Dans Rights against Betty - Assignment Example

Name: University: Course: Tutor’s Name: Date: Question 1 a) The purpose of Article 9 since its inception has been to bring together business transaction under one law in all states of the USA and to limit legal formalities in interstate trade and commerce. The first item in the list of collateral offered by Massive Dynamic to ONB is a 10 acre piece of land in Arizona used conducting safety tests. The corporation’s intention to apply for a loan using this item is applicable under Article 9, even though its location (Arizona) is different from Delaware. The item is represented by a title deed document and is classified under quasi-intangible. The collateral can be perfected through various ways which are by filing, possession, control and automatic (Stone, 2005). The piece of land can be perfected first by filling the financial statement with a proper filing office in Delaware. Secondly, it can be perfected through control especially if collateral appears in an electronic document. Thirdly, perfection can be through possession especially when the collateral is tangible and documented. Lastly, in some situations the item can be perfected automatically without using involving the parties. As indicated below, ONB has four possible ways of perfecting the item; however the appropriate way considering all possibilities is through filling. ONB will be able to authenticate if it is the first to file the collateral or if it has been used in borrowing loans from other financial institutions (White, 2005). Filing safeguards the creditor from losing the interest rate to dishonest debtors. b) The second item in the collateral list is the crop growing on 100 acres of land meant for production of organic food for the firm’s employees, this is applicable under Article 9. The item is quoted under tangible goods particularly firm product (Miller, 2009). The item can be perfected in two possibilities; the first possibility is through possession (see section 9-312b) and the second is by filing a statement at the right offices within Kansas (see section 9-311a). The perfection can only be filed under certain jurisdiction where the farm is located. The suitable method in perfecting this item is through possession. The advantage of using possession is that ONB is able to recoup the interest easily, since the farm accrues profits and no costs are incurred in sustaining it. In case Massive Dynamic faces liquidation, ONB is able to regain its debt by selling the farm. In a situation where other financial institution claim the ownership of collateral, ONB stands a high chance of regaining back the collateral since the article recognize possession of the collateral. Under possession the state can repossess the farm on behalf of the bank (Stone, 2005). In conclusion possession becomes cumbersome to the bank when claiming collateral from defaulters, since it involves litigation fees and wastes a lot of time. Given this challenges however, perfecting the farm through possession is more suitable compared to filing. c) The third item in the collateral list is also enclosed under Article 9; it is categorized under quasi-intangible in the certified security. The 20,000 share certificate can be perfected in four ways; possession, filling, control and automatic. The suitable method of perfecting this certificate is by control. By using control as a perfection method, the bank can easily regain security interest with minimum costs compared to other methods. Using control method, the bank can use the same collateral when borrowing loan from the central reserve since it has the custodial rights (Miller, 2009). When borrowing a loan, the central reserve’s maturity period of the collateral must be taken into consideration, in case the debtor has not filed the continuation document. All the possibilities should be carefully weighted since some collateral(s) have more advantage to others. d) The forth item in the collateral list is a model NC1701 computer used for managing financial credit, payroll and receivables. This item is applicable under the Article 9; the item is classified under the tangible goods categories as equipment and software. Under Article 9 it can be perfected through filing and possession. The best method is perfection by filing, the advantage of this method is that it will help the bank not to incur high maintenance costs and to avoid depreciation costs of the equipment. There are challenges accompanying the possession of this equipment that may hinder the bank from securing loan to Massive Dynamics. It is therefore advisable to file on the possession that will give the ONB, advantage in recovering the loan especially when debtor becomes bankrupt (Miller, 2009). e) The fifth item is an immovable item in Grand Haven, Michigan. The collateral item is not applicable under article 9 since it does not fall under any class in the article; therefore it cannot be used as collateral. The immovable item does not therefore qualify to be a purchase money collateral which is able to attract security interest. f) The last item is a limousine used to escort potential clients of Massive Dynamic around its facilities. The item is classified under Quasi-intangibles under certificate(s) of the title and therefore applies under Article 9 (Stone, 2005). This item can be perfected by filing, possession, control and automatic. The best method to perfect this item is through filing since it will it limit the debtor from borrowing loan from another bank using the same collateral. This method also offers ONB rights of the collateral in contrary to other parties that have a want a security interest in the similar property. In conclusion, for adequate perfection to occur an individual ought to be well versed with the types and