UCC

Question 1

Express warranty

Answer 1

The seller’s description of, or assertion of fact about, goods

Question 2

Implied warranty of merchantability

Answer 2

Assures the buyer that goods are fit for ordinary use. This warranty is read into a contract where a seller has specialized knowledge of the goods because he is a “merchant who deals in goods of the kind.”

Question 3

Implied warranty of fitness

Answer 3

Assures the buyer that the goods are fit for the buyer’s particular purpose. An implied warranty of fitness arises only where the buyer has a particular purpose in mind, the buyer is relying on the seller to select suitable goods, and the seller has reason to know both facts. The seller need not be a merchant at all.

Question 4

Damages for breach of warranty

Answer 4

Measured by the difference between the fair market value of (the item) as accepted and the fair market value (the item) would have had if it had been as warranted. Plus any incidental and consequential damages.

Question 5

Agent signs check

Answer 5

An agent is not personally liable on a check as long as the check contains the principal’s name, even if the agent does not indicate that he is signing as an agent

Question 6

Agent signs promissory note

Answer 6

If an agent signs a promissory note, but does not unambiguously show that it was made on behalf of the principal, even if the note identifies the principal, the agent is potentially personally liable on the note.

Question 7

Obligation of Bank to customer

Answer 7

A checking account creates two legal relationships. First, the bank is a debtor and the customer is a creditor because the bank has borrowed the customer’s money. Second, the bank is the customer’s agent to pay checks the customer writes and to collect checks the customer deposits.

Question 8

Customer obligation to bank

Answer 8

A bank’s customer has the obligation to review his statements from the bank in a reasonably prompt manner and then to promptly notify the bank of any issues.

Question 9

Bank statements

Answer 9

It is not necessary for the statements to include the actual checks, as long as the statements reasonably allow the customer to identify the items the bank paid.

Question 10

Forgeries by same person

Answer 10

The UCC contains a special rule applicable to situations where the forgeries are by the same wrongdoer. If the same person is forging a series of checks, the drawer must report the forgeries within 30 days of when the statement was available. If the drawer does not do so, the bank will not recredit the account for the subsequent forgeries by the same person.

Question 11

Banks verifying signatures

Answer 11

Banks must exercise proper care in verifying signatures. Most likely proper if its procedure is reasonable and commonly followed by other comparable banks in the area.

Question 12

Drawer’s negligence

Answer 12

If a drawer’s negligence substantially contributes to the forgery of the drawer’s name, the drawer may not raise the forgery.

Question 13

Nonjudicial self-help repossession

Answer 13

Nonjudicial self-help repossession is permitted only if it is done without a breach of the peace.

Question 14

Delegating duty to avoid breach of peace

Answer 14

The Texas Supreme Court has held that the duty to avoid a breach of the peace may not be delegated.

Question 15

Waiver of right to receive notice

Answer 15

A waiver of the right to receive notice is valid only if the debtor waives notice in an authenticated agreement made AFTER the default.

Question 16

Value of collateral

Answer 16

If the resale requirements are not complied with, a rebuttable presumption will arise in a nonconsumer situation that the value of the collateral was equal to the amount of the debt.

Question 17

Requirements of negotiability

Answer 17

The requirements of negotiability are (i) it’s in writing, (ii) it’s signed by the maker, (iii) it contains an unconditional order to pay a fixed sum of money, (iv) it imposes no other undertaking or instruction, (v) it is payable at a definite time, (vi) it contains words of negotiability.

Question 18

“Nonnegotiable”

Answer 18

The notation on a check that it is “nonnegotiable” does not make a check nonnegotiable if it meets all the requirements of negotiability.

Question 19

Ordinary building materials

Answer 19

Once ordinary building material is incorporated into the building, the security interest in it ends and the creditor becomes unsecured.

Question 20

Bulk transaction

Answer 20

A holder does not become a HDC of an instrument taken by purchasing it as part of a bulk transaction not in the regular course of business of the transferor.

Question 21

Debtor moves

Answer 21

If a creditor has a perfected security interest in one state and the debtor moves, that security interest remains perfected only for four months.

