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Business Law Exam 4

Terms in this set (46)

Encumbrances or claims against property (real estate, car) to ensure payment of the debt
Takes priority over other creditors
(1st mortgage)
Mechanic's/artisan liens can take priority over secured creditors
Mechanics Liens (only good for one year)Mechanics Liens (only good for one year)
Creditor provides labor, services or materials to be used on real estate
If creditor is not paid by the landowner, the creditor can file a mechanics lien against the real estate
Varies from state to state
Kansas must file within 120 days of late date of providing goods, services and/ or labor
Mechanics lien are good for only a year, otherwise the lien ceases to exist
Can foreclose mechanic's lien if you are not paid and there are no other major liens ahead of you on the property
Can relate back to the first date of providing goods or services (1st in priority)
Artisan Liens (performs work on a piece of property)
Debtor fails to pay for labor, materials and/or services for personal property (car, computer or jewelry repair, dry cleaning)
Creditor must remain in possession of the property for the lien to be effective
Can take priority over secured creditor
Can foreclose artisan's lien with proper notice (storage unit)
Judicial Liens
Judgment granted by the court (Chapter 60)
Can create a lien on non homestead real estate
Writ of Assistance/Attachment
Pre judgment order to hold debtors property
Requires an affidavit and bond
If you are granted judgment, then you can sell the property to pay the judgment
If you lose, you must pay the debtor for the loss of value of the property that was held (bond)
A voluntary bankruptcy is filed by the debtor(s)
An involuntary bankruptcy is filed by the creditors of the debtors.
Before filing, debtors must first undergo "credit counseling"
Debtors sign the forms under penalty of perjury
Debtors' counsel must also sign numerous forms, including everything about bankruptcy has been explained to the debtors and the schedules are accurate
Liquidation under Chapter 7 is the most used, and is also referred to as ordinary or straight bankruptcy
Chapter 7 Trustee (appointed by the Court) gathers the debtors non exempt assets, sells them and then distributes the funds to creditors based on priority (if no assets, then it is a no asset case), then the debt is discharged
File schedules under oath
List of secured and unsecured creditors, their addresses and amount of debt owed to each
Statement of financial affairs (income and expenses)
List of property, real and personal, exempt and non exempt
Credit counseling certificate
Must provide the Trustee sixty days worth of your latest paystubs
Copies of your latest state and federal tax returns
Tax refunds belong to the Trustee as an asset of the case along with funds in the debtor's bank account as of the date of filing of the bankruptcy
Must have 12 or more creditors
3 creditors having more than $15,325.00 must join in the filing
1 creditor having $15,325.00 or more of unsecured debt can file against the debtor
Court will decide whether Debtor is forced into bankruptcy
Must pass a "means test" to file Chapter 7.
If you don't pass the "means test" based on a formula, you will be converted to a Chapter 13 where the debtors' extra income after expenses will be used to pay creditors
Can the debtor afford to pay unsecured creditors something? If so, then must file a Chapter 13
Case in point 31.1, Page 582 (contributions to retirement plan)
Can only file a Chapter 7 once every 8 years (can file a Chapter 13 as often as you want with limits)
A third party promises to pay the debt (co-sign a loan) owed by another (in writing) if the principal does not pay
The third party's credit becomes the security on the debt
If the principal does not pay the loan, then the creditor can seek payment against the third party surety/guarantor
Exhibit 29.2, Page 549 (Suretyship and Guaranty Parties)
The surety is primarily liable on the debt
The creditor can go straight after the surety for payment if the principal fails to pay the debt
The creditor needs not to exhaust remedies against the principal first
Example 29.4, Page 548 (Roberto & Jose)
The principal is primarily liable and the third party is secondarily liable
The guaranty contract terms determine the extent and time of the third party's (guarantor's) liability
Example 29.5, Page 550 (Dawson)
In most states, both guaranty and surety contracts must be in writing to satisfy the statute of frauds
Case 29.3, Page 550, HSBC Realty Credit Corp. (USA) v. O'Neill
Actions that release the surety/guarantor
Making material modifications to the terms of the original contract without the surety's consent (daughter borrows more without dad's consent)
Surrender or reduction in value of the collateral by the creditor
Payment of the debt by the principal
Defenses of the Surety/Guarantor
The surety/guarantor files bankruptcy or becomes incapacitated
Statute of limitations is a defense to the principal but not to the surety/guarantor
Fraud by the creditor
Rights of the Surety/Guarantor
