UCC3 COMMERCIAL PAPER / UCC9 SECURED TRANSACTIONS

I. Negotiability and Negotiation (Analysis: Negotiable? Type of PL/DF? What kind of liability)
Types: Note: 2 parties, promise to pay. Draft: 3 parties, drawer orders drawee/payor to pay payee.
Check: draft with bank as draweee, payable on demand (includes money orders, cashier check)
Requirements: signed, unconditional promise, fixed amount, payable to bearer/named, on demand or
at certain time, no other promise (except: maintain/dispose of collateral, waiver of payors right)
Negotiation/Transfer/Presentment: Negotiation: transfer of instrument by party other than issuer.
Order Instrument: negotiation requires transfer and signing by holder. Bearer: transfer only.
Transfer: Giving instrument to new 3P who becomes partial transferee. If order, needs signature.
Indorsement: signature of transferor (not issuer), Blank Indorsement: name only, makes it bearer
Special Indorsement: transferee IDd. Anomolous: non-holder signs, may make him liable.
Restrictive Indorsement: Limit to particular transferee, but that person can still transfer.
Presentment: presenting for payment, payor does not become holder.
II. Persons Entitled to Enforce the Instrument
Holder: if possession and instrument IDs holder or is payable to bearer. (Possession + Right)
Transferee is holder if instrument validly indorsed. Problems: forged necessary indorsement,
fictitious payee (still valid for good faith accepter), imposter.
Holder in Due Course: holder of instrument that does not appear forged/altered who takes
instrument: (1) for value, (2) in good faith, and (3) w/o notice of any problem with instrument.
BUT: not if instrument taken by legal process/creditors sale, bulk transaction outside
transferor's normal course of bus., or as successor in interest to estate/organization.
Person Not In Possession: if lost or stolen, can enforce if was in possession and had right to enforce,
loss was not voluntary transfer or legal seizure, cannot reasonably obtain original.
III. Liability of Signatories on the Instrument
Signatures: Generally: no liability unless signor or agent signed in binding manner.
Principal: P bound by As authorized signature or if P ratified or if P negligently caused belief in As authority to sign (estoppel).
Representative: If form shows that As signature is for P and P IDd, A is not liable.
Unauthorized Signatures: binding against signing A (not P) if 3P relies.
Liability of Maker of the Note: must pay at due date or day after if no demand. (Primary Liability)
Liability of Drawer of a Draft: no Primary Liability bc only ordering drawee to pay.
Secondary Liability if: 1. Presentment to drawee, 2. Dishonor by drawee, & 3. Notice of dishonor to drawer.
Liability of the Drawee of a Draft/Acceptor: No initial liability to payee or holder. Liability only to drawer for dishonoring draft.
After Accepting Draft: becomes acceptor, promises to pay payee.
Transferors Warranties: Transferor who gets consideration warrants to immediate transferee that: 1. Transferor entitled to enforce
instrument, 2. All signatures authentic/authorized, 3. Instrument has not been altered, 4. Instrument not subject to defense or lien,
5. Transferor has no knowledge of any insolvency on the part of the drawer/maker/acceptor.
Indorser: if transferor indorses, even if unnecessary, becomes liable to pay if maker/drawer doesnt. Thus, secondary liability.
Qualified Indorsement: can disclaim by stating without recourse but
still has transfer warranty liability.
Accommodation Parties: one who signs instrument simply to lend his credit to some other party. Liable in the capacity signed BUT not for
transfer liability bc: does not transfer and no consid.
Joint and Several Liability: 2+ persons who sign in the same capacity .
Summary: Maker = primary; Drawer = secondary*; Drawee = secondary unless w/acceptance then primary; Indorser = secondary*,
Accomodation = depends on capacity signed. *Notice of dishonor required.
IV. Presentment and Dishonor (presentment and, sometimes, dishonor/notice, reqd for liability)
Presentment: demand on maker of note/drawee of draft. Demand must be on time to be presentment
On or after date stated by instrument OR within reas. time after liability accrues.
