FIN 240

CHP. 13

Lien

a claim against specific property to satisfy a debt

Mechanic’s Liens

A security interest (a lien on title to property) given to a someone (“mechanic”) who provides work or improvements to a real piece of property

Judgement Liens

arise after judgement, creates a general ien on all present or later acquired property of the debtor

Wage Garnishment

1) obtain a writ of execution from clerk’s office where you obtained your judgement, 2) complete an “application for earnings withholding order” and a blank “earnings withholding order”, 3) fill our all forms and give them to sheriff with whatever fees the sheriff requests 4) sheriff seizes cash/check

Surety

a third party (usually by a bond, issued by an insurer) who promises to be responsible for a debtor’s obligation under a suretyship arrangement

Guaranty

a third party who agrees to be secondarily liable for the debt of another (the debtor) only after the principal debtor defaults

Exempted real property

A homestead exemption permits a debtor to retain the family home, either in entirety or up to a specified dollar amount, free from the claims of unsecured creditors or trustees in bankruptcy

Exempted personal property

Includes household furniture up to a certain dollar amount, personal possessions, a vehicle, certain classified animals and equipment for the debtor’s business or trade

Purpose of bankruptcy law

1. To protect a debtor by giving him or her a fresh start without creditors’ claims.

2. To ensure equitable treatment of creditors who are competing for a debtor’s assets

Bankruptcy trustree

a person appointed by the court to manage the debtor’s funds

Discharge

termination of bankruptcy’s debtor’s obligation to pay debts

Petition in bankruptcy

document that is filed with a bankruptcy court to initiate bankruptcy proceedings

Consumer Bankruptcy

Chapter 7

Consumer-Debtor

One whose debts result primarily from the purchase of goods for personal, family, or household use

Bankruptcy Code requires the clerk of the court gives all consumer-debtor/petitioners

written notice of the general purpose, benefits and costs of each chapter of bankruptcy under which they may proceed

information on the types of services available from credit counseling agencies

petitioners must complete a credit counseling course

Means Test

decides if the debtor is insolvent (debts higher than your assets)

CHP7 grounds for dismissal

failure to provide rq’d docs

failure to pay post petition spousal/child support

order for relieg

a court’s grant of assistance to a debtor in bankruptcy that relieves the debtor of the immediate obligation to pay debts

Reorganization

CH11

bankruptcy has become a powerful tool

to sell over-leverage assets

a shield/defense to litigation

a device to negotiate with the taxing authorities

a precursor to a recapitalization

bankruptcy code permits

sale of business/estate assets “free and clear of liens, claims, and interest”

interest rate relief CH11

BK can adjust interest rates down to market

rejection of burdensome leases or executory contracts CH11

debtor is released from leases or continuing contractual obligations.. with caveat

sanitizing tortuous or criminal behavior CH11

can be used by perpetrators of fraud or worse, to address the complaints of investor or customers prior it boiling over into the criminal justice system

reorganization plan

must be fair, equitable and do the following:

Designate classes of claims/interest

Specify the treatment to be afforded the classes

Provide an adequate means for execution

Provide for payment of tax claims over a five-year period

involuntary bankruptcy

If the debtor has 12 or more creditors, 3 or more creditors having unsecured claims totaling at least $15,775 must join in the petition

If a debtor has a fewer than 12 creditors, one or more creditors having a claim of $15,775, or more may file

automatic stay

the suspension of almost all litigation and other actions by creditors against the debtor or the debtor’s property

Adequate Protection Doctrine

A doctrine that protects secured creditors from losing the value of their security (because the collateral depreciates, for instance) as a result of an automatic stay in a bankruptcy proceeding

Termination of Automatic Stay

cancelling the bankruptcy

by petition for “relief from stay”

Reaffirmation Agreement

an agreement between a debtor and a creditor in which the debtor voluntarily agrees to pay a debt dischargeable in bankruptcy

Individuals’ Repayment Plan

CH13

Repayment Plan

The turning over to the trustee of future earnings or income of the debtor as necessary for execution of the plan.

Uniform Commercial Code (UCC)

to simplify and streamline commercial transactions UCC allows parties to form sales and lease contracts, including those entered into online, without observing the same degree of formality used in forming other types of contracts under law)

Your family owns a popular seafood restaurant on the waterfront. By telephone on Wednesday, you order 500 lbs of fresh wild Pacific lobster in anticipation of brisk sales for the Fourth of July weekend. You tell them you need it delivered no later than Friday morning and they agree. Neither of you mention the price.

