Unit 18 - Intro to Article 3
Unit 17 Review: Foreclosure Sale to the End
Commercial Reasonableness Standard
Applies to foreclosure; can be public or private.
Advertising recommended for transparency.
Pre-Sale Notice Requirements
Requires a signed writing to debtor (D), secured owner (SO), written demanders, and file secured parties (SPs).
Not applicable to perishable collateral.
Amount of notice is a question of fact; generally, 10 days is acceptable in commercial transactions.
Effects of Foreclosure Sale
Application of Sale Proceeds:
First, cover incurred expenses.
Next, pay off foreclosing secured party's debt.
Proceed to junior debts.
Result in surplus for debtor or potential deficiency owed.
Title Conveyance and Discharge of Security Interests
Title is conveyed to the buyer, even if Article 9 is violated.
Discharges foreclosing security interests and any lower interests.
Remedies for Article 9 Violations
Theoretically, parties can claim any aggravating damages arising from violations.
Usually involves a rebuttable presumption rule for lost surplus if proven.
Part III: Negotiable Instruments (Articles 3 and 4)
Chapter 22: Introduction to Negotiable Instruments
The Role of Negotiable Instruments
Definition: Instruments like promissory notes and checks designed as reliable cash substitutes.
Legal goal: Ensure certain papers can be easily transferable with assurance of payment, allowing holders in due course to take free from most defenses.
Laws rely on the four corners of the instrument.
Requirements for Negotiability
§ 3-104: Definition of a Negotiable Instrument
An instrument must be an unconditional promise or order to pay.
Must specify a fixed amount of money, with or without interest or other charges.
Conditions for Negotiability:
Payable to bearer or order at issuance.
Payable on demand or at a definite time.
No additional undertakings or instructions beyond payment of money allowed.
Requirement 1: Promise or Order
§ 3-103: Definitions
Definitions of Key Terms:
Order: A written instruction to pay money signed by the instructing person; must be addressed appropriately.
Promise: A written undertaking signed by the person to pay; acknowledgment does not suffice unless it includes an obligation to pay.
Instrument Types:
Promise: Note (Promissory Note), involves 2 parties (Maker and Payee).
Order: Draft (e.g., checks), involves 3 parties (Drawer, Drawee, Payee).
Requirement 2: Signed Writing
§ 3-103 & § 1-201: Definitions
Signed: Symbol executed intentionally to adopt or accept a writing.
Writing: Includes printing, typewriting, or any tangible form.
Requirement 3: Promise or Order Must Be Unconditional
§ 3-106: Unconditional Promise or Order
Unconditional unless it states specific conditions affecting payment or is governed by another record.
Not conditional merely by referencing another record for statements of rights concerning collateral.
Requirement 4: Payment of a Fixed Amount of Money
§ 3-104: Definition
Must promise or order a fixed amount of money (with interest or charges possibly variable).
Money defined as any medium authorized by a government.
Requirement 5: Payable to Bearer or Order
§ 3-109: Definitions
Instruments payable to bearer must either:
State as payable to bearer.
Lack a specific payee.
Be payable to cash.
Instruments payable to order involve specified identified persons.
Requirement 6: Payable on Demand or at a Definite Time
§ 3-108: Definitions
Payable on Demand: if it states payment on demand or does not specify time.
Payable at Definite Time: if it terms specify a fixed date or event.
Requirement 7: No Other Undertakings or Instructions
§ 3-104: Guidelines
The instrument must not require other actions or instructions apart from payment of money, although allowances for collateral or waivers are acceptable.
Types of Negotiable Instruments (Redux)
Summary of Key Instruments
Promise: Note (Promissory Note) = 2 Parties (Maker and Payee).
Order: Draft (e.g., Check) = 3 Parties (Drawer, Drawee, Payee).