INTRODUCTION TO THE UNIFORM COMMERCIAL CODE

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INTRODUCTION TO THE UNIFORM COMMERCIAL CODE
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UCC Scope

• UCC
• Article 2/2Asale or lease of goods.
• Articles 3-5negotiable instruments and banking.
• Article 6bulk transfers.
• Article 7warehousing and shipping.
• Article 8securities.
• Article 9secured transactions.

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Law Governing Contracts
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Scope of Article 2--Sales

• Article 2 governs sale of goods.
• Sale passing title from seller to buyer for a
  price.
• Goods must be tangible and movable (not land,
  services or intangibles).
• Merchant deals in goods of the kind sold.

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Articles 3 and 4 of the UCC

• A negotiable instrument is a signed writing
  containing an unconditional promise to pay an
  exact sum of money.
• History of negotiable instruments began in
  England bills of exchange so that merchants
  were able to exchange money while keeping their
  money safe in the banks.
• Today--UCC Article 3.

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Article 3 Commercial Paper/Negotiable Instruments

• Functions
• Money substitutes
• Credit devise
• Recordkeeping devise

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Types of Instruments

• Drafts and Checks are
  ORDERS to pay.
• Three parties Drawer, Drawee and Payee.
• Checks (cashiers, tellers and travelers) are
  drafts on a bank.

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Draft
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Promissory Notes

• Promissory Notes are PROMISES to pay.
• Two party instruments
• Maker (Promisor) and
• Bearer (Promisee).
• Certificates of deposit (CDs) two party
  instruments.

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Assignment under the common law of contracts
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HOLDER IN DUE COURSE (HDC)

• 1. Takes for value
• - Has performed
• - Takes instrument in payment of antecedent claim
  
• - Gives negotiable instrument or irrevocable
  commitment
• 2. Takes in good faith
• - honest in fact, not suspicious
• 3. Without notice of defect
• - such as
• being overdue
• has been dishonored
• defenses exist against it
• claims by another exist

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Defenses, Limitations and Discharge

• Universal (Real) Defenses to Avoid Liability by
  ALL Holders, including HDC
• Forgery.
• Fraud in the Execution.
• Material Alteration.
• Discharge in Bankruptcy.
• Infancy (Minor).
• Illegality.
• Mental Incapacity.
• Extreme Duress.

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Personal Defenses

• Personal (limited ) Defenses (only holders, not
  HDC)
• Breach of Contract or Warranty.
• Lack or Failure of Consideration.
• Fraud in the Inducement.
• Illegality (voidable).
• Mental Incapacity.
• Discharge by Payment/Non-Delivery.

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Defenses
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ASSIGNEE, HOLDER OR HOLDER-IN-DUE-COURSE? a. Wen
dy purchased a used car from Wally. She signed a
contract that indicated she would pay 6,000 plus
interest for the car over a four year period. The
contract stated that the car had a new engine and
transmission (which was untrue).Wally needed
cash and made an assignment of the contract to
Wilson for 5,000, and notified Wendy of the
assignment. A short time later, Wendy began
experiencing problems with the car's engine and
transmission. Must Wendy continue making payments
to Wilson?
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b. Same facts as above except that Wendy signed a
negotiable promissory note that was sold to
Wilson for 5,000. Must Wendy continue to make
payments to Wilson?
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c. Same facts as above except that Wendy signed a
negotiable promissory note which Wally gave to
his son, Wilson, as a graduation present. Must
Wendy continue to make payments to Wilson?
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d. Same facts as above except that Wendy signed a
negotiable promissory. Wilson stole the note from
Wally, drew a few lines through Wally's name and
wrote in his own. Wilson then sold the note to
Crenshaw for 5,000. Must Wendy continue to make
payments to Crenshaw?
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e. Same facts as above except that Wendy is
illiterate. Wallytold her that the promissory
note that she signed was actually an agreement
that allowed her to use the car for 3 months on a
trial basis. After she signed the note, Wally
sold it to Wilson for 5,000. Must Wendy continue
making payments to Wilson?
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Introduction

• Article 9 of the Uniform Commercial Code
• Security Interests
• Interest in personal property or fixtures that a
  creditor obtains to secure payment or performance
  of an obligation
• Types of Collateral
• Instruments
• Documents of title
• Accounts
• Chattel paper
• General intangibles
• Goods
• Investment property
• Deposit accounts
• Obtaining a Security Interest
• Attachment and perfection

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Secured Transactions Concept