Question 22

Payment source

Answer 22

A note will not be deemed conditional merely because it limits payment to a particular source.

Question 23

Interest rate

Answer 23

The interest rate need not be determinable from the face of the instrument; it may require reference to an index or outside source.

Where an interest rate is not ascertainable by the outside source referenced, evidence is needed to determine the obligor’s intent. If the intent of the obligor cannot be ascertained from the description, the judgment rate will be implied.

Question 24

Payable at definite time

Answer 24

An instrument is payable at a definite time if it is payable on a fixed date or at a time that is readily ascertainable on issuance. Any clause that accelerates the time of payment upon the occurrence of an event or at the option of the marker or holder is permissible.

Question 25

Attachment

Answer 25

A security interest attaches to tangible collateral when: (i) the debtor agrees to give the creditor a security interest in it, which may be evidenced by an authenticated security agreement or the secured party’s possession of the goods, (ii) the creditor gives value for the security interest, and (iii) the debtor has rights in the collateral.

Question 26

Bankruptcy trustee priority

Answer 26

For purposes of priority, a trustee is treated as a hypothetical judicial lean creditor who received his lien on the date of the bankruptcy filing. A secured creditor who perfects before a lien creditor gets its lien has priority over the lien creditor.

Question 27

Priority of PMSI

Answer 27

A PMSI in equipment trumps a conflicting security interest if the PMSI is perfected within 20 days after the debtor receives possession of the collateral.

Question 28

Preferencial transfers

Answer 28

A bankruptcy trustee may avoid preferential transfers. However, a PMSI is not a voidable preference if it secures new value that was given by the secured party at or after the signing of a security agreement if it is perfected within 30 days of the debtor receiving possession of the collateral.

A preference is a transfer of a debtor’s interest in property for or on account of an antecedent debt made or suffered by the debtor while insolvent and within 90 days before the filing of a petition in bankruptcy, the effect of which enables a creditor to obtain a greater percentage of his debt than he would have received otherwise in a liquidation case.

Question 29

Right to enforce an order instrument

Answer 29

The right to enforce an order instrument will not pass unless the payee’s indorsement is authorized and valid. In most cases, forging the payee’s name breaks the chain of title and no subsequent possessors of the instrument can qualify as holders. A person entitled to possession of an instrument may recover from the bank for paying on a forged indorsement or may bring any action for conversion against the bank that takes an instrument from one not entitled to enforce it.

Question 30

Staleness

Answer 30

A check becomes stale 90 days after the date of issuance. Bank may still honor check if it does so in good faith.

Question 31

Stop payment orders

Answer 31

Stop payment orders must be in writing.

Question 32

Indorser

Answer 32

An indorser incurs a basic obligation from merely signing his own name. The obligation is to pay according to the terms of the instrument at the time of the indorsement. An indorser incurs this obligation only if: a person entitled to enforce the instrument presents the instrument within 30 days after the indorsement is made, the drawee of a draft does not pay or accept the instrument, and the indorser is given notice of the dishonor. An indorser, however, is discharged of his liability when the drawee bank makes final payment.

Question 33

Secured party, private sale purchase

Answer 33

A secured party may purchase collateral at a private sale only if it is of the kind customarily sold on a recognized market or the subject of widely distributed standard price quotations.

Question 34

HDC

Answer 34

A holder that takes for value, in good faith, and without notice of any claims or defenses at the time the holder gave value and took possession.

Question 35

Type of value

Answer 35

1. Performance of the agreed consideration
2. Acquisition by the holder of a lien or a security interest in the instrument. (other than a judicial lien)
3. Taking the instrument as payment of or security for an antecedent debt.
4. Trading a negotiable instrument for another instrument
5. Giving the instrument in exchange for incurring an irrevocable obligation to a third person by the person taking the instrument.

Question 36

Good faith

Answer 36

Good faith means honesty in fact (a subjective test) and observance of reasonable commercial standards (an objective test).

Question 37

Facts constituting notice

Answer 37

Instrument overdue

Unauthorized signature or alteration

Claims to the instrument

Defenses or claims in recoupment

When and how notice must be received.