1 Secured Transactions Assignment 1 Remedies of Unsecured Creditors under State Law.
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Transcript of 1 Secured Transactions Assignment 1 Remedies of Unsecured Creditors under State Law.
1
Secured TransactionsAssignment 1
Remedies of Unsecured Creditors under State Law
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Basic concepts: time and money
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Basic concepts: time and money
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Basic concepts: time and money
Civil procedure (time line)
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Basic concepts: time and money
Civil procedure
Complaint
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Basic concepts: time and money
Civil procedure
Complaint
Service
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Basic concepts: time and money
Civil procedure
Complaint
Service
Answer
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Basic concepts: time and money
Civil procedure
Complaint
Service
Answer
Motion forsummaryjudgment . . .
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Basic concepts: time and money
Civil procedure
Complaint
Service
Answer
Motion forsummaryjudgment . . .
or trial
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Basic concepts: time and money
Civil procedure
Complaint
Service
Answer
Motion forsummaryjudgment . . .
or trial
Judgment
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Basic concepts: time and money
Civil procedure
Complaint
Service
Answer
Motion forsummaryjudgment . . .
or trial
Judgment
Levy
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Basic concepts: time and money
Civil procedure
Complaint
Service
Answer
Motion forsummaryjudgment . . .
or trial
Judgment
Levy
30 days (default) to one yearor more (with resistance)
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Basic concepts: time and money
Civil procedure
Complaint
Service
Answer
Motion forsummaryjudgment . . .
or trial
Judgment
Levy
30 days (default) to one yearor more (with resistance)
10 day minimum
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Basic concepts: time and moneySummary procedure (small claims courts)
Complaint
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Basic concepts: time and moneySummary procedure (small claims courts)
Complaint
Service by mail
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Basic concepts: time and moneySummary procedure (small claims courts)
Complaint
Service by mail
Hearing
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Basic concepts: time and moneySummary procedure (small claims courts)
Complaint
Service by mail Judgment
Hearing
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Basic concepts: time and moneySummary procedure (small claims courts)
Complaint
Service by mail Judgment
60 days
Hearing
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Basic concepts: time and moneySummary procedure (small claims courts)
Complaint
Service by mail Judgment
Levy
60 days 10 day minimum
Post judgment proceedings are generally the same as Civil Procedure
Hearing
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Some rough estimates of the cost of legal services
“Commercial” (collection) lawyers (on debts as small as utility bills) for big clients
Contingency fees
Basic concepts: time and money
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Some rough estimates of the cost of legal services
Partner in a Wall Street firm $600 - 1,000/hour
“Commercial” (collection) lawyers (on debts as small as utility bills) for big clients
Contingency fees
Basic concepts: time and money
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Some rough estimates of the cost of legal services
Partner in a Wall Street firm $600 - 1,000/hour
Associate in a Wall Street firm $250 - $600/hour
“Commercial” (collection) lawyers (on debts as small as utility bills) for big clients
Contingency fees
Basic concepts: time and money
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Some rough estimates of the cost of legal services
Partner in a Wall Street firm $600 - 1,000/hour
Associate in a Wall Street firm $250 - $600/hour
“Corporate” lawyers/litigator, small city $170 - $600/hour
“Commercial” (collection) lawyers (on debts as small as utility bills) for big clients
Contingency fees
Basic concepts: time and money
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Some rough estimates of the cost of legal services
Partner in a Wall Street firm $600 - 1,000/hour
Associate in a Wall Street firm $250 - $600/hour
“Corporate” lawyers/litigator, small city $170 - $600/hour
“Commercial” (collection) lawyers (on debts as small as utility bills) for big clients
Contingency fees
Basic concepts: time and money
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Some rough estimates of the cost of legal services
Partner in a Wall Street firm $600 - 1,000/hour
Associate in a Wall Street firm $250 - $600/hour
“Corporate” lawyers/litigator, small city $170 - $600/hour
“Commercial” (collection) lawyers (on debts as small as utility bills) for big clients
Contingency fees
Legal services and pro bono Zero
Basic concepts: time and money
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Some rough estimates of the cost of legal services
Partner in a Wall Street firm $600 - 1,000/hour
Associate in a Wall Street firm $250 - $600/hour
“Corporate” lawyers/litigator, small city $170 - $600/hour
“Commercial” (collection) lawyers (on debts as small as utility bills) for big clients
Contingency fees
Legal services and pro bono Zero
Basic concepts: time and money
For a bank to file complaint seeking foreclose on a $1 million business loan?
