Questions Concerning USA Commercial Law - Assignment Example

Question 1: 1.      Land in Arizona which Massive Dynamics owns and uses to conduct product safety tests, would be considered part of the collateral in accordance with [UCC § 9-102(a)], under the heading of Accounts would fall under the category of collateral as defined by the Uniform Commercial Code, Article 9. It includes, more specifically “all property that has been or is going to be put up for sale, lease, license, or is going to be otherwise gotten rid of” [UCC § 9-102(a)(ii)].   2.      The second collateral at hand is the crops growing on 100 acres of land in Kansas which Massive Dynamics actively farms to provide organic food for its employees. This would fall under the farm products category of collateral classification under section 9 [UCC s9-109(3)]. 3.      The third item is a certificate for 20,000 shares of Massive Dynamics stock. This would fall under the ambit of certificated security, meaning a method of securing interest that is stands for a certificate. This has been defined as Security. Article 9 also identifies a category known as semi-tangibles where the right to payment or to goods is embodied in writing, which therefore attains I intrinsic value. In this case it is shares which are instrument [UCC s9-105(1)(i). 4.  s9-102(a)(48) states that inventory means goods that are leased, held for being sold or being put up for lease, supplied in terms of a contract, raw material or materials used or consumed in a business. S9-102(a)(33) states tat equipment on the other hand is the catch all category for goods that are not consumer goods, inventory or farm products. This would mean that a Megalon Model NCC-1701compuyter would be equipment that the business uses for the conduct of work. 5.      s9-102(a)(48) states that inventory means goods that are leased, held for sale or lease, furnished under a contract of service, raw material or materials used or consumed in a business. S9-102(a)(33) states that equipment on the other hand is the catch all category for goods that are not consumer goods, inventory or farm products. This again means that the air conditioning system, because it is installed in the factory is equipment [UCC s9-109(3)]. 6.      A limousine which the President of Massive Dynamics uses to escort potential clients around its facilities. This would fall under the category of consumer goods. “Goods” denotes all stuff that could be moved when a safety interest attaches. The car by virtue of the fact that it is a movable item that is used by owner in the long term transportation requirements of the business would mean that it would be part of the goods aspect of the overall process.       Except to the extent other law preempts Article 9’s perfection rule. Article 9 permits a security interest to be perfected in four principal ways: 1. by filing in the appropriate office a financing statement that identifies the debtor and describes the collateral 2. By taking possession of the collateral, which includes obtaining an agreement from a bailee of he collateral to retain collateral for the secured party’s benefit (s9-104, 9-105, 9-106, 9-107) 3. By taking control of the collateral, a term that is defined differently for different types of collateral and 4. Automatically simply by having the security interest attach. Automatic perfection could be for a temporary period, typically 20 days (s9-312(e), (f), (g), s9-315(c), (d), of it could even be permanent. For some kinds of security, the secured entity might perfect in only one of these ways. For other types of collateral, the secured party has the option of multiple ways to perfect, although the method used may affect the priority pf the secured interest. In case of the 10 acres of land in Arizona used for conduction of product safety tests, the best way of perfecting security would be by filing for a letter of control and attachment of the security interest. This could also be done by taking control of the documents providing for the ownership of the land. The crops growing on 100 acres of land, would be perfected by filing for and then by taking possession of the produce. A certificate for 20,000 shares, would be perfected by taking control of the shares. The Megalon NCC-1701 computer and the air conditioning system, would be perfected by filing and then by possession. Finally, the limousine would also be categorized under the equipment bracket, but would be perfected by having the security interest noted on the certificate. Question 2: 1. In the context of this case, the idea inherent in the sale therefore is simple. When Gloria sold Sara the table, the inventory was secured as collateral against the loan that she had taken out against the entire inventory she owned. When Sara bought the table therefore, she bought the inventory and therefore it was the proceeds that would now form part of the security agreement. The table would now belong solely to Sara and not to Gloria’s inventory list given the fact that she sold it. However, when Sara asks Gloria to store the table all over again trying to see if anyone would buy it for $1000 it would be housed in Gloria’s furniture shop, not as inventory but as Sara’s asset that was being exhibited. However, if sold, the 10 per cent interest that Gloria would get would then form part of the security arrangement that Gloria had entered into with the Octopus National Bank. In case of priority owner of the table, the it would remain Sara because she owned the table and had given to Gloria just to exhibit and had not sold it back, thereby nullifying any claims that the bank could have on the table itself. 