Secured Trans Commercial Paper.txt

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Secured Trans Commercial Paper.txt
2014-12-23 16:43:59
Secured Transactions Commercial Paper Twiggy924 ALL Hawaii

Secured Transactions Commercial Paper
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  1. Introduction: How to Analyze |(5 areas of inquiry) -
    • 1. UCC-9: does it apply?
    • 2. Attachment of S/I (hint: VCR)
    • 3. Perfection of S/I (put world on record notice)
    • 4. Priority of creditors
    • 5. Default: remedies (statutory, judicial)
  2. UCC Article 9: Applies to what? -
    • Consensual (voluntary) security interests granted in personalty or fixtures. |
    • Does not apply to: |
    • - mechanics liens
    • - statutory liens
    • - real property (mortgages apply to these)
  3. *5 Types of Tangible Collateral (Goods) -
    • 1. Consumer goods***
    • 2. Equipment**
    • 3. Inventory
    • 4. Farm products
    • 5. Fixtures (annexed to realty) |
    • How to classify: focus on primary use of property in the hands of the debtor (subjective determination)
  4. Intangible or Semi-intangible Collateral (IP) -
    • - Promissory notes, drafts***
    • - Patents, trademarks, copyrights
    • - Stocks, bonds, mutual funds
    • - Proceeds from sale of collateral
    • - Accounts (right to payment for goods or services)
  5. Attachment:|Creation of an Enforceable Security Interest (S/I) -
    • 1. Requirements: "VCR"
    • a. VALUE given by the creditor (e.g., loan of $5k)
    • b. CONTRACT evidencing the S/I:
    • i. "authenticated" by debtor (signed, electronically marked), and
    • ii. reasonably identifies the collateral
    • c. RIGHTS: Debtor has rights in the collateral he can confer |
    • 2. After-acquired collateral clauses ("floating liens") are enforceable
    • a. E.g., security interest "in all of debtor's inventory, whether now held or hereafter acquired"
  6. Perfection:|What is it? -
    Puts world on record or synonymously constructed notice of the secured party's existence and stake in the secured property.
  7. Perfection:|Possession by Secured Party -
    Possession by secured party is perfection of the interest (synonymously-constructed notice to the world)
  8. Perfection:|Purchase Money Security Interests|(PMSI) -
    • Defined: S/I that enables the debtor to purchase the goods |
    • Rule:Automatic perfection if PMSI is for consumer goods
  9. Perfection:|WHAT must be filed to give the world record notice? -
    • 1. Filing the security agreement ("VCR") or a financing statement provides record notice to the world |
    • 2. Financing statement need only contain:
    • a. debtor's name and address
    • b. creditor's name and address
    • c. description of the collateral (e.g., "all of debtor's assets" is sufficient)
  10. Perfection: WHERE must record notice be filed to be effective against the world? -
    • 1. File with the Secretary of State, in the state where the debtor is located. |
    • a. Individuals: State of debtor's principal residence
    • b. Registered entities: State under whose laws entity is organized |
    • 2. Exception for timber, minerals, or fixtures:
    • a. file locally, in county where annexed realty is located
  11. *General Order of Priority|6 Creditors -
    • Creditors in general order of priority: |
    • 1. BIOC: Buyer in Ordinary Course. Purchases collateral from debtor-merchant's inventory. |
    • 2. PAC: Perfected Attached Creditor: UCC-9 creditor who both attaches ("VCR"), and perfects (puts world on notice)|
    • 3. LC: Lien Creditor. General unsecured creditor who goes to court to get a judicial lien on the collateral |
    • 4. NOCie: Non-Ordinary Course Buyer. Purchases collateral outside ordinary stream of commerce (debtor does not regularly deal with goods of the kind) |
    • 5. AUPie: Attached Unperfected Creditor. UCC-9 creditor who has attached (VCR: Value given, Contract written, debtor has Rights in collateral), but has not properly perfected |
    • 6. GUC: General Unsecured Creditor. Makes no attachment (no VCR)
