USA Commercial Law: Priority, Negotiability of financial instrument and Repossession - Assignment Example

Name : xxxxxxxxxxx Institution : xxxxxxxxxxx Title : USA commercial law Tutor : xxxxxxxxxxx Course : xxxxxxxxxxx @2010 Question one Collateral A. 10 acres of land in Arizona The ten acres of land applies as collateral according to Article 9-301of Uniform Commercial Code (UCC). It can be classified as an investment property. The collateral can be possessed by possessions, filling a financial statement and perfection by control. In the perfection by possession, the Octopus National Bank (ONB) will take the management of the piece of land and ensure that Massive dynamics does not transfer the ownership of the land to any other hands. In the perfection by filling a financial statement, the requirements will be the names of debtor and creditor and the addresses of both the creditor and the debtor. The debtor’s authorization in authenticated manner and the description of the collateral is also required. In the perfect control method, ONB will manage all the operations of the firm with the intentions of preventing a change of hands. The best perfection method of this collateral will be the control perfection since this will fully put ONB in full control of the land and would best prevent any change of ownership (Nowka, 2009). B. The crops growing on 100 acres of land in Kansas The crops are valid collateral according to Article 9-301of UCC. They are classified as Farm products under the collateral classification. These can be perfected by filling a financial statement, possession or by control. Control of the crops would be the most appropriate way to perfect the collateral. This is because it would be most easy way to prevent change of ownership. Filling of the financial statement would be difficult since even determining the value of the crops would be difficult in a situation where the crops are still in the land. Filling of the financial statement will require the names of debtor and creditor and the addresses of both the creditor and the debtor. Control of the crops will not necessarily require all these and would thus be the easiest of the methods mentioned (Nowka, 2009). C. certificate for 20,000 shares of Massive Dynamics stock The certificate of ownership of the shares by Massive Dynamics stock is valid collateral. It is classified as an Investment Property. They can be perfected by filling a financial statement according to Article 9-303. This is because their value is known. It is also possible to easily fulfil all the requirements of perfecting collateral by filling a financial statement. Other method of perfection such as possession or control will not be reasonable for this collateral since the shares are already registered under Massive Dynamics stock which makes their possession or control difficult (Nowka, 2009). D. A Megalon Model NCC-1701 computer The Megalon Model NCC-1701 computer applies collateral under Article 9-303. It is classified as a good. It can be perfected by control and by possessing. The best method to perfect the collateral is by control. It can not be perfected by possession as this will inconvenience Massive Dynamics who still need the computer for running its activities. Control will prevent any change of hands or ownership and ensure that the Megalon Model NCC-1701 computer remains collateral until the loan is paid. Perfection by notification of the Title will not apply in this case since the computer might not have a Title (Nowka, 2009). E. A SuperCool Model Mark VI central air conditioning unit The SuperCool Model Mark VI central air conditioning unit also applies as collateral under Article 9-303. It is classified as a Good. It can be perfected by possession and control. The best way to perfect the collateral would be control. This would be preferred over the possessing method since this would not inconvenience Massive Dynamics. Possessing the unit will imply that Massive Dynamics operate without the item. This will not be reasonable for the farm (Nowka, 2009). F. A limousine The limousine is applies as a collateral according to Article9-303. It is classified in the goods category of the collaterals. It can be perfected by notification on the Title, control or the possessing method. The best method would be the control method as this would not inconvenience Massive Dynamics as would the possessing method of perfection (Nowka, 2009). Question Two- Priority A. The office table. Sara Sara has priority over the office table. This is because Gloria had the table in her store for re-sale and the security therein in the table was the proceeds from the sale or rather the 10% commission that Sara promised to give Gloria upon the sale of the table. According to Article 9, Section 9-330; Purchaser’s priority; a purchaser of a chattel paper gains priority over a security interest in the chattel paper which is only claimed as proceeds of inventory if in good faith and in normal operations of the Purchaser’s business gives a new value and assumes the possession of the chattel paper just as Sara did. Since Sara bought the table and added some value to it and possessed it as well, she has priority over it (Nowka, 2009). B. The Oriental rug. Gloria has a priority. Gloria has priority over the Oriental rug. This is because according to Article 9-325, a purchaser of a chattel paper gains priority over a security interest in the chattel paper gains priority over a security interest in the chattel paper which is only claimed as proceeds of inventory and in consideration of a secured interest if the chattel paper does not specify that it has been assigned to an known assignee other than the purchaser. The chattel paper does not state that the oriental rug has been assigned to another person other than Gloria who purchased the same from Tom on credit. Tom only has a security interest over the oriental rug but does not have priority over the item according to the agreement signed by Gloria (Nowka, 2009). C. The portrait of Davy Crockett. Tom Tom has priority over the portrait of Davy Crockett. This priority is described as priority on the grounds of consent, disclaimer