Chapter 9

Question 1

to create uniformity in commercial trasactions and enable the flow of commerce across jurisdictional lines, all states have enacted statutes based on what code?

Answer 1

The uniform commercial code (UCC), which is a model law created bhy the american law institute and the national conference of commisioners on uniform state laws to govern commercial trasactions.

Question 2

The UCC is divided into what 9 articles?

Answer 2

1. definitions and general rules
2. contracts for sales of goods
3. negotiable instruments
4. bank collections of checks and drafts
5. letters of credit
6. bulk sales
7. domestic documents of title, including evidence of bailements
8. trasactions in investment securities
9. secured trasactions

Question 3

Define letters of credit

Answer 3

its a document written by one party who 1) ask a second party to give credit to a third party and 2) agrees to repay the second party for the amount given in credut

Question 4

define Bailment

Answer 4

is the delivery of goods to another person for a particular use.

Question 5

What is the sale of goods?

Answer 5

the transfer of ownership of tangible personal property in exchange for some other property, money, or services.

Question 6

when the parties agree in advance to the amount of damages that will be paid by a breaching party , the damages are known as?

Answer 6

Liquidated damages

Question 7

Article 2 permits the enforcement of liquidated damages provision in what circumstances?

Answer 7

1. the amount of damages specified is reasonable and 2. it would be difficult to prove the amount of actual damages that would result from a breach.

Question 8

When a buyer has breached a sales contract Article 2 permits the seller of the goods to do what? (4)

Answer 8

cancel contract
withhold or stop delivery of the goods
sell the goods to another party
recover damages from the buyer

Question 9

When a seller has breached a contract, article 2 permits the buyer of the goods to do what? (3)

Answer 9

1. cancel the contract
2. cover
3. ask the court for specific performance of the contract

Question 10

Define cover in terms of buy/sell of goods

Answer 10

Means the buyer can purchase substitute goods from another seller and recovery from the original seller damages equal to the difference between the cost of cover and the contract price.

Question 11

Define negotiable instrument

Answer 11

a written document that repreents an unconditional promise or order to pay a specified amount of money upon the deman of the owner and of the instrument.

Question 12

Define negotiability

Answer 12

means that possession of an instrument can be transferred or negotiated from person to person, and the instrument generally is accepted as a substitute for cash.

Question 13

a negotiable instrument can take one of two forms

Answer 13

1. Note: an instrument that is a promise to pay sum of money
2. draft: an instrument that is an order, or instruction, to pay a sum of money

Question 14

define all parties in the cashing of a cheque (a draft)

Answer 14

The bank is the drawee. The person who wrote the check is a maker, the person who recieves the money is a payee.

Question 15

When is a person considered the holder of a negotiable instrument? (2)

Answer 15

1. if he has possession of the instrument and

2. the instrument is payable to the person or “to bearer”.

Question 16

Name 3 examples of negotiable instruments in the U/S

Answer 16

1. cashiers check
2. money order
3. travelers check
4. certificate of deposit

Question 17

What do you call a note of the bank?

Answer 17

certificate of deposit.

Question 18

To be negotiable, an instrument must meet what 4 basic requirements?

Answer 18

1. instrument must be in writing and signed by its maker
2. the instrument must contain an unconditional promise to pay or an unconditional order to pay
3. the amount promised or ordered to be paid must be a fixed amount of money
4. the instrument must be payable on demand or at a definite time.

Question 19

what do you call an instrument that is payable to bearer?

Answer 19

baerer paper- its negotiable by the holder without having to be signed by a specific payee.

Question 20

what do you call an instrument that is payable to the order of a specific payee?

Answer 20

order paper- it can be negotiated if it is indorsed- that is, signed on the back of the document by the names payee and transferred to another

Question 21

If a negotiable instrument contains contradictory terms, then article 3 of the UCC states what 3 rules?

Answer 21

1. typewritten terms prevail over printed terms
2. handwritten terms prevail over both typewritten and printed terms
3. words prevail over number

Question 22

how does a holder typically indorse an instrument?

Answer 22

by signing it on the back side

- sig must match holders name as it appears on the instrument.

Question 23

What is a special indorsement?

Answer 23

an indorsement by a signature along with words indicating to whom the instrument should be paid

Question 24

What is a blank indorsement

Answer 24

an indorsement by signature only, with no additional working. In this situation the instrument becomes barerer paper and any subsequent holder is entitled to negotiate it

Question 25

What is a restrictive indorsement?

Answer 25

an indorsement by signature with instructions as to how the instrument can be used. - this instrument may be indosed with notations ie " for deposit only".

Question 26

What is a holder in due course? in terms of a negotiable instrument?

Answer 26

is the holder, who 1) paid value for the instrument, 2) obtained it in good faith, and 3) obtained it without knowledge of defenses or claims agasint its payment.

Question 27

Would you call someone a holder in due course, if they receives a negotiable instrument as a gift, and has not paid value for it?

Answer 27

no

Question 28

How does a holder act in good fait?

Answer 28

by observing reasonable commercial standards of fair dealing.

Question 29

In terms of qualifying as a holder in due course, what does it mean to obtain a negotiable instrument without knowledge of defenses or claims agasint its payment?

Answer 29

the person must not have notice that the instrument has been dishonored or that anyone has a claim agasint the maker of the instrument. if the instrument shows any signs of forgery or irregularities, the holder does not qualify as a holder in due course.

Question 30

What is assignment?

Answer 30

the transfer of ownership rights in property from the property owner, known as assignor to another party, known as assignee.