classifications of presented collateral. When ONB follows this procedure it will improve its lending facilities and be equipped to handle defaulters. Question 2 The provisions of the UCC in the article 9 clearly brings out the procedures and the terms necessary for any business person to understand before conducting any business in a sound and informed manner. Any property that acquired a security interest must meet basic facts such as being purchase money collateral and not consumer goods. It is also required that a person establishes if a property has been secured by another party before proceeding to secure it. This is simply because a person who secures it first will override the rights of other people that came after him or her. It is thus the burden of every person to ensure that a property of any nature is collateral and can acquire a purchase of money obligation as provided in the UCC (White, 2005). a) The rightful owner of the office table in this case is the ONB; this is based on the fact that the ONB was the first to secure a security interest on all the inventory or collateral of Gloria’s Depot. On the contrary, since the table had been sold to Sara who bought the property from Gloria’s Depot, the table belongs to Sara and the money acquired belongs to ONB because ONB cannot have both the money and the office Table, the money however is subject to payment of liabilities that Gloria had incurred in the course of business and thus the remaining amount will be rightfully possessed by ONB as a result of the security interest that it had acquired. b) With reference to the Oriental rug which was bought from Tom on credit, once it became an asset of Gloria Depot, the ONB had a security right over the property because of it had secured the rights over all the current and after properties of Gloria Depot. On the contrary the payment of the Oriental rug was not yet settled, this means that the rightful owner of the Oriental rug was still Tom who is in this case the creditor. This is simply because the law allows a creditor to repossess a property if the debtor fails to pay or settle the cost price. In this case, the Oriental rug was bought on credit and thus no other party can claim security interest of a liability. Regarding the other properties that Tom signed for security interest, he will not be in a position to claim anything from them since Gloria provided him false information about the security information of the properties since ONB had acquired it initially (Miller, 2009). c) The portrait of Davy Crocket belongs to the ONB since it acquired security for the item in early January 2, 2010 and Tom did acquire the security for the item in 15th February 2010, Tom acquire security interest in a later date. The laws according to UCC provides that the first party to secure obtain a security interest will overrule the other parties who came after he/she had secured the security interest. It is the burden of the party seeking to obtain a security interest to ensure that there is no other party that has secured a security interest of the property. This was not done by Tom who was tricked into the process; it was his obligation to ensure that the property could secure a security interest. d) The antique roll top desk belongs to Maude because Maude purchased the item from Gloria’s Depot. The antique roll had obtained security interest previously but since Maude purchased it for personal use which then makes the item a consumer good, the focus of the interested parties will be focused on the money obtained and not the property. On the contrary, as stated by the UCC, the status of a collateral does not change its status even if it acquires another obligation will not stand since the other consumer protection rules will overrule the provision of the UCC. For this reason, the rightful owner of the antique roll top is Maude who legally purchased the property from Gloria’s Depot. Question 3 The provisions of the law under the UCC or the Unified Commercial Law provide that a creditor has a right to repossess a property from the debtor if the debtor fails to meet the payments as promised. The debtor is obliged to a promise, that assures the creditor that his/her payment will be met within the specified time period. The law allows the creditor to repossess property, if the debtor fails to meet his obligation, the repossession is supposed to be done legally according to the procedures outlined by law. The creditor also benefits from the interest acquired if the repossessed property is sold, the idea here is that the original price of the property must be recovered even if it means to charge the debtor an extra fee after the repossession of property. In this case, Maria failed to meet the creditor’s obligation by failing to pay amount owed in time; therefore Big Auto had the right to repossess the vehicle from Maria. Big Auto repossessed the vehicle using an agent (Expert Repo). Expert Repo’s representative Paul was send to execute the repossession and precincts of the law as defined in the UCC gives permission for such actions to be done. In several states in the United States, the law gives the creditor rights to repossess the property if the debtor defaults payment or violates a security agreement. In our case, Maria showed signs of evading the agent who was supposed to repossess the vehicle. Upon the realization of this, Paul acted instinctively and quickly repossessed the vehicle without considering the fact that there were children inside the car. Paul was right in executing his duty of property repossession but in the process violated the normal procedures of repossession as a result of suspicion. If Maria sues Paul for ignorance, she could lose the petition because her actions led to Paul acting in the way he did. Both Paul and Maria could