Chapter 13: Negotiable Instruments

negotiable instruments

(covered by UCC) a written promise or order to pay a certain sum of money. - functions as a substitute for cash.

Summers Group, Inc. v. Tempe Mechanical, LLC

*CASE BACKGROUND:* Summers Group, dba Rexel, sold electrical materials for construction on property owned by Metro Lofts. Rexel was not paid for materials provided, so on June 26, 2008, it recorded a mechanic's lien on Metro Lofts' property. Other contractors on the work, including Tempe Mechanical, also filed liens against Metro Lofts for non-payment. After not receiving payment, Rexel brought suit on December 24, 2008, against Metro Lofts and all other lienholders. Some lienholders (other contractors) did not respond and had default judgments entered against them. Tempe, which had filed a lien, answered Rexel's complaint. Metro Lofts was in bankruptcy and under the control of bankruptcy trustee, ML Manager. All parties agreed that the bankruptcy court would determine the priority of payment of all valid liens. Before the bankruptcy court could sort out priority of payments, the trial court had to determine the validity of the various liens. ML Manager argued that it stood first to receive payment, and because it should not be challenged, Rexel should pay all attorney fees related to the litigation. The trial court agreed. Rexel appealed. *CASE DECISION:* Mechanics' lien statutes and Arizona case law establish procedures to be followed when a mechanics' lien claimant initiates a foreclosure action on a lien. First, a mechanic lienor must sue each party against whom it seeks to assert its lien within six months after recording its lien. After an action is commenced by one mechanic lienor, "persons claiming liens who fail or refuse to become parties plaintiff shall be made parties defendant, and those not made a party, may, at any time before final hearing, intervene" [A.R.S. § 33-996]. After all the lien claimants are served, in order to assert their lien priority, each must file an answer or cross-claim. Finally, pursuant to A.R.S. § 33-998.A, if a lien claimant is made a party defendant to an action brought by another lien claimant, the timely filing of an answer or cross-claim asserting the lien, within six months of recording the lien, shall be deemed the commencement of an action. In order to enforce its lien priority, Rexel named all of the other mechanics' lien claimants as parties in the complaint. In this case, by filing answers to the allegations set forth in Rexel's complaint, the Remaining Lien Claimants each commenced an action asserting their lien priority. Because the Remaining Lien Claimants were involved in the litigation, the bankruptcy court's decision on the lien priority issue also affected their claims. Therefore, we hold that the Remaining Lien Claimants caused ML Manager to defend its lien priority.... The intent of the mechanics' lien statutes is for all lienholders to be treated on equal ground with one another regardless of the date the work was performed. Accordingly, [the statute] requires that when a sale is ordered in a mechanics' lien foreclosure action and the property is sold, the proceeds are prorated over the respective liens that have equal footing with the foreclosing lien. Moreover, in multi-issue litigation, it is common for attorney fees to be apportioned between successful and unsuccessful efforts. The trial court erred in holding Rexel solely responsible for the payment of ML Manager's attorney fees. Similar to prorating sales proceeds, attorney fees for resolving priority should be prorated between lien claimants. The intent of the Legislature in adopting the mechanics' lien statutes was to create an even playing field for all laborers and materialmen who provide services and materials to enhance the value of another's property, regardless of the date the work was performed. All lien claimant parties are treated on equal footing in the sharing of the income collected after a mechanics' lien foreclosure sale and should also share in the potential expenditures. Therefore, as unsuccessful parties in a lien priority contest, all the Remaining Lien Claimants should be liable for ML Manager's attorney fees award in proportion to their claims against the encumbered property.... Reversed and remanded. Upon filing the lien, the creditor obtains security for the debt. Before property can be sold, a lien usually must be removed, giving the creditor leverage over a real estate owner looking to sell. If the owner of the real property does not pay the lien, the creditor can move to force the sale of the property to satisfy the debt.