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Some rough estimates of the cost of legal services
Partner in a Wall Street firm $600 - 1,000/hour
Associate in a Wall Street firm $250 - $600/hour
“Corporate” lawyers/litigator, small city $170 - $600/hour
“Commercial” (collection) lawyers (on debts as small as utility bills) for big clients
Contingency fees
Legal services and pro bono Zero
Basic concepts: time and money
For a bank to file complaint seeking foreclose on a $1 million business loan? 12 hours at $450/hour = $5,400.
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Some rough estimates of the cost of legal services
Partner in a Wall Street firm $600 - 1,000/hour
Associate in a Wall Street firm $250 - $600/hour
“Corporate” lawyers/litigator, small city $170 - $600/hour
“Commercial” (collection) lawyers (on debts as small as utility bills) for big clients
Contingency fees
Legal services and pro bono Zero
Basic concepts: time and money
For a bank to file complaint seeking foreclose on a $1 million business loan? 12 hours at $450/hour = $5,400.
For your memorandum in Legal Research & Writing?
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Basic concepts: remediesMoney judgment: “Defendant owes plaintiff $5,000, for all of
which let execution issue.”
Issued at “end” of the case
Does not order Defendant to pay
Plaintiff enforces by other procedures
Execution: Sheriff seizes and sells the debtor’s property to satisfy the judgment (five steps)
1. Clerk of court issues the writ
2. Sheriff levies on the debtor’s property (no self help)
3. Sheriff sells the property
4. Sheriff applies proceeds to pay down the debt
5. Sheriff files a “return,” which reduces the judgment
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Basic concepts: remediesLevy: Seizure of property pursuant to execution
Sheriff must take physical possession (majority rule)
Sheriff follows creditors’ “instructions for levy”
Sheriff has liability for amercement / conversion
Sheriff requires creditor to indemnify sheriff
Exemptions (from execution): Property the sheriff cannot seize on a writ of execution
“Necessities” specified by state statute
Often limited by use or dollar amount
Usually claimed at levy
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Basic concepts: remediesPrejudgment attachment
Sheriff seizes property, as on execution
Creditor must prove “extraordinary circumstances”
Rare -- few creditors entitled
California: Available after hearing on a business debt
Self-help repossession: Creditor takes physical possession of debtor’s property
Unsecured creditors are not entitled to self-help
Conversion: “The wrongful exercise of dominion or control over the property of another.”
Self-help is conversion. Wrongful execution is conversion.
Remedy: Money judgment for market value. “You bought it.”
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Basic concepts: remedies
A B$100
$100
Setoff: If –
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Basic concepts: remedies
A B$100
$100
Setoff: If –
either can “setoff” the debt it owes against the debt owing to it
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Basic concepts: remedies
A B
Setoff: If –
No debt
either can “setoff” the debt it owes against the debt owing to it
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Basic concepts: remedies
A B$100
$36
Setoff: If the amounts owing are not equal –
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Setoff: If the amounts owing are not equal –
a portion of the larger debt will survive
Basic concepts: remedies
A B$100
$36
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Setoff: If the amounts owing are not equal –
a portion of the larger debt will survive
Basic concepts: remedies
$64A B
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Basic concepts: remediesSetoff example: Debtor owes Bank for $30,000 loan
Debtor has $1,637 in an account at Bank
Debtor Bank$30,000
$1,637
Loan
Bank account
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Basic concepts: remediesSetoff example: Debtor owes Bank for $30,000 loan
Debtor has $1,637 in an account at Bank
On default, Bank can “set off” the bank account by changing the account balance to zero, then sending notice to debtor.
Debtor Bank$30,000
$1,637
Loan
Bank account
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Basic concepts: remediesSetoff example: Debtor owes Bank for $30,000 loan
Debtor has $1,637 in an account at Bank
On default, Bank can “set off” the bank account by changing the account balance to zero, then sending notice to debtor.
Debtor Bank$28,363
0
Loan
Bank account
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Basic concepts: remediesFraudulent Transfers:
§4(a)(1). A transfer . . . is fraudulent . . . if the debtor made the transfer . . . with actual intent to hinder, delay, or defraud any creditor . . . .
§8(a) A transfer is not avoidable under Section 4(a)(a) against a person who took in good faith and for a reasonably equivalent value . . . .
Example: George sells his property to Alice for $1, so that his creditors can’t take it.
Fraudulent transfer (4)(a), Alice has no defense (8)(a).
