BANK’S DEFENSE:

  1. Drawer failed to exercise reasonable care
  2. failure substantially contributed to the making of the forged signature

CUSTOMER’S COUNTER DEFENSE
1. Payor Bank failed to exercise ordinary care
2. Failure substantially contributed to the loss
IF SHOWN, Bank is liable under principles of COMPARATIVE FAULT

138
Q

ARTICLES 3/4 > CHECK FRAUD > Forged Drawer’s SIGNATURE

Repeater Rule (4-406 Exclusion)

Customer’s Counter Defense to Repeater Rule

A

Customer fails to notify payor bank of FORGERY/ALTERATION within 30 days after receiving bank statement disclosing it, customer is precluded from asserting it by same wrongdoer on SUBSEQUENT CHECKS

COUNTER DEFENSE: failure to exercise ordinary care (substantially contributed); Lack of Good Faith

139
Q

ARTICLES 3/4 > CHECK FRAUD > Forged Drawer’s SIGNATURE

Absolute Bar Rule

A

If customer fails to report unauthorized signature/alteration within ONE YEAR after receiving statement disclosing it, customer is precluded from asserting forgery/alteration against the bank, EVEN IF the bank failed to exercise ordinary care

((Cut Down Terms: bank can “cut down” time from one year by putting terms in the deposit agreements)

140
Q

ARTICLES 3/4 > CHECK FRAUD > Conversion

Who may maintain conversion action

Against whom

Rule

A

BROUGHT BY: Payee* (NOT drawer)

BROUGHT AGAINST: payor bank and depositary bank

Rule: payee from whom a check is STOLEN and paid upon a forgery of his indorsement can maintain a conversion action against the payor bank and the depositary bank

141
Q

ARTICLES 3/4 > CHECK FRAUD > Indorsement

Padded Payroll Defense

Counter Defense

A

Employee responsible to supply information determining names and addresses of payees on checks to be issued by her employer

  1. provides names of entities not entitled to payment
  2. after the employer signs checks payable to these entities, employee steals the checks, and
  3. employee forges indorsement of entity identified as the payee, and cashes the check and deposits into her personal account

RESULT: Employer bears loss. INDORSEMENT IS EFFECTIVE

COUNTER DEFENSE: if depository bank failed to exercise ordinary care, and it substantially contributed to the loss, then COMPARATIVE FAULT

142
Q

ARTICLE 2 > Perfect Tender Rule

South Carolina Nuances WRT rejection of goods

A

Rejection of goods must be in writing

Revocation of Acceptance probably must be in writing

Buyer gets a security interest in the rejected goods to secure refund of any purchase price paid and incidental damages (buyer loses SI if he surrenders possession)

143
Q

ARTICLE 2 > Perfect Tender Rule

Buyer’s duties with respect to rejected goods

A

Buyer can’t use the goods–could constitute acceptance

Buyer must exercise reasonable care

If seller has no place of business/agent in buyer’s location:

  • buyer must follow seller’s instruction as to the disposition of goods
  • If goods are perishable, buyer must sell the goods, even w/o seller’s instruction
144
Q

ARTICLE 2 > Perfect Tender Rule > Buyer Rejects/Revokes Acceptance > MArket BAsed Measure of Damages

Formula

When is it allowed

Time and Place Mkt Price is determined

A

FORMULA: Market price at time of breach minus contract price

WHEN IS IT ALLOWED:

  1. buyer did not cover
  2. buyer purchased substitute goods, but the purchase is not effective as cover; or
  3. Buyer ELECTS to claim damages based upon market price (exception: windfall to buyer wrt market price decrease)

TIME/PLACE MKT PRICE IS DETERMINED:
Place: at buyer’s location if rejected/revoked after arrival
time: at time of breach

145
Q

ARTICLE 2 > Perfect Tender Rule > Buyer Rejects/Revokes Acceptance

Availability of Incidental Damages

Availability of Consequential Damages

Availability of Punitive Damages

A

INCIDENTAL: included in price of effecting cover

CONSEQUENTIAL:
must be foreseeable
must try to mitigate

PUNITIVE
Fraud in the PERFORMANCE of the contract will allow for punitive damages (not in K’s creation)