or right to remove under Article 9-325. A security interest in items whether perfected or otherwise has priority over a contradictory interest of an owner or encumbrancer if the debtor has the right to move the fixtures just as Gloria had. This gives Tom the priority over the secured interest. Tom gets priority over the portrait of Davy Crockett after Gloria signed a security agreement giving him a security over several items including her office equipment and furnishings- the autographed portrait of Davy Crockett being one of them (Nowka, 2009). C. The antique roll top desk. Maude Maude has priority over the antique roll top desk. According to Article9-330, a purchaser of chattel paper has priority over a security interest in the chattel paper perfected by a means other than possession if the buyer assigns value and takes possession of the chattel paper in good faith and without knowing that the buying breaches the rights of the secured party. Maude is a purchaser from the Gloria’s store and her purchase of the antique roll top desk gives her the possession of the item and thus has priority over the same. Maude can be considered to have bought the antique roll top desk without knowing that it has been used as security by Gloria. This makes her have priority over the item (Nowka, 2009). Question Three Repossession Under section 9-609 of Article 9, a secured party has the right to take possession of the collateral if the debtor fails to pay the money as agreed. After default, the secured party may take control or possession of the collateral or without removal make the said item unusable and dispose it on the debtor’s premises as described by section 9-610 (Nowka, 2009). The secured party may do so through a judicial process or without judicial process if the process can progress without breach of peace. Maria has a justifiable reason for cause of action against Expert Repo, Paul as well as Big Auto Sales. Big Auto sales should have followed the judicial process in the repossession of the collateral since it is evident that Maria was not ready to let go the collateral. This is because her children were in the Subaru at the time it was being repossessed. This shows that any repossession would have led to a breach of peace and thus could not be carried out without the application of the judicial process. Big Auto should have informed Maria of the intended repossession. This way Maria would have been prepared for the same and assembled the Subaru in a convenient place. Her children would not have been in the vehicle which led to the breach of peace. The repossession would then have taken place without the involvement of the courts. The other option would have been to inform Maria of the intended repossession and then assess her response. If she was not ready to let go the Subaru, then Big Auto would have opted for the judicial process. Expert Repo also has a case to answer since it should have assessed the situation before applying the non-judicial process in the repossession. Expert Repo should have confirmed from Big Auto sales whether Maria had been appropriately informed of the repossession in order to make the proper assembly arrangements. From Maria’s activities it can be seen that she was oblivious of the repossession or was not ready to let go the Subaru. This meant that Expert Repo had the obligation to inform her of the repossession and depending on her response, carry out the process in a manner that does not breach peace. Maria has a case against Paul because Paul too as a field officer assigned the role of repossession should be knowledgeable in the law governing the repossessions. Paul should have recommended for a judicial process in the repossession after assessing the situation and prediction a breach of peace in the process. As a field officer assigned the role of repossessing items as a result of default in payments, Paul should have verified whether Big Auto Sales or even Expert Repo had appropriately informed Maria of the intended repossession. Secondly, Paul should have considered Maria’s response in order to determine the repossession procedure. The non-judicial process requires that the debtor assemble the collateral in a convenient place for both the debtor and the secured party for repossession. This was not the situation in Maria’s case (Nowka, 2009). Question Four Negotiability of financial instrument A. The note does not have a handwritten signature. Instead, the maker’s signature was computer generated. Generating the maker’s signature through the computer makes the note non-negotiable. The signature should be handwritten, Article 3-104. According to the requirements of a negotiable financial instrument, the signature should be handwritten and not computer generated for the instrument to be negotiable. This is aimed at preventing fraud and forgery (Floyd, 2008). B. The note contains the statement, “I promise to pay to the order of William Bell USD $1,000 if I make the highest mark in USA Commercial Law at La Trobe University during the Winter 2010 term.” A note should not have a conditional promise or order to pay. This is not allowed and it makes the note not negotiable according to Article 3-106. The note should not bear such a condition because this implies that should the payer fail to make the highest mark in USA commercial Law, then the money will not be paid (Floyd, 2008). C. The note contains the statement, “This note is subject to the contract I signed with the payee, Paula Prince, on May 1, 2010. The promise on a note should be unconditional also in the sense of being governed by another contract. Making the note’s promise a subject of another contract renders it non-negotiable according to Article 3-106. Any financial instrument should not be subject to any other agreement. Subjecting a note to another agreement makes it non-negotiable (Floyd, 2008). D. The note contains the statement, “This note is in payment for a Sony television which I have purchased from the maker.” Statement of consider is allowed for a note according to Article 3-104. This is considered as a clarification of the note’s objective. This does not make the note