Alice has a defense if she paid reasonably equivalent value.
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Basic concepts: remedies§5(a). A transfer . . . is fraudulent . . . if the debtor made the
transfer . . . without receiving a reasonably equivalent value in exchange . . . and the debtor was insolvent . . . or became insolvent as a result of the transfer.
Example: George is desperate for cash. He sells assets worth $1 million to Alice for $500,000 (best price he can get now).
The transfer is fraudulent, reversible, regardless of intent.
Debtors can’t make bad deals. Even with strangers!
BP Deepwater Horizon spill. Difficulty selling assets.
§3(a). Value is given for a transfer . . . if, in exchange for the transfer . . . an antecedent debt is . . . satisfied . . . .
Example: Bernie Madoff uses his last billion to pay the management fees owing to his sons’ brokerage.
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Problem constraints
Legal strategy is subject to constraints – chess board
1. Law (delivered). What officials will actually do.
2. Procedural rules
3. Costs
4. Client goals
5. Attitudes and personalities of people involved
6. Media pressures
“Basic concepts” – how the chess pieces move
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Problem 1.1, page19
Benning lends $50,000 to Knopf, payable in quarterly installments, with interest at prime plus five points.
Loan is not currently in default
Conditions now are worse than at time of the loan, Knopf is behind on rent and utility payments
What do you advise?
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Problem 1.2, page 20
Complaint
Service
Default
$12,000Judgment
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Problem 1.2, page 20
What happens now? What do we need to know? How do we collect?
Complaint
Service
Default
$12,000Judgment
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Problem 1.2, page 20
What happens now? What do we need to know? How do we collect?
Should we send the sheriff to levy on the day care equipment now?
Complaint
Service
Default
$12,000Judgment
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Problem 1.3, page 20
Jeff plans to take the lawn furniture. Can he do that?
If Jeff can’t take the furniture, what can he do?
Jeff Lisa$1KLoan
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Problem 1.4, page 20
Kostandin owes Look $30,000
Look Kostandin$30,000
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Problem 1.4, page 20
Kostandin owes Look $30,000
So Look defrauds Kostandin of $30,000 in lobsters
Look Kostandin$30,000
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Problem 1.4, page 20
Kostandin owes Look $30,000
So Look defrauds Kostandin of $30,000 in lobsters
Look Kostandin$30,000
$30,000
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Problem 1.4, page 20
Kostandin owes Look $30,000
So Look defrauds Kostandin of $30,000 in lobsters, thinking he will set off
Look Kostandin0
0
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Problem 1.4, page 20
Kostandin owes Look $30,000
So Look defrauds Kostandin of $30,000 in lobsters, thinking he will set off
But the lobsters bring only $19,000.
Look Kostandin$19,000
$30,000
$19,000
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Problem 1.4, page 20
Kostandin owes Look $30,000
So Look defrauds Kostandin of $30,000 in lobsters, thinking he will set off
But the lobsters bring only $19,000.
Setoff
Look Kostandin0
$11,000
$19,000
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Problem 1.4, page 20
Kostandin owes Look $30,000
So Look defrauds Kostandin of $30,000 in lobsters, thinking he will set off
But the lobsters bring only $19,000. What now?
Look Kostandin0
$11,000
$19,000
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Problem 1.4, page 20
Kostandin owes Look $30,000
So Look defrauds Kostandin of $30,000 in lobsters, thinking he will set off
But the lobsters bring only $19,000. What now? Convicted!
Look Kostandin0
$11,000
$19,000
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Problem 1.4, page 20
Kostandin owes Look $30,000
So Look defrauds Kostandin of $30,000 in lobsters, thinking he will set off
But the lobsters bring only $19,000. What now? Convicted!
Court fines Look $15,000 and orders payback of $19,000.
Look Kostandin0
$30,000
$19,000 -19,000 -15,000 -15,000
58
Problem 1.5, page 21
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Problem 1.5, page 21Knopf owns the following property. What is exempt?
1. Toyota automobile worth $15,000
§815.18(3)(g), (d), exempt
2. Inherited house worth $35,000
§815.20, exempt
3. Day care equipment worth $10,000
§815.18(3)(b), may be exempt
4. Bank account, balance $2,265.92
§815.18(3)(k), partially exempt
Is there any hurry? Can we move fast enough?
60
Problem 1.5, page 21Knopf owns the following property. What is exempt?
