LS 576/776-Business Law II

University of Georgia Terry College of Business

Hi! This is the home page for LS 576/776 (as if the page title didn't tell you that...).Make sure you keep up with the page, as it will change frequently, and you are held responsible for anything posted. But it's not all work and no play. I've included the Fun Links page for you, purely for your enjoyment and horizon expansion. Have fun, enjoy the class, and give me any feedback you think would be helpful.

Dr. B-A's LS 576/776 Web Site Contents

If you want to see the Summer '97 syllabus click here.

If you want to see the tentative schedule of coverage, click here.

If you want the chapter outlines and handouts, click below.

If you want to see the daily updates, click here.

If you want to see the list of article dates, click here.

If you want to see chapter-end question answers, click here.

If you want to see exams, click here.

If you want to see FAQ (frequently asked questions), click here.

Don't you just love that silly little kitty? :-) I will try my darndest to update this spot daily with any significant items from class that you may need to know. Don't think of it as a substitute for coming to class. It isn't. I'll just put reminders here as I see fit. Check it regularly, as you will be responsible for whatever is posted here. Most of the time the changes should be posted by 12:00 p.m., but things do happen. :-)
 
 

In the past year that I have used the Web for my classes, certain questions arise each quarter. Thus, I am putting here a few things that might be helpful. I have taken these answers to questions from the students in class, and they are using their Arches accounts (which you are required to have for the class) so the answers are program specific. Since I do not use Arches, I'm taking their word for it. If you see an error or have a better way of doing it, please e-mail it to me and I will post it on this page.

Printing specific pages of the web site - When viewing documents on the Web, no page numbers show up. This can be problematic if you want to print only specific pages. To print specific pages of the Web site, press "file," then "preview document." It will show page numbers. Go to the page(s) you want and note the page number(s). Give the print command and enter the pages you want printed.

To send a Web address (URL) in an e-mail - highlight the address, cut it, paste it in the e-mail.
 
 

Quick Finder: Office & Hours ******* Exam Dates ******* E-Mail

OBJECTIVE: To familiarize students with several of the business related aspects of the law, including negotiable instruments, secured transactions and agency and partnerships.

REQUIRED TEXT:Modern Business Law, 3rd Ed., Dunfee, Gibson, et al., McGraw-Hill 1996.

CLASS TIME: T, Th 8:00-10:25 --------F 9:15-10:25 

OFFICE & HOURS: 202 Brooks Hall. T, ThF 7:00-7:45 a.m. and by appointment. Call 542-3438 for scheduling.

TESTING & GRADING:

Grading: The course grade is determined by adding together test scores and any extra credit points, then dividing by three. Since each exam is equally weighted, it is best to maximize performance on each one. Since extras credit points count as full points, it is best to take advantage of every opportunity to gain extra points. For all purposes, and unless notified otherwise, the grading scale is 100-90 A, 89-80 B, 79-70 C, 69-65 D, 64 and below, F.

Exams: There will be three examinations during the quarter, including the final. Each exam is equally weighted. Make-up exams are generally not given. Exam scores are not posted. Rather, exams are returned in class, generally by the next or the second class after the exam. If you have an unavoidable conflict on an exam date, you may submit a request for excused absence or a request for alternate test date form which you can obtain from me. I will give my decision and return the form to you.

Extra Credit: During the first day of class I will pass out a sheet on which students can sign up to do an extra-credit oral presentation on an article on any topic. The article may be from any source, as long as the information is current. The presentation is to be no longer than five minutes and is worth three points.

Unannounced quizzes MAY be given from time to time as a means of testing student knowledge and providing an opportunity for additional points. Quizzes are generally worth ten points, and I don't generally give more than two per quarter, if that many.

I also may give Web-connected assignments for extra credit. Check the daily update to see.

Attendance: I take roll every day, but attendance is not mandatory. However, very often, test items come directly from class lectures, so being in class helps greatly. In addition, if you are a borderline student, your attendance may move you up to the next highest grade. It is important that you sign the roll each day you are in class. Having someone sign the roll for you in your absence will result in ten points being deducted from your class points for both you, as well as whoever signed for you.

MISCELLANEOUS:

Doing Well: Students have said that it greatly improves performance if they come to class prepared. Preparation includes reading the chapters and answering the chapter-end questions. The answers to the chapter-end questions and old exams are posted on the class Web page.

E-Mail, the Web, and the listserv: Students are required to have an Arches account. The accounts are free for enrolled students and can be set up in minutes. You are required to subscribe to the listserv for the class.  Each day thereafter (including weekends) you will have one point deducted if I have not received the e-mail. The e-mail should state your full name, major, expected date of graduation, why you chose this course, and what your favorite memory is.

I maintain a Web site for the class at http://www.terry.uga.edu/~dawndba/, which will also have all class information posted. Of course, if you're looking at this on my Web site, you are already in the know. :-) Watch for changes.
 

Absences: I take roll every day, but there is no actual penalty for missing class. If, however, your grade ends up being on the line between letter grades and you have great attendance (I do not tell you how many absences you can have before you lose this privilege) your grade can be boosted up to the higher letter grade.

Rescheduling exams: Exams must be given when taken, and there are no makeups.

Recommendations: Students often ask me to write recommendations for them. I don't mind doing it if I know you well enough to do so. In order to help me make the recommendation more than a general one, I need information from you. If you wish to have me write a recommendation, give me the following:

* the latest copy of your transcript

* your phone number and e-mail address

* explicit instructions as to where and to whom the recommendation should be sent

* the deadline for the recommendation

* any necessary forms I need from the place needing the recommendation

* a brief, but full typed essay from you telling me things about yourself, your family, your goals, ambitions, and motivations, that might be helpful in painting a picture of you that you may think is inappropriate for you to do yourself. The information could include such things as obstacles you have had to overcome to go to school, particular family circumstances that may make you unique, etc. I don't want the essay you write for the application, and I don't want a recitation of your grades. I want something that makes you more than a one-dimensional person.

Make sure you give me enough time to work on the recommendation. The longer the better. If it is brought to me at the last minute, you run the risk of me turning you down, or your recommendation being late.