Mortgage requirements

1. Must be in writing 2. contains a description of the property, sets forth any warranties relative to the property, states the debt, and lists the mortgagor's duties concerning taxes, insurance, and repairs. 3. To protect the mortgagee's rights against other creditors, the mortgage should be recorded. 4. State statutes typically require that the mortgage be placed in a county office, often called the recorder's office, clerk of the court, county clerk, or register of deeds.

Involuntary Liens on Personal Property:

1. Sheriff's Levy Lien 2. Artisan's Lien 3. Tax Lien

a negotiable instrument can be transferred to another party in two ways:

1. assignment 2. negotiation

To be negotiable, an instrument must meet certain requirements (5). It must:

1. be written; 2. be an unconditional order or promise to pay; 3. be signed by the maker or drawer; 4. be payable on demand or at a specified time; 5. be made out "to order" or "to bearer"; 6. state a certain sum of money.

bearer paper

a financial instrument payable to the person who holds it rather than to the order of a specific person; it is negotiated by delivery of the instrument to a transferee.

The person in possession of a negotiable instrument may either be:

a holder in due course or an ordinary holder.

Ordinary holder

a holder of an instrument who has the same contract responsibilities as an assignee under a nonnegotiable instrument.

deficiency judgement

a judgment against a debtor for the unpaid balance of the debt if a foreclosure sale or a sale of repossessed personal property fails to yield the full amount due on the debt.

Maker

a person who signs a note (promissory note) promising to pay money to another.

Orders to pay

drafts and checks- 3 parties: 1. Drawer (owner of account) 2. Drawee (always a bank in check scenario) 3. Payee

The law provides two avenues through which the creditor can obtain the customers' property (referred to as security or collateral):

(1) by agreement with the debtor; or (2) by operation of law.

If the instrument is made "to the order" of the payee, the payee must:

(1) endorse and (2) deliver the instrument to a third party.

Perfection (and how to file)

*something that protects the lender* perfection of the interest establishes the date priority took effect. This way, when multiple creditors have claims, the priority order is clear. The primary way to perfect is to file the financing statement with the secretary of state or other relevant official as required by state law, so it is available for public inspection

typical protocol for collections policy for debtors who fail to make timely payments

- Usually, notification begins with a letter or e-mail stating that the account is past due. - A telephone call or a second letter may follow. - Depending on the business relationship, letters may be followed by a personal visit.

most common liens:

- mechanic's lien (real property) - possessory lien (personal property) - court-decreed liens In each case, a creditor may obtain the lien without the debtor's consent by following statutory procedures.

Credit policy focuses on such characteristics as the following (5 C's)

1. Capacity (the debtor's ability to pay) 2. Capital (the debtor's financial condition) 3. Character (the debtor's reputation) 4. Collateral (the debtor's assets to secure debt) 5. Conditions (the economic situation affecting debtor's business)

Example of orders to pay

You import a load of furniture from Thailand, so you must pay for it. You are the drawer because you need to draw on money you have available, perhaps at a bank. You instruct the bank—the drawee—to make payment to the Thai company that sent you the furniture, which is the payee or beneficiary. Not all transactions are that simple, so various instruments are used in business to make payments. We start with the most familiar one.

possessory lien

a lien that may apply to personal property. It provides a security interest for creditors that added value to or cared for personal property. This lien offers the right to continue to hold goods on which work has been done, or for which materials have been supplied, until the customer pays.