The order is not delivered as promised and you are forced to “cover” it through another supplier at a much higher price.

Did you make a contract under UCC?

Yes, at time of order, cost is fixed.

Your family owns a popular seafood restaurant on the waterfront. By telephone on Wednesday, you order 500 lbs of fresh wild Pacific lobster in anticipation of brisk sales for the Fourth of July weekend. You tell them you need it delivered no later than Friday morning and they agree. Neither of you mention the price.

The order is not delivered as promised and you are forced to “cover” it through another supplier at a much higher price.

Damage of ordering elsewhere?

How much more they had to pay by ordering from someone else the day of.

UCC (Article 2) The Sale of Goods

governs contracts for the sale of goods in a commercial context

UCC A2 Goods?

All things moveable at the time they are identified as the goods to be sold under the contract (cannot be services)

Merchant

Person who regularly deals in goods of the kind involved in the sales contract OR

Person who, by occupation, presents themselves as having special knowledge and skills related to the practices or good involved in the transaction

Offer of UCC

Subject must be stated but some open terms are OK

Quantity must be stated unless it is an output or requirements contract

May be revoked before acceptance unless it is a firm (ie, written and stated irrevocable for no more than 3 months) or option contractAc

Acceptance for UCC

Acceptance of offer must be communicated to offerer

Steve goes in and offers to sell 6 bikes to a bike shop. They say, “hey you need to replace the tires and we will buy it. Is the offer still the same under UCC?

Yes, it is still the same, not a new one.

Ida offered to keep the offer to buy her home open for 30 days if given a $1000 price. Is this still an offer under UCC? And what kind?

Yes it is still an offer, and considered and option contract.

Statute of Frauds

Provides that sales contracts for the sale of goods valued at $500 or more must be in writing.

What does statute of frauds require?

An indication that the parties intend to form a contract

Signed* by the party against whom enforcement is sought

What are the exceptions to statute of frauds?

Specially manufactured goods

Goods not suitable for resale or lease

Seller has substantially started to manufacture

Steve orders a ton of water bottles for promotion of his law business. He wants his logo on it. A few days later he calls and says, I do not want them. The manufacturer says he already started preparing the bottles. Is Steve still in the contract?

Yes, because it is a specially ordered goods. The manufacturer can’t resell them.

An “offer”’s terms under the UCC

can be definite or “open terms” (parties intending to make a contract/quantity specified)

Acceptance under UCC actions

Permits acceptance of an offer to buy goods either:

By a promise to perform OR

Promptly begin to build the current shipment

In an acceptance with the UCC, what if the offeree begins building the goods within the contract, and they are nonconforming to what the contract states? Is that still an acceptance?

Yes, because they promptly begin, doesn’t matter if it is conforming or not.

Does the “Mirror Image Rule” apply to the UCC contracts?

No it does not, acceptance is valid even with additional terms or different from original offer.

If the agreement has a non-merchant present, do the additional terms apply?

No, we must revert back to common law, so contract is formed according to original offer, without additional terms.

In a contract between merchants, additional terms are automatic unless…

The original offer expressly limited acceptance to its terms

The new or changed terms materially alter the contract

The offeror objects to the new or changed terms within a reasonable period of time (UCC 2-207(2) )

Consideration for UCC

Consideration is required for UCC

But does not require a contract modification to be supported by new consideration

Performance of the Seller

Obligated to deliver or “tender delivery” of conforming goods to the buyer

Tender of Delivery

the seller or lessor makes conforming goods available to the buyer and provides whatever notification is reasonably necessary to enable the buyer to take delivery

Perfect tender rule

obligates the seller to oblige the conforming goods

There is a contract for 100lbs wild salmon to be delivered. But instead 100lbs of farmed salmon was delived. What rights does the buyer have?

They have the right to object, refuse, and return the salmon under the Perfect Tender rule.