Recording: Lectures may not be recorded without my permission. Also, you do NOT have my permission to use notes from my lectures for commercial lecture note purposes.
 
 

T June 24 - Chapter 26 Introduction to Negotiable Instruments

Th 26 - Chapter 27 Negotiable Instruments: Negotiability

F 27 - Chapter 27 cont'd

T July 1- Chapter 28 Transfer, Negotiation & Holders in Due Course

Th 3- Cont'd

F 4 - Independence Day - No class

T 8- Chapter 28 cont'd

Th 10- Exam

F 11 - Chapter 29 Liability, Defenses & Discharge

T15 - Chapter 29 cont'd

Th17 - Chapter 32 Secured Transactions

F 18 - Chapter 32 cont'd

T 22 - Chapter 32 cont'd

Th 24 - Chapter 32 cont'd

F 25 -Chapter 35 The Agency Relationship

T 28 - Chapter 36 The Effect of Agency Relations

Th 31 - Exam

F August 1 - Chapter 38 Nature and Formation of Partnerships

Chapter 39 Operation and Dissolution of Partnerships

T 5- Chapter 41 Introduction to of Corporations

th 7 - Chapter 42 Forming the Corporation

F 8 - Chapter 43 Financing the Corporation

Tu 12 - Chapter 44 Managing the Corporation

Chapter 45 Mergers, Dissolution, and Termination LAST DAY OF CLASS

Th14 - FINAL EXAMINATION 12-3 p.m. in the usual classroom
 

The professor reserves the right to modify the syllabus as necessary. Students are held responsible for all class decisions and discussions which take place in their absence. Check the class Web page for updates.

Negotiable Instruments

Holder in Due Course

Commercial Paper Warranties

Warranties of Presentment

Warranties of Transfer

Liability of Parties

Significant Times

Commercial Paper Rules

Introduction to Article 9 Transactions

Issues in Article 9 Transactions

Requirements (4)

signed by Maker (M) or Drawer D'er)

contain uncond prom or order to pay sum cert in $

can't have cond on front of instr

ok to have cond on back of instr

ref to another agmt can't be nec

pmt of instr can't be subj to another K ("subj to K")

mere ref to another agmt ok ("as per K")

stmt of consid ok

prom must be a prom, not mere ack (i.e., IOU)

order is definite direction to pay

particular fund concept 1990 Code says its OK if pbl from particular fund. Old rule:

M or D'er must pledge gen cred

can't say pbl only out of part. fund

3 exceps

mere ref ok

gov issues instr pbl out of part. fund-ok

pbl out of ptsp assets only - ok

sum cert. must be pbl in $, not goods, land, etc.

foreign currency ok

pmt in $ equiv. ok unless instr says no

must be med. of exch. adopted by gov.

if prin. sum is definite, negoby not affected by

interest

pmt in installmts

w/exchange at fixed or other rate

cost of collectn or atty fees incl.

diff rates of int before & after default

discount after fixed date

pbl on demand or at a definite time

demand

pbl at sight - gen in drafts

on presentation

when no time of pmt stated

not so if instr

pbl in installmts

provides for periodic pmt of int

has accel cl w/o specifying real due date

pbl on demand - gen in notes

if pbl on uncertain act or event, negobty destroyed

even if act or event occurs

if pbl "on or before" specified date - ok

if pbl at a fixed per. after date or sight - ok

accel cl - hastens time of pmt -ok

cl can let H can decl instr pbl when insecure

must do so in gf

extension cl - delays time of pmt

if extension at option of H, no time req'd

if extension at option of M or acceptor or auto-

must specify definite time for ultimate pmt

pbl to order or bearer 1990 Code says checks OK even if not to order or bearer

makes the instr negobl & able to be transferred

bearer - pmt made to anyone in possession

nego by delivery only

pay to bearer

order of bearer

specified person or bearer

cash or order of cash

order - pmt to designated payee or its order

nego by delivery & indorsement

pay to order of Jeff

pay to order of Jeff or bearer

pay to Cynthia or order

pay to Cynthia or assigns

ok 2B pbl to 2 or more people tog or in alt.

if pbl to both tog, both must sign

if pbl to either, signature of either ok

ok if pbl to estate, trust or fund

gen pbl to representative of it

ok if pbl to ptsp or uninc assn

any auth rep may indorse

ok to use equiv words, but not best

if not pbl or O or B, not negobl & defenses gd

No effect on negobty if included

stmt that collat given

indorsemt or cashing ack full satisf of oblig

for value rec'd or services rendered

No effect on negobty if not included

place where instru drawn or pbl

consid given

date

if given, presumed correct

antedating ok

postdating ok

wrong date ok

fraud or illegality of date doesn't affect negobty

Incomplete instr

signed by M or D'er

payee or amt omitted

can't be enforced till completed

if filled in w/auth, effective as completed

if date nec for instr (pbl 60 days from date)

incomplete if date not given

date can be inserted by H

Ambiguities

if drawn as draft or note, H may treat as either

i.e., dir to 3d person, but contain prom to pay

handwritten controls over type or print

type controls over print

words control over figures

if words ambiguous, figures control

if no rate of int given, judg rate at pmt place

runs fr date or instr, or if undated, d o issue

if 2+ signed as M, D'er or I'er, j & sev. liab UOA

Transfer of Commercial Paper

by assmt

only get what transferor had

defenses good agnst transferee

transferee can't become HDC w/most protection allowed

by negotiation

transferee can become HDC

bearer instrument

nego by delivery alone

order paper

nego by indorsement + delivery

ind must be

on instr or allonge

made by H or someone w/H's auth

must convey entire instru or any unpd bal on it

if conveys less, effective as partl assmt

indorser may add to indorsemt words of

assignmt

cond

waiver

guarantee

limitation

disclaimer of liabty

if payee's name misspelled

can indorse as written or as real or both

bank can supply missing indorsemts for depositors

types of indorsements

blank - I's name written on instr

turns order paper to bearer paper

reverts to order if specially indorsed

special - specifies person to whom/whose order pbl

reqs indorsemt for further nego

last indorsemt dets whe O or B paper

H can convert blank to special by writing K above

restrictive (4) - restricts & lims I'ees rts

conditional

"pay only if roof repaired" (only good between I'er & I'ee)

prohibiting further transfer

"pay Jane only"

not effective

only makes signature req'd, i.e., special indorsement

trust - $ is actually for another's benefit

banking indorsements - lodges instru in B syst

"for collection"

