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suretyship An express contract in which a third party to a debtor-creditor relationship (the surety) promises to be primarily responsible for the debtor's obligation. obligor In contract law, the party who is obligated to deliver on a promise or to undertake some act. guaranty? If you_________ a loan, you are obligating yourself to pay the debt if the original party to the loan is unable to pay the loan according to the original agreement. On the other hand, if someone makes a guaranty on your loan, they will be responsible for paying the loan if you do not meet the obligations of the loan., a collateral agreement to answer for the debt of another in case that person defaults guarantor Party agreeing to be secondarily liable in case of default by the principal debtor principal debtor original debtor debtor A party who buys on credit or borrows money obligee In contract law, the party to whom another party owes an obligation. creditor Any bank or business that extends credit to others; a lender. guaranty of collection form of guaranty in which creditor connot proceed against guarantor until after proceeding against debtor absolute guaranty agreement that creates the same obligation for the guarantor as a suretyship does for the surety a guaranty of payment. guaranty of payment a promise made by cosigner to pay off obligee debt to obligor-excpetion to this rule-primary objective test-promise made by gauranter thatll it indemnity contract under an insurance contract payment is limited to financial loss. the policyholder should not gain from insurance...*put policyholder back into same position they were in before the loss exoneration the condition of being relieved from blame or obligation subrogation The act of assigning or substituting the rights of one party to another for the purpose of collecting a debt or claim., Plan allows for recovery of money paid on claims as a result of a third parties act., The process by which an insurer can, after it has paid a loss under the policy, recover the amount paid from any party (other than the insured) who caused the loss or is otherwise legally liable for the loss. indemnity Allows one party to shift 100% of responsibility to another party, either by contract or vicarious liability Implied-in-law Indemnity: 1. Products Liability: retailer held liable for selling defective product is entitled to indemnity from manufacturer 2. Vicarious Liability Situations (e.g., In NY, an owner of a car is vicariously liable for damages caused by negligent driving of any person to whom owner has given permission to drive car → Owner who pays victim as result of vicarious liability is entitled to indemnity from driver.), a sum of money paid in compensation for loss or injury contribution right of co-obligor to recover excess of proportionate share of debt from other co-obligor, , Any partner who pays more than their share of partnership debts is entitled to contribution from the others co-sureties Cosureties exist when there is more than one surety for same obligation of principal debtor to same creditor. Cosureties need not sign same document fraud the intentional or reckless false statement of a material fact, upon which the injured party relied, which induced the injured party to enter into a contract, to his or her detriment, intentional deception resulting in injury to another person concealment willful failure to disclose pertinent information., This occurs when a party hides information that is vital in making a decision about a contract. pledge Creditor obtains possession of collateral by written or oral agreement., A security device by which a borrower guarantees payment by delivering collateral to the lender to hold as security for the debt No Release of surety 1- Fraud by debtor 2-Misrepresentation by debtor 3-Changes in loan terms (ext. of payment or compensated surety only) 4-Release of principal debtor 5-Bankruptcy of principal debtor 6-Insolvency of principal debtor 7-Death of principal debtor 8-Incapacity of principal debtor 9-Lack of enforcement by creditor 10-Creditors failure to give notice of default 11-Failure of creditor to resort to collateral Release of surety 1-Proper performance of debtor 2-Release, surrender, or destruction of collateral (to extent of value of collateral) 3-substitution of debtor 4-Fraud / misrepresentation by creditor 5-Refusal by creditor to accept payment from Debtor 6-Change in loan terms-uncompensated surety only 7-Statue of frauds 8-Statue of limitations letter of credit a document issued by a bank that guarantees a buyer's payment for a specified period of time upon compliance with specified terms. A letter issued by a bank guaranteeing that a named individual or business will be paid a specified amount provided stated conditions are met issuer party who issues a document such as a letter of credit or a document of title such as a warehouse receipt or bill of lading bill of lading a receipt given by the carrier to the shipper acknowledging receipt of the goods being shipped and specifying the terms of delivery standby letter letter of credit for a contractor ensuring he will complete the project as contracted advising bank Only advises the seller of the opening of the letter of credit and does not assume obligations for its payment. correspondent bank banks located in different countries and unrelated by ownership that have a reciprocal agreement to provide services to each other's customers. They will honor the letter of credit from the domestic bank of the buyer consumer a person who buys products or services and buyer is afforded special protections by statute or regulations. compensatory damages Damages (money) awarded in a civil suit that are intended to restore the plaintiff to the same condition that he or she was in prior to the incident complained about in the lawsuit. consumer protection law Those laws are designed to ensure fair competition and the free flow of truthful information in the marketplace. The laws are designed to prevent businesses that engage in fraud or specified unfair practices from gaining an advantage over competitors and may provide additional protection for the weak and unable to