Involuntary liens on Real property

1. Judgment Lien 2. Mechanic's Lien 3. Tax Lien

attachment lien:

a court-ordered seizure of goods from a customer to prevent the customer from disposing of the goods.

order paper

an instrument payable to a specific payee or to any person that the payee designates

nonnegotiable instruments

common law of contract assignment applies

Holder in due course:

in UCC, a holder of an instrument who took it for value in good faith and without any notice of any claim against the instrument; the holder is free of any claims against the instrument.

writ of execution

issued by the clerk of the court and directs the sheriff or other appointed official to seize and sell any of the debtor's nonexempt real or personal property, such as a car, to help settle the unpaid debt of a judgement lien

Bearer:

the person in possession of an instrument, document of title, or certificated security payable to bearer or endorsed in blank

credit under an open account:

the terms define the credit period available to the customer and any discounts offered for early payment. A typical industry standard is net 60 days from the date of invoice with a discount of 2 percent if paid within 10 days of invoice.

what is it called when a payee is concerned about whether a draft is good and submits the draft to the drawee (probably a bank) for confirmation that it is legitimate and that the drawer has funds to cover payment?

this confirmation is called an acceptance.

Contractors Source, Inc. v. Amegy Bank National Association

*CASE BACKGROUND:* Contractors Source is owned and run by Merri and Gary Brecher. The company bank account was at Amegy. Only the Brechers could sign checks. The company hired Straten as its bookkeeper. She misappropriated at least $844,000 in 32 months before the Brechers discovered that she was forging checks. Amegy confirmed that the signature on the forged checks did not match the signatures on file. The bank refused to reimburse most of the money lost because the agreement on the account said that forgeries must be reported within 30 days and it had provided monthly statements. Contractors Source sued Amegy, contending it should have seen the unapproved signatures and thus should be responsible for all losses. The trial court dismissed the suit. Contractors Source appealed. *CASE DECISION:* Massengale, Justice [Contractors Source argues it is entitled to have forged checks reimbursed.] Amegy responds that Contractors Source's failure to exercise ordinary care and the UCC Section 4.406 "repeat wrongdoer" rule each bar recovery. When a bank provides periodic statements of an account, the banking customer is required to examine the statements and report any unauthorized transactions promptly. If the bank proves that the customer has failed to do so, the customer is precluded from asserting against the bank: the customer's unauthorized signature or alteration by the same wrongdoer on any other item is paid in good faith by the bank if the payment was made before the bank received notice from the customer of the unauthorized signature or alteration and after the customer had been afforded a reasonable period of time, not exceeding 30 days, in which to examine the item or statement of account and notify the bank. UCC 4.406(d)(2) ... Contractors Source does not identify any ... evidence that would tend to show that Amegy did not act in good faith. We hold that Amegy has demonstrated that [it paid checks] in good faith, satisfying the requirements of Section 4.406(d)(2).... We affirm the trial court's judgment.

Fordyce Bank and Trust v. Bean Timberland

*CASE BACKGROUND:* Fordyce Bank made a series of loans to Bean Timberland so it could buy timber from landowners. Bean would cut timber from owners' lands, pay them, and sell the logs for cash to Potlatch and Idaho Timber, which milled the logs into lumber. Bean gave the bank security interests in the timber he bought from landowners. The proceeds from timber sales were to repay the loans. The bank perfected its interests by filing financing statements with the Secretary of State's office. Bean sold the timber but failed to repay the loans and went bankrupt. The bank sued Potlatch and Idaho because the bank had priority interest in the timber sale proceeds. The bank alleged that Potlatch and Idaho were negligent in their dealings for failing to do a lien search and "failed to exercise good faith" as required by the UCC. The trial court held for Potlatch and Idaho, ruling that they were not negligent. They were not required to perform a security interest search in the ordinary course of business. The bank appealed. *CASE DECISION:* Bean sold timber to various mills as "gatewood." Gatewood is severed timber that is brought to a lumber mill's front gate by a logger Cornelius also stated that he had no actual knowledge that the Bank had a security interest in Bean's inventory. He also declared that, in his 30 years in timber procurement, he had "never undertaken a search for security interests in gatewood," and that Potlatch "does not perform lien searches in any other state, either." ... In sum, the trial court had before it abundant evidence that purchasing gatewood without performing a lien search was the standard practice in the timber industry. Clearly, Bean's sales to Potlatch and Idaho, and Potlatch's and Idaho's practice of not conducting lien searches, "comported with the usual or customary practices in the kind of business in which the seller is engaged or with the seller's own usual or customary practices" [UCC § 9-320(a)]. As such, the trial court correctly determined that Potlatch and Idaho were buyers in the ordinary course of business. Further, because the mills were buyers in the ordinary course of business, they owed the Bank no duty to conduct a lien search. With no duty, there could be no breach of any duty.... Affirmed.