"for deposit only"

"pay any bank"

effect of restrive inds on banks is limited

non-depositary p'or or intermed bank can disregard restric ind

not so as to B's immed transferor

1. Intro

A. negotiation - transfer of a NI in such a manner that the transferee becomes a holder

B. transferee may be

Holder - one in possessn of an instr drawn, issued or indorsed to him, his order, to bearer or in blank

Assignee - if instr not negobl or improperly negotiated

any defense gd agnst a'or, gd agnst a'ee
HDC - all are HDC unless defense is asserted
only real defenses gd agnst HDC

if real defense, maker/D'er doesn't have to pay HDC

if only pers defense, maker/D'er must still pay

A. For Value

In Good Faith

W/o notice that it is ODD, i.e.,

overdue

has been dishonored

or that anyone has a claim or defense to it

payee who participates in transac out of which instr arises can't be HDC

can't be HDC if instr acq'd thru other than usual channels of negotiatn or transfer, i.e.,

executor taking over an estate

purchased at judicial sale

obtained thru legal process by attaching creditor

not in regular course of bus

1. holder must give value

2. gift donee th4 isn't HDC

3. executory prom ok as consid for K, but not as value 2B HDC

rule doesn't apply to note's prom to pay
4. D'er of ck for negobl note is H for value even before ck cashed

5. bank cashing ck has given value

6.H for value if instr is in pmt of existing debt

7. H for value if instr is given as collat for debt

8. can be HDC as to only pt of an instr

collat note worth 5000, debt worth 500, HDC only as to 500
9. HDC for full instr even if discount rec'd

1. honesty in fact

2. objective standard

3.no gd faith if circumstances clearly indicate a defense

4. lack of gf if failure to act commer reasbly, failure to follow accep bus prac

5. taking note w/large discount, alone, not lack of gf

6. close connectedness doctrine

tr'ee doesn't take in gf when so closely connected w/tr'or that tr'ee can be charged w/knowledge of the infirmity in the underlying transac,i.e., on site bank financer of cars

1. Notice is
actual knowledge

rec'd notification

has reason to know fr facts & circums known to her, i.e., if one of info wd tip off someone of at least ordinary intelligence

visible evid of forgery or alteratn puts on notice
incomplete in important respect at time of purchase is notice

knowing of ante- or postdating is ok

knowing of separate K isn't notice

is if H knew separate K wasn't perf'd
notice must be rec'd at time & in way to give H reasbl opp to

Before Overdue

purchaser of overdue instr charged w/ some notice of it

notice if reason to know any pt of prin is overdue

past due int isn't notice to H

instr usually indicates if its past due

demand paper - notice if

reason to know he's taking after demand made or

takes after more than reasbl time after issue

reasbl time depends on kind of instr, custom & usage,

facts involved

reasbl time for ck deemed 90 days - not an absolute

H fr HDC - Shelter Doctrine

transferee obtains all rts transferor had

th4 one who takes thru HDC can have rts of HDC, tho they don't

themselves qualify as one

doesn't apply if one taking fr HDC formerly had NI & knew of

or participated in something leading to a defense, then

reacqs it to try to clean up her act

Defenses

If its a personal defense, the holder will have to pay the HDC despite the presence of a defense. Generally involves matters surrounding the reason for issuance of the instr, i.e., nondelivery of a good ordered

If its a real defense, the holder will not have to pay the HDC. Generally involves matters relating to the issuance of the instument itself & whether it is valid, i.e., forgery of maker or drawer's signature.

Helpful hint: if you're pressed and can't learn them all, learn the real defenses and know that all else is personal

Pneumonic: "Holders in Due Course are subject to fame (FFAIIMM)"

Fraud in the execution

Forgery

Any other discharge holder has notice of when taking the instrument

Incapacity (adjudicated), violent duress, illegality that renders obligation void

Insolvency (discharge in such proceedings)

Minority, to the extent it is a defense to a simple K

Material alteration

Pneumonic: "People with personal defenses have been insulted before (INSULLTDD BFF)"

Illegality that doesn't render the transaction void

Nondelivery of instrument

Set-off or counterclaim

Unauthorized completion of instrument

Lack of consideration

Lack of authority of corp. officer, agent or partner as to the instru

Theft of bearer instrument or of properaly indorsed order instrument

Duress (non-violent), undue influence, mistake, misrepresentation, voidable incapacity

Discharge of which HDC doesn't have notice

Breach of contract

Failure of consideration

Fraud in the inducement

any real defense where pty was negligent, i.e., material alteratn (a real defense) becomes only personal if drawer let someone use a signature stamp w/o supervision

FTC Rule of 1976

prevents those who buy consumer good credit contracts from

being able to assert HDC status agnst the consumer if

something goes wrong w/the gd & the consumer refuses to pay

applies to sale or leases of gds or services to consumers in commerce

to prevent seller from sending buyer directly to lender &

th4 circumventing the law, its an unfair or deceptive prac-

tice for seller to accept the proceeds of purchase money

loan unless there is such a notice included in the loan agmt.

Lender must regularly do bus w/seller w/understanding

that consumers can go there for a loan

unfair or deceptive practice for seller to rec credit K w/o

provision in 10-point bold type saying "Notice - Any hol

der of this consumer credit contract is subject to all

claims and defenses which the debtor could assert against

the seller of goods or services obtained pursuant hereto

or with the proceeds hereof"

Below are a few of the rules which I told you are indispensable to knowing the area of commercial paper, and will help you in a pinch.
 
 
 

1. Negotiable instrument requirements

Pneumonic: "Negotiable instruments have their ups and downs (UPS & DOWNS)"

unconditional

promise to pay

a sum certain in $

pbl on demand or at a definite time

pbl to order or to bearer

in writing

w/no other conditions

signed by the maker or drawer
 

2. Negotiation

Transfer of a negotiable instrument in such a way that the transferee becomes a holder.
 