be liable for the torts that contributed to negligence and thus upon presentation of the case to the court, led to contributory negligence actions that added to the mental suffering of the children. The only chance that Maria has in this case is based on the provisions of the Delaware laws which states that the creditor ought not to repossess a property if the first installments are were met by the debtor (Stone, 2005). This could favor Maria if this was the case, she can therefore use the courts to stop the repossession of the vehicle. On the other hand it is the duty of the debtor to meet his/her payment obligation in order to avoid such situations. Question 4 a) A valid promissory note must contain a signature, signed by the authorizing person or by a representative. A signature is essential in the endorsement of a promissory note or draft in any transaction with the bank. The signature can either be handwritten, automated, or can be represented by any symbol, sign, word, a name or a single letter. In this case therefore an instrument can be liable if it contains the above mentioned signature (White, 2005). The promissory note presented to the CEO is valid as long as it has a signature by the drawer as mentioned above. The CEO should not be skeptical of the signature unless it is from an unauthorized person. b) The instrument mentioned here still holds and when the condition is met then the promissory note becomes payable. A promissory note is an instrument that assures the holder of payment when certain conditions are met, it time bound and payable on the demand by the holder (Stone, 2005). According to section3-108 this kind of instrument is only recovered when the debtor attains the given condition and it is payable only after the condition is attained. c) A negotiable instrument can be signed by two or more parties verified by section 3-116. The instrument can be drawn by the drawer or by a group of people and it only holds as long the parties are not in conflict. The instrument definitely becomes invalid when there is conflict between the parties (Miller, 2009). The holder cannot demand the payment without the consent of other parties. d) In cases where the instrument is paid to a specific party it becomes so difficult to validate the note or draft. In section 3-204 of article 9, it is clear that a negotiable instrument drawn to a specific person is not transferable to another person. In our case, the instrument is only payable for the Sony TV and therefore hard to be negotiated by ONB. e) A negotiable instrument should contain a designated time when the payment is due, but some instrument remain open and are payable on the demand by the holder. In the case of ONB it will not be wise to assent to this promissory note or draft since it lacks a maturity period and the debtor can fail to pay on demand causing the bank a loss. The bank should only assent to the note and drafts that have a clear agreement. f) According to Miller, 2009 every negotiable instrument must have specified interest rates for it to be authenticated. The interest rate can be a condition for payment to any negotiable instrument mention in this easy. In this case the negotiable instrument is payable only when the given interest is attained. The CEO of the ONB should assent to the promissory note or draft presented. g) A promissory note can be required sometimes to be paid in foreign currencies. In such cases, this demand should be met by paying the amount in specified currency or its equivalent. The ONB should proceed to sign the presented note since it is still valid and can be paid either by the demanded currency or its equivalent. h) According to Article 9 the maker has no right to set another date after issuing the note or draft, this right only vests on the payee or drawee and they can dictate when to receive the payment (Stone, 2005). The maker should only give the specified date he is willing to pay the debt but should be specific. Therefore the CEO should not assent to a instrument that lacks a specified date, unless it has an open date allowing the bank to seek for payment on demand. i) The instrument should always contain the language that is understandable and relevant to the negotiation, therefore language such as “The weather is nice today” should not appear in the instrument since it lacks the purpose. The promises and order should be written to communicate some information regarding the payment of the debt. ONB should not assent to the note or draft which may not be valid. j) Sometimes negotiable instruments use restrictive indorsement seen under article 9, to prohibit the payment to other parties (Miller, 2009). The language such as “Pay to Walter Bishop” is a restrictive to only one party and the language is meant to prohibit the payment to other parties. In this case the payment should only be made to Walter Bishop and therefore until it is transferred by the drawer to the payee who is the bank, payment cannot be effected. ONB should not assent to such instruments since they are indorsed to certain people or entity therefore not payable to the bank. Lastly, for anyone to make an informed decision on which instrument to purchase, one needs to be acquainted to the language used in the negotiable instrument. One also needs to be familiar with the law and statutes regarding the process to be followed for a proper promissory note to exist. Question 5 a) When we look at Joan Maker’s claims against Sam, we have to look at the activities that led to this case. Joan purchased goods from Henry Seller using a negotiable instrument which she later refused to honor, since the goods she purchased were faulty. According to UCC (universal commercial code), a negotiable instrument is a transferable document, which is a order or promise to pay the holder