1. Toyota automobile worth $15,000
§815.18(3)(g), (d), exempt
2. Inherited house worth $35,000
§815.20, exempt
3. Day care equipment worth $10,000
§815.18(3)(b), may be exempt
4. Bank account, balance $2,265.92
§815.18(3)(k), partially exempt
Is there any hurry? Can we move fast enough?
61
Problem 1.5, page 21Knopf owns the following property. What is exempt?
1. Toyota automobile worth $15,000
§815.18(3)(g), (d), exempt
2. Inherited house worth $35,000
§815.20, exempt
3. Day care equipment worth $10,000
§815.18(3)(b), may be exempt
4. Bank account, balance $2,265.92
§815.18(3)(k), partially exempt
Is there any hurry? Can we move fast enough?
62
Problem 1.5, page 21Knopf owns the following property. What is exempt?
1. Toyota automobile worth $15,000
§815.18(3)(g), (d), exempt
2. Inherited house worth $275,000, subject to $225,000 mortgage
§815.20, exempt
3. Day care equipment worth $10,000
§815.18(3)(b), may be exempt
4. Bank account, balance $2,265.92
§815.18(3)(k), partially exempt
Is there any hurry? Can we move fast enough?
63
Problem 1.5, page 21Knopf owns the following property. What is exempt?
1. Toyota automobile worth $15,000
§815.18(3)(g), (d), exempt
2. Inherited house worth $275,000, subject to $225,000 mortgage
§815.20, exempt if he lives in it
3. Day care equipment worth $10,000
§815.18(3)(b), may be exempt
4. Bank account, balance $2,265.92
§815.18(3)(k), partially exempt
Is there any hurry? Can we move fast enough?
64
Problem 1.5, page 21Knopf owns the following property. What is exempt?
1. Toyota automobile worth $15,000
§815.18(3)(g), (d), exempt
2. Inherited house worth $275,000, subject to $225,000 mortgage
§815.20, exempt if he lives in it
3. Day care equipment worth $25,000
§815.18(3)(b), may be exempt
4. Bank account, balance $2,265.92
§815.18(3)(k), partially exempt
Is there any hurry? Can we move fast enough?
65
Problem 1.5, page 21Knopf owns the following property. What is exempt?
1. Toyota automobile worth $15,000
§815.18(3)(g), (d), exempt
2. Inherited house worth $275,000, subject to $225,000 mortgage
§815.20, exempt if he lives in it
3. Day care equipment worth $25,000
§815.18(3)(b), may be partially exempt ($15,000)
4. Bank account, balance $2,265.92
§815.18(3)(k), partially exempt
Is there any hurry? Can we move fast enough?
66
Problem 1.5, page 21Knopf owns the following property. What is exempt?
1. Toyota automobile worth $15,000
§815.18(3)(g), (d), exempt
2. Inherited house worth $275,000, subject to $225,000 mortgage
§815.20, exempt if he lives in it
3. Day care equipment worth $25,000
§815.18(3)(b), may be partially exempt ($15,000)
4. Bank account, balance $2,265.92
§815.18(3)(k), partially exempt
Is there any hurry? Can we move fast enough?
67
Problem 1.5, page 21Knopf owns the following property. What is exempt?
1. Toyota automobile worth $15,000
§815.18(3)(g), (d), exempt
2. Inherited house worth $275,000, subject to $225,000 mortgage
§815.20, exempt if he lives in it
3. Day care equipment worth $25,000
§815.18(3)(b), may be partially exempt ($15,000)
4. Bank account, balance $2,265.92
§815.18(3)(k), partially exempt
Is there any hurry? Can we move fast enough?
68
Problem 1.5, page 21Knopf owns the following property. What is exempt?
1. Toyota automobile worth $15,000
§815.18(3)(g), (d), exempt
2. Inherited house worth $275,000, subject to $225,000 mortgage
§815.20, exempt if he lives in it
3. Day care equipment worth $25,000
§815.18(3)(b), may be partially exempt ($15,000)
4. Bank account, balance $2,265.92
§815.18(3)(k), partially exempt
Is there any hurry? Can we move fast enough?
69
Problem 1.5, page 21Knopf owns the following property. What is exempt?
1. Toyota automobile worth $15,000
§815.18(3)(g), (d), exempt
2. Inherited house worth $275,000, subject to $225,000 mortgage
§815.20, exempt if he lives in it
3. Day care equipment worth $25,000
§815.18(3)(b), may be partially exempt ($15,000)
4. Bank account, balance $2,265.92
§815.18(3)(k), partially exempt
Is there any hurry? Can we move fast enough?