3. Holder

One in possession of a negotiable instrument drawn, issued or indorsed to him, his order, to bearer or in blank.
 

4. Holder in Due Course

A holder who takes a negotiable instrument for value, in good faith and with no notice that the instrument is ODD, that is, that the instrument is

overdue

dishonored or

that there is a defense or claim by anyone to the NI

Below are some of the times which are helpful to know in the commercial paper area.
 

14 days - time w/i which serial forgeries must be reported

time for which an oral stop payment order is effective

may be extended during this time, in writing

6 months - time for which a written stop payment order is effectv

time after which a check is considered stale

may still be paid by bank

bank must use ordinary care

30days - time for which an indorsers signature is valid

1 year - time w/i which an action must be brought on a forged

drawer's signature

3 years - time w/i which an action must be brought on a forged

indorser's signature

30 days - reasbl time for a ck to be due. After 30 days its pre-

sumed to be overdue for purposes of HDC taking w/o

notice that instr is overdue

A party's liability on a transaction may be based upon either the underlying contract or the negotiable instrument issued as consideration for the contract. Of course, if the party pays cash or otherwise does not use a negotiable instrument, then his/her liability is generally based only upon the contract. When a negotiable instrument is used, it's as if there may be extra insurance to hold someone liable if anything happens and the receiver is not satisfied.
 
 
 

I. Liability based on underlying contract

II. Liability based on negotiable instrument

based upon signature

type of liability is based upon capacity of signature

signer may sign in status of

face of instru

maker, drawer, acceptor,

back of instr

indorser

may sign as accomodation pty on either side

liability w/i an agency relationship

P bound by duly auth acts of A

A shd sign as A, A for P

then P liab, and A not liab on instr

P not bound unless name is on instru

if A not auth to sign, P not bound unless

P ratified signature

A pers liab to 3d pties

P estopped fr asserting lack of auth as a defense

A pers liab if fails to show rep capacity

i.e., P not named on instr or rep cap not shown

A pers liab even if P's name on instr but A

fails to show rep capacity

A can relieve liab by showing pty knew he was rep

PER doesn't apply betw pties to show intent if

signature is ambiguous &

P's name appears on instr

imprinting corp name on ck is sub'l evid D'er

signed in rep capacity on behalf of corp

Capacity of signature

Makers & Drawers gen sign on front in lower rt hand corner

Indorsers gen sign on back

Acceptor gen signs on face of instr

if on back, clearly acceptor unless can est otherwise

if signature doesn't reveal status, gen taken as indorser

if signed as co-maker, primarily liab for whole instr

H may collect all fr either

one who pays may collect fr one who didn't

Parties have liab based on status

either primary or secondary liabty

Pties also have contractual or noncontractual liab

based on warrs of transfer or presentment

Liabty based on status

Pties are either primary or secondary pties

Primary pties (engage to actually pay the instr)

makers of notes

acceptors of drafts

engage to pay instr according to its terms

Maker assumes oblig to pay note as worded at time of exec

Acceptor assumes oblig to pay instr as worded at accep

drawee not liab on ck till acceptance

accept must be

in writing

on the draft

signed by drawee-acceptor

gen done by

stamping word "accepted"

w/name

& date

on face of instr

if accep given, H entitled to unqualif accep

acceptor can't change instr

if so, H may refuse accep

can be treated as dishonored

M signs incomplete note

HDC can enforce as completed, even if unauth

Materially altered after issued instr

maker has real defense unless negligent

maker confirms to all subseq pties

existence of payee

payee's capacity to indorse

Secondary pties (expect primary to pay, but will if doesn't)

drawer of draft or check (though now may be liable w/o conditions being met)

indorsees

will pay only if certain conds met

conds:

presentment

dishonor

notice of dishonor or

protest if NI is drawn or pbl outside US

certificate saying instru

presented for P or A

was dishonored

reasons for refusal to pay

failure to meet conds may disch 2dary pties

Drawer

now primarily liab on instr, tho used to be secondarily only. No longer have to meet conds.

engages that upon conds being met, will pay amt to holder

any indorser who has paid

affirms to all subseq pties

existence of payee

payee's capacity to indorse

also gen has liab on underlying K

Indorsers

2 types of liab

A. Liab on K of indorsement

qualified or unqualified

gen unqualified, i.e., no words "w/o recourse"

runs to subsequent pties

bearer's only runs to immed transferee

bearer doesn't ind, only delivs

if qualified, ind, says "w/o recourse"

this is disclaimer of cond liab

only elims cond liab above

does not elim uncond liab (warr liab)