of the document a certain amount of money within a specified period. In this scenario Sam has a right as a due holder of the document due to the following reasons, which support his claim. In section 3-203 of the UCC, clarifies that a negotiable instrument can be transferred to other persons apart from the issuer for the purposes of enforcing the instrument (Stone, 2005). In this case Sam can claim due holder rights since he is the current holder of the instrument. Sam becomes a due holder of the instrument based on the section 2-203(b), which clarifies that the transfer of an instrument whether by negotiation or not gives the authority of the transferor to the transferee the right to enforce the instrument, including the rights of a due holder in course. Consequently when George transferred the instrument to Sam he gave him the rights of a due holder. The article 3, section 106(a) of the UCC states that if a signature appears on an instrument and the transferors fail to sign the instrument, this failure although a requirement on the part of the issuer’s does not prevent a transferee from becoming a due holder of the instrument. Furthermore section 3-203(c) of the UCC supports Sam’s claim as a due holder of the instrument, it says that if an instrument is transferred to a transferee and the transferee fails to become a due holder owing to the lack of a signature, then the transferee has an equal right to that of the transferor. In this case when George transferred the instrument to Sam without indorsing it gave Sam the rights of a due holder (Miller, 2009). Using the above sections of the UCC, Sam can argue and claim his rights as a due holder of the instrument. b) In the case of the lawsuit presented by Sam against Julia, in my opinion and according to UCC laws, Sam would win the case. Sam’s win could be influenced by section 3-106 of the UCC which explains that a negotiable instrument must be respected unless governed by other conditions, in this case the instrument is not conditional thus Sam has a right to demand payment. Another reason that makes Sam to demand payment, is that if an instrument requires a signature for it to be conditional, failure of countersigning does not make the instrument unconditional except as provided by other provisions of the law (Miller, 2009). This makes Sam a due holder of the instrument since the instrument he holds does not require an indorsement. In this case Sam can demand payment in his suit, using section 3-110 of the UCC, which explains that an instrument is payable to the person to whom the instrument is intended for. The intention is undertaken through signing or authorization by the issuer or on behalf of the issuer. With this section Sam can use it to demand payment from Joan Maker. Using the sections of the UCC, Sam can demand for payment from Joan, but if Joan wants the sale contract between her and Harry Seller to be honored, she should sue Harry for selling to her faulty goods. Question 6 a) In this case of ONB bank’s refusal in honoring Dan’s check, ONB had reasons for refusing the check based on these reasons. The section 3-416 of the UCC, clarifies that the transfer of an instrument to a transferee through indorsement requires all signatures to be valid and authorized. Due to this reason ONB had a right to refuse payment and to dishonor the check drawn in favor of Dan (Alexander, 2002). Section 3-411 of the UCC, explains that a receiving bank can refuse to honor any payment demand based on reasons that they doubt the person to whom the payment is entitled to. With this reason ONB had doubt if Dan was entitled to payment and as a result they refused to honor Dan’s check (White, 2005). The article 3 of the UCC, explains on laws that govern on unauthorized instruments. In this case if an instrument requires two or more signatures for it to be effected, then if any one of the signatures is missing makes the instrument unauthorized. ONB had a reason to refuse payment based on this reason, since Dan’s claim is in disagreement with the laws. b) In the case of CSB debiting Dan’s account, it was done in accordance with sections of the UCC that validate their action. A receiving bank can cancel payment on an order which was already honored as stated in section 4A-211. This is because there was no prior agreement with the bank, thus in this case CSB was within the laws to debit Dan’s account. Another rationale for CSB’s action is that section 4A-211 of the UCC, says that a beneficiary bank can recover money paid out against an effected payment order. The bank can recover the money up to the amounts stipulated by law. This provision makes CSB recover money paid out to Dan (Stone, 2005). Finally CSB had a right to debit Dan’s account because the check forwarded to ONB was dishonored by ONB. As a result CSB had a right to recover their money which they had paid out to Dan due to the fact that the check was dishonored and no funds were available to pay Dan. This can be supported by section 4A-211(e) which gives the right to a receiving bank to cancel payment to an already paid out order or dishonoring a cancelled check. c) About the question of Dan’s right against Bill, Dan has a right to demand payment for the camera he sold to Bill. This is because the check Bill presented to Dan was dishonored by his bank. The action of dishonoring Dan’s check makes Bill liable to payment for Dan’s camera, with this reason Dan could consult Bill to talk to Betty in order she could countersign the check in order for payment to be effected. According to Miller, 2009 for Dan’s check to be honored Bill and Betty need to countersign the check. Section 3-110 of the UCC, identifies the beneficiary of a check in the case of one or more signatures are required. Using this condition, Dan could sue Bill demanding payment