BADM 7140 Exam 2 Study Guide PDF

Here is the converted text from the images into a structured markdown format. # This is a General Study Guide Non-Comprehensive A Rough Draft of Key Concepts (For each chapter covered, study the notes and work the required problems) ## The Function and Creation of Negotiable Instruments * Types...

Here is the converted text from the images into a structured markdown format. # This is a General Study Guide Non-Comprehensive A Rough Draft of Key Concepts (For each chapter covered, study the notes and work the required problems) ## The Function and Creation of Negotiable Instruments * Types of Negotiable Instruments that are three party instruments * Drafts: an order by a drawer directing the drawee to pay the payee * Checks: a draft drawn on a bank * Most checks are demand instruments * Checking accounts are often called demand deposits * Drafts and Checks involve three parties 1. Drawer: Person who signs the order to pay 2. Payee: Person identified to get paid 3. Drawee: Person who is ordered to pay * Types of Negotiable Instruments that are two party instruments * Note: a promise by one party to pay money to another party or bearer * Certificate of Deposit: a note made by bank, where the bank is the maker of the note * Notes and Certificates of Deposit involve two parties * Maker: The person who promises to pay * Payee: The person to whom the promise is made * Requirements for an Instrument to be Negotiable (Must have all 5) * Be in writing * Be signed by the maker or the drawer * Be an unconditional promise or order to pay to order or bearer * A sum certain in money * Be payable on demand or at a definite time `CASH >NI & HIDC>NI>NON-NI>VERBAL PROMISE` *** ## Transferability and Holder in Due Course * Five Types of Endorsements (also can be spelled with an "T") 1. Blank Endorsement: an instrument payable to order and indorsed in "blank" becomes a bearer instrument and can be negotiated by delivery alone. Converts an order instrument into a bearer instrument. 2. For Deposit Only 3. Special Endorsement 4. Qualified Endorsement 5. Combination Endorsement * Rules and Requirements for HIDC (Holder in Due Course) Status * Must be a holder * Must take for value * Must take in good faith * Must take without notice * The result of being a HIDC is that you eliminate personal defenses (note: cannot get rid of real defenses, unless you are holding cash). ## Liability, Defenses, and Discharge * Five Transfer Warranties 1. The transferor is entitled to get paid 2. No material alterations 3. All signatures are authentic 4. No knowledge that the maker or drawer is insolvent at that time. 5. No fraud associated with transaction * Real Defenses (Universal Defenses) - Cannot Eliminate * Forged signatures * Forged endorsement * Material alterations (change value on check) * Bankruptcy * Minority * Illegal, incapacity, duress, if the contract is void under state law * Criminal Activity *This outline is rough and unofficial, but designed to give you a general overview of the material. Do not forget to cover the notes, key terms, and problems when preparing.* *** * Personal Defenses - Can Eliminate if HIDC * Breach of contract * Lack or failure of consideration * Fraud in the inducement * Illegal, incapacity, or duress, if the contract is voidable * Previous payment or cancellation of the instrument (duplicate payment) * Unauthorized completion of an incomplete instrument * Non-delivery of the instrument * 30 Day Rule: Even if forgery, you have 30 days to notify the bank of forgeries from constructive notice. ## Banking in the Digital Age * Cashier's Checks: bank is drawing on itself. * Forged Drawer Signature = Drawee Bank Liable * Forged Endorsement = Depository Bank Liable * Know Accommodation Parties and their respective liability = they do not have to receive consideration in order to be liable on the instrument. ## Creditors' Rights and Remedies * When a debtor defaults, creditors can sue the debtor. With a deficiency judgment, the creditor can try to "attach property" if the debtor has any property. If there is a lien right, the creditor can attempt to lien the property. The lien is a statutory right giving the creditor superior priority in the debtor's property. Examples: Labor Lien or Material Lien. * Guarantor: Must be in writing and suit must attempt to collect from the debtor prior to bringing action against the guarantor (secondary liability). * Surety: The surety can be verbal and the creditor can sue the surety directly (primary liability) * Mortgage: attach real property to a debt by using a mortgage instrument. * UCC-9: Getting the debtor's consent to attaching to movables using a security agreement which is signed by the debtor. *This outline is rough and unofficial, but designed to give you a general overview of the material. Do not forget to cover the notes, key terms, and problems when preparing.