Excused if: 1. Unreas. onerous, 2. Maker/acceptor repudiated oblig. or is dead or in insolvency,
3. instrument excuses presentment, 4. Obligor waived presentment, 5. Drawee told not to pay or has no dealing with drawer.
Presentment Warranties: Presentor who gets paid warrants: 1. Entitled to enforce draft, 2. Draft not altered, 3. No knowl. that unauth.
Dishonor and Notice of Dishonor: Proper presentment made and payment refused. Not dishonor if refused for lack of reqd indorsement.
Checks: If deposited, dishonor if: 1. Timely return, 2. Timely notice of dishonor/nonpayment, or 3. Becomes accountable for amount.
TIMELY: Before payment & before midnight of next banking day after recd. Inst. Payable at Definite Time: later of due/presentment.
Notice: by any reas. means. TIMELY: midnight next day by bank, 30 days by any other person. Can be excused.
Transfer Warranty: Transferor to transferee, entitled to enforce, not altered, signatures valid, no defense, no knowl. of insolvency.
Presentment Warranty: All previous to drawee, entitled to enforce, not altered, no knowl. of unauth. signature.
V. Actions to Enforce the Instrument
Burden of Proof: Validity of Sigs: admitted unless denied, burden on party claiming valid. Other: on party proponent.
Adverse Claims: Person taking is subject to claims of rights in the instrument. Holder in Due Course takes free from claims.
Real Defenses: always apply. Infancy, duress, incapacity, illegality, fraud in factum (unaware that it was instrument), known BK discharge.
Mnemonics
SI: Security Interest
A/R: Accounts Receivable
Sec. Agree.: Security Agreement
Sec. Int.: Security Interest


UCC3 COMMERCIAL PAPER / UCC9 SECURED TRANSACTIONS


Personal Defenses: no good against holder in due course. Contract defs,, Non-issuance/Conditional Issuance, Failure of Consid., No Title
Discharge: Personal def., cancellation, discharge, delay in presentment, etc. Alterations: If fraudulent, only HDC can enforce orig.
Forgery of Signature: Real def., forger/A becomes liable as if he signed.
Defenses of Accommodation Parties: Derivative: any defense accommodated party had, except insolvency, infancy, lack of capacity.
Suretyship Defenses: If enforcing party causes acc. party to lose recourse against accommodated party, discharge to extent of loss.
Not discharged if: 1. Enforcer didnt know of acc. party, 2. Acc. party consents to lost recourse, 3. Acc. party waived defense.
I. Secured Transactions When debtor uses collateral to secure payment to secured party.
II. Application of UCC9 applies to: any transaction with security interest, agricultural lien, sales of accounts receivable, chattel paper,
negotiable instruments, promissory notes, payment intangibles. NOT: landlords liens, assignment of wages, sale of A/R as part of sale of
business, K right to payment where perf. reqd, tort claim assignment.
III. Types of Collateral Goods: consumer goods, inventory, farm products, equipment. Fixtures: get attached to real prop so
prop claim has priority. Accessions: goods combined that retain ID (perfected SI remains)
Commingled: goods combined with others so as to lose separate ID (perfected SI remains).
Tangible Intangibles: K obligs. reduced to paper. Instruments: checks, notes, drafts (not stocks).
Documents: docs of title that evidence possessor owns the good. Chattel Paper: record of $ oblig. that include SI (chattel mortgages).
Intangible Intangibles: Accounts: rights to payment of monetary oblig. NOT tort claims, deposits.
IV. The Security Interest (created by written Sec. Agree or SPs control of coll. with intent to secure debt + attachment of SI to collateral).
Security Agreement: req. granting clause + description of collateral + authenticated by debtor. Possession/Pledge: no written agreement
needed if secured party has possession w/oral agreement. Control: Agreement can be evidenced by control if collateral is: deposits,
electronic chattel paper. Validity: Sec. Agree. gen. effective between parties, against purchasers of collateral/creditors.
V. Attachment (process creating Sec. Int., usu. by K between debtor and secured party.
Requires: 1. Sec. Party gives value, 2. Debtor has rights in collateral, 3. Debtor authenticated Sec. Agree. that suff. describes coll.