for the camera sold. d) In the case of Dan’s rights against Betty, Dan has no rights against Betty due to the following reasons. Betty was not party to the on-going agreement and sale of the camera that happened between Dan and Bill. The only exposure of Betty to the transaction that happened between Dan and Bill is that Betty is the consignee, to the check which was presented to Dan as payment for camera bought by Dan. Since the check did not bear Betty’s indorsement means that she did not authorize for Dan to be paid by Bill using the check. Consequently due to the above reason Dan cannot claim any rights against Betty. e) If we are to look at the case of Dan’s rights against Adam, his rights are close to nil due to the following reason. Adam being the originator of the check which was used to pay Bill and Betty but was later transferred to Dan. Thus in this case when Adam paid Bill and Betty using the check he waived all rights he had on the check. Dan therefore cannot claim any rights against Adam due to the fact that all rights concerning the check now rest on Bill and Betty. Using this reason we find out that Dan has no rights against Adam. Question 7 a) In Julia’s case where a check intended for paying her was paid to a third party, Julia has claim against ONB for cashing Stan’s check based on these reasons. Section 4A-207 of the UCC, states that if a person is identified as the beneficiary and is entitled to payment even if the instrument bares names and numbers which identify different persons. According to White, 2005 no person is entitled to payment apart from the person identified by originator of the check. Thus in this case ONB was supposed pay Julia only as she is the intended person to be paid. Another reason for Julia to claim payment is that section 3-110 identifies the person to whom the instrument is supposed to be paid; it explains that the person to be paid is determined by intent. In this case Stan’s intention was to pay Julia using the check and when the check was cashed by a third party, Stan’s intent was dishonored making ONB liable for payment on the check drawn to Julia (Stone, 2005). b) In the case where we suppose that ONB is liable to pay Julia, ONB can recover money paid to CSB using the following reasons and sections of the UCC laws. Section 4A-205 of the UCC explains that an erroneous payment to a person not intended by the check can be recovered by the receiving bank up to the levels permitted by law. This shows that ONB is not liable but they can recover Julia’s money from CSB since the person who cashed Julia’s check used means not recognized by law. c) In the case of Julia’s claim against Stan on the sales agreement apart from the check, Julia could claim that she did not receive payment for goods she sold to Stan. This is because no payment was made for the goods. Non-payment for goods by Stan amounts to breach of contract and contravenes the section 2-403 of the UCC, which govern on sale of goods and support Julia’s claim. In order to correct the situation Julia could contact Stan concerning the check he drew having being cashed by a wrong party, with this reason Stan could notify his bank within 90 days to recover or cancel this check (Miller, 2009). This action would be in accordance with article 3 of the UCC, which is used to identify the person intended for payment in this case Julia being that person. d) When we look at the situation where ONB paid another person on the check drawn by Elroy Electronics, Julia has a claim against ONB since she was the intended payee of the check. Section 4A-204 supports Julia’s claim in that it clarifies that if a bank receives a check written to a specific customer and the order is not authorized the bank is liable to refund any money paid out to the beneficiary. With these reason ONB has a right to refund money paid out to the wrong beneficiary. Julia could use another justification found in section 4A-207(b), which explains that if a person deposits a check in his/her account even if their names and number do not match, then payment should be effected to the person whom the check is intended to pay. Thus in this case Julia who was the intended payee should have received payment and not another person, using this Julia can claim rights against ONB (Goode, 2007). e) In the question of if Julia has a right against Elroy’s Electronics for her rebate check. In my opinion she has a claim since she did not receive her check due to an error which made another person to cash her check (White, 2005). The section 4A-205 explains that if the sender of an erroneous check notices the error, he/she should contact the bank within 90 days to cancel the payment against the check. Due to the errors of Elroy, they are liable to pay Julia for her rebate check. Julia could also argue that she was never paid leading to a breach of contract by Elroy Electronics, with this she has a right to claim her payment. This is supported by article 2 of the UCC which govern on breach of sale contract(s). Even though Elroy Electronic intended for Julia to be paid by the rebate check she never received payment and consequently she demanded payment. References Alexander B., & Tajima Y.( 2002). Commercial law in a global context: some perspectives in Anglo-Japanese law. New York,NY: Kluwer Law International. Goode, R., & Cranston Ross. (2007). Making commercial law. New York, NY: Oxford University Press. Hill, W., & Currier R,D.(2009). Commercial Law. Michigan,MA:BiblioBazaar, LLC. Stone, Bradford. (2005). Uniform commercial code in a nutshell. New York, NY: Thomson/West. Miller, L.,& Jentz, G.(2009). Fundamentals of Business Law: Summarized Cases. Texas,TX; Cengage Learning. White, J., & Summers, R. (2005). Uniform commercial code. New York, NY: The University of California. Read More