Business Law 2 Flashcards
(98 cards)
1
Q
The statute of limitations for an alleged breach of contract
A
Generally commences on the date of the breach.
2
Q
Conditions of performance:
A
- Precedent- must occur BEFORE duty to perform
- Subsequent- must be present or occur AFTER duty to perform (ex. turning in insurance claim after accident)
- Concurrent- common, title for goods passes when payment rendered
3
Q
Discharge of duty to perform:
A
- Failure of conditions-precedent did not occur, duty to perform is discharged
- Under UCC- Right of assurance that contract will be met if reasonable grounds to believe merchant will not meet obligation
4
Q
UCC Performance
A
- Rights to determine performance- right of inspection prior to payment
- Right of rejection (entire shipment, part of shipment or accept shipment)
- Buyer’s responsibility- must information seller of rejection in a timely manner, not effective until seller informed, provide specific reasons for rejection, buyer must take care to return goods to seller in good condition or store them properly
5
Q
UCC Performance-Seller’s rights upon rejection
A
- Right to cure
2. Substituted performance if contract carrier not available or delivery is impractical by no fault of seller
6
Q
Acceptance/Actual performance occurs when:
A
- Buyers notifies seller
- Buyer fails to reject goods in reasonable time
- Buyer engages in act inconsistent with seller ownership of goods
7
Q
When can buyer revoke acceptance?
A
- Seller did not cure
- Later discovered that goods are nonconforming after assurance from seller that they are
- Nonconformity was initially difficult to detect
8
Q
Discharge of duty to perform:
A
- Failure of conditions (condition precedent)
- Agreement or party action (ex. mutual rescission)
- Novation- new party substituted for original party
- Accord and satisfaction (completion of original or different performance that is agreed upon)
- Operation of the law (statute of limitations, bankruptcy, death, illegality, specific subject matter)
- Performance (including substantial performance meaning any deviations were in good faith and for practical purposes)
- Material breach- if one party breaches, other party is released
9
Q
Commercial impracticability
A
UCC doctrine whereby contract can be discharged if there is extreme difficulty or cost to perform.
10
Q
Delivery terms:
A
- FOB—(free on board)—Place of shipment or destination
- FAS (Free Alongside Vessel)—Place of shipment.
- CIF (Cost, Insurance, Freight)—Title and risk of loss pass from seller to buyer when the seller delivers (possession) identified conforming goods to the carrier, obtains a negotiable bill(s) of lading covering transportation to a named destination, procures an insurance policy, and forwards to buyer all documents
11
Q
Passage of title
A
Important for purposes of who OWNS the property (ex. IRS cannot seize if not owned)
Nondelivery
1. If there is no document of title, title passes at the moment the contract is made, If there is a document of title, then title passes to buyer upon buyer’s receipt of the document
Delivery
2. Title passes upon tender to either carrier or buyer’s contract destination
3. Delivery- seller to deliver at the buyer’s destination and there are no other delivery terms, title passes from the seller to the buyer upon tender of conforming goods at buyer’s destination
12
Q
Passage of risk of loss
A
Nondelivery:
1. If seller is a merchant, risk of loss does not pass until buyer actually gets possession
2. If seller is a nonmerchant, risk of loss passes upon seller’s tender of the goods to the buyer.
Delivery:
3. Shipment contract- determined by whether FOB shipping point or destination
13
Q
Effect of Breach on the Passage of Title and Risk of Loss
A
Seller’s breach- risk of loss does not pass to the buyer until the defects are cured or buyer accepts goods despite their nonconformity
Buyer’s breach- risk shifts immediately to the buyer for a commercially reasonable period after seller learns of the breach, but only to the extent not covered by seller’s insurance
Breach affects risk of loss, but not title. Title passes according to the rules despite the breach.
14
Q
Jane hired Delta to cut and remove nine trees from Jane’s lot for $1,000. Delta cut all of the trees but only removed about half of the debris. Will Jane be successful if she asks a court to force Delta to finish removing the debris since Jane has already paid Delta the $1,000?
A
Jane cannot force Delta to remove the debris.
