Contract Law

Question 1

What remedies are available for a guarantor or surety?

Answer 1

1. Defense: use a defense to avoid payment to the creditor. (Increasing Risk, fraud, no consideration..etc.)
2. Reimbursement or Indemnity: Get the principal debtor to pay the guarantor or surety for the amount the guarantor or surety had to pay the creditor.
3. Subrogation: When the guarantor or surety discharges the principal debtor’s obligation to the creditor, the guarantor or the surety gets all the creditor’s rights regarding the obligation.
4. Contribution: From co-guarantor or co-sureties for paying more than legally obligated.

Question 2

What is the process for Judicial remedy if the taxpayer doesn’t agree wit the IRS?

Answer 2

All cases must start at the trial court level. For a federal tax dispute, there are three trial courts in which the case may be heard:

(1) Tax Court
(2) U.S. District Court
(3) U.S. Court of Federal Claims

If either the government or the taxpayer does not agree with the trial court’s decision, the case may be appealed to either the appropriate U.S. Court of Appeals or the U.S. Court of Appeals for the Federal Circuit.

Question 3

What is attachment of a security interest mean?

Answer 3

3 elements:
1. The debtor has signed a security agreement that either describes the collateral or turns it over to the possession of the secured party. The agreement is a contract that creates the security interest in the favor of the secured party.

2. The creditor has given value to the debtor (as consideration to support the contract).
3. The debtor has rights in the collateral. (The debtor must acquire rights within 10 days after the creditor gives value.)

Attachment makes the security interest effective against the debtor; Not against 3rd Parties! (Perfection).

PMSI (purchase money security interest) is perfected by attachment alone.

Question 4

How does a Creditor Perfect their interest?

Answer 4

Perfection is an additional act (after attachment) that may be required to make a security interest effective against third parties.

There are three methods
Perfection by Attachment Alone—A (PMSI) in consumer goods is perfected by attachment alone, with no further steps necessary.

Perfection by Possession— (The creditor must take possession of negotiable instruments because if the instrument is negotiated the holder in due course would prevail over the secured creditor!)

Perfection by Filing a Financing Statement—giving public notice to third parties of the creditor’s security interest in the collateral by written notice (financing statement) filed in public records.