B. Uncond liab based on br of warranty

warr arises upon transfer of instr for consideration

indorser warrs that

he has good title to the instr

all signatures are genuine or auth

instr not materially altered

no defense of any pty good agnst her

w/o recourse indorser warrs only that she

has no knowldege of any defense

does not know of insolvency of any pty

banks forwarding cks for collec warr just as pties

warrs made whe transfer is by

delivery only

qualified indorsement

unqualified indorsemt

no conds precedent to liab as w/cond liab

transfer w/o indorsemt

bec presented for pmt, signature isn't ind, but

rather signature of receipt of pmt

Warrants that

no indorsemt is forged

so far as know, signature of M or D is genuine

note, this warr not absolute, only says as far as

presenter knows, this is true

no material alteratn

No warr that D has suff funds to cover ck

if Dee pays & no funds to do so, presenter not liab

for br of warr

Accomodatn pty

signs to lend credibility to "real" pty

is a surety

can sign instru in any capacity

liab in capacity in which signed

can obtain reimbursemt fr accomodated pty

if not sure if "real" or accomodatn pty, look to

whe proceeds of instr rec'd by AP

whe AP's signature req'd as cond of loan

if AP rec'd no proceeds, but signature was cond of

loan, then its an AP

Guarantor liability

based on word of guaranty

"Pmt guaranteed" or equiv w/ signature

signer engages that if not pd when due, he'll pay

no need to 1st resort to H or other pties

waives conds of presentmt, dish, notice of dish

"Collectn guaranteed" w/signature

signer liab only after H reduced claim agnst M/A

to judgment & executn returned unsatisfied or

M/Acceptor became insolvent or otherwise apparent

its useless to proceed agnst him

Conds

presentment

demand for pmt by H upon M

demand for accep or pmt by H upon drawee

drawee not bound as primary pty until accep

drawee not reqd to accept

gen no need to present for accep

reqd if pmt depends upon prsentmt, i.e., pbl after sight

presentmt for accep fixes maturity date

failure to make presentmt dischs an indorser

presentmt made by

pers contacting primary pty & making demand for pmt or acc

by mail

effective when rec'd

thru a clearinghouse

if place of presentmt specified, made there

if none made, POB of pty to accept or pay

excused if neither pty to accept or A is presnt or accsbl

draft accepted or note made pbl at US bank must be

presented there

presentmt to data processg ctr of payor bank effective if

records maintaind there

importnt where bank has several branches

pty to whom presntmt made can, but need not, req

exhibition of NI

reasbl ID of one presenting

evid of auth if made for another

productn of NI where specified, or if none, reasbl place

signed rec of NI for any pt or full pmt & surrender upon

full pmt

if reqd & not done, not dish, but presntmt invalidated

for note, gen presented at day of maturity at reasbl hr

if demand inst, must be done w/i reasbl time after 2dary

pty became liab

reasbl time presumed 2B

drawer - 30 days after date of issue, whichever later

shd be, w/i that time, presented for pmt or bank colltn begun

indorser - 30days after indorsmt

dishonor

pty NI presented to refuses to pay or accept (if accep nec)

H then has recourse agnst inds or other 2dary pties if

notice of dish provided

if presntmt for accep, D'ee may defer till close of nxt BD

H can give 1 more BD if more time needed to ascertain

facts nec for determining accep

2dary pties not disch bec H gave addl day

if presntmt made for pmt, must be done before COB same day

presentee may take reasbl time to examine

notice of dishonor

imposes liab upon 2dary pties to whom notice given

benefits all who have rts in inst agnst pty notified

th4 no need to notify pty more than once

indorsers liab in order of indorsemt

ind req'd to pay can recover fr ind prior to him/her

ea indorser entitled to notice

H must give prompt notice to have rts agnst unqualif inds

failure to give prompt notice discharges inds

shd also be given to D'er

failure dischs D'er only to extent of loss caused by it

gen given by H or ind who rec'd no

any pty who may be compelled to pay may notify any pty who

may be liab on NI

must be given before midnite of 3d bus day after dish

except banks

must give notice by MD, ie.,

midnite of nxt day following day bank rec'd item or

notice of dish

if one has been notified & wishes to notify others, must do

so before midnite of 3d bus day after notice

may be given in any reasbl manner incl

phone

oral

written

mail

effective when sent, tho not rec'd , if properly sent

must identify dish instr & state that its dish

Excuses for failure to perf CPs

if no excuse for not meeting conds, dischs pties entitled 2

have conds met

indorsers completely discharged

drawers, makers of notes pbl at bank

only disch to extent of loss caused by delay

delay in CPs excused if H acted w/reasbl dilignce & no fault

must comply or attempt as soon as delay ceases

perf of CPs entirely excused if PTBC waives them

if stated on face, binding on all pties

if written above ind signature, binds only her

excused if PTBC dish NI or countermanded pmt or has no other

reason to expect or rt to req instr will be pd or accep

D'er stops pmt on ck

Discharge

cert of ck by H dischs all prior pties

any K reasons for disch does same for NI

pmt

dischs pty's liab even if knew of claim of another

no defense if pd in vio of restrictive ind

no defense if acted in b f, i.e., knowingly pay thief

cancellatn

striking out or eliminating pty's signature

surrender of instr to a pty

H agrees not to sue a pty

if no consent or express reservatn of rts by H

dischs all w/rts agnst such pty

H agrees to release collat

if no consent or express reservatn of rts by H

disch all w/rts agnst the collat

reacq pty may cancel all intervening indmts

fraudulent & material altertn

dischs any pty whose liab affected by it

not so if pty agreed to alteratn

not so if pty seeking to impose liab is HDC

no disch effec agnst HDC U he has notice when he

takes the instr

Generally one of two things is done with a negotiable instrument: the holder either presents it for payment at the appropriate time to the appropriate party, or instead, transfers it to another, usually for some consideration (though it may be transferred gratuitously, as for a gift). When a negotiable instrument is transferred or presented for payment, the law attaches to the transfer or presentment certain warranties, or absolute promises, that the transferor or presenter makes. These may not be discliamed.

Note that one may be liable on an instrument because of signing it in some way (either as maker, indorser, etc.), and the liability comes from the mere act of signing a negotiable instrument. This liability is usually conditional liability. It is conditioned upon secondarily liable parties only being liable if the instrument is presented, dishonored and they are given notice of the dishonor. Primary parties (makers and acceptors) have unconditional liability because they promise to pay the instrument without these three conditions being met first. This type of liability can be disclaimed by the indorser signing "w/o recourse." Bearers make the same warranties as unqualified indorsers (those who sign w/o adding "w/o recourse") except the warranties only run to the immediate transferee. Ordinarily, indorsers' warranties run to all subsequent holders.

But in addition, unconditional liability arises from transferring the instrument to another for consideration or presenting it for payment. This means that a bearer who never signs an instrument, can still be liable if the instrument is ever negotiated to another or presented for payment. There is a difference between warranties of transfer and those of presentment for payment. The warranties are slightly different because the presenter, tho usually signing the instrument, is not indorsing it, but rather is signing to acknowledge receipt of payment. Banks are treated just as individuals regarding warranties.