General Electric Business Financial Services v. Silverman

*CASE BACKGROUND:* Warren Park Partners, Ltd., borrowed $34.8 million from GE Financial to buy land to develop in Frisco, Texas. When the loan was made, Silverman and his partners signed a guaranty by which each "absolutely, unconditionally and irrevocably guaranteed" payment of the principal and interest due under the loan agreement. Warren Park defaulted on the loan agreement and went into bankruptcy, so GE demanded payment from the partners. When they failed to pay, GE sued. Silverman and his partners claimed affirmative defenses of fraud, extortion, theft, and economic duress. The basis for the defense was that hours before signing the documents, GE notified defendants of changes to the terms of the loan agreement. Silverman contended that they did not have time to contest the changes as the loan was needed immediately. They signed the agreement because they were trapped and claimed that a GE employee told them that the new terms would not be enforced. GE moved for summary judgment. *CASE DECISION:* To establish a prima facie case for enforcement of a guaranty under Illinois law, plaintiff must "enter proof of the original indebtedness, the debtor's default, and the guarantee." Plaintiff argues that [defendants'] allegations, which provide the foundation for each of defendants' affirmative defenses, even if taken as true, are barred by the Illinois Credit Agreement Act (ICAA) which bars all actions or defenses by a debtor based on or related to an oral credit agreement. The Illinois courts regard a guaranty agreement ... as part of the "comprehensive credit agreement" between the parties and therefore governed by the ICAA. Applying this principle to the instant case, it is clear from the language of the Guaranty [was part of] the Loan.... Defendants do not dispute that the agreements are "credit agreements" under this definition. Therefore, the court finds that pursuant to the ICAA the Guaranty [is] part of the "credit agreement" between the parties. Because the alleged oral promises that plaintiff made to defendants contradict the terms of the Guaranty ..., the ICAA bars ... defendants' affirmative defenses that rely on these allegations.... Plaintiff's motion for summary judgment ... is granted.

Surety's Rights against the Principal

1. If the principal (borrower) does not pay the creditor, and the surety has to satisfy the debt, the principal is obligated to repay the surety. - If the borrower (principal) could pay the creditor but refuses to, the surety is entitled to exoneration, a court order requiring the principal to pay. 2. The surety is entitled to be subrogated to the rights of the creditor against the debtor. - In seeking repayment from the principal, the surety may assert any rights the creditor could have asserted against the debtor, including taking any security interests the creditor obtained from the borrower.

Types of Promissory notes (7):

1. collateral note 2. demand note 3. term note 4. line of credit note 5. mortgage note 6. installment note 7. balloon note

to be a holder in due course, the transferee must:

1. give value for the negotiable instrument; 2. take the instrument without knowledge that it is overdue or defective; and 3. take the instrument in good faith.

Credit terms must specify:

1. the interest rate, if any, that applies to the sum owed, 2. the principal of the debt, and 3. payment dates, such as "in 30 days" for materials or more than 30 years for land.

Liens

A lien is an interest in real or personal property giving the lender/lienholder the right to have collateral sold and proceeds applied to the debt Because the seller may obtain it without a specific agreement with the customer, the security may be a non consensual lien. - A lien on real property is governed by common law - A lien on personal property is governed by UCC.

Security Interest

A voluntary lien on personal property created by promissory note and a security agreement given by debtor to a secured party so that the property can be sold and the proceeds used to pay the debt to the lender in case there's a default. Example: buying a car. You have given them a promise to pay back the loan, and gave them a lien on your automobile.

