Pre-bankruptcy transactions and creditor priority in business law cases

Law Case Studies

Case #1

There are three points to be made about case number one: 1) whether purchasing inventory is acceptable three weeks before declaring bankruptcy, 2) whether Arthur could make a $400 donation to American Cancer Society, and 3) whether Arthur could pay $300 for the current electric bill.

Point 1 -- The trustee would not likely to be able to set aside the purchasing of inventory since Arthur is attempting to run a business, that is assuming that the inventory was necessary for the business to continue to run. Arthur was petitioned into bankruptcy, he did not do so willingly, therefore he should be able to continue to make purchases of inventory.

Point 2 -- The trustee would be able to set aside the $400 donation made to the American Cancer society because that was not a necessary business expense. It could be conjectured that Arthur was only attempting to give the money away instead of paying his creditors. Consideration of this transaction would likely depend on how long before being forced into bankruptcy did Arthur make the contribtion.

Point 3 -- The trustee would likely not be able to set aside the payment of the current electric bill since it is an ongoing expense of the business.

All three of these points are contingent on what type of bankruptcy Arthur is being forced into.

Case #2

Point One - Carter exceeded his authority by purchasing an antique desk for $3,000. He was under explicit instructions to not exceed $1,500 for any one piece. Assuming that his contract with Baker Antiques states that he not exceed that amount, he would more than likely be on the hook for the $3,000.

If the desk is returned to him in the same shape as when he purchased it, then it is likely that he would have to return the $3,000. (At least he has a desk that he can then sell for $2,500 -- thereby reducing his loss).

Case #3

Point One -- Ownership of a property is usually determined by the recording of the deed, Ulysses is more than likely out the money he paid to Gordon to purchase the property. The lease payments help lessen this loss, but probably not nearly enough to make Ulysses happy.

Point Two - Ulysses is not responsible for the past-due taxes, or any fines or interest charged on those tax dollars. Since he does not retain any ownership in the property due to the non-recording of the lease, legally he cannot be required to pay property tax on a property he technically did not own.

Ultimately, Gordon is responsible for the taxes, while Cheryl retains rights of ownership to the property.

Case #5

Point One -- Cruse may have been entitled to be reimbursed the $2,125 as long as she can prove that is what she really lost upon vacating the premises. Cruse was not liable for completing the 100-day lease since Clawson knowingly tore down the partition which would have cost Cruse additional taxes that were not covered in the lease.

Point Two -- Cruse probably would not have been awarded any punitive damages however, due to the relatively short period of time which she used the facility and the fact that if Clawson was to make her whole again (through paying the $2,125) then she really did not suffer any other damages. Most states have stricter requirements on punitive damages as compared to other damages in that they require that the defendant's conduct must have actually injured the plaintiff. In this case, Cruse was not truly injured.

Case #6

Point One -- That Pamela was in charge of distribution and was acting as an agent for Coble Dairy Products is not in question in this particular case. However, Coble Dairy Products cannot be held liable for Pamela's fraudulent actions unless it condones or affirms such actions. There is no showing that Pamela had the authority to bind Coble for fraudulent payments, therefore, Thrower would likely have to sue and recover damages from Pamela directly.

Case #7

Point One -- The question is what recourse Louise has against TastyCrunchy in this case. Specifically it would seem that her franchise agreement with TastyCrunchy would come into play either for her or against her.

If the contract provides reasons for termination of the agreement that include Feldspar's right to revoke upon the building of a nearby 'company restaurant', then it would seem that Louise is pretty much out of luck. If the agreement between Tasty and Louise does not give the company that right, then Louise would likely sue successfully.

Case #8

Point One -- If the professor applied for life insurance, and used no fraudulent means or misrepresentation to induce the issuing of a policy, then it would seem that the professor is due the amount of the policy benefits. The company made an error in issuing the policy, because of that the company would likely still be liable.

Point Two -- The professor would not receive the benefits to the car unless the insurance company had been informed beforehand that the car had been sold. Once the car had been sold, unless a lien is filed, then the insurance would likely need to be cancelled. A customer could not continue insurance on a vehicle without some interest in the vehicle being established.

Case #9

Point One -- Vacarro is not going to win this case. She gave Mark the vehicle and told him that she expected him to use the car for school purposes and to earn good grades. She then attempts to regain the car based on failed expectations, this does not work. Vacarro could say that she had a verbal agreement with Mark, and that might get some consideration. However, she signed the title over to him, thereby relinquishing any rights to the title, unless she has a written contract stating the conditions.

Case #10

Point One -- The decision goes to Gonzalez Manufacturing based on the fact that there was no follow-through by Video Imports that was agreed to Gonzalez. In this case the oral contract was not witnessed by anyone and unless Video has a recording of the telephone conversation, Gonzalez can argue that no such agreement took place. Oral agreements are usually enforceable, if there are corresponding contracts or witnesses that can confirm the agreement. In this case there is no confirmation, therefore the decision goes to Gonzalez and against Video.