15
Q
Types of remedies:
A
- Nominal (small amount)- when no financial loss suffered
- Compensatory-all costs/loss associated with breach
- Incidental damages-ex. lawyer’s fees
- Consequential damages- forseeable loss known by breaching party of non-performance
- Punitive-designed to punish, used in cases of fraud
- Liquidated damages-agreed to in contract and are reasonable in comparison to loss from breach
16
Q
Remedies in Equity
A
- Specific performance-Requiring the other party to perform the contract; available when there are rare goods (antiques) or for buyers of land (land is unique)
- Rescission- restored to same positions as before contract
- Reformation-contract rewritten
- Quasi-contract recovery- prevents unjust enrichment
17
Q
To which of the following transactions does the common law Statute of Frauds not apply?
A
Contracts that can be performed within one year.
18
Q
Under the parol evidence rule, oral evidence will be excluded if it relates to
A
A contemporaneous oral agreement relating to a term in the contract.
19
Q
One of the criteria for a valid assignment of a sales contract to a third party is that the assignment must
A
Not materially increase the other party’s risk or duty.
20
Q
Ferco, Inc., claims to be a creditor beneficiary of a contract between Bell and Allied Industries, Inc. Allied is indebted to Ferco. The contract between Bell and Allied provides that Bell is to purchase certain goods from Allied and pay the purchase price directly to Ferco until Allied’s obligation is satisfied. Without justification, Bell failed to pay Ferco and Ferco sued Bell. Ferco will
A
Prevail, because Ferco was an intended creditor beneficiary of the contract between Allied and Bell.
Ferco can collect as a creditor beneficiary.
21
Q
Rogers and Lennon entered into a written computer consulting agreement that required Lennon to provide certain weekly reports to Rogers. The agreement also stated that Lennon would provide the computer equipment necessary to perform the services and that Rogers’ computer would not be used. As the parties were executing the agreement, they orally agreed that Lennon could use Rogers’ computer. After executing the agreement, Rogers and Lennon orally agreed that Lennon would report on a monthly, rather than weekly, basis. The parties now disagree on Lennon’s right to use Rogers’ computer and how often Lennon must report to Rogers. In the event of a lawsuit between the parties, the parol evidence rule will
A
Not prevent the admission into evidence of testimony regarding Lennon’s right to report on a monthly basis.
This answer is correct because an exception to the parol evidence rule allows evidence of “subsequent agreements” to be admitted into evidence.
22
Q
Gray Fabricating Co. and Pine Corp. agreed orally that Pine would custom manufacture a processor for Gray at a price of $80,000.
After Pine completed the work at a cost of $60,000, Gray notified Pine that the processor was no longer needed. Pine is holding the processor and has requested payment from Gray. Pine has been unable to resell the processor for any price. Pine incurred storage fees of $1,000.
If Gray refuses to pay Pine and Pine sues Gray, the most Pine will be entitled to recover is
A
$81,000
23
Q
Under the Sales Article of the UCC, which of the following rights is (are) available to the buyer when a seller commits an anticipatory breach of contract?
A
Recover damages
Cancel the contract
24
Q
Right of replevin
A
Form of legal action to recover specific goods from the seller which are being withheld from the buyer wrongfully
25
UCC Remedies-Sellers
1. Identify goods in contract, sell to others and ask for other remedies below
2. Withhold delivery-until full payment or assurance of payment is made
3. Cancel/rescind contract-seller must notify buyer and has right to be returned to original position prior to contract including being given lost profits
4. Resell goods-seller entitled to any amount not obtained through sale
5. Sue for breach of contract-SAL 4 years, damages=market price at time of tender minus unpaid contract price + incidental damages
6. Retain buyer's deposit-$500 or 20% of purchase price, whichever is less
26
Remedies for Seller if Goods Are in Transit (often tested)
1. If buyer is insolvent- seller (upon buyer's repudiation) can stop any quantity shipped and can recover goods from buyer within 10 days. IF the buyer misrepresents solvency within 90 days prior to delivery of goods on credit, there are no time limits on the seller's ability to recover the goods.