non-negotiable. E. The note contains the statement, “This note is payable from the proceeds of my 2011 cotton crop.” Limitation of payment of a specific fund source is allowed in promissory note. This note is negotiable according to Article 3-106. This is allowed for a promissory note and it means that the negotiability of the instrument is subject to the proceeds from the cotton crop (Floyd, 2008). F. The note provides “for interest at 2% above the United States prime rate of interest.” This note is negotiable. Fixing the amount to be paid including the interest is allowed. An outside source can be used to determine interest in a note according to Article 3-112. G. The note provides that “payment must be made in Euros; United States dollars or other currency is not acceptable.” This will make the note non-negotiable. It should not state the specific currency. It should just state that it is for payment of money according to Article 3-107 (Floyd, 2008). H. The note provides that “the maker hereby reserves the right to extend the due date by whatever period of time the maker determines to be financially advisable.” The note should state the definite time of payment. Leaving the date unspecified makes the note non-negotiable according to Article 3-108. I. A check is payable to “The weather is nice today.” A check should have the right words for negotiability according to Article 3-110. The right words should be either Bearer or Order. However the check can be negotiable if the lack of words of negotiability is the only requirement for negotiability missing. In this case it can be waived. The check should specify the person who is supposed to receive the money (Floyd, 2008). J. A check states, “Pay Walter Bishop” The check should state, “Pay to the order of Walter Bishop” for it to be negotiable. This check is thus non-negotiable according to Article 3-109. Question Five Negotiable instrument-holder in due course A. Is Sam a holder in due course? No. Sam is not a holder in Due course. This is because the check was presented to him by George as a birthday present. This makes it a gift and thus disqualifies Sam as a holder in due course according to Article 3-302. A person does not become a holder in due course if a financial instrument was given as a gift (Floyd, 2008). B. Who would win a law suit between Sam and Maker? Maker will win a law suit against Sam. This is because Sam is not a holder in due course of the check. The main reason being that he was presented with the check as a gift according to Article 3-302. Other reasons that disqualify Sam from being a holder in due course include: he was not a holder in good faith since he did not verify whether the check emerged from a fair dealing, he did not find out whether there was a claim over the check and whether the check could be dishonoured. Maker could also defend herself on the grounds that there was fraud in the execution or in the consideration for the check (Floyd, 2008). Question Six2 Indorsing of checks A. Did ONB properly refuse to honour the check? Yes. ONB properly refused to honour the check since the check stated that it was payable to the order of “Bill and Betty”. Both Bill and Betty must indorse for it to negotiate. Betty had to indorse the check for it to be honored according to Article 3-415. B. Did CSB properly debit Dan’s account for USD $500? CSB properly debited Dan’s account. According to Article 3-415 the check was not honoured by ONB as a result of incomplete endorsement by Bill and Betty (Floyd, 2008). C. Dan’s rights against Bill Dan has rights over Bill. Bill has the primary liability to Dan as the holder to ensure that the check has no other conditions apart from being due for it to be honored according to Article 3-415. He should have ensured the check is indorsed by Betty, before presenting it to Dan (Floyd, 2008). C. Dan’s rights against Betty Although Betty as an endorser has liability due to the dishonour, it was Bill’s responsibility to ensure that the Check was endorsed by Betty according to Article 3-415. Dan there does not have any rights against Betty (Floyd, 2008). D. Dan’s rights against Adam. Dan does not have any rights against Adam because Adam fulfilled all the requirements of the Marker when presenting the check to Bill and Betty. Adam fulfilled all the requirements according to Article 3-415 of UCC (Floyd, 2008). Question Seven Forging of financial instruments A. Julia’s claim against ONB She does not have claim against ONB for cashing Stan’s check. ONB defence will be based on Julia’s negligent and failure to report the theft in order to stop the payment according to Article 3-406 (Floyd, 2008). B. ONB recovery of money from CSB ONB can recover the money from CSB. This is because CSB has the liability to recredit the drawer’s account as the check in this case was not properly payable according to Article 3-403 (Floyd, 2008). C. Julia’s claim against Stan Julia does not have a claim against Stan to recover the USD $42,500. This is because the fact that the check was cashed after it was stolen implies that it was negotiable. This means that Stan had met all the requirements to make it negotiable and it was thus the responsibility of Julia to make a follow up until she was paid (Floyd, 2008). D. Julia’s claim against ONB for cashing Elroy Electronics’ check Julia has a claim against ONB for cashing the Elroy Electronics’ check. This is because ONB should have ensured that the check was properly payable before cashing it according to Article 3-403 (Floyd, 2008). E. Julia has a claim against Elroy Electronics Julia has a claim against Elroy Electronics for her USD $3,500 rebate. This is because Elroy Electronics were negligent in the sense that they sent the check to the wrong address. This opened up the opportunity for a forgery according to Article 3-406 (Kuney, 2008). Bibliography Floyd, M. D. 2008, Mastering negotiable instruments (UCC Articles 3 and 4) and other Payment systems. Durham: Carolina Academic Press Kuney, G. W. 2008, Mastering Intellectual Property. Durham: Carolina Academic Press Nowka, R. 2009, Mastering Secured Transaction: UCC Article 9. Durham: Carolina Academic Press Read More