The transferor (either by indorsement or indorsement and delivery) of a negotiable instrument for consideration warrants that:
 

a. she has good title to the instrument

b. all signatures are genuine or authorized

c. the instrument has not been materially altered

d. there is no defense of any party good against her

if transferor signed "w/o recourse", she warrants only that

she has no knowledge of any defenses

e. she knows of no insolvency proceedings with respect to any

party involved

The one who presents a negotiable instrument for payment warrants that:
 

a. no indorsements are forged

b. so far as he knows, the signature of the maker/drawer is genuine

Background

Unsecured creditors - has only creditor (C) to look to for satisf

- open acct, open credit

if debt not pd

sue debtor (D)

obtain a judgment - becomes j creditor

pursue j creditor post j enforcemt rts

obtain writ of executn

prop (if any) sold at public auction

Secured creditors - has D & collat to look to for satisf

C merely siezes collat upon default by D & has it applied to debt

C reqs a 2d source of repmt in addn to prom to pay

real prop - mortgage

surety (2d person's prom to pay)

personal prop - collateral - Article 9's coverage

Article 9 provides for sec'd transacs, i.e.,

gives C

legal int in D's

personal prop or

fixtures (pers prop affixed to RE)

so it can be

taken to satisfy a debt if

the debt is not paid by D

Collateral - pers prop or fixtures used as security for debt

Secured creditor - one who takes a security int in collat to

secure a debt & complies w/ Art 9

Security int - taken by C by entering into security agmt w/D

Perfection - C securing her sec int as to 3d pties

1. Scope of Article 9

Covers

primarily secured transacs

outrt sales of accts receivable of a business

lease w/option to buy if intended as security

all transactns intended to be security

Excludes

LL liens

assignmt of wages

transfer of ins. policy

artisan's liens - state law for those who repair pers prop

Classifications of Collat

Any pers prop acceptable to C may be used

Sometimes rules depend on what type of prop is involved, i.e.,

where to file to perfect & rts of D upon default

classificatn depends on intended use in D's hands

Classified according to phys makeup into

a. tangible, physical prop or gds (4 types)

.consumer gds

bought or used primarily for pers, fam or household

.equipment

bought or used primarily for

bus

farming

professn

nonprofit org

gov agency

also used as catchall category

often attached to realty & becomes fixture

.farm products

crops

livestock

supplies

unmanuf products of crops or livestock if

in possn of D whose iengaged in farming operatns

cease to be FP when

no longer in farmer's possn or

subjected to manuf process

.inventory

gds held for sale or lease or 2B furn under serv K

may be

raw materials

work in process

completed goods

material used or consumed in a bus

b. documentary prop w/phys existnc rep K obligatn (3 types)

documents of title

bills of lading

warehouse receipts

any other such doc that in RCOB is suff evid that

the one in possn of it has rt to rec, hold &

dispose of the doc & gds it covers

chattel paper

writings that evid

oblig to pay $

sec in in or lease of specific gds

chattel paper itself is a sec agmt, i.e.,

cond'l sales K exec w/negobl note (both tog)

instruments

negobl instmt

investmt sec

any other writng evid rt of pmt of $ & isn't

itself a sec agmt or lease

c. intangibles, i.e., accts recbl (3 types)

accounts

any rt to pmt arising fr sale fo gds or serv if

not evid by writing, i.e., acct recbl arising

fr sale on open credit

contract rts

rt to pmt under executory K

after perf becomes an acct recbl

gen intangibls

misc intanbl pers prop which may be used as sec,

but doesn't fall w/i above

goodwill

literary rts

patents

copyrights

2. Creation of the Security Interest

Deals w/C getting rts in collat

After 4 steps below, (done in any order) sec int is created

& there is attachmt

to create sec int (4)

1. C makes sec agmt w/D

must be

in writing

unless sec arrangemt is possessory & C in possn

signed by D

describe collat suff so it can be IDd

req'd whe oral or written SA

can incl any other terms as pties wish

2. make sure D has rts in collat

D gets rts agnst S upon deliv

Also when S IDs gds to K

D's rts subj to reclamatn if

B fails to pay or

ck bounces

if sec int by B/D attaches B$ S exerc rt to

reclaim, SP gen prevails over unpd S holding

bounced ck

3. C gives value

means SP (secured pty) has furnished D consid suff

to support simple K, incl

bank loans $

bank makes binding exec prom to extend cred

ok to take sec int to sec preextg claim

4. make sec enfocbl by sec agmt or possn of collat

3. Perfection of the Security Interest

Deals w/C's rts agnst third pties, not agnst D

Gives not to 3d pties that one has int in D's prop

gen, unperfec cl is subord to claims of those who acq int

in collat w/o know of the unperf sec int

method of perfec depends on

type of collat

use D intends to make of collat

status of D in relatn to SP

perfectn may be done by (3)

1. filing financing stmt

most common

filed by C in appropriate pub office

gen good for 5 yrs

may be renewed by filing continuatn stmt signed by SP

must be filed w/i 6 mos of terminatn of FS

good for another 5 yrs if renewed

signed by D only

not a substitute for SA

incls

adds of both pties

descrip of collat

stmt that D & C entered into SA

if SI in crops or fixtures must incl RE descrip

mistake in legal descrip nullifies FS

FS effective tho contains minor errors

Sec Agmt may be filed as FS if contains req'd info

usu doesn't qualif

gen use separate FS bec SA has info in SA better

kept private

potential creds charged w/checking w/pub off to

see if the proposed collat is already encumbered

FS can be filed B4 SI attaches to collat

still no SI perfectn till attachmt

D has rt to have terminatn stmt filed after repmt

must be done by SP w/i 10 days of D's written reqst

if not, SP may be fined $100 & be liab for dam to D

if for gds w/ cert of title, as motor vehicles

usu methods don't apply

instead, note SI on cert of title

valid even tho substitute cert fails to disclose

this type filing not for instrumts bec they're

so freely negotiable

2. taking possn of collat

simplest

called pledge

only complete protectn fr 3d pties or wayward D

written SA not req'd

req'd for instruments

bec so freely transferrbl

optional for

gds

nego docs of title

chattel paper

can't be done for intangibles bec don't phys exist

th4 filing of SA essentl for perfectn of these

possn most cimplete for these bec

rt of GFH to whom doc neg by D prevails over SP

true even if SP filed

for chat pap, prevents purchs in OCOB fr super. cl

3. automatic perfectn - perfection by attachment

creatn of SI is in & of itself, perfectn

a. when SP w/perf SI temporarily releases collat to D SI

remains perfected for 21 days w/o filing

only for

instrumts released to D to

make presentatn of it

collect it

renew it

obtain registratn of a transfer

make ultimate sale or exchange

nego docs

can only be given to D for reasons below (nego)

