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Criteria for negotiable instruments
- In writing
- Unconditional promise to pay to order or bearer
- Pay on demand or specific time
- Sum certain in money
- Signed
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Real defenses
- Bankruptcy
- Forgery
- Material alteration
- Fraud in the execution
- No capacity (insane)
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Personal defenses
- Breach of contract
- Failed consideration
- Wrongful completion
- Duplicate payment
- Fraud in the inducement
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Endorsements
- Blank: just sign the back
- Restrictive: "For deposit only"
- Special: "Pay only to John" signed Steve
- Qualified: "Without recourse"
- Combo
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Ranking instruments
Cash > NI HIDC > NI not HIDC > Non NI > Verbal promise
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HIDC requirements
- Hold the NI
- Good faith
- No knowledge
- Value
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Draft vs Note, parties involved in each
- Draft - go to the bank for money - Drawee, Drawer, Payee
- Note - come to me for money - Maker, Payee
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Warranties, term "Qualifying"
- No material alterations
- Not aware of Insolvencies
- No forgeries
- No claims or defenses
- Transferer is entitled
Qualifying - "without recourse" I'm not making these warranties
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Forgery on note, back vs front, who is responsible for each
Ex. John writes check to Steve, John banks with Chase, Steve Banks with Capital One
- Forgery is on Back - Depository, Capital One should verify John's signature
- Forgery is on Front - Drawee, Chase Bank should verify John's signature
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How long do you have to inform bank of forgery?
30 days
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Are theft and embezzlement real or personal defenses
- theft - real
- embezzlement - personal
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9 ways to collect accounts receivable
- Sue in small claims court - reactive
- Attachment of assets to debt while suing - issue with other creditors in front - reactive
- Granish wages or any revenue stream - reactive
- Lien - attachment with statutory priority - reactive
- Surety - comaker - promise to pay no matter what
- Guarantee - second payer, guarantor, must first sue primary payer
- Mortgage - debt attached to real property
- UCC-9 - debt attached to moveables - written
- Combo
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Four strata of securities
- Secured and Perfected: Security Interest (Security agreement, debtor ownership, creditor value), public notice - first to file FSI wins
- Secured and Unperfected: SI and no FSI - first SI wins
- Unsecured and Unperfected: no SI, share pro rata
- N/A: loan paid off
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What is a purchase money security agreement?
if making loan for a new asset, ranked first on that asset over other creditors
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5 benefits of bankruptcy
- Exempt assets
- Discharge debts
- Uniform procedure
- Centralized proceedings
- Stay order (injunction)
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Chapters of bankruptcy
- 7: Liquidation
- 9: Municipalities
- 11: Reorganization
- 12: Farmers
- 13: Reorganization
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Bankruptcy - 9 exempt assets
- tools of trade
- homestead ($21,600)
- auto equity ($3,450)
- personal items ($550)
- jewelry ($1,450)
- life insurance (100%)
- retirement accounts (100%)
- health aids (100%)
- support payments (100%)
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Bankruptcy - 8 non-dischargeable debts
- unscheduled creditor
- student loans
- cash advances > $875
- loans against retirement accounts
- intentional torts
- back taxes
- fines/penalties
- support payments
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Future and past payments applicable during bankruptcy
- Fraudulent transfer: Assets given away 2 years prior
- Preferential transfer: Assets given with consideration 90 days prior
- Future payments due (no time frame given)
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Requirements to pierce the corporate veil
- Any of the following:
- thinly capitalized
- assets used for personal use
- poor record keeping
- comingle assets - personal and business assets in same account
- corporation created for criminal purposes
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Fiduciary duty
Duty to act in the interest of the company as CEO or employee
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Primarily and secondarily liable parties
- Primarily: maker, comaker, drawee
- Secondarily: guarantor, drawer
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Vicarious liability
- liable for someone else's actions
- ex. pets, children, employees within scope
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Equal dignity doctrine
if contract subject to statute of frauds, prinicpal-agency relationship must also be in writing
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