Area 2 Flashcards
Statute of Frauds
The Statute of Frauds provides that certain kinds of contracts cannot be enforced unless they are: (a) evidenced by a writing or writings and (b) signed by the defendant to be enforced. Such contracts are:
Sale of good for $500 or more. Real estate sales. Contracts that require more than one year to perform. Suretyship agreements Contracts in consideration of marriage
Order of Priority for Security Interests
When there are multiple security interests in consumer goods, the order of priority is set as follows:
1-Statutory Lien
2-PMSI (Purchase Money Security Interest) when attached and perfected simultaneously - automatic perfection for consumer goods and for both consumer goods and equipment protection against subsequent good faith purchaser if perfected within 20 days.
3-Perfection by filing or possession - in case of multiple creditors, go by the order of filing or perfection.
4-Other perfected interests or judicial lien
Order of attachment, if not perfected from the given scenarios.
What are the requirements for a security interest to attach?
UCC 9-203 requires that in order for attachment to take place, (1) the creditor must give value, (2) the debtor must have rights in the collateral, and (3) the creditor must either take possession of the collateral or obtain a signed security agreement from the debtor.
Firm Offer
UCC 2-205 states that a merchant creates a firm offer by making an offer in a signed writing. If the offer does not state the time period for which it is open, a reasonable period, generally not more than 90 days, will be assumed. The offeree need not be a merchant nor give any consideration.
A firm offer is irrevocable until it has expired.
To have proper formation of a contract, there needs to be:
● Offer ● Acceptance ● Consideration ● (Lack of) Defenses to formation (legally valid reasons the contract could be voided)
Statute of limitations regarding contracts: This is generally 10 years for written
contracts, and 5 years for oral contracts. If the statute of limitations has run out
and one party has not performed but the other party also hasn’t sued for
nonperformance, the duty to perform is discharged.
Chapter 7 Bankruptcy
this is a liquidation bankruptcy – everything is sold
Personal + Businesses are eligible
The following are not eligible for chapter 7 bankruptcy: ● Credit unions ● Banks ● Insurance companies ● Railroad companies ● Small business investment companies
Chapter 11 Bankruptcy
This allows for a reorganization of a debtor to pay their debts. This results in a court-supervised reorganization plan that will pay some or all the business’s debts
or an extended period of time. Chapter 11 also allows voluntary and involuntary petitions.
The reorganization plan must be approved by half of the creditors that make up at least 2/3 of the total claims, and the court must approve this plan.
Creditors Approve - Judges Confirm
The following are not eligible for chapter 11 bankruptcy:
● Banks
● Insurance companies
Chapter 13 Bankruptcy
Also called a “wage-earner’s plan,” this type allows for the adjustment of debts of an individual with regular income (chapter 13 is only for individuals). Chapter 13 allows only voluntary petitions. There is always a trustee with Chapter 13. A 3-5-year plan is made as a result of the bankruptcy. Corporations and
partnerships can’t file for chapter 13.
Chapter 13 has debt limits for the filer – if the filer’s debt exceeds these limits, then they must file for Chapter 11.
Order of Distribution of Assets in Bankruptcy
● Perfected secured parties.
● Claims for domestic support: this includes child support AND alimony.
● Administration costs: includes costs and expenses related to the bankruptcy proceedings. Includes attorney fees, accounting fees, appraisals, and trustee
fees.
● Employee wages: employee wages are limited to those earned in within 180
days of the filing up to a maximum of $13,650. Anything above the $13,650 is put in the same category as “general creditors”.
● Contributions to employee benefit plans: any claims for contributions to an employee benefit plan from services performed within 180 days before the
filing up to $13,650 per employee.
● Claims of farm producers and fisherman: up to $6,725 per creditor.
● Consumer creditors: up to $3,025 per creditor. Any amount above that is treated as a general creditor claim.
● Claims of governmental units for taxes.
● Claims for death or personal injury.
● All general unsecured creditors.
● If anything is left, this goes back to the debtor.
Order of Security Interests if Paid
Statutory Lien
PMSI (Purchase Money Security Interest) when attached and perfected simultaneously - automatic perfection for consumer goods and for both consumer goods and equipment protection against subsequent good faith purchaser if perfected within 20 days.
Perfection by filing or possession - in case of multiple creditors, go by the order of filing or perfection
Other perfected interests or judicial lien
Order of attachment, if not perfected from the given scenarios.
Contemporaneous Exchange
Value for Value.
If a contemporaneous exchange happens prior to filing bankruptcy, it is not voidable. Because it is value for value, there is no change in the company’s assets.
The exchange is allowed to happen.
PMSI
Security interest for consumer goods can be automatically perfected by those creditors who have Purchase Money Security Interest (PMSI). PMSI is created by creditors who sell the consumer good to the debtor retaining a security interest for the purchase price. This option is however, only available for sales made to consumers and not to retailers or wholesalers. Note: Further filing of financial statement is not required under PMSI, unless the creditor seeks protection from ‘subsequent purchaser from the debtor without knowledge of perfection’, in which case a financial statement must be filed within 20 days of the debtor’s acquisition of the collateral.
Preferential Payment
The debtor is making a payment to one creditor on a preexisting (or antecedent) debt.
Per Se Violations
Market allocation is a per se violation of the Sherman Antitrust Act.
How is Anticipatory repudiation of the contract treated?
Anticipatory breach is the renunciation of a bilateral contract before performance is due. One of the parties to the contract lets the other party know in advance that the performance shall not occur and can cancel the contract. In such a case, the other party can sue the party that repudiates the contract either immediately, as the contract is materially breached, or it can choose to wait to see if the promisor (obligor) will change their mind and perform when performance is due and sue after the time for performance has passed and performance has not occurred.