gds in hands of bailee not cov by nego doc of title

gds can only be given to D for

ultimate sale or exchange

loading

unloading

storing

shipping

transshipping

manufacturing

processing

otherwise dealing w/them prelim to sale or exch

b. PMSI in consumer goods

Seller's PMSI

S of gds finances the purch price &

retains SI in gds sold as collat

Lender's PMSI

lender advances $

enables D to acquire the collat

$ used by D to buy the collat

only limited protec fr 3d pty claims
 

Floating Liens

used to cover collat other than specific collat named

protects SP agnst claims of 3d pties by pub filing

Created if SI describes collat as including prop

acquired in the future (after acquired prop)

as soon as D acqs rts in new prop, SP has SI

limited w/consumer gds bec ties up D's prop

only applies if consumer gds obtained w/i 10 days after

SP gives value

purchased w/future advances

Dragnet clause

occurs if SP makes another loan to D

the add'l loan is a future advance

true even where C not oblig to make 2d loan

if fut adv made while SI perfected, one w/priority in

orig collat has same w/ fut adv (2d loan)

same if only commitmt to lend later given

so if 2d lender comes in & loans D $ betw SI's 1st & 2d

loan, & 2d lender perfects, 1st lender (who has fut

adv cl) has priority

sold & D now has proceeds

nec if D sells or otherwise disposes of clooat

proceeds may be

cash

noncash, i.e.,

accts recbl

gds

nego docs of title

chattel paper

instrumts

sale of gds may be

w/authority of SP, i.e., inventory

SP loses SI in collat sold in OCOB

retains int in proceeds

w/o authority

SP retains SI in orig collat

also has SI in proceeds

SP may retain perfected int in gds, tho FS not specific

continuous perfectn if fin stmt's descrip of gds incl

type of collat covered by the proceeds, ie inven-

tory, accts recbl

automatic perfectn for 10 days in proceed if not cov

by orig fin stmt

to remain perfected after then, must perfect by

acceptable means w/i the 10 day period

SP's int in proceeds if D becomes insolvent or Bkrpt

gen-SP can reclaim ID'bl proceeds fr TIB

if no longer ID'bl, SP has perfected SI in

amt up to proceeds rec'd by D w/i 10 days prior to

commencmt of bkrcy proceedgs
 
 

I. D SELLS COLLAT TO 3D PTY SP V. BUYER

Gen Rule:

a. Authorized sale - SP's SI in collat ceases

SP has SI in proceeds only

b. Unauthorized sale - SP retains SI in collat

SP has SI in proceeds also

Exceptions (3)

1. BIOCOB

takes free of SP's SI, even tho perfected

doesn't matter if BIOCOB knows of SI

must be gds S ordinarily sells

Exception

BIOCOB buying farm prods from farmer

SP's perfected SI still has priority

made to protect those who finance crops-mostly gov

2. CONSUMER BUYER OF CONSUMER GDS FR CONSUMER SELLER

takes free of SP's PMSI

B can't know of SP's SI

Exception

If SP filed B4 sale to B, SP has priority

3. BUYER OF CHATTEL PAPER OR INSTRUMENTS

a. As proceeds fr sale of inventory

Purchaser has priority over SP who claims merely as

proceeds fr sale of inventory if P

pays value

takes possession in OCOB

ok for purchaser to know of SP's SI

b. As original collateral or proceeds fr noninventory

BIOCOB has priority if she has no knowledge of SI

best perfectn is possn

II. D GIVES MORE THAN 1 SP SI IN SAME COLLAT SP V. SP

Gen Rule:

1st SP to file or perfect has priority

Pure "race-type" stat

knowledge of other's SI irrel

Exceptions (2)

a. PMSI in Inventory collat

SP2 has priority if

perfects &

gives SP-1 written notice

that it expects to have PMSI in inventory

Both perfectn & notice must be B4 D rec's inventory

Doesn't matter which occurs 1st

b. PMSI in noninventory collat

Has priority if

perfected at time D rec's collat or

w/i 10 days thereafter

SP2 doesn't have to notify SP-1

10 day protec w/o filing is lim bec only gives pri over

1. transferees in bulk fr D

2. lien creds arising betw time of PMSI & filing

No protec agnst

1. sale by D to another

2. sec trans where collat given as sec for loan

during pre-filing period

III. D ATTACHES COLLAT TO RE SP V. ONE W/INT IN RE

pers prop attached to RE called "fixtures"

perfectn by "fixture filing" (fin stmt for fixtures)

done locally, where mort wd be filed

must incl

legal descrip of RE

statemt that its for a fixture

name of record RE owner if not D

stmt that its 2B filed in RE records

mort may describe fixtures & B a fixture filing

if so, 5 yr lim on FS doesn't apply

one w/int in RE may be

RE owner

RE SP

upon default, priority pty may

remove fixture

must reimb other than D for cost of dam fr removl

Rules

a. nonPMSI SI in fixture

has priority if filed B4 mort recorded

if mort'ee filed 1st, has priority

b. PMSI in fixtures

has priority over any earlier RE int if

fixt filing for PMSI occurs B4 gd becomes fixt

or w/i 10 days thereafter

c. Soft fixtures

readily removbl machines or appliances

perfectn by any one of the 3 meths

priority relative to type of meth govs, i.e.,

PMSI in stove auto perfd & has priority

d. Construction loans

has total priority over SI in fixtures added as pt

of new constr

IV. D INSTALLS OR AFFIXES GDS IN OR TO OTHER GDS

SP V. ONE W/INT IN WHOLE GD

gen happens when pts added to pers prop upon repair

pts added called accessions

Rules:

a. SI attached to gds B4 becoming accessn has priorty

over whole

Doesn't matter whe claim to whole arose B4 or after

accessn installed

b. SI attached to gds after becoming accessn is superior

to all subseq claims to whole

Preexisting claim to whole has pri over SI in accssn

Exceptions (2)