2. If the buyer is not insolvent—The seller can stop large shipments
27
UCC Remedies: Buyer (if seller fails to deliver goods)
1. Cancel and rescind with notice- restore buyer and seller to original positions as before contract
2. Cover- make reasonable substitute purchase and recover difference between contract price and cost to cover (+incidental and consequential damages)
3. Sue for breach of contract-difference between market and contract price (+incidental and consequential damages)
4. Specific performance
5. Replevin- buyer cannot cover so this forces seller to delivery (rare)
28
Remedies for Buyers if the Seller Tenders Nonconforming Goods—(Buyer Rejects)
1. Cancellation, cover, breach of contract, replevin
2. Keep goods and recover damages- buyer must give notice they will be pursuing other remedies), buyer can deduct damages from purchase price and mark "Payment in full" in final payment, if check cashed then debt is paid OR can see incidental and consequential damages for breach
3. Liquidating damages
4. If seller becomes insolvent within 10 days of receiving buyers payment, buyer can still recover goods if they are set aside
29
Yost contracted with Egan for Yost to buy certain real property. If the contract is otherwise silent, Yost's rights under the contract are
Generally assignable.
Unless the contract terms prohibit assignment, or the rights are personable to the person rendering them, or the assignment will materially increase or alter the risk or duties of the obligor, contract rights are generally assignable.
30
Union Bank lent $200,000 to Wagner. Union required Wagner to obtain a life insurance policy naming Union as beneficiary. While the loan was outstanding, Wagner stopped paying the premiums on the policy. Union paid the premiums, adding the amounts paid to Wagner's loan. Wagner died and the insurance company refused to pay the policy proceeds to Union. Union may
Recover the policy proceeds because it is a creditor beneficiary.
A person is a creditor beneficiary if two things are in place: one party to a contract in question owed the creditor money, and the contract in question was made specifically to satisfy that debt
31
Wilcox Co. contracted with Ace Painters, Inc. for Ace to paint Wilcox's warehouse. Ace, without advising Wilcox, assigned the contract to Pure Painting Corp. Pure failed to paint Wilcox's warehouse in accordance with the contract specifications. The contract between Ace and Wilcox was silent with regard to a party's right to assign it. Which of the following statements is correct?
Ace remained liable to Wilcox despite the fact that Ace assigned the contract to Pure.
32
Under which of the following circumstances would an assignment of rights under a contract be invalid?
The assignment was made without the assignor's intent to transfer.
33
Contracts to purchase which of the following cannot be assigned without consent of the other party to the contract?
Personal services
34
Assignments of rights in a contract:
1. Can be assigned/delegated unless exception applies
2. Assignment is separate from original agreement
3. Rights can be assigned (benefits)
4. Duties can be assigned (detriment under contract)
5. Assignment NOT binding until obligor has notice of assignment, until then, obligee is still liable to original obligor
6. Any defenses of original contracting party now belong to 3rd party assignee
7. ONLY way assignor can released of obligation is if the original party agrees
35
Assignment exceptions:
1. Prohibited by contract terms
2. Prohibited by statute (ex. insurance)
3. Personal contracts
4. Increased material risks to obligor
36
Delegation exceptions:
1. Prohibited by contract
2. Contract based on personal skills of obligor
3. Contract performance will materially vary from what is expected
37
3rd party beneficiaries
1. Donee beneficiary- ex. insurance beneficiary
2. Creditor beneficiary- debtor-creditor relationship exists and debtor makes contract that benefits creditor with a 3rd person
3. Incidental beneficary
38
Edwards Corp. lent Lark $200,000. At Edwards's request, Lark entered into an agreement with Owen and Ward for them to act as compensated co-sureties on the loan in the amount of $200,000 each.
If Edwards releases Ward without Owen's or Lark's consent, and Lark later defaults, which of the following statements is correct?
Owen will be liable for 50% of the loan balance.
39
Surety
A guarantor or a surety is someone who agrees to stand liable for a debt of another. Suretyship contract (or a written memo) must be in writing and signed by the surety (guarantor) for it to be enforceable against the surety.
40
A distinction between a surety and a co-surety is that only a co-surety is entitled to
Contribution
Contribution is a right one co-surety has against another. There cannot be rights between sureties if there is only a single surety.
