BLAW Chapter 13

Create a Lien

(secure the debt by making the personal property collateral for the loan and create a lien against the title)- Borrower signs a "UCC Financing Statement and Security Agreement." *Lien- a right to keep possession of property belonging to another person until a debt owed by that person is discharged.

How to perfect a security interest in Personal Property

1.) Creditor takes a purchase money security interest in consumer goods 2.) Creditor is in possession of the goods 3.) Creditor properly files a perfection- with the Nebraska Secretary of State- UCC Division

Accord & Satisfaction

1.) The "Accord" is the settlement of a dispute (the new agreement to pay a lesser amount on a disputed debt); the "Satisfaction" is the performance (payment of the settlement). 2.) Documenting an "Accord & Satisfaction"- sending a check with "paid in full," "in full satisfaction" or "in full settlement," which must be written on the back above the indorsement line to be enforceable (to put the payee on notice of the legal effect of making the indorsement) ex.) Thelma owes Louise $100,000 under a contract. Thelma owns a beach house which she promises to give Louise in settlement of the debt and Louise promises to accept the house in settlement of the debt instead of the $100,000. This new agreement is an Accord. Satisfaction is the performance of the Accord by the promisor, so that if the Accord is performed, the Accord is said to have been satisfied. Therefore, if Thelma actually gives Louise the beach house and Louise accepts the beach house in settlement of Thelma's debt, there is satisfaction of their accord.

Order Paper (ex. checks)

1.) This is commercial paper that has been issued to a specific person or entity. ('payable to the order of...") 2.) To "negotiate" (transfer) this type, the person to whom the check was written (payee), must indorse (sign) his name on the back of the check a. Indorsement is Blank. The payee signs only his name on the back; making the instrument payable to whomever has possession. (Payee signs name on the back of the check.) b. Special Indorsement. The payee signs both his name and also writes the name of another person on the back of the check; thereby transferring the check to this other party ("Pay to the order of...")

Holder in Due Course

A person given special protection under the law- HDC may acquire a negotiable instrument and gain better rights than the previous party 1.) If a negotiable instrument is negotiated to a HDC, the HDC takes the instrument free of all personal defenses (breach of contract, misrepresentation, duress, undue influence, mutual mistake), subject only to real defenses (fraud, forgery, mental incompetency, bankruptcy)

Holder

A person who possesses an instrument that is drawn, issued or indorsed to the holder's order, to bearer or in blank 1.) A holder receives only the rights of the transferor

Bankruptcy Trustee

An attorney is appointed by the Bankruptcy Judge to represent all creditors in each case

Requirements to be a HDC

An instrument's holder must: a. Given value b. Take in good faith c. Without notice of: 1.) Defects 2.) That it is overdue 3.) Unauthorized signatures or alteration 4.) Any claims of another party to the instrument 5.) Any party's real defene

Certificates of Deposit (Loan documents)

An obligation issued by a bank to repay a certain amount deposited with the bank, with interest, at a specified time

Document in Debt

Borrower signs a "Promissory note" (a signed document containing a written promise to pay a stated sum to a specified person or the bearer at a specified date or on demand.)

Automatic Stay

Filing a Bankruptcy Petition automatically stops (suspends) all lawsuits which have been filed.

Chapter 13- Regular Income (for persons)

Involves full or partial repayment of debts at a reduce rate over a longer period of time. Used by persons with regular income, unsecured debts under $250,000 and secured debts under $750,000. Debtor's disposable income is turned over to the Bankruptcy Trustee to be used to pay the debts

Chapter 11- Reorganization (for businesses)

It allows the business to continue operating its business. Generally used by corporate debtors, who file a plan (to be approved by the Judge and creditors) to repay some debts and discharge others

Chapter 7- Straight Bankruptcy (for persons and businesses)

It is a liquidation. Bankruptcy Trustee collects all of debtor's non-exempt property, sells it and distributes it among creditors. Debtor is discharged (forgiven) from most debts

Public policy-giving a "fresh start"

Law requires balancing debtors' and creditors interests by using a fair means of distributing assets to creditors

Preferential Payments and Liens

Payments which a Debtor made to favored creditors within 90 days of filing the Bankruptcy Petition can be set aside (or payments made within one year to "insiders". ex.) to relatives, partners, officers, directors

Perfect the Lien

Record the UCC Fin. State & Sec. Agrt. at the office of the (Nebraska) secretary of state

Types of Indorsements and how they are made:

Remember: commercial paper (negotiable instruments) are a money substitute. Therefore, they must be easily transferable to a third person. Transfer ("negotiation") of order paper can only be accomplished by the payee indorsing (signing) the instrument on the back and delivering it to another (third) party

Non-dischargeable Debts

Some debts cannot be discharged (cancelled), such as student loans, alimony, child support, judgements for fraud

Statutory Liens

The Trustee can cancel certain types of liens normally allowed by law. ex.) Landlord's liens

Secured Transactions

The area of law of secured transactions involves the creation of a security interest in the property of a debtor, for the protection of a creditor (who has loaned money). The secured property becomes collateral to secure (protect) the loan. In the event debtor defaults, creditor can recover the secured property to sell and be repaid for the loan. UCC Article 9 governs creation of security interests in personal property

Liability of Indorsers

The indorser, using a blank, special or restrictive indorsement, by placing his or her signature on an instrument, becomes secondarily liable to pay (guarantees payment), baring the indorser's use of a defense. This liability is based upon the signature (a contractual guarantee) or by warranty

Exemptions

The law allows a Debtor to protect certain types of property, up to a certain value, from Creditors (ex. home, some furnishings, and business tools

Indorsement in blank (An unqualified indorsement)

The payee or pervious indorser signs his name on the back of the check. This converts "order" paper to "bearer" paper

Special indorsement (An unqualified indrosement)

The payee or previous indorser signs his name on the back of the check and also writes "pay to the order of" another person on the back, thereby naming a new payee. The check remains "order" paper by this indorsement (ex. pay to the order of....")

Qualified Indorsement

This is a disclaimer by the indorser that he is not guaranteeing any payment of the instrument, although title to the money is being transferred. An example would be to write "without recourse" on the back of the check

Drafts (Payment documents)

Used in large commercial transactions among merchants. a. An unconditional written order by the drawer to the drawee to pay money to the payee b. Time drafts. Payable at a certain time ("a date certain") A type of foreign check that is guaranteed by the issuing bank, but that is not payable in full until a specified amount of time after it is received and accepted. Time drafts are a type of short-term credit used for financing transactions of goods in international trade. They allow the buyer a delay in payment after accepting a shipment of exported goods. c. Sight drafts. Payable upon demand ("sight draft") (basically a check)

Reaffirmation

With court approval, a Debtor can renew a debt. The Debtor has to file with the Court, which will allow it if the Debtor acknowledges the consequences of reaffirmation and it does not cause a hardship to pay the debt. ex.) For example, let's assume that John Doe borrowed $100,000 from Bank XYZ for a luxury car. In the middle of the five-year loan term, John loses his job and defaults on the loan. After lengthy negotiations, Bank XYZ writes off the remaining $30,000 loan balance. A year later, John gets a new job. For personal reasons, he decides that the right thing to do is repay the $30,000. He reaffirms the debt with the bankruptcy court.

Promissory Notes (Loan documents)

a. A written promise by the maker to the payee to pay a certain sum b. Installment note

Checks (Payment documents)

a. Checks. An instrument (draft) drawn by a maker (drawer) on a bank or financial institution (drawee) ordering it to pay a sum of money on demand to a third party (payee) b. Cashier's checks. Bank is both drawee and drawer (To obtain a cashier's check, a person must first deposit funds equal to the check amount with the issuing bank. The bank then generates a check to the payee drawn on the bank's own account. The name of the remitter (the person purchasing the check) is noted on the check. The check is signed by a bank cashier or officer. Banks typically charge a fee for cashier's checks.) c. Certified checks. Drawee (bank) certifies that the drawer has sufficient funds to cover the payment (Let's assume you want to rent an apartment from the XYZ Leasing Company but your credit is bad. XYZ Leasing Company may require you to pay with a certified check, meaning that your bank will issue a check to XYZ from your account and guarantee that there will be enough cash in the account to pay XYZ. The bank also guarantees that the signature on the check is yours.)

Creation of a Security Interest and its Attachment

a. Creation: A security agreement is created by meeting the following requirements (Remember, first, a UCC Financing Statement must be signed by the Debtor): 1.) Then the creditor must then use a written UCC Security Agreement which reasonably identifies the property being secured (collateral)- unless the creditor is in possession of the secured property 2.) The creditor must have given something of value to the debtor 3.) The debtor must have ownership rights in the collateral b. If all of these requirements are met, the lien attaches and the creditor has an enforceable security interest

Operations For a Lender if a Borrower Defaults on the Loan

a. In the recent of default of a debtor on the debt, the secured creditor has the following remedies: 1.) Repossess the collateral & sell it- Take peaceful, legal possession of the collateral (the land) or reposes it a. Retain the collateral in satisfaction of the debt b. Sell the collateral in a commercially reasonable manner to satisfy the debt 2.) Sue the borrower in court and get a Deficiency Judgement- Forego the security interest and proceed directly to a court for a judgement against the debtor on the debt; or pursue this remedy if the repossession and sale of the collateral does not completely satisfy the debt

Negotiable Instruments

a. The law of commercial paper is codified in UCC Article 3. Commercial paper serves as a substitute for money or as a credit device b. An instrument is either negotiable or non-negotiable 1. Form and content determine as instruments negotiability

Restrictive Indorsement (An unqualified indorsement)

a. These are effective between between the indorser and indorsee, but do not apply to further indorsers. They do not restrict further transfer of the instrument, but they restrict how the instrument may be negotiated b. Ex."For deposit only"- makes the indorsee the collecting agent of the indorser