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Commercial Law
Rutgers University, Newark School of Law
Ondersma, Chrystin


Assignment 1

Debt Collection for Unsecured Creditors

Step 1: obtain judgment

Step 2: get a writ of execution

Step 3: deliver writ of execution to the sheriff with a letter of instruction of what to receive (must do some discovery to figure this out and learn the debtor’s assets)

Step 4: sheriff levies (takes some control over the property)

Step 5: sheriff gives notice of sale, auctions the property, proceeds goes to creditor

The unsecured creditor does not have any right in any particular piece of the debtor’s property until the sheriff levies.
Have to make sure that the property is not exempt before trying to seize it
When there are two unsecured creditors, the first to levy wins and gets paid in full, excess (if any) goes to the other

Minority jurisdiction is first to deliver the writ gets priority

After sale, sheriff does a “return” – lowers the judgment amount by whatever the proceeds are

Set off

mutual debts can set off
Ex: Dwight lent Jim $100 and at some other point, Jim lends Dwight $100.The two debts set each other off.
Ex: Dwight owes Jim $100, Jim owes Dwight $36. Set-off reduces the $100 debt to $64.
Most common in bank situations
Ex: Dwight has account at Bank of the East. He takes out a loan with them for $300k. Dwight’s account has $50,000 in it. Bank of the East owes Dwight $50,000. Set-off reduces debt owed to bank to $250k.

Fraudulent Conveyances

UFTA provides for some protection for creditors in situations where debtors have assets and try to get ride of them (i.e. to family members)
UFTA gives remedies to creditors that exist when the transfer takes place
Section 4 focuses on intent to defraud or hinder collection

i.e. debtor knows the sheriff is about to levy on his car for a judgment so he sells it on eBay

Section 5 focuses on transfers made for unreasonably equivalent values by insolvent debtors, regardless of the intent of the debtor

Problem Set 1


Q: Benning made a loan of $50,000 to day care center owner, to be repaid in quarterly installments over 5 years with interest. New manager takes over the day care center. They haven’t missed a payment yet but their new practices are hurting the business and she wants to know if she can do anything.

A: Benning is an unsecured creditor. She has no interest in any particular piece of asset so she has no collateral she can seize. Advise her to wait until they miss a payment and then file a complaint and get a judgment. She has no rights in the business, there’s nothing she can do until they default and then she can seek a judgment. She can try to restructure the agreement with the debtor to get a security interest by offering better terms, in return for a security interest. (have to incentivize debtor to do this)


Q: Day care center defaults and Benning gets a judgment for $60k in past due interest and principal. She wants to know when she will be paid. What do you need to know to answer her question?

A: Need to know: what assets the debtor owns, are they filing for bankruptcy soon, do they have secured creditors that have interests in those assets, are there any other judgment liens in existence before, are the assets exempt? This can all be found out in discovery or through public records.

She then asks if she can levy on the day care equipment. This is a good idea because first to levy has priority to be paid in full before anyone else gets a penny. Execute writ, deliver writ to sheriff, have sheriff levy on property. Court won’t let you do this if someone else owns the property or its exempt or they file for bankruptcy.


Q: Jeff gave a loan of $1000 to Lisa, who bought lawn furniture with it. She doesn’t pay him back, and he wants to take the furniture from her backyard. What do you advise?

A: Jeff is an unsecured creditor. He is not entitled to self-help. He would need to file a complaint and get judgment. (and then get writ of execution, deliver writ to sheriff with letter of instruction, have sheriff levy on property) Jeff does not have any interest/right in the furniture until the sheriff does the levy. After the levy, the sheriff has to foreclose on the property (auction it off in sale)

other possibility: writ of garnishment instead of writ of execution


Q: Mr. Kostandin, the debtor, owes Mr. Look, the unsecured creditor, $30,000. He hasn’t been paid and Mr. Look doesn’t want to use legal remedies since he thinks they are worthless. Mr. Look tricks Mr. Kostandin into delivering 3.5 tons of lobsters to a location, by making him think he is selling the lobsters to Steven King. Look takes the lobsters and sells them before Kostandin realizes he was tricked. He received $19,000 for the lobsters and asks what to do next to collect the rest.

A: Look is an unsecured creditor so he did not have the right to self-help. The lobster trick was conversion/theft. He should return the money from the lobster sale to the debtor and apologize and hope he doesn’t call the cops and go thru the formal process for collecting. Or just not bother seeking the rest, in return for debtor not pressing charges.


Q: Knopf lives in Wisconsin. He testifies that he owns the following property all free and clear. What can the sheriff take from him to satisfy your judgment?

4 year Toyota car worth $15k
house worth $275k with a $225k mortgage
day care equipment with resale value of about $25k
bank account with current balance of $12k.


$4000 is exempt under 3(g), the remaining $11000 of the car can be exempt under 3(d) as a consumer good (assuming its not a company car)
the house is exempt under homestead exemption if he lives in the house

the exemption is for up to $75k not including mortgage. The $50k equity is exempt

$15,000 is exempt under 3(b) as business property
$5000 is exempt under 3(k)

$60,000 judgment. The sheriff can levy the day care equipment and the bank account. This would bring in (after exemptions), $10k for the equipment, and $7k for the bank account.

Probably should hurry because he can withdraw money from the bank account and put it towards the mortgage. Other creditors might levy on these objects first, which would give them priority, so you should hurry and try to levy first. The value of the assets also could depreciate over time so you don’t want to wait.

Assignment 2


“a charge against or an interest in property to secure payment of a debt or performance of an obligation”
a relationship btwn particular property (the collateral) and a particular debt or obligation
statutory liens: granted by statute or common law
judicial liens: obtained by unsecured creditors thru judicial process

Security Interests

an interest in property contingent on the non-payment of a debt

ex: A secured creditor gives a $50k loan to debtor. Debtor buys house and gives mortgage to secured

If the lease requires renewal

An option to buy for nominal consideration


Q: Debtors are in default on their house but are willing to turn over the house. They don’t want to be sued or have a foreclosure on their record. They are not represented by counsel. You represent the bank. Can you help the debtors?

A: a) the ABA rule provided states that the lawyer must make reasonable efforts to correct any misunderstanding that a person may have regarding his interests. You would have to point out that you are not a neutral party since you represent the bank.

If she got a lawyer, the lawyer would probably advise them to file bankruptcy or bargain to give the deed to the bank for money or for more time. But we can’t tell her that since our duty is to the bank

b) If the debtors execute the deed with an understanding that you will give it back to them if they make back the payments within 60 days and wait to record the deed, this would be no different than a mortgage. It would be a security interest in itself. Delaying the recording of the deed makes this a security interest since the bank owns the house if they default on the debt. If it was recorded immediately, the transfer of ownership is immediate. Since it wasn’t recorded immediately, the bank doesn’t own it until default.

if they did a deed in lieu of foreclosure, its an instant transfer of ownership. Bank becomes owner of the deed and the debtor doesn’t have debt anymore. Once the deed is recorded, no more debt and the ownership is transferred and no longer a security interest.

Assignment 3

Note: Debtor’s right of redemption to the collateral is only extinguished at foreclosure. Debtor can repay the debt and reclaim the collateral at any time up until foreclosure

Right to Possession Pending Foreclosure- Personal Property

Unless otherwise agreed, UCC 9-609 gives the secured party the right