41
Rights of creditor when principal debtor defaults:
1. Proceed against principal debtor
2. Proceed against surety
3. Proceed against collateral of debtor
42
Rights of the surety or guarantor:
1. Exoneration- right of surety to petition court to exhaust efforts against principle debtor first
2. Reimbursement and indemnity- right to all costs
3. Subrogation- after paying debt, surety has same rights as original creditor against debtor
4. Right of contribution- entitles one co-surety to seek proportional payment from other co-surety
43
Events that Do Not Release or Discharge the Surety from Liability
1. Insolvency of principal debtor
2. Bankruptcy of principal debtor
3. Fraud by debtor (unless creditor was aware of fraud)
4. Incapacity of principal debtor
5. Death of principal debtor
6. Release of debtor by creditor if creditor reserves rights against surety (UNLESS there is guarantor of collection because this requires creditor to exhaust all attempts to collect from principal debtor first)
7. Changes or modification of loan terms when there is a compensated surety
8. Creditor fails to give surety notice of debtor's default
44
Events that Do Result in the Release of the Surety
1. Debt paid
2. Surety's incapacity
3. Surety's bankruptcy
4. Statute of limitations expires
5. Fraud by creditor
6. Release of debtor by creditor
7. Refusal of principal debtor's tender
8. Material alteration by creditor (ex. amt of debt)
9. Creditor's failure to disclose material facts (defense of fraud)
10. Changes or modification of loan terms when there is an uncompensated surety
11. Statute of frauds- contract MUST always be in writing
45
Under the Secured Transactions Article of the UCC, which of the following requirements is necessary to have a security interest attach?
1. Debtor has rights in the collateral
2. Secured party gives something of value (such as binding commitment to extend credit)
3. Written security unless collateral is in the hands of the secured party, need only be authenticated by debtor
46
Under the Secured Transactions Article of the UCC, which of the following statements is correct regarding a security interest that has not attached?
It is not effective against either the debtor or third parties.
47
Under the Secured Transactions Article of the UCC, which of the following security agreements does NOT need to be in writing to be enforceable?
A security agreement where the collateral is in the possession of the secured party.
48
Which of the following transactions would illustrate a secured party perfecting its security interest by taking possession of the collateral?
A pawnbroker lending money.
One method of perfecting an interest is by taking physical possession of it.
49
Sun, Inc., manufactures and sells household appliances on credit directly to wholesalers, retailers, and consumers.
Sun can perfect its security interest in the appliances without having to file a financing statement or take possession of the appliances if the sale is made by Sun to
Consumers.
One may perfect a security interest without filing if he or she has a purchase money security interest (PMSI) in consumer goods. This happens when the money to purchase the collateral is given as the basis of the security interest.
The collateral, however, must be in consumer goods and purchased by a consumer for personal, family, or household use for a PMSI to exist.
50
Jones lives in Oklahoma and is the owner of a large number of valuable antiques. Treasures Delight, located in Arkansas, is a seller of antiques. Treasures Delight is owned by Sally Delight. Delight offers to purchase all of the antiques owned by Jones paying 60% of the agreed price and, by agreement, signs a security agreement for the balance putting up her entire inventory as security. The security agreement provides for monthly payments. Which of the following is correct?
Although this is a purchase money security interest, Jones must file to have a perfected security interest.
The antiques are classified as inventory (collateral to be held for resell). Thus, although a purchase money security interest was created, being inventory, a filing is required for perfection.
51
Perfection
A means by which a secured party gains priority to a debtor's collateral over other third parties who also claim to have an interest in the same collateral.
52
Filing requirements:
1. UCC-1 form or security agreement
2. Names of debtor and secured party
3. Description of collateral
4. Valid for 5 years and can only be renewed within 6 months of expiration
53
Perfection by Possession
Generally—Article 9 requires filing for perfection, but it also allows perfection by either possession or another method of perfection.
54
Automatic Perfection
1. A purchase money security interest (PMSI) in consumer goods. Consumer goods are goods used or bought primarily for personal, family, or household purposes
2. Sale of promissory notes and payment intangibles (ex. receivables)
55
Noninventory goods were purchased and delivered on June 15. Several security interests exist in these goods.
Which of the following security interests has priority over the others?
Purchase money security interest perfected June 24.
Usually, the first security interest to be perfected has top priority.
There is an exception, though, for a purchase money security interest. A purchase money security interest in noninventory collateral has priority if it is perfected before the debtor takes possession or within 20 days thereafter.