Question 31

is the maker of a negotiable instrument contractually liable under the instrument?

Answer 31

Yes, anyone who signs a negotiable instrument becomes contractually liable to pay the instrument.

Question 32

Which two parties have primary liability to pay a negotiable instrument?

Answer 32

1. maker of a note has primary liability to that note. | 2. the acceptor of a draft has primary liability to pay the draft

Question 33

When is a draft accepted?

Answer 33

when the drawee signs it and thus agrees to pay it

Question 34

How are other parties who sign a negotiable intrusment liable to its promises?

Answer 34

They have secondary liability to pay it. The maker of a draft has secondary liability after the drawee. For payment of the draft, if the drawee accepts the draft, then the makers' liability is extinguished.

Question 35

Does a person who indorses a negotiable instrument have liability?

Answer 35

yes they have secondary liability.

Question 36

What is the liability is several people indorse a negotiable instrument?

Answer 36

they are liable to each other in the reverse order in which they indorsed the instrument.

Question 37

In the case of a forged signature, who is responsible for the liability?

Answer 37

the UCC typically places the liability for loses on the party who was in the best position to prevent the loss.

Question 38

Who is responsible for the liability in this situation: the maker of an instrument makes the instrument payable to an imposter

Answer 38

the maker

Question 39

Who is responsible for the liability in this situation: the maker of an instrument made payable to a fictitious payee.

Answer 39

Maker

Question 40

What is a common credit transaction?

Answer 40

when individuals and businesses purchase goods and services and agree to pay for them at a later date.

Question 41

There are two kinds of credit transactions: secured vs. unsecured. Define unsecured

Answer 41

credit transaction in which a creditor extends credit and receives only the debtor's promise to pay the debt. If not paid; the creditor must sue the debtor

Question 42

There are two kinds of credit transactions: secured vs. unsecured. Define secured

Answer 42

a credit transaction in which a creditor extends credit and receives a security interrest in the debtor's property as a way to guarantee that the creditor will be protected if the debtor defaults the loan.

Question 43

What do you call a creditor who obtains a security interest in a debtors property?

Answer 43

a secured party.

Question 44

Which two basic requirements must be met to gain a security interest in personal property?

Answer 44

1. interest must be attached to specific property | 2. interest must be perfected

Question 45

In order for a security interst to attach to a specific property, which requirements must be met?

Answer 45

1. the parties must enter into a contractual agreement- known as a security agreement 2. the debtor must have ownership rights in the attached property 3. the creditor must give value to the debtor in exchange for the security interest.

Question 46

What are the 3 primary methods of perfecting a security interest?

Answer 46

1. the filing of a financing statement 2. perfection by taking possession of property 3. perfection by operation law

Question 47

Under the most common method for perfecting a security interest, the secured party must file a document known as a financing statement. What does this contain?

Answer 47

the names and addresses of the debtor and creditor and a description or other identification of the property that has been attached to secured the debt. It must be signed by the debtor

Question 48

Are financing statements public records?

Answer 48

Yes, so anyone can search the records to determine whether a given piece of property is subject to security interrest.

Question 49

How long is a financing statement filing valid for?

Answer 49

typically 5 years,

Question 50

what happens if a debt has not been repaid, and the secured party wants to continue its security interrest?

Answer 50

they can file a continuation statement, which amends the initial financing statement and continues the effectiveness of that financing statement for a specified number of years

Question 51

What is filed when the debt is repaid and the creditor no longer has security interest in the debtors property?

Answer 51

termination statement.

Question 52

How can a secured party perfect a security interest in certain types of property ?

Answer 52

by taking possession of the property that serves as collateral for a debt. they can also take possession of goods, and perfect a security interest in the goods.

Question 53

Who has rights to the property when a security interest has been perfected in identified property?

Answer 53

both the debtor and the secured party. Typically the debtor has the right to possess and use the property.

Question 54

What is the bankruptcy act?

Answer 54

provides a procedure known as a bankruptcy proceeding, for dealing with involving debtors under the supervision of a federal bankruptcy court.

Question 55

The bankruptcy act provides two basic types of bankrupcy proceedings. Name them

Answer 55

1. liquidation proceeding- the bankrupt debtor's assets are liquidated and the proceeds are used to pay the creditors 2. rehabilitation proceeding: the bankrupt debtor can work out a plan for paying its creditors over time.

Question 56

Bankruptcy proceedings begin with a bankruptcy petition. There are two kinds, name them.

Answer 56

1. voluntary- filled by a debtor | 2. involuntary- filed by a creditor or creditors of an insolvent debtor.

Question 57

The filing of a bankruptcy petition acts as an automatic stay. What is a stay?

Answer 57

a suspension of a court case or specified proceedings within a case.

Question 58

Name some organizations that are not eligible for federal bankruptcy proceedings

Answer 58

``` insurance companies municipal coorporation railrods banks savings and loan companies - They are instead subject to specified types of regulatory requirements. ```

Question 59

When the debtor complies with all requirements of the bankruptcy proceeding, he receives a discharge from the court, what is this?

Answer 59

its a court order that relieves the debtor from any further obligation to pay the ebts that were included in the bankruptcy proceeding.,

Question 60

There are 3 types of rehabilitation proceedings provided by the bankruptcy act. Name them

Answer 60

1. chapter 11- provides reorganicaiton proceeding under which a debtor can workout a plan for paying back the debt. 2. Chapter 12- the debtor involved in a family faming business can work out a plan for paying creditors 3. Chapter 12- an individual who has a regular income can work out a plan for paying creditors.