UNIVERSITY OF BALTIMORE SCHOOL OF LAW
SUMMER 2013
Course: Commercial Law 742/512
Instructor: Lisa D. Sparks
Part 1
**NUTSHELL**
Payment Systems
I. Exam Format
a. 45 MC/TF questions—90 points
b. 1 Essay 10 points
II. Typologies of Payment Systems
a. Cash or Non-Cash
i. Benefits of Cash
1. Widely accepted and is legal tender
2. Seller receives immediate and final payment
3. Anonymous-No paper trail
ii. Problems w/ Cash
1. Hard to transport and use securely
b. Non-Cash
i. Benefits
1. Easy to transport and use securely
2. Less final than cash
3. Helps deal with dubious reliability
4. Proof of payment
ii. Problems with Traditional Paper
1. Checking system was costly, slow, and unsafe
c. Electronic banking
i. Reduces cost of checking system and it’s faster
ii. Safer b/c of real-time electronic verification
iii. Policy considerations b/c moved from government subsidized systems to wholly private organizations
III. Developing Payment Systems
IV. Background of UCC
a. Statutory but much more like a Restatement
i. Restatements came in at the end of the 1800s and supported by the ALI
b. UCC was promulgated by ALI
c. Around WWII a group of law professors got together and created a unified secured transactions of personal property section
d. ST was around for businesses but varied b/t states
e. Not much case law—sign of healthy statutes
f. **State Law—NOT FEDERAL
V. UCC Article 1
a. Applies to all the Titles throughout the UCC
b. 1-102 Purposes; Rules of Construction; Variation by Agreement
i. Titles in MD = Articles everywhere else
ii. Liberally construed
c. 1-103 Supplementary general principles of law applicable, exception as to age
i. Principles of law and equity apply unless displaced shall apply
1. Maryland Law
ii. Difference between law and equity
1. Law administered by the common law courts and governed by the writ system—causes of action—if there was a writ, it was actionable
2. Equity—the law took no jurisdiction over these matters and involved “moral” obligations and were handled by church courts. They filled in the gaps of the common law
a. Admiralty
b. Divorce
c. Mortgages, Trusts
3. Other Differences:
a. Remedies available
i. Generally, a common law court could only award damages
ii. Equity courts usually issued orders and enforced them—Injunctive Relief—order to do or not to do something
b. Fact-Finding
i. Equity: do not use juries—did not ever involve juries
ii. Law: use of juries
iii. Law Merchant: Generally disputes between merchants did not come before the law courts and was settled by the merchants themselves
iv. Capacity to contract: must be 18 years old
v. Principle and Agent: Principle’s liability—vicarious liability
1. 3 types of agency we recognize
a. Actual Express
i. Actual grant of authority from the P to the A that binds the P
b. Actual Implied
i. What did the grant say? The A has the implied authority to do something without it being expressed in the grant
c. Apparent
i. Based on the Principle’s communication with 3rd parties in which the P has acted in a way to lead the 3rd party to reasonably believe the A has that authority
vi. Estoppel
1. Equitable defense—prevents people from acting in an unfair way in a particular manner
2. *Conduct by the actor upon which someone else has reasonably relied to their detriment such that it would be unfair if it were to be retracted
3. Promissory Estoppel—detrimental reliance on a promise—substitute for consideration
vii. Fraud
1. A misstatement of material existing fact made with the intent to deceive where the promisee had reasonable reliance to their detriment and has damages proximately caused
2. Burden of Proof—must be proved by clear and convincing evidence—Just MD Law
3. Promise—yes enforceable if you can prove that the promisor had no intention of fulfilling the promise
4. Scienter—intent or knowing of wrongdoing
5. Can use as a defense—ie for non-performance
6. Ex Contracto v. Ex Delicto
a. Ex Contracto
i. Arising out of a contract
b. Ex Delicto
i. Arising out of a wrong/tort
viii. Misrepresentation
1. A misstatement of a material existing fact
a. NO INTENT—Can be negligent
b. Preponderance of the Evidence
2. Quark that does not exist generally in tort law
a. In order to be actionable or constitute a defense, there must be a nexus between the P and D—a relationship of trust or confidence
i. Buyer/seller
ii. Employer/employee
ix. Duress/Coercion
1. If you don’t sign this, you’ll be sorry
2. Physical harm
x. Mistake
1. Alleviate contractual duty if mutual mistake as to a material fact
2. Unilateral mistake if the other party has taken serious advantage of you otherwise NOT forgiving of duty
xi. Bankruptcy
VI. UCC Title 2
a. § 1-201 General Definitions: Apply throughout the entire code unless another definition is supplemented
i. (18) Genuine: means free of forgery or counterfeiting
