Credit Law and Legal Environment
Domain 2 - Credit Law and Legal Environment
Tests the legal scaffolding around a credit sale: contract and UCC rules, secured credit, liens, guarantees, bankruptcy, and consumer-credit compliance.
Core rules
- UCC Article 2 governs sales of goods: risk of loss, perfect tender, and acceptance. Article 9 governs security interests; a security interest attaches when value is given, the debtor has rights in collateral, and a security agreement is authenticated. Perfection by filing a UCC-1 gives priority over later creditors.
- Priority follows rules, not just filing dates: a purchase-money security interest in inventory requires pre-delivery notice to the earlier inventory financer; filing timing and collateral type decide contests.
- Bankruptcy: automatic stay §362, preference §547(b) (90 days, one year for insiders), fraudulent transfer, §503(b)(9) 20-day goods claim, and reclamation.
- Consumer compliance: ECOA/Reg B adverse action notice generally within 30 days; FCRA permissible purpose; FDCPA collection conduct.
- Guarantees must satisfy the statute of frauds and be reviewed for scope, duration, and waivers of defenses.
Worked example
Supplier ships $50,000 of goods on credit 75 days before the buyer files Chapter 11. The buyer pays $20,000 on day 60. The trustee demands return. Analysis: the payment is within 90 days, to a creditor, on antecedent debt, while insolvent (presumed), enabling the creditor to receive more than in Chapter 7. Defenses are ordinary course or new value. The unpaid $30,000 may support a §503(b)(9) administrative claim only if those goods were received within 20 days before the petition. Monitor aging and insolvency signals; a preference demand turns on facts and timing, not intent.
Traps
- Assuming a signed contract is enough; a missed UCC-1 or continuation leaves the lien vulnerable.
- Treating a personal guaranty as self-executing when consideration or scope is unclear.
- Giving adverse action orally only; Reg B requires written notice with reasons.