146
Q

ARTICLE 2 > Limiting Buyer’s Remedies

Enforceability of Limited Remedy Terms

A

ENFORCEABILITY OF LIMITED REMEDY TERMS:

must EXPRESSLY AGREE ((or trade usage shows)) that the limited remedy is the buyer’s EXCLUSIVE remedy (or else buyer can assert statutory remedies)

FAILURE OF ESSENTIAL PURPOSE: if seller is unable to cure defect within a reasonable time, limited remedy fails its essential purpose–buyer can assert statutory remedies

147
Q

ARTICLE 2 > Limiting Buyer’s Remedies > Exclusion of Consequential Damages

Enforceability

A

Enforceable unless exclusion is UNCONSCIONABLE (personal injury resulting from consumer goods is prima facie unconscionable)

148
Q

ARTICLE 2 > MULTIPLE PARTY PROBLEMS

Privity Defense in SC

A

Virtually abolished: Breach of Warranty extends to any NATURAL person who may be EXPECTED to be affected by the goods and whose person or property is damaged by a breach of warranty.

149
Q

ARTICLE 2 > MULTIPLE PARTY PROBLEMS

Dealer Adoption

A

Dealer can be liable for MFR’s warranty if the dealer uses the warranty in persuading the buyer to buy the goods

150
Q

ARTICLE 2 > STATUTE OF LIMITATIONS

Statute of Limitations in South Carolina for Breach of Warranty

Reducing the SOL by contract

A

6 years from when buyer discovers OR should have discovered the breach.

This period CANNOT be reduced by contract

151
Q

ARTICLE 2 > FORMATION ISSUES > FIRM OFFERS

Rule regarding if the assurance/promise is on the OFFEREE’S form

A

the term must be separately signed by the offeror

152
Q

ARTICLE 2 > FORMATION ISSUES > Battle of the Forms

Applicability

A

Applies only to cases in which a contract is formed through the exchange of STANDARD FORMS containing inconsistent BOILER PLATE PROVISIONS

153
Q

ARTICLE 2 > FORMATION ISSUES > Statute of Frauds > Specially Manufactured Goods

A
  1. Goods SPECIALLY MANUFACTURED for the buyer
  2. goods NOT SUITABLE for sale to others in the ordinary course of the seller’s business
  3. seller has SUBSTANTIALLY BEGUN to manufacture or has made commitments to procure the goods
  4. actions undertaken to begin manufacture/procure REASONABLY INDICATE goods are for buyer
  5. Such actions began BEFORE SELLER RECEIVED NOTICE of buyer’s revocation
154
Q

ARTICLE 2 > FORMATION ISSUES > Statute of Frauds >

Estoppel in SC

A
  1. competent proof of the existence of the oral contract
  2. party invoking the doctrine has suffered a definite, substantial, detrimental change of position in reliance on the contract
  3. No remedy except enforcement of the bargain is adequate to restore his former position; and
  4. must show he lost more than his expected benefit under the contract
155
Q

ARTICLE 2 > FORMATION ISSUES > Open Price Terms

First Scenario: Parties agree to reach price later

Second Scenario: Buyers allows Seller to pick price term

A

FIRST SCENARIO: Did parties intend to be bound. Yes: court will determine price. No: no contract.

SECOND SCENARIO: Seller must act in good faith when picking price ((honestly and in observance of reasonable commercial standards))

156
Q

ARTICLE 2 > RISK OF LOSS >

What is the effect of C.I.F. or C&F

A

Like a shipment contract

157
Q

ARTICLE 2 > RISK OF LOSS

Risk of Loss: contracts for the sale of goods in the possession of the bailee

A
  1. buyer receives possession of a negotiable warehouse receipt;
  2. buyer receives the possession of a writing directing the bailee to deliver the goods to the buyer (including non-negotiable warehouse receipt); or
  3. Bailee acknowledges buyer’s right to possession of the goods
158
Q

ARTICLE 2 > RISK OF LOSS

What is the effect of nonconforming goods (breach) on the risk of loss?