  12. Specific Contests: |AUPie v. World -
    • 1. Wins against
    • a. debtor
    • b. subsequent AUPies
    • c. GUCs|
    • 2. Loses against
    • a. PAC
    • b. LC
    • c. any buyer (BIOC, NOCie) without knowledge of S/I
  13. Specific Contests: |PAC v. World -
    • PAC defeats all except: |
    • 1. PACs who file first
    • a. early-filing rule: priority relates-back to early filing |
    • 2. PMSI holders (some):|
    • a. AACF of financed equipment: PAC wins if filling occurs w/i 20 days of debtor taking possession. |
    • b. AACF of financed inventory: PAC wins if both of the following occur before debtor takes possession
    • i. proper filing, and
    • ii. notification to PMSI of AACF
  14. Specific Contests:|PAC v. BIOC -
    • PAC loses to BIOC.|
    • A buyer in ordinary course takes free of a perfected S/I in debtor-seller's inventory
  15. Default:|When does it occur? -
    • When debtor has breached the Security Agreement|
    • - terms of agreement control
    • - "default" not defined in UCC-9
  16. Default:|Remedies Available to UCC-9 Secured Creditor -
    • 1. Self-help
    • 2. Judicial action (writ of replevin)
    • 3. Strict foreclosure
    • 4. Sale of collateral
    • 5. Deficiency action
  17. Default:|Self-help (availability of) -
    • Creditor must not breach the peace. Breach occurs where creditor: |
    • 1. Repossess, despite debtor objection, or |
    • 2. Impersonates police (constructive use of force), or |
    • 3. Uses actions likely to result in violence
    • a. actual violence need not occur
    • b. focus is on potential for violence
  18. Default:|Repossession by Judicial Action -
    If secured creditor cannot use self-help (e.g., debtor objects), must seek judicial writ of replevin (sheriff repossesses)
  19. Default:|Strict Foreclosure -
    • 1. Rule: Secured party retains collateral in full satisfaction of debt. |
    • 2. Requires: Written proposal to retain collateral to: |
    • a. consumer goods:
    • i. debtor
    • ii. secondary obligor |
    • b. non-consumer goods:
    • i. debtor
    • ii. secondary obligor
    • iii. other secured parties |
    • 3. Not available: where
    • a. any notified party objects w/i 20 days of notice (must proceed by sale), or
    • b. debtor has paid at least 60% of collateral (must sell w/i 90 days)
  20. Default:|Sale -
    • Secured creditor may sell collateral and apply proceeds to the debt. Sale may be public or private. |
    • 1. Ever aspect of the sale must be "commercially reasonable," and |
    • 2. Prior to sale, reasonable notice must be sent to debtor and
    • a. Consumer goods: Secondary obligor
    • b. Non-consumer goods: Other secured parties, secondary obligor |
    • 3. The notice must specify:
    • a. Public sale: time and place of sale
    • b. Private sale: time after which sale will be made
    • c. Consumer goods: how to calculate deficiency, and redeem |
    • 4. Secured party may buy at a public sale, but not at a private sale
  21. Default:|Deficiency Judgments -
    • Secured creditor can sue for deficiency, if proceeds from sale do not fully satisfy the debt.|
    • Low price insider: Calculate deficiency based on price that an independent 3P would have paid
  22. Default:|Limited Right of Redemption -
    • 1. Right of redemption cut-off by
    • a. sale, or
    • b. strict foreclosure|
    • 2. Redeem by paying
    • a. amount owed, and
    • b. any interested accrued, and
    • c. creditor's reasonable expenses (inc. atty's fees) |
    • 3. Acceleration clauses: redeem by paying:
    • a. full balance of remaining debt
    • b. accrued interest
    • c. creditor's reasonable expenses (inc. atty's fees)
  23. UCC-3:|Bright-Line Rule
    When negotiable instrument is duly negotiated to a holder in due course, the holder takes the instrument free of all claims to it, free of personal defenses and subject only to real defenses
  24. Commercial Paper:| Major issues
    • 1. Is the instrument Negotiable? |
    • 2. Theory of liability?