Mortgage lien

A voluntary lien on real property created by a promissory note and mortgage deed given by the borrower/mortgagor to the lender/mortgagee giving lender the right to have property sold & proceeds applied to satisfy debt to mortgagee if there's a default. Voluntary because it's given by the debtor to the lender

mechanic's lien

Debtor hired someone to do work on debtor's real property- anyone who provides a service or materials that improve the real property has the ability to assert a lien against the real property for the unpaid balance of the contract price The lienholder must follow the steps that the law requires carefully within a certain time (usually within 90 days from the date that the work or services were completed)

Like much law in the United States, the law of negotiable instruments has its origins in:

England

Basic Rule of Perfection:

First in Time; First in Line - First person to file or "perfect" the lien has the superior interest in the property

term note

Has a specified time period built in Example: made by the maker to be paid to the payee one year from the date of making.

Default by mortgagor

If the borrower is unable to pay the mortgage, the mortgagee has the right to foreclose on the property. - Foreclosure may be by judicial sale. If proceeds from sale are not sufficient, the mortgagee may be able to seek to recover the remainder from the debtor by obtaining a *deficiency judgment* in a separate legal action after the foreclosure.

installment note

Maker of promissory note promising to pay $15,000 over 60 month period with interest Each installments are equal payments (fully amortized- kills the loan within 60 month period) Promise to pay the lender who lent you money to buy your car to pay in installments

demand note

Maker of the note promises to pay on demand the payee a certain sum Example: on day 1, he can promise to pay on demand the sum of $100,000 so now the maker has given contract right to payee- the payee is in possession of the original promissory note paper and the payee on day 2 demands payment of the $100,000

Exempt property

Property specified by statute, which may not be seized or sold to satisfy an execution or attachment. real: house personal: furniture, clothing, automobiles, and tools used in the debtor's trade or business.

assignment

Rule: "Assignee steps in the shoes of Assignor" - Assignee would take possession of the commercial paper and receive all rights to be paid subject to all defenses that payor might have against the assignor. a. Assignee takes burdens as well; third party purchased the goods from the assignor and the goods were defective, now the third party will not pay- assignee is now liable - Assignee must give notice to payor of the assignment in order to get performance on the promise to pay - Payor could refuse to pay because of typical contract defenses—lack of elements of contract, fraud, duress, mistake, prior payment, statute of limitations, etc.

True or false: sales of personal property can take place with relatively little or no formal documentation.

True

attachment

Under the UCC, for there to be *attachment* of a security interest, the agreement must be: 1. signed by the customer; 2. the seller must have provided value; and 3. the customer must have legal, transferrable rights in the collateral.

court-decreed liens

When a debt is past due, a creditor may sue a debtor. If it is necessary to use the court system, creditors may use attachment and judgment liens as judicial means to try to protect their interests.

Bill of exchange

When a draft guarantees payment for goods in international trade

Liens compared to a "string" or "tie:"

Whoever's hand the property goes, the creditor follows, holding that string. At one point in time, the creditor can pull in that string and take that property and have it Sold and the proceeds of that sale be applied to pay the debt.

Check

a draft or order drawn upon a bank, payable on demand, signed by the maker or drawer, that is an unconditional promise to pay a certain sum of money to the order of the payee named on the instrument. It normally must say "pay to the order of" on the face of the check. However, unlike a draft, a check must be paid on demand and must have a bank as its drawee.

Unsecured creditor

a party owed money but who has no collateral, lien, or other security to secure the debt or claim in the event of default by the debtor.

Secured creditor

a person who has loaned money to another and has a legally recognized interest in the property of the debtor until fulfillment of the terms of the debt agreement.

Purchase money security interest:

a secured interest created when a buyer uses the money of a lender to make a purchase and gives the lender a security interest in the property purchased.

garnishment

a statutory procedure under which a creditor gains the right to attach up to 25 percent of a customer's net wages to be applied to an outstanding debt.

the distinction between a guaranty and a surety is that:

a surety is primarily liable after the debtor, whereas the guarantor is secondarily liable.