56
Wine purchased a computer using the proceeds of a loan from MJC Finance Company. Wine gave MJC a security interest in the computer. Wine executed a security agreement and financing statement, which was filed by MJC. Wine used the computer to monitor Wine's personal investments. Later, Wine sold the computer to Jacobs for Jacobs' family use. Jacobs was unaware of MJC's security interest. Wine now is in default under the MJC loan.
May MJC repossess the computer from Jacobs?
Yes, because MJC's security interest was perfected before Jacobs' purchase.
Although Jacobs purchased (for value) the computer for personal use without knowledge of MJC's security. MJC's perfection by filing (not by attachment) gave MJC priority to repossess the computer because this was NOT in ordinary course of business for Wine.
57
Perfected vs. lien creditors priority:
First to attach as priority
58
Perfected vs. judgement creditor:
First to attach has priority
59
Perfected Secured parties and buyers
1. Buyers in ordinary course of business- buyer has priority even if interest is perfected
2. Buyer NOT in ordinary course of business-buyer has responsibility to check for creditor's interests
3. Secured creditor only- buyer has priority unless they are aware of creditor's secured interest
60
Buyer not in the ordinary course of business of consumer goods
Buyer has priority only if all four criteria are met:
1. Buyer must not know of secured party's security interest;
2. Buyer must buy for personal use (as consumer goods);
3. Buyer must buy before the secured party perfects by filing.
4. Buyer must give value to the seller-debtor;
61
Inventory and PMSI
A PMSI in a debtor's inventory will have priority over a previously perfected non-PMSI (ex. bank loan) providing these two events take place before the debtor takes possession of the collateral.
1. The PMSI secured party perfects; and
2. The PMSI secured party sends (and the non-PMSI party receives) written notice of the PMSI
62
Other collateral and PMSI
For any other types of collateral, a PMSI will have priority over a previously perfected non-PMSI if the PMSI secured party perfects before or within twenty days after the debtor takes possession of the collateral. No notice is required
63
Floating lien concept
allows the (perfected) secured party to have a security Interest in collateral not in existence at time of its creation, future goods and proceeds from future goods
64
Under the UCC Secured Transactions Article, if a debtor is in default under a payment obligation secured by goods, the secured party has the right to
1. Peacefully repossess the goods without judicial process
2. Reduce the claim to a judgement
3. Sell the goods and apply the proceeds toward the debt
65
Creditor's Rights on Disposal of the Repossessed Collateral
1. Keep collateral in full satisfaction of debt unless junior lien holders object and force a sale
2. If debtor has paid 60%+ of purchase price, creditor must sell it
3. Distribution of proceeds=Expenses, balance of debt, junior lien holders, debtor
4. Creditor has right to collect deficiency of sales funds from debtor
66
Debtor's right of redemption
If the secured party is not allowed to keep the collateral in possession in full satisfaction of the debt, the debtor or any other secured party has a right of redemption and by doing so can regain possession of the collateral until there is a sale
67
Creditor's remedies to prevent bankruptcy:
1. Composition- discharges debts if debtor performs as to all creditors agreed demands
2. Assignment- Debtor assigns any money received to creditors, creditors may petition debtor into bankruptcy still (ex. To be an assignment for the benefit of creditors, Green would have to voluntarily transfer certain assets to a trustee or an assignee who, in turn, offers each creditor a pro rata payment.)
3. Judgement lien- creditors go to court and can execute on debtor's property
68
Judgement lien execution
1. Attachment- related to property
2. Garnishment- of wages (not more than 25%)
3. SS is exempt
Homestead exemption- protection for equity in home but still subject to mortgage and IRS
69
Chapter 7
Liquidation, can be voluntary or involuntary (NO involuntary for farmers or non profits), consumer MUST establish that they cannot pay their debts (means test=income-expenses)
Eligibility: Individuals, partnerships, corporations
Exemptions: S&Ls, credit units, small business administration, municipalities, insurers, RRs
ALWAYS has trustee
70
Chapter 9
Allows for the adjustment of debts of an insolvent municipality—defined as any political subdivision, public agency, or instrumentality (includes any taxing unit) of a state.