Exceptions to Perfect Tender Rule

Cure

Commercial Impracticability

Destruction

Cure (under Perfect Tender Rule)

the seller may cure non-conformity before the deadline set for performance if they provide notice and makes a conforming delivery by the deadline

Commercial Impracticability (under Perfect Tender Rule)

goods become extreme and unreasonably expensive – due to unanticipated event

Destruction (under Perfect Tender Rule)

Destruction of the identified goods

Failure to pay a debt for having a car bumper replaced and painted to match the car would lead to

an artist’s lien

in 2005, bankruptcy reform laws…

required debtors to pay more of their debts in bankruptcy

A purchase money security interest (PMSI) is created when a seller or lender agrees to extend credit to a buyer for all or part of the purchase price of

consumer goods

foreclosure

The process by which a creditor may take possession of (and usually sell) collateral to satisfy an unpaid debt

CFPB

Consumer Financial Protection Bureau

obligations of the buyer

make the payment
duty/right of inspection
acceptance

acceptance via buyer under UCC occurs when

after reasonable opportunity to inspect, buyer initiates acceptance
OR buyer fails to reject goods after delivery, or fails timely notice to seller of rejection

anticipatory repudiation

when one party to the contract gives notice by words or actions that they will not perform their obligations

anticipatory repudiation, non-breaching party response

treat the repudiation as a breach by pursuing litigation

or wait to see if the repudiating party will decide to honor the contract despite the avowed intention to renege

There is an oil spill, and they can’t deliver fish, so it goes up to $6/lb. The fishermen were contracted to sell it to you for $6/lb for three months. They say it is a commercial impracticability, and can’t get you the salmon. What do you do?

You take one of the two actions of anticipatory repudidation.

seller remedies for breach under UCC

cancel the contract

withhold delivery of the goods

resell the goods and sue to recover damages

sure to recover damages for the buyer’s nonacceptance of goods if unable to sell

buyer remedies for breach under UCC

cancel the contract

obtain goods that have been paid for, if seller is insolvent

sue to obtain specific performance if the goods are unique or if damages are an inadequate remedy

obtain cover and recover damages from seller

sue to obtain identified goods wrongfully held by third patrty

reject goods and sue for damages

express warranties for goods

in all UCC sales, sellers warrant

the goods are as described

the goods conform to any statement of fact or promise

the goods conform to any model or sample provided

implied warranty of merchantability

warranty that goods being sold or leased are reasonably fit for general purpose, properly packaged and of proper qualityimp

implied warranty of fitness for a particular purpose

particular purpose for which a buyer will use the goods

buyer is relying on skill and judgement of seller or lessor to select suitable goods

express warranty disclaimer

seller can disclaim all verbal express warranties by including a statement in the written contracti

implied warranty disclaimer

generally, implied warranties of merchantability and fitness are disclaimed by the expressions “as is” or other similar phrases

consumer law

protects consumers from dangerous products, mislabeling, unfair credit practices, deceptive advertising, and other such practices

caveat emptor

assumed that the freedom to purchase goods or services carried with it the obligation to “live by the deal”

deceptive advertising - federal trade commission act

act created by FTC to cary out the broadly state goal of preventing unfair and deceptive trade practices

FTC

Federal Trade Commission

Under the FTCA and CA Law, advertising is “misleading” if…

it would likely deceive a reasonable consumer

two categories of deceptive ads

claims that appear to be based on factual evidence

claims based on half-truths

bait and switch advertising

advertising a product at an attractive price and then telling the consumer the advertised product is not available or is of poor quality and encouraging her or him to purchase a more expensive item

Say you go to Costco, and you get their $1.50 hot dogs.. well then you go inside and what?

Shop and spend more money! (Bait and Switch)

online deceptive advertising

FTC actively monitors online advertising and has identified hundreds of websites that have made false or deceptive claims for products and services

FTC issued guidelines

All ads must be truthful and not misleading

Claims made in ad must be substantiated

Ads cannot be unfair (“likely to cause substantial consumer injury that consumers could not reasonably avoid and that is not outweighed by the benefit to consumers or competition”)

Ads must disclose (FINE PRINT) relevant limitations and qualifying info concerning the claims advertisers are making

Required fine print disclosures must be “clear and conspicuous” (prominent and clearly presented)

Fast food presents a full and fresh way of their food on tv or ads. What happened?

They have been sued before, over how the food ACTUALLY looks.

Just plain false

deceptive advertising

What happens if the FTC succeeds in proving that an ad is “unfair”?

Usually issues a cease-and-desist order OR imposes counteradvertising

cease and desist order

an administrative or judicial order prohibiting a person or business firm from conducting activities that an agency or court has deemed illegal

counteradvertising

new advertising is required to correct earlier false claims that were made about a product