Certificates of Deposit

a written bank document that provides evidence of a deposit made at a bank, for a certain time, that pays a certain rate of interest that is promised to be paid to the depositor or to another party as ordered. The bank, as maker, creates the certificate and acknowledges receipt of the customer's money, promising to repay the customer as payee plus a certain rate of interest.

Note

a written promise by one party (the maker) to pay money to another party (the payee) or to bearer; a two-party negotiable instrument.

Bearer instruments:

an instrument payable to bearer (the person in possession); it must specify that it is payable to bearer, to cash, or to a specific bearer.

Promissory note:

an unconditional promise, in writing, to pay a certain sum at a specific time, or on demand, to a person named on the instrument or to the bearer of the instrument; such notes are negotiable.

Secured transaction:

any transaction, regardless of form, intended to create a security interest in personal property, including goods, documents, and other intangible property. By meeting the UCC requirements, the seller obtains the perfection of security interest in the goods sold to the customer as collateral to help secure payment in the event of default. - That is, the seller can reclaim the goods if the seller still has them.

Why are bearer instruments risky?

because mere delivery creates a negotiation or transfer. Suppose a buyer of a car pays the seller with a check made out "to the order of cash." The seller loses the check. The check is found by Fallon, who uses it to buy goods from Oprah Appliances. The check has been negotiated because delivery is sufficient for the transfer of a bearer instrument. Governments do not like bearer instruments because it is difficult to trace money that has been transferred in bearer form.

Floating lien:

created by UCC to avoid the need to renew the financing contract every time something is sold or used - The security interest in any specific item of inventory ends when the item is sold, but the interest attaches to new inventory.

Sheriff's Levy lien

created by a court judgment. The lender has sued the borrower and got a judgement for money and now there is a lien created and perfected by the sheriff taking possession (tagging) of the judgment debtor's personal property. - Lasts 90 days after tagging - it is 'perfected' as soon as the sheriff tags it

Judgement lien:

occurs if the creditor is successful in an action against the debtor and the court awards a judgment. But, the debtor does not pay, causing the creditor to then file a judgment lien. The judgment becomes a lien on all real property in the name of the judgment debtor in the county of filing.

Cashier's check

one form of check in which the bank is both the drawer and the drawee. The customer gives money to the bank and designates a payee. The bank then writes a check on itself as drawee, with the check payable on demand to that payee. Cashier's checks are frequently used in transactions where the seller demands guaranteed payment.

payee

one to whom money is paid or payable; usually a party named in commercial paper as recipient.

If an instrument is made payable "to bearer," the party in possession is required to:

only deliver the instrument to transfer it.

Perfection of Mortgage Lien:

perfected by mortgagee's filing of the mortgage deed with the county recorder's office where the property is located (perfected by filing) Once the lender does that, it is noticed to the world that the lender has a collateral lien to that piece of real estate

Perfection of Security Interest

perfected by secured party's filing of a UCC financing statement with the secretary of state of the debtor's residence. Notice to the world that the leinholder has a security interest lien on that particular piece of personal property

guarantor

provides a written guarantee of payment to a creditor should the principal debtor fail to pay and, therefore, can be the same as a surety.

Results of a default by the debtor

since seller has a security interest in the product, it has priority to the collateral over all unsecured creditors When repossessing goods, "a secured party may proceed without judicial process if this can be done without breach of peace." That is, if you do not make payments on your car, the seller can repossess it. If the product is resold, it must be sold in a "commercially reasonable manner." - Any proceeds above what is owed must be returned to the customer. - If it is sold for less than the debt plus the costs of sale, the debtor still owes the balance.

Term drafts

specify payment to be made in the future, such as 60 days from the date of the writing of the draft. The drafts are said to mature on the payment date set in the future.