Permits voluntary petitions by the municipality
71
Chapter 11
Allows for the reorganization of a debtor to pay debts, there is an automatic stay when this happens. Voluntary/involuntary.
Eligibility: Individuals, partnerships, corporations
Exemptions: S&Ls, credit units, small business administration, municipalities, insurers, stockbrokers
Allows companies to restructure and be discharged from certain debts.
MUST be approved by half of the creditors with two-thirds of the total claims (includes shareholders)
72
Chapter 12
50% of debt due to farm activity, adjustment of debts of a family farmer and family fisherman
73
Chapter 13
- Like Chapter 11 for consumers, must be voluntary
- Less than $394,725 in unsecured and less than $1,184,200 in secured debt
- Always has a trustee
74
Chapter 13
- Like Chapter 11 but for consumers, must be voluntary
- 3-5 year plan-discharge if payment made
- Less than $394,725 in unsecured and less than $1,184,200 in secured debt
- Always has a trustee
75
Involuntary petition requirements
<12 creditors- petition requires only one (more can sign) of these creditors with an aggregate debt of $15,775 or more to sign the involuntary petition
>12 creditors- petition must be signed by three or more of these creditors whose aggregate claims are $15,775 or more
Standard is inability to pay debts as they come due
76
A voluntary petition filed under the liquidation provisions of Chapter 7 of the Federal Bankruptcy Code
Does not require the debtor to show that the debtor's liabilities exceed the fair market value of assets.
77
Which of the following statements is correct concerning the voluntary filing of a petition in bankruptcy?
Petitions are often filed by spouses jointly. Either may file alone, or they may file together.
78
Which of the following liens generally require(s) the lienholder to give notice of legal action before selling the debtor's property to satisfy the debt?
Mechanic's lien
| Artisan's lien
79
A party involuntarily petitioned into bankruptcy under Chapter 7 of the Federal Bankruptcy Code who succeeds in having the petition dismissed could recover
Court costs and attorney's fees
Compensatory damages
Punitive damages
80
Under the liquidation provisions of Chapter 7 of the federal Bankruptcy Code, certain property acquired by the debtor after the filing of the petition becomes part of the bankruptcy estate.
An example of such property is
Municipal-bond interest received by the debtor within 180 days of the filing of the petition.
A debtor's estate in bankruptcy consists of all tangible and intangible property of the debtor held at the commencement of the bankruptcy proceedings. In addition, the estate consists of any after-acquired income from such property.
Therefore, interest from municipal bonds (held as part of the estate) also becomes part of the estate. Any gifts received within 180 days of the filing the petition also become part of the estate
81
Under the federal Bankruptcy Code, which of the following rights or powers does a trustee in bankruptcy not have?
The right to avoid any statutory liens against the debtor's property that were effective before the bankruptcy petition was filed.
Although the trustee can avoid some statutory liens (such as landlord's lien), the trustee cannot avoid all (key word is "any") statutory or common law liens (such as certain warehouse liens).
82
The filing of an involuntary bankruptcy petition under the Federal Bankruptcy Code
Stops the enforcement of judgment liens against property in the bankruptcy estate.
83
Chapter 7 of the Federal Bankruptcy Code will deny a debtor a discharge when the debtor
Is a corporation or a partnership.
Corporations and partnerships may go through a Chapter 7 liquidation, but do not qualify for a general discharge from all remaining debts as natural persons do.
84
A bankrupt person who filed voluntarily and received a discharge in bankruptcy under the provisions of Chapter 7 of the Federal Bankruptcy Code
Must surrender for distribution to the creditors any amount received as an inheritance if received within 180 days of filing the petition.
There is a 180-day rule. Not only must most assets be surrendered if they existed at the time of filing, but some assets (including inherited assets) must be added to the bankruptcy estate if acquired within 180 days of the filing.
85
The Debtor's Estate—Debtor's estate includes:
All tangible and intangible property—(all legal and equitable interests) of the debtor held at the time the bankruptcy proceedings began
The following after-acquired property that the debtor acquired within 180 days after the petition is filed:
- Property by inheritance or gift
- Property by divorce, separation, or property settlement
- Beneficiary proceeds from a life insurance policy
Any property appreciation, income, etc. from existing property
86
Property that is partially Exempt from Bankrupt's Estate
Only individuals, not partnerships or corporations, can claim exemptions.