Description: sufficient if reas. IDs (not for consumer goods/transaction)
After-Acquired Coll.: Inventory to be used OK if will be replenished (not consumer goods). Sale of Coll.: SI survives sale, etc. + proceeds.
VI. Purchase-Money Security Interest Sec. Party loans money to buy goods, gets PMSI in them to extent actually used to buy goods.
VII. Perfection SI perfected if has attached and appropriate notice given to world of SI, establishes priority.
Governing Law: Use debtors location as jurisdiction (main office if several); state; or DC if none.
Methods of Perfection: Filing FState: sec of state; NOT for deposits, money. Possession: negotiable docs, goods, instruments, money,
tangible chattel paper. NOT accounts, tort claims, deposits, investment prop., unextracted minerals. Possessor must take reas. care of coll.
Control: investment securities, deposits, electronic chattel paper.
Automatic Perfection: Auto Perm. Perf.: PMSI in consumer goods, normal assignment of A/Rs, assignment for benefit of all creditors, sale
of right to payment of lottery winning. Auto Temp. Perf.: attaches to any identifiable proceeds after disposition of coll. Lasts 20 days
unless: 1. Financing Statement (FState) filed, 2. IDable cash proceeds, 3. Otherwise perfected.
PMSI: usu. perfed at filing (also 20 day grace period and relates back). Multiple Perf. Methods: if no time gap, continuously perfed.
VIII. Financing Statement (notice filing; FState filed instead of Sec. Agree. itself).
Necessary Info: FState needs 1. Name of debtor, 2. Name of Sec. Party, 3. Description of Coll. (non-specific/super generic is OK; can
attach to after-acquired prop if descrip. is broad enough). Authorization: Debtor must authorize; Sec. Agree. itself is always suff. auth.
Special Rules for Fixtures: (attached to real prop, adapted to use of real prop, &intended to be perm.)
Fixture Filing: 1. All FState info, 2. Says fixtures covered, 3. Indicate to be filed in real. prop. records, 4. Incl. descrip. of real prop,
5. Name of record owner of real prop if not debtor.
Acceptance/Effectiveness of FState: Rejected by filing office if not communicated by auth method, filing fee not paid, no debtor named,
insufficient descrip. of real prop., debtors address/corp. nature omitted.
Wrongful Rejection: still valid except against BFP of coll. who relied on absence of FState.
Errors/Omissions in FState: Still effective if subst. satisfies reqts and not srsly misleading.
Timing: FState may be filed before Sec. Agree. made or SI attaches. Good for priority.
Changes: FState remains effective even if coll. sold, transferred. SI remains even if Sec. Party knows/consents of transfer.
If FState becomes srsly misleading, only effective until debtor changes name (4 months) or coll. exchanged for proceeds.
Debtor Changes Address: FState OK for 4 months after debtor moves to new jurisdiction. If Possessory SI, stays valid.
IX. Priorities (gen. First in Time, First in Right) Perfected over unperfected. If both perfed then earliest (unless possessory perfn)
Second in Time, First in Right: Perfected PMSI prevails over other interest if PMSI perfected within 20 days of debtors possession.
If PMSI is inventory, must also send notification to holder of conflicting SI.
Contests with Lien Creditors: Usu. first in time applies. Sec. Party prevails over lien creditor if perfected or files FState before lien.
Buyer v. Sec. Party: SI survives unless 1. Sec. Party consents to free sale, 2. Buyer is BFP (good faith, w/o knowl., ordinary course)
Consumer-to-Consumer Exception: garage sale takes free of SI. Fixtures: normal priority unless PMSI in fixture or readily removable.
X. Default (when debtor fails to tender due oblig.) Rights: Sec. Party can reduce to judgment, foreclose, repossess. Redeem: Debtor can
redeem before coll. collected/disposed/repossessed. Cannot waive redemption right for consumer goods.
Resale: Notice to debtor, secondary obligors, reas. price. Proceeds go to: 1. Costs of resale, 2. Primary SI, 3. Subordinate SIs.