* *** * PMSI - Purchase Money Security Interest * The creditor (bank, manufacturer, etc.) that finances the purchase can get a super priority * This is by consent and achieved by getting a security agreement in the asset that was financed by the creditor and filing the F/S within 20 calendar days. Otherwise, you are just secured and perfected. * There is no special documentation required to get a PMSI ## Secured Transactions * Creating a Security Interest (Conjunctive - Must have all 3) * Must be a written security agreement in most cases (exception: pawn). * Debtor must own the asset * Creditor must give value * S/A + Debtor Ownership + Value = Attachment of the asset to debt * Assets Encumbered * Can encumber most movables (even intangibles) * Equipment/Inventory = that is the focus of the class! * Financing statement (lasts 5 years) must be filed: first to file normally wins unless there is a pawn in front of the financing statement * Financing statements and mortgages do not have intrinsic value * You pay the note, not the mortgage or the security device * Ownership is not evidenced by possession: must have document proving title * To make sure the item is not pawned you must observe the debtor possession * Pawning/pledging: Security agreement does not have to be in writing * Usually you have to file a financing statement in order to get top priority * Auto-perfected when creditor takes possession (i.e., a pawn) * Auto-perfected when a consumer good is secured by a valid security agreement. `Know the four strata of creditors` *This outline is rough and unofficial, but designed to give you a general overview of the material. Do not forget to cover the notes, key terms, and problems when preparing.* *** In general, the creditors needs to file a Financing Statement unless the creditor takes possession (pawn) or it is a retail sale. If a pawn, can all be verbal and no need to file. If retail sale, the creditor still needs a written security agreement signed by the customer. ## Bankruptcy Law * Five Benefits of Bankruptcy 1. Centralized litigation 2. Stay on all pending litigation against debtor: automatic 3. Discharge debt 4. Exempt some assets 5. Uniform process * Some Assets That Can be Exempted in Bankruptcy * Homestead * Vehicle * Household goods, clothes, and etc... * Jewelry * Personal Property * Tools of the trade * Unmatured life insurance (no cap) * Accrued dividends under life insurance contracts owned by debtor * Prescribed health aids (no cap) * Right to receive social security, welfare, alimony, and etc... (no cap) * Right to receive certain personal injury awards * Retirement Accounts (no cap) *This outline is rough and unofficial, but designed to give you a general overview of the material. Do not forget to cover the notes, key terms, and problems when preparing.* *** * Some Debts That Cannot be Discharged * Back taxes * Amounts borrowed to pay federal taxes * Claims against property or funds obtained by false representation * Claims of creditors not listed and notified of bankruptcy * Claims based on fraud or misuse of funds by debtor * Alimony, child support * Claims based on malicious conduct by the debtor * Certain government fines and penalties * Certain student loans * Debts on luxury goods purchased within so many days of filing * Certain Amount of Cash advances obtained within so many days of filing * DUI debts * Types of Bankruptcy * Chapter 7-Liquidation * Chapter 9-Municipalities * Chapter 11-Reorganization * Chapter 12 - Farmers * Chapter 13-Individual/Personal * Bring into the asset base prior transfers and future entitlements *Preferential v. Fraudulent transfers (if the exchange is contemporaneous then the part is not a creditor). * Can be forced to return funds if transaction (payment) was considered a "preferential transfer". one for consideration - trustee goes back 90 days * Fraudulent transfers (w/o consideration) trustee goes back 2 year *Order of Disbursements in Bankruptcy Proceedings * See diagram in the handout. *This outline is rough and unofficial, but designed to give you a general overview of the material. Do not forget to cover the notes, key terms, and problems when preparing.* *** ## Agency/Diagrams * Charts/Diagrams: Issues of agency and employment * Vicarious Liability * Equal Dignity Doctrine * Fiduciary Duty * Ratification * Contract v. Tort Situations * Study Notes ## Business Entities (No need to read these chapters or work the related problems in the back of these chapters) * Study Chart * Piercing the Corporate Veil * Types of Business Entities * Fiduciary Duty (Burden of Proof) * Study Notes and Handouts! ## Securities & FCPA * What is a security? * Why do we have securities law? Is it exempt (See Exhibit)? * Know the State and Federal Securities Laws with general concepts * Study notes and key terms * At least one problem out of the back of chapter During the review, we will have some additional information. You can use this outline to add some of your own material and related notes. If you have done so, please send me your final outline (with new content added) so I can update my records. Please let me know if you have any questions. *This outline is rough and unofficial, but designed to give you a general overview of the material. Do not forget to cover the notes, key terms, and problems when preparing.*