Choice to take state or federal exemptions (debtor's choice).
1. Homestead exemptions- if acquired within 3.5 years of filing, then exemptions limited to $160,475, must have lived in state for 2 years
Motor vehicle up to $3775, household furnishings, other property, tools of profession, life insurance, jewelry, IRAs and ROTHs, personal injury claims
87
TOTAL exemptions:
1. Pension and retirement
2. Wrongful death
3. Alimony and child support
4. Disability, unemployment and SS
88
Voidable preference
Transactions set aside and brought back into the estate by trustee. Property transferred to "shield" assets.
1. Anything that occurred within 90 days of bankruptcy will be set aside and creditor puts it back into estate
Provision for insiders:
1. Fraud (concealed transaction) within 1 year-set aside
2. Transfer and cost was unfair within 1 year- set aside
3. Transfer property to insider within 1 year- set aside
89
EXCEPTIONS to trustee's authority to set aside:
1. A contemporaneous exchange (new business inventory)
2. Payment of debt in ordinary course of business (utility bill)
3. Consumer debtor's payment of up to $6425
4. Payments for paternity, alimony, maintenance and child support
90
Distribution preference of owner's estate:
1. Perfected secured parties
2. Domestic support obligations
3. Administrative costs (attorney fees)
4. Claims in ordinary course of business (after filing to keep business going)
5. Employee wages up to $12850
6. Employee benefit plan payments up to $12850 per EE
7. Claims of farmers and fisherman
8. Consumer creditors
9. Government for taxes
10. Death or personal injury claims
11. General unsecured creditors
12. Remainder goes to debtor
91
After the estate has been distributed, the court will grant the debtor a discharge decree (at a hearing), that releases the debtor from further liability of his or her debts. This decree is revocable for one year.
Conditions under which Discharge May Be Denied:
1. Only individuals can receive discharge
2. If other discharge received within 8 years
3. Fraud/concealment
4. Consumer debts incurred within 90 days of filing petition for $675+ for luxury goods or cash advance of $950+
92
Debts Not Discharged (by Statute) under Any Circumstances
1. Unpaid taxes if: the taxes must were due at least 3 years before the filing or the tax return for the taxes due was filed at least two years before the filing
2. Debts incurred through fraud
3. Judgements for willfull or malicious injuries
4. (Judgments) as a Result of Driving while Intoxicated
5. Unscheduled Debts (those not listed by the debtor upon filing of bankruptcy and not actually known to trustee)
6. Alimony, Maintenance, and Child Support
7. Fines and Penalties—Payable to a governmental unit
8. Student Loan Debts or Benefits
9. Sarbanes-Oxley Bonuses and Incentives awarded to executives of companies based on fraudulent financial statements—Their obligation to repay these amounts cannot be discharged
10. Consumer Debts—Debts incurred within 90 days of filing
93
Reaffirmations
Agreements between a debtor and creditor that a debt will not be discharged in bankruptcy.
94
Under the Secured Transactions Article of the UCC, what secured transaction document must be signed by the debtor?
Security agreement
95
Mars, Inc., manufactures and sells VCRs on credit directly to wholesalers, retailers, and consumers. Mars can perfect its security interest in the VCRs it sells without having to file a financing statement or take possession of the VCRs if the sale is made to
Consumers
96
Which of the following conditions, if any, must a debtor meet to file a voluntary bankruptcy petition under Chapter 7 of the Federal Bankruptcy Code?
Almost anyone can file a voluntary petition for Chapter 7 relief at any time regardless of the number of creditors. The only restriction is that the filing is not a "substantial abuse,"
97
Mechanic's lien
A mechanic's lien applies to services, labor, or materials rendered by a creditor to repair or improve real property. A grandfather clock is personal property.
98
Which of the following statements is correct?
Failure of the debtor to attend (unless excused) the creditor's meeting is a failure to co-operate and grounds for denial of the debtor's discharge in a Chapter 7 bankruptcy.
Unless the state has limited a bankrupt debtor to use of state-law exemptions, the debtor has a choice of using either state or federal-listed exemption laws.