A

If seller tenders NCGs so that the buyer has a right of rejection, the risk of loss REMAINS UPON SELLER until cure or acceptance

159
Q

ARTICLE 2 > RISK OF LOSS >

Effect of Buyer Rightfully Revoking Acceptance on the Risk of Loss

A

Buyer’s rightful revocation of acceptance may, to the extent of any deficiency in its effective insurance, treat the risk of loss as resting on the seller.

i.e., seller is responsible for anything insurance doesn’t cover (seller is also responsible for deductible)

160
Q

ARTICLE 2 > RISK OF LOSS >

Effect of Buyer Repudiating after goods have been identified, but before risk of loss has passed to the buyer

A

Seller may, to the extent of a deficiency in his effective insurance coverage, treat the risk of loss as resting on the buyer for a COMMERCIALLY REASONABLE TIME after the buyer has repudiated

i.e., buyer is responsible for anything insurance doesn’t cover (buyer is also responsible for deductible)

161
Q

ARTICLE 2 > ADEQUATE ASSURANCE/REPUDIATION/RETRACTION

What are Seller’s rights if buyer is insolvent?

A
  1. can refuse to deliver except for cash
  2. require all unpaid obligations to be paid in cash
  3. can stop goods in transit
  4. if B received goods while insolvent, seller can demand reclamation if made within 10 days
162
Q

ARTICLE 2 > ADEQUATE ASSURANCE/REPUDIATION/RETRACTION

Rules for Retracting repudiation

A
  1. before repudiating party’s next performance is due, and

before aggrieved party

  1. accepts repudiation (cancels K)
  2. changes position in reliance of repudiation
163
Q

ARTICLE 2 > Seller’s Remedies

Seller’s remedy if seller has not completed performance when buyer repudiates

A

seller may withhold delivery (and stop delivery by any bailee)

164
Q

ARTICLE 2 > Seller’s Remedies

Seller’s remedy if buyer pays for the goods by a check that is dishonored for insufficient funds

A

Seller has a right to reclaim the goods from the buyer.

Buyer has “voidable title” to the goods”: buyer can transfer good title to a good faith purchaser for value (including an Article 9 secured party). Such GFP takes free of seller’s right of reclamation

165
Q

ARTICLE 2 > Seller’s Remedies

Can seller get consequential damages

A

No

166
Q

ARTICLE 9 > Attachment issues > With Valid Security Agreement, how do you treat these issues?

  1. Proceeds
  2. After-Acquired Property
  3. Future Advances
A
  1. Proceeds: Security Agreement attaches to any identifiable proceeds (remember lowest intermediate balance rule)
  2. After-Acquired Property: Automatic for inventory and accounts. Must be explicit in SA for other types of collateral
  3. Future Advances: Must be explicit in the security agreement

[[SCOPE of Article 9 + this = analysis up until perfection]]

167
Q

ARTICLES 3/4 > Who has primary liability to pay instruments?

A

Makers of notes

Issuers of cashier’s checks: drawer/drawee are same entity

Acceptors of drafts: Drawee (bank) signs draft and incurs primary liability

168
Q

ARTICLES 3/4 > Who has secondary liability to pay instruments?

A

DRAWER: conditioned on presentment and dishonor of instrument
-can disclaim obligation by signing “without recourse”–but NOT for checks

INDORSER: conditioned on dishonor of instrument

ACCOMMODATION PARTIES:

169
Q

ARTICLES 3/4 > HOLDER IN DUE COURSE

From what does a HDC take free of?

A

Personal Defenses of the obligor

Claims in recoupment of the obligor

Possessory Claims (including claims of ownership)

NOT Real Defenses

170
Q

ARTICLES 3/4 > Checks “not properly payable”

What are the defects?

What is the remedy if the drawee pays these checks?

Bank’s Defenses?

A

DEFECTS
unauthorized signature
alteration
unauthorized indorsement

REMEDY:
if bank pays, must recredit drawer’s account

BANKS DEFENSES
3-306 preclusion: drawer’s failure to exercise ordinary care which substantially contributed to the making of the forged signature

4-406 (repeater rule): drawer doesn’t notify bank of forgery/alteration within reasonable time (not exceeding 30 days) after receiving bank statement

Absolute Bar Rule: Drawer doesn’t report unauthorized drawer’s signature/alteration within one year after receiving statement of account

-see other flash card for more information on these rules

171
Q

ARTICLES 3/4 > Restitution claim for bank that makes an improper payment to a person (under mistaken belief drawer’s signature was authorized)

A

Can make a restitution claim to recover amount of the check from the person who received the payment

CANNOT if person took in good faith and either
for value
changed position in reliance

BAR EXAM (8 decks)

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