1. Does not require authorized or unauthorized but usually it is unauthorized
ii. (24) Any medium of exchange authorized to adopt by a domestic or foreign government and includes a monetary unit of account established by an IGO or by agreement by 2 or more nations
iii. (25) Notice: A person has notice of a fact when:
1. He has actual knowledge of it; or
2. He has received a notice or notification of it; or
3. From all the facts and circumstances known to him at the time in question he has reason to know that it exists
iv. Notice v. Knowledge
1. Knowledge: must have actual knowledge
a. DO NOT NEED actual knowledge to have notice
v. Notice usually proved by circumstantial evidence
vi. (43) Unauthorized Signature: means one made without actual express, actual implied, or apparent authority and includes forgery
1/14/10
I. Official Comments
a. Something like the legislative history but this is used explain the law and will often explain the bare bones details of the statutes
b. They are NOT like legislative history because they did not come out of the legislature, and they were not adopted by the legislature so they do not have legislative authority
c. IF it is liked, then will follow it, if they do not, then they will ignore it
II. Section 1 Continued
a. § 1-203 Obligation of Good Faith
i. Every contract contains an obligation of good faith in its performance or enforcement
ii. Will be defined in the individual articles
iii. This definition is not the same as defined in § 1-201
b. § 1-208 Option to Accelerate
i. Tied to a default or threat of default and gives the option to accelerate the loan
III. Negotiable/Non-Negotiable
a. A debt only secured b
the person promising or ordering payment to do any act in addition to the payment of money, but the promise or order may contain
a. An undertaking or power to give, maintain, or protect collateral to secure payment,
b. An authorization or power to the holder to confess judgment or realize on or dispose of collateral, or
i. Confess judgment: Cognovit—in event of default, authorize holder to retain counsel for me, enter judgment against me, and order me to pay
1. Waiver of notice and opportunity to be heard—Due Process issue b/c the waiver must be knowing and intelligent—not constitutionally enforceable—personal context not enforceable but in a business context, it is enforceable
2. OK IN NEGOTIABLE INSTRUMENTS
c. A waiver of the benefit of any law intended for the advantage or protection of an obligor
4. Notes: Interest inflates a fixed amount—namely the principle but the interest may vary
a. §3-112 Interest
i. “Sum Certain Requirement”
ii. (a) Baseline documents do not inherently bear interest
1. Interest is payable from the date of the interest
iii. (b) Interest can be stated in an instrument as a fixed or variable amount of money or it may be expressed as a fixed or variable rate or rates
1. May or may not be stated on the instrument and can reference a document not contained on the instrument
2. Date does affect interest
3. If it says with interest, but leaves off the rate or amount, then it is payable at the judgment rate in effect at the place of payment of the instrument and at the time interest first accrues
b. Other Charges—costs of collection (credit bureau attempts to enforce, attorneys fees, costs to file suit)
i. Does not affect negotiability and doesn’t matter even though the amounts cannot be ascertained
5.
iii. Lord Mansfield—brought the lex mercatoria into the common law
1. Said the negotiable instrument must be a currier without luggage
iv. Problem is that over the years, it has acquired baggage
b. § 3-106 Unconditional Promise or Order
i. **Any condition must be written on the face of the instrument (if or when)
ii. (a) A promise or order is unconditional unless it states:
1. An express condition to payment
a. An oral promise does not affect negotiability—“conditional delivery” it may affect rights of the individual parties (breach of K) but does not determine negotiability of an instrument
2. That the promise or order is subject to or governed by another writing, or
a. **this is the reference to luggage or baggage
b. **Exam taking—if they give you the text of the instrument, is there something in there that would affect negotiability
3. That rights or obligations with respect to the promise or order are stated in another writing
a. One notch down from subject to or governed by
b. **reference to another document
c. A reference to another writing does not of itself make the promise or order conditional
4. **(Notes)
a. ALL OF THESE THINGS MAKE AN INSTRUMENT NON-NEGOTIABLE
[1] If it isn’t signed then it is not negotiable
[2] IOU or other acknowledgement of a debt is not negotiable. There MUST be a promise
[3] An order to pay must have an order to pay with the instruction to pay