take care of themselves. punitive damages The sum of money over and above what will compensate the plaintiff fully for the loss suffered. Meant to punish defendants and make an example for others. (willfull, wanton, gross disregard of consequences). areas of consumer protection 1-Advertising 2-Seals of Approval 3-Labeling 4-Selling Method 5-The consumer contract 6-Credit Cards 7-Payments 8-Defense Preservation 9-Product safety 10-Credit, Collections, and Billing Methods 11-Credit standing and Reputation protection 12-Real Estate Sales 13-Service contracts 14-Franchises sub prime lending making loans to people who may have difficulty maintaining the repayment schedule. these loans have higher interest rates and less favorable terms in order to compensate for the higher credit risk predatory lending Any of a number of fraudulent, deceptive, discriminatory, or unfavorable lending practices. Many of these practices are illegal, while others are legal but not in the best interest of the borrowers. consumer credit a line of credit extended for personal or household use hearsay evidence Is information that a witness heard from someone else, rather than directly from the source, includes out-of-court statements of another offered to prove the truth of the matter asserted; is inadmissible (with certain exceptions). development statement statement that sets forth signidicant details of a real estate or property development as required by the Federal Land Sales Act. property report The mandatory federal and state documents compiled by subdividers and developers to provide potential purchasers with facts about a property prior to their purchase. franchisee An individual or business that is granted the right to sell another party's product. franchisor the originator of a trade name, product, methods of operation, and so on that grants operating rights to another party to sell its product franchise right or privilege granted by authority; right to vote; license to sell a product in a particular territory value The relationship between the price of a good or a service and the benefits that it offers its customers, PMSI special type of security interests in goods. A person who holds a Purchase Money Security Interest has priority over other security interests in same goods if certain rqrmts met. , Security interest that enables the debtor to purchase the goods. It's an extension of value by a lender who takes as collateral a security interest in the very item that its loan enables the debtor to acquire. consumer goods goods that directly satisfy human wants,, goods (as food or clothing) intended for direct use or consumption after acquired goods goods acquired after a security interest has attached floating lien Claim in a changing or shifting stock of goods of the buyer perfected security interest exists when the creditor has filed the proper financing statement with the county or has obtained possession of the collateral. field warehousing stored goods under the exclusive control of a warehouse but kept on the owner's premises rather than in a warehouse, The practice of using goods that are stored in a warehouse as security for a loan. automatic perfection perfection that automatically occurs when retailer sells a consumer good temporary perfection? Security interests in certified security or negotiable documents which are treated as perfected for up to 20 days financing statement? The instrument filed to perfect the security agreement and give constructive notice of the security interest, thereby protecting the interest of the secured parties. (See Security Agreement; Security Interest; and Secured Party.) The security interest in personal property. It is analogous to a mortgage on real property, except that it secures personal property. Under the U.C.C., it may be filed in Sacramento with the secretary of state termination statement Statement that ackowledges the full payment of the debt to the governmental office that holds the financing statement., Debtor can request secured party terminate statement. If it involves consumer goods, then the statement terminates within one month after there is no outstanding obligation or within 20 days or receiving a written demand from the debtor. pro rata To divide or distribute proportionately; fair share according to a rate or standard. first in time provision creditor whose interest attached first has priority in the collateral when two creditors have a secured interest. first to perfect basis rule of priorities that holds that first in time in perfecting a security interest, mortgage, judgement, lien, or other property attachment right should have priority. self help repossession A procedure by which a creditor with a secured claim takes possession of the collateral upon the default of the debtor without the aid of a judicial proceeding., Only if creditor doesn't breach the peace (action likely to cause violence). BUT privacy in home, can't enter w/o voluntary/contemporaneous consent (outside if no debtor objection) breach of the peace Condition to repossess collateral. No trickery, fraud, breaking and entering, or objections from debtor can occur. bankruptcy courts Handle only bankruptcy proceedings, which are governed by federal bankruptcy law chapter 7 This is a liquidation bankruptcy, which means that the trustee sells off all non-exempt assets held by the debtor so that the debts can be repaid to the fullest extent possible. Anything that cannot be paid after liquidation is discharged liquidation The conclusion of a bankruptcy proceeding in which the debtor's assets are sold and the proceeds divided among the debtor's creditors in accordance with a system of priorities. chapter 11 also known as reorganization bankruptcy, the most complex bankruptcy filing and the one that most troubled businesses file, the debtor continues to function, maintains ownership of all assets, and tries to work out a reorganization plan to pay off creditors. Chapter 13 type of bankruptcy: you must repay many of your debts over time (5 years) and the court oversees these payments called a re-adjustment. voluntary bankruptcy proceeding in which the debtor files the petition for relief means test new standard under the reform