Rights of subrogation (stand in the shoes of the creditor)
Case in Point 29.6, Page 552 (school building)
Right to be reimbursed by the principal (collect what they paid for the principal)
Right to contribution from the other
Example 29.7, Page 552 (co-sureties)
Assignments are a normal part of daily banking transactions (selling paper, commercial loans, mortgages)
The party assigning their rights to a 3rd party is the assignor, and the party receiving the rights is the assignee
The obligor is obligated to perform the duty and the obligee is the person to whom the obligation is owed
The assignee takes what rights the assignor had, and after the assignment is complete, the assignor has no more rights
Defenses an obligor has against the obligee are valid against the new obligee
Assignments can be oral unless it would violate the Statute of Frauds (real estate assignments) (always get in writing)
A delegation is a transfer of duties
A delegation of duties does not relieve the delegator of responsibility until the delegatee performs
Duties that are personal in nature cannot be delegated (surgeon, lawyer)
Duties that are routine and non personal in nature can be delegated (delivery of a horse trailer)
When performance by a third party will vary materially from that expected by the obligee, it cannot be delegated
If the contract prohibits delegation (anti delegation clause), cannot be delegated (unless duties are non personal)
If the delegation of duties is enforceable, the obligee must accept performance from the delegatee
If the delegatee fails to perform, he/she can be sued by the delegator (who can be sued by the obligee)
Concept summary 17.1, Page 315 (Assignments and Delegations)
An assignment of all rights may create both an assignment of rights and delegation of duties
Contracts subject to an orally agreed on condition precedent
If the parties have agreed orally on a condition precedent which does not conflict with the terms of the written agreement, the Court may allow the oral condition
Proof of the condition does not alter or modify the written terms, but affects the enforceability of the written contract
A condition that must be fulfilled before a party's performance can be required is called a condition precedent
Before I buy your house, I must sell mine, obtain financing, and your house must pass inspection
Passing a physical before getting a job or life insurance
When a condition operates to terminate a party's absolute promise to perform, it is a condition subsequent (losing your job after failing a drug test, stealing from your employer)
When each party's performance is conditioned on the other party's performance or tender of performance, there are concurrent conditions (payment upon delivery) (if seller does not provide goods, buyer does not have to pay. If buyer does not pay, seller does not need to deliver the goods)
Express conditions are provided for by the parties agreement (if, provided, after, when)
Implied conditions are understood to be part of the agreement (necessarily inherent in the actual performance of the contract) (pay for shipping, you expect the item to be shipped)
If personal (portrait, jewelry, kitchen remodel), must be to the satisfaction of obligee in order to fulfill performance (courts may step in if obligee is being unreasonable or if looking for an excuse not to pay) (condition precedent vs. substantial performance)
Third Party Beneficiaries:
Persons who are not part of the contract (no privity of contract) but will benefit from the same (life insurance)
Even though not part of the contract, they have the legal right to enforce the contract once the benefit vests (payment of death benefits
Only intended beneficiaries acquire legal rights in a contract
Creditor beneficiaries can sue a promissor directly to enforce the contract and obtain payment on the debt
If a contract is made for the express purpose of giving a gift to a 3rd party, the 3rd party can sue the promissor to enforce the gift (donee beneficiary)
Intended beneficiaries can sue to enforce contracts while incidental beneficiaries cannot
Until rights have vested in the 3rd party, (obligee dies), the original parties to the contract can modify (change beneficiaries) or rescind the contract (cancel the policy) without the consent of the 3rd party
Rights vest with the 3rd party when
The 3rd party consents to the promise at the request of the promissor or promissee
The 3rd party materially changes their position in justifiable reliance on the promise
The conditions for vesting are satisfied (person dies, beneficiaries gets the insurance)
Incidental Beneficiaries:
The benefit that an incidental beneficiary receives from a contract between two parties is unintentional, and therefore, they cannot sue
The courts will examine intent and circumstances on a case by case basis to determine whether a party was an intended or incidental beneficiary
Is performance rendered directly to the 3rd party
Does the 3rd party have the right to control the details of performance?
Is the 3rd party expressly designated as a beneficiary in the contract?
Divorce decrees and paying for college