    • a. contract or signature liability
    • b. warranty or transfer liability |
    • 3. Transfer proper, i.e., duly negotiated? |
    • 4. Is transferee a holder in due course? |
    • 5. Defenses to enforcement?
  25. 2 Types of Negotiable Notes
    • 1. Promissory Note: "I promise to pay" |
    • a. contains affirmative promise to pay
    • b. parties
    • i. promisor: "maker"
    • ii. promisee: "payee" |
    • 2. Draft: "Pay to the order of X"
    • a. contains an order or command
    • b. e.g., personal check
    • c. 3 parties
    • i. drawer: gives the order
    • ii. drawee: ordered to do the paying
    • iii. payee: beneficiary of order
  26. Who is an Indorser?
    In context of negotiable instruments (promissory notes, drafts), the indorser signs on the back of the instrument
  27. Writing qualifies as a Negotiable Instrument?
    • WOSSUPP|
    • W: Writing
    • O: payable to "Order," "Bearer," or "Assigns"
    • S: Signed by maker or drawer
    • S: Sum certain
    • U: Unconditional promise to pay, with no additional promises
    • P: Payable on demand, or definite time
    • P: Payable in currency
  28. Basis for Suit:|Contract (Signature) Liability
    • 1. Rule: When you sign it, you promise to pay it, and that's how you get sued|
    • 2. Who can be sued: |
    • a. Maker: signs promissory note
    • b. Indorser: signs back of instrument
    • c. Drawer: signs check ordering payment
    • But not the drawee: only pays the order, does not sign anything |
    • 3. "Without Recourse" added to signature:
    • a. term of art used by indorsers and drawers
    • b. disclaimer of liability
  29. Basis for Suit:|Warranty (Transfer) Liability
    • 1. Who can be sued: Any transferor who is not a donor |
    • 2. Who may sue:
    • a. Indorsed:
    • i. any π in possession of instrument
    • ii. when ∆ indorses, warranties run with the instrument
    • b. Not indorsed: Only ∆'s immediate transferee can sue |
    • 3. Warranties made by ∆:
    • a. π has good title to instrument
    • b. all signatures are genuine and authorized
    • c. no material alteration
    • d. instrument is enforceable
    • e. ∆ has no knowledge of any bankruptcy or insolvency action against maker or drawer
  30. Due Negotiation:|How is a Negotiable Instrument Properly Transferred?
    • 1. Payable to Order:
    • a. Payable to specific payee: deliver to specific payee
    • b. Further negotiation: payee indorses, and delivers to transferee |
    • 2. Payable to Bearer: indorsement not required
  31. Due Negotiation:|Types of Indorsement
    • 1. Special Indorsement:
    • a. indorsement names particular indorsee
    • b. named indorsee must sign in order to further negotiate
    • e.g., indorsement on back reads: "Pay to X, /s/ Y" |
    • 2. Blank Indorsement:
    • a. no particular indorsee named
    • b. may be negotiated by delivery alone |
    • 3. Restrictive Indorsement:
    • a. "For deposit only, /s/ X"
    • b. drawee liable for conversion, if wrong payee transfers
  32. Holder in Due Course:|Who Qualifies?
    • Holder (transferee) who takes the instrument is HDC when (all 3): |
    • 1. Gives value
    • a. mere promise not enough
    • b. old value is good value |
    • 2. Acts in good faith: subjective test |
    • 3. Takes w/o objective notice that instrument is
    • a. overdue, or
    • b. dishonored, or
    • c. subject to any claim or defense |
    • NB: the "Shelter Rule" applies to transferees from a HDC
  33. Benefits of HDC Status
    • 1. HDC takes free from Claims
    • a. Claim: right to negotiable instrument b/c of superior ownership
    • b. HDC defeats superior owners |
    • 2. HDC takes free from Personal Defenses
    • a. defenses available in ordinary K actions
    • b. e.g, lack of consideration, estoppel, fraud in inducement, unconscionability |
    • 3. But takes subject to Real Defenses: MAD FIFIIII
    • nb. Material alteration is not a defense if maker was negligent (e.g., left blanks or wide spaces)