act that requires that court to find that the debtor does not have the means to repay creditors; goes beyond the past requirement of petitions being granting on the simple assertion of the debtor saying, 'I have debts.' Involuntary bankruptcy A type of bankruptcy in which creditors file a petition with the court, asking the court to declare the debtor bankrupt automatic stay An injunction that automatically stops lawsuits, foreclosure, garnishments, and most collection activity against the debtor the moment a bankruptcy petition is filed. order of relief the order from the bankruptcy judge that starts the protection for the debtor; when the order is entered by the court, the creditors must stop all proceedings and work through the bankruptcy court to recover debts (if possible). Court finding that creditors have met the standards for bankruptcy petitions trustee in bankruptcy A person appointed by court to collect any amounts owed the debtor, sell the debtor's property, and pay creditors. preferences transfers of property by a debtor to one or more specific creditors to enable these creditors to obtain payment for debts owed insolvency the lack of financial resources, a financial state that occurs if liabilities are greater than assets balance sheet test comparison of assets to liabilities made to determine solvency preferential transfers - Trustee can avoid preferential transfers - required elements of preferential transfer: 1. transfer to or for the benefit of a creditor 2. if the debtor is insolvent 3. on account of a past debt 4. within 90 days of filing 5. that enables the creditor to recieve more than he would have had the preference not been given - PMSI's exempt from the preferential transfer rule insider A person with sufficiently close relationship with the debtor that he or she is not dealing at arms length with debtor claim A creditor's assertion of the right to payment from the bankruptcy estate proof of claim A written statement describing the reason a debtor owes a creditor money, which typically sets forth the amount of money owed. (There is an official form for this purpose.) discharge in bankruptcy order of the bankruptcy court relieving the debtor from obligation to pay the unpaid balance of most claims nondischargeable debts in bankruptcy taxes (within 3 years of filing), fraud claims, malicious torts, alimony/child support, fines and penalties to government, student loans, drunk driving damages,a consumer debt to a single creditor totaling more than $5550 for luxury goods or services within 90 days of filing, cash advances in excess of $825 made within 70 days of filing, condominium association fees, loan from a pension plan. All these have a characteristic in common. insurance Financial protection on property or people against loss, theft, or death. insurer company writing insurance policy or contract and that agrees to compensate a person for loss under policy terms underwriter A person who evaluates and classifies risks to accept or reject them on behalf of the insurer. insured a person whose interests are protected by an insurance policy policy A document that outlines specific requirements or rules that must be met on a insurance contract . insurance agent represents the insurance company and sells insurance polices to individuals and businesses insurance broker independant contractor who is not employed by any one insurance company. subrogation The circumstance where an insurance company takes the place of an insured in bringing a liability suit against a third party who caused injury to the insured. risk potential loss that is insured against marine insurance Covers the loss of or damage to vessels, cargo and other property exposed to the perils of the sea ocean marine policies that cover transportation of goods in vessels in international and coastal trade inland marine insurance that covers domestic shipments of goods over land and inland waterways hull insurance insurance that covers physical damage on a freight-moving vessel cargo insurance insurance that protects a cargo owner against financial loss if goods being shipped are lost or damaged at sea liability insurance insurance designed to cover a policy-holder for acts or omissions for which he or she may be legally obligated freight insurance insures that shipowner will receive payment for transportation charges, Indemnifies the ship owner for the loss of earnings if the goods are damaged or lost and are not delivered. fire insurance policy insurance against loss due to fire, property insurance that covers for loss or damage due to fire (and usually smoke as well) homeowners insurance combination coverage that provides protection for your residence and its associated financial risks, such as damage to personal property and injuries. and includes a standard fire insurance policy. co-insurance clause A clause in an insurance policy under which the insured agrees to maintain insurance equal to some specified percentage of the property value or otherwise to assume a portion of any loss. This must be done if the insured wants full reinbursement term insurance low-cost insurance that is valid only for a stated period of time and has no cash surrender value or loan value whole life insurance life insurance that gives lifetime protection to the insured person cash surrender value the amount that the insurance company will pay on a given life insurance policy if the policy is cancelled prior to the death of the insured endowment insurance life insurance for a specified amount which is payable to the insured person at the expiration of a certain period of time or to a designated beneficiary immediately upon the death of the insured double indemnity a clause in an insurance policy that provides for double the face value of the policy in the case of accidental death disability long-term difficulty in performing normal activities of daily life because of some physical, mental, or emotional condition. beneficiary person entitled to benefits or proceeds of an insurance policy or will incontestability clause A provision in life insurance policies that place a time limit—usually two years after issuance of the policy—on the right of the insurance company to deny a claim