2. In the context of the oriental rug, which is a case of the perfected secured party, versus the perfected secured PMSI, which is Tom, the one that would hold sway, is Tom, given the fact that First, Tom would fit the category of a PMSI and would thus get priority, providing it is perfected especially given the fact that the agreement had been perfected in twenty days after the debtor takes possession [UCC9-324(a)]. Also, he would have priority given the fact that there was proper agreement signed and the rug was sold on credit, before the time the debtor took actual possession [UCC 9-324(b)] 3. The portrait of Davy Crockett would belong to the one that needs to be first to perfect the security (this is a technical term…cannot be changed) agreement on collateral. The loan that Gloria took from the sheriff was an unsecured one, which means that treating the portrait as inventory, and given the fact that it had not been purchased but was part of a credit agreement, which would be annulled after Tom got the rug, the portrait would belong to the bank, in light of the fact that in an instance of conflict between a secured party that had perfected its interest versus those of a party that did not and creditor, the law is clear on the fact that a perfected secured party’s interest has priority over the interests of most other parties, including unsecured creditors, unperfected secured parties, subsequent lien creditors, trustees in bankruptcy, and buyers that do not purchase the collateral in the ordinary course of business. 4. The antique roll top desk would belong to Maude given the fact that a buyer of goods in the ordinary course of the seller’s business-makes a case for the buyer over the secured party’s security interest, even if perfected and even if the buyer knows of the security interest [UCC 9-320(a)]. Question Three   UCC Article 9 permits a secured party to take self-help measures without judicial process, though collateral may be repossessed with the assistance of judicial process. A secured party may not "breach the peace" in repossessing property. When the collateral is goods, Article 9 gives to the debtor two options, first to simply take back the collateral and second by bringing a court action. The taking back of the collateral must be done without a breach of peace. The code does not however elaborate on the constituents of a breach of peace action Subaru was taken with creditor’s children inside would mean a case of kidnap and hence a case of breach of peace. With respect to liability, however, there would be no delegation of liability of illegal repossession, given the fact that the law does not allow delegation in such cases [N.A. v. Sanchez, 836 S.W. 2d 151]. If the second party hires someone to re-posses the property and the person during the act of repossession is liable for conversion of otherwise, the secured party would be held liable because duty not to breach of peace cannot be delegated [Robinson v Citicorp Nat’l Servs., Inc., 921 S.W. 2d 52 (Mo Ct. App. 1996]. In the context of this case therefore, Big Auto Sales, would liable in a court injunction, and Paul along with Expert Repo would be liable to tort law, along with kidnapping charges, if at all.   Question four 1. Although it is correct that an instrument in order to be valid would need to have the signature of creator or the drawer, the UCC now allows digital signatures also known as a wet signature (Beatty and Samuelson, 2007). This does not have to necessarily look like handwriting. In this case therefore the fact that the instrument has a computer generated sign should not alter the negotiability of the instrument. 2. Determining factor making an instrument become negotiable, it is essential that the instrument contains an unconditional promise to pay [USS s3-106]. The fact that the validity of the note and the concept of it coming whole is hinged on the contract that the maker signed with the payee, Paula Prince, on May 1, 2010 would then automatically render the note non –negotiable. 3. A promise or order is provisional and not negotiable in cases when it stipulates that the assurance or order is conditional to or manipulated by another set of rules. In this case therefore the note is non negotiable because its fulfillment clause is hinged on another preemptive contract [UCC s3-106(a)]. 4. It is stated in UCC s3-104(a) that a predetermined amount of money needed to be ascertainable from the face of the instrument. Money is defined by the UCC as a mode of barter certified by a national or international government as element of its legal tender. This means in essence that the payment should be by way of currency or money. An instrument of payment such as a Sony TV set would therefore render the instrument non negotiable. 5. A statement in the instrument that payment could be made only out of the funds or source would not render the instrument non negotiable [UCC 3-106(b)(ii). This would mean that a repayment by sale of crops clause does not make have an impact on the negotiability of the instrument, although there is a chance that if it looks commercially unviable it could be rejected 6. An interest rate higher by 2 per cent than the one allowed by the Federal Reserve makes the instrument susceptible to charges of usury, especially in light of the fact that state laws set up interest rate upper limits for a variety of credit schemes. This would therefore make the document non negotiable. 7. It is stated in UCC s3-104(a) that a preset amount of money would need to be ascertainable from the face of the instrument. Money is defined by the UCC as a mode of barter certified by a national or international government as element of its legal tender. The fact that the payment would be made in Euro terms would therefore have no bearing on the overall negotiability of the instrument. 8. There is a requirement that the instrument must be billed on command or at an exact time, given the fact that it is only logical to defend the interest of the holder that there in order to determine the worth of the instrument he has an idea of the time at which he would be paid [UCC s3-103(a)]. The fact that this document registers no timeline whatsoever makes the instrument non negotiable. 