1. any pty w/priority int in whole can, in writing,

subordinate her int in favor of pty w/accessn

2. if no perfectn in accessn prior to installing,

repairer can lose to

a. subseq purchaser of whole

b. subseq j creditor who levies on whole

c. cred w/prior perfectd SI to extent he makes

subseq advances

V. COMMINGLED OR PROCESSED GOODS SP V. OWNER OF OTHER PTS

IN NEW GOOD

In manufacturing where several items may combine to make a

finished product

Each item may be subj to a different SI

Rules

a. PROD (gds w/SI made into)

SP entitled to ultimate prod resulting if

SI in raw materials is perfected &

ID of gds lost or

orig fin stmt provided for SI covering 'product'

b. MACHINE (gds w/SI assembled into)

SP may choose

SI in machine or

int in component pt as provided for SI in accesn

if 'prod' stipulated in SA, can't claim accesn

if more than 1 SI in final prod, SPs share in

proportn to cost of their materials used

VI. SP v. LIEN CREDITOR

gen rule:

1st to indicate int on the public record has priority

a. fed tax lien

failure to pay taxes lets IRS file notice of tax lien

may file notice on any prop of taxpayer

prop may have SI on it

SP has priority if notice of lien filed after SI perftd

IRS has priority if notice filed before SI

b. laborer's, artisan's or materialman's lien

Common law - for repair, imprvmt, storage or transptn

lien superior to perftd SI as long as lienor has possn

Statutory - rule same unlesss statute says otherwise

c. judgmt creditor's lien

cred sued D, got a j, had a sheriff levy

SP who perfects before jud lien cred levies prevails

Exception:

PMSI has 10 day grace period that relates back to date

of PMSI attaching, so if j cred attached lien w/i 10

day period, SI still has priority, tho filed after j

cred's lien, but before 10 day period up

d. bankruptcy trustee's lien

TIB may have prop in estate that has SI

TIB's duty to pay unsecured creds

Th4 TIB tries to show SI is ineffective

TIB has rts of hypothetical lien cred

allows her to act as if a lien cred on date pet filed

RTS & DUTIES ON D'S DEFAULT

SI's RTS

1. Repossn of collat

a. self help

can't result in br of peace

ok to

remove car fr street w/o knowledge or obj of D

remove car fr D's driveway or a parking lot

remove car fr 3d pty's premise if not obj to

not ok to

threaten, or appear to, violence to D or others present

remove collat if D or 3d pty objects

use trickery to remove or get permissn to do so

use unauth entry into D's house, garage or bldg to repo

Alternatives to self help

provided for in SA

SP can put D to work

can req D to assemble & make collat avail at reasbl

place

if D refuses, can get jud help to req it, if collat

spread out

if heavy equip, can make unusable or dispose of on D's

premises

must be commercially reasbl
 

b. judicial action

replevin - for recovery of possn of item

- for pers j agnst D & j is levied on collat

D liab for most ct costs, incl atty fees

gen, SP

files complaint

makes affadavit

posts bond as req'd

sheriff siezes prop

prop deliv to SP if D doesn't obj w/i specified time

RTS & DUTIES OF SP IN POSSN

reasbl expenses incurred in connec w/collat chgbl to D &

sec'd by collat

ROL or dam is on D to extent loss not cov by ins

SP may hold as add'l sec any increase or profits rec'd fr coll

can't keep it if its $

must exer reasbl care to preserve collat

if chat pap or instr, may incl preservg rts agnst prior pties

UOA Ex: stock in SP's hands & co issues rt to buy add'l

shares by certain date. Reasbl care reqs notifying D

FORECLOSURE

SP selling of the collat at pub or priv sale

Public sale

by auction open to gen pub

must give notice of time or place of public sale

SP can buy collat at pub sale

Private sale

thru commercial channels to B arranged by SP

must give notice of time after which sale may occur

SP can't buy collat at private sale unless

its type normally sold in recog'd mkt or

its type subj to universal price quotatns

Notice must be

in time for D to take appro steps to protect int

no need if after default D signed waiver of rt to

notice

not req'd if collat

perishbl

threaten to decline rapidly in value

type customarily sold in recog'd mkt (stock on SE)

sent to any other SP fr whom SP rec'd written no of int

not so for consumer gds

No time lim on when to sell (gen)

not so for consmer gds & D pd over 60% of pur pr or loan amt

then must be sold w/i 90 days after SP took possn

SP's failure to comply w/UCC provisns re sale not specific

some cts let it act as bar to rt to defic j

few cts don't bar, but give D rt to c/a agnst SP for dam

other cts presume FMV = total debt

burden on SP to show FMV was more than SP rec'd

Sham sale if SP sells at artificially low price to get sub

stantial deficiency j fr D

after foreclsure

B at foreclosure sale takes free of SI

Schedule of distributn of proceeds

SP's expenses in taking rep & conducting sale

satisfy debt owed SP

satisfy debt owed on inferior claims

surplus goes to D

if not enough to pay SP, can get defic j

strict foreclosure

SP intends to keep collat

must send written notice of this to D

not nec if after default D signed waiver or modificatn of

rt to notice

if consumer gds, only D need to rec notice

if not, must send to all who have filed on collat or who

are known to have SI in it

D or int pty may obj in writing to strict foreclosure

must be rec'd w/i 21 days of sending orig notice

if there's an objectn, collat must be sold

if no objectn, SP may keep collat to satisfy debt

not allowed (2)

consumer gds

SP can't keep them

must be sold w/i 90 days of SP taking possn if

PMSI in consumer gds &

60% of purch price has been pd or

there's an int in consumer gds to secure a nonPMSI

60% of loan has been repd

D may, in writing, after default, waive the rt of

mandatory sale

strict foreclosure objected to (see above)

DEBTOR'S GEN REMEDIES

Redemptn

D has rt to redeem until

prop sold of K'd to be sold or

oblig satisf by retentn of prop

D must tender full amt of debt + expenses incurred in connec

if SP fails to comply w/UCC

ct may, as appropriate, order dispositn of prop

restrain dispositn of prop

S may lose rt to deficiency

D may have rt to dam for loss resulting fr noncompliance

if consumer gds D may recover fr SP

cred serv charge = 10% of prin amt of debt

time-price differential + 10% of cash price, greater of 2

may recover in conversn for loss caused by failure to comply
 
 

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