Draft

the big category of instruments- subcategory is checks Drawer gets account with drawee-bank, puts money into that account, Drawer draws a check in favor of the payee, ordering the drawee-bank to pay the payee upon proper presentation of the check The drawee bank pays the funds to the holder of the check when its properly presented

drawee

the party that a draft is directed to and that is requested to pay the amount stated on it; normally a bank (the payor) that is directed to pay a sum of money on an instrument.

drawer

the party who directs a person or entity, usually a bank, to pay a sum of money stated in an instrument; e.g., a person (the maker) who writes a check.

Suretyship

the relationship among three parties in which one party, the surety, guarantees payment of a debtor's debt owed to a creditor or acts as a co-debtor. If a business has a poor credit history, it may be required to provide a guaranty or suretyship for virtually any borrowing it does.

What must a seller do to make a security interest more easily enforceable?

the seller must create the interest, or legal right, and make sure that the interest is attached and perfected.

negotiation

under the UCC, the transfer of an instrument to another party who becomes the holder, or the act of putting into circulation a check or promissory note. the transferee takes the instrument free of any of the transferor's contract obligations.

Voluntary Liens:

1. Mortgage lien 2. Security interest

Sight draft

A draft that requires immediate payment by the drawee to the payee. Banks have the right to check the legitimacy of a draft presented for payment, but usually they are paid "on sight."

surety

A person, such as a cosigner on a note, who agrees to be primarily responsible for the borrower's payment obligations The borrower or debtor is referred to as the principal.

Surety Defenses:

Any defense (except bankruptcy) that debtor has against creditor can be asserted by guarantor. Guarantor is released if creditor changes terms of debt w/ debtor or releases another guarantor or collateral w/o guarantor's consent - If guarantor did not consent to these changes, then the guarantor can assert a surety defense and get out of his guaranty arrangement

Tax lien

Apply to both real and personal property The lien is created and perfected by the filing of a Notice of Tax Lien with the county recorder's office. A lien exists in favor of the tax collector against the real property and personal property in the name of, or owned by, the taxpayer in the place of filing. Lien lasts for 10 years and can be renewed.

Interests in Inventory

As collateral, supplies such as equipment, inventory, and raw materials are tangible property—goods that are movable at the time a security interest attaches or begins. To protect its interests, the lender extending credit to a business obtains a security interest, sometimes called a *purchase money security interest.*

True or false: Under the UCC, a security interest for consumer goods needs to be filed to be perfected

False- a security interest for consumer goods is perfected without filing.

balloon note

May provide for installments to be paid to the lender Installment payments may not completely amortize the loan over set period of time May be payable over 60 installments and on the 61st installment there may be a balloon payment of all remaining principal and unpaid interest

mortgage (secured note)

Promissory note that's usually payable on demand or in installments Note that's secured by a mortgage on real estate- secured by a lien on real estate

Promises to pay

Promissory notes and Certificates of Deposit; 2 parties: 1. Maker 2. Payee

Artisan's Lien

The debt is created by an unpaid contract to furnish materials and services on debtor's personal property. The lien is created and perfected (under state law) by the retention of debtor's personal property until the debt is paid. Ex: You take your car in to get a repair, and you don't pay the bill. You're not gonna get your car back until you pay the repair bill.

line of credit note

The maker of note promises to pay lender $50,000 and once the entire amount is paid the maker can draw back on that amount and keep paying it down little by little (no set installment payments) - the loan can be rejuvenated after its paid down Example: if you're in business and need funds to pay your employees and the people you've sold your products to have not paid you, you use your line of credit to meet payroll, and later on in the month you get paid from your A/R and you replenish the loan you took earlier that month

collateral note

The party seeking the loan (the maker) promises to pay the party giving the loan (the payee) according to the loan agreement. If repayment is not made, the payee has certain rights to the personal property, the collateral, of the maker to help repay the loan.