9. An instrument needs to be payable to bearer or to order; this means that there must be a use of language indicating that the person in possession of it is entitled to payment e.g., to holder to cash or to the order of cash [UCC s3-109(a)]. In this context the mention of a weird name makes the instrument non negotiable. 10. An instrument needs to be payable to bearer or to order; this means that there must be a use of language indicating that the person in possession of it. The idea therefore is that it should not name a payee UCC s3-109(a)]. In this context the mention of a name makes the instrument non negotiable. Question 5: To obtain holder-in-due course status, a purchaser of an instrument must take the instrument as a holder for value, in good faith, and without notice of certain proscribed facts [UCC s3-302(a)]. In order for a person to be come a holder in due course, the person must have possession of an instrument, and the obligation evidenced by the instrument must run to him. A person could become a holder-in-due-course either through issuance or negotiation: 1. Issuance-an instrument is issued when it is first transported by the creator or drawer to either a owner or otherwise for providing privileges on the instrument to any individual [UCC s3-105(a)]. 2. Negotiation is a relocation of control of an instrument whether intentional or unintentional, by an individual, beside the one issuing the instrument to someone else who would then assume the role of the holder in due course. Anyone who gets a negotiable instrument, such as check or any pother kind of instrument as a gift would become a holder in simple terms as opposed to a holder in due course, bereft of the special treatment reserved for the latter. The justification is that when the check is a gift, there is an absence of the deliberation, which manifests in value terms and its exchange by parties involved. In the context of this case therefore, Sam would be just a holder and not a holder-in-due course. In a lawsuit between Sam and Maker, I think that Maker would win, given first, that Sam does not hold the position of the holder in due course, he is just a holder which automatically then deprives him of the defenses that come with the post. Secondly, if Maker is able to prove that the goods were faulty then the note would be a document of fraud, which would make Maker the winner. Question Six  1. Joint accounts are governed by the rule that dealings of the bank account cannot be conducted in the absence of consent from all account holders, A check” is defined as a “draft … payable on demand and drawn on a bank ….” [ (UCC) § 3-104(f)]. In this case there is a problem because the check was signed by one person, making it invalid. 2. S4A-403 makes it mandatory that the imbursement of the sender’s compulsion under S4A-402 to pay the gaining bank takes place when the dispatcher is a bank and the imbursement takes place when the bank on the receiving end of the compulsion through a Federal Reserve Bank or through a fund transport system (Cooper, 2005). Because ONB did not pay, CSB was correct in debiting Dan’s account 3. Dan could file a civil or criminal liability suit, hinged on intentional deception. UCC § 2-302(1) provides, "If the court as a matter of law finds the actions as having constituted intentional deception then injunction of fraud could be held up. 4. The liability for the transaction would fall solely with Bill and not with Betty given the fact that it was not a joint purchase of the camera by Bill and Betty. In fact, the only involvement that one could prove in Betty’s case would be that of the joint check that should have been signed by both. 5. Adam would have no liability because his duties of payment would end the minute he signed a check to Bill and Betty and the payment for the same was cleared. Further transactions on the amount would rest solely with Bill and Betty (UCC s4-103). Question 7: 1. If Julia failed to act as a reasonable consumer then the bank is off free, but in case that does not happen, then the bank is not free of liability, given the fact that the payment that the bank made was in good faith. 2. In this case the definition of the obligated bank would come into the picture given the fact that it is the bank that is the issuer of the cashier’s check or teller’s check or the accepter of the certified check that is to be held at fault for the problem. In the context of this case therefore, given the fact that the check amount was cleared by a teller at CSB, ONB could go back and ask CSB to be the obligated bank holding them at fault. 3. There is no claim against Stan that Julia could bring because the check that he gave was clear with enough money in the account. When the check changed hands, Stan’s liability was to ensure enough money in the bank so that the check cleared; the safety of the check was Julia’s liability. 4. In case of Elroy electronics, Julia can bring an injunction against Elroy for having mailed her money to a wrong address, given the fact that she did not get possession of the check at all and the fact that she did lose it was not to her fault in way-the loss of possession was not the result of transfer by the declarer. Reference: Beatty, J. F., and Samuelson, S., (2007). Business Law and the Legal Environment, Standard Edition. Cengage Learning. p526 Lawrence, L., (2004). Payment Systems. Aspen Publishers Online. P5 Commercial Paper – Holders: Holder, Instrument, Value, Paper, Individual, Knowledge, Who, and Been. Retrieved August 2, 2010, < http://law.jrank.org/pages/5418/Commercial-Paper-Holders.html> Miller, L., Jentz, M. A., (2007). Business Law Today: The Essentials. Cengage Learning. pp484-486 Sepinuck, S. L., (2008). Practice under Article 9 of the uniform commercial code. ABA. Pp432-434 Nowka, R. M., (2009). Mastering secured transactions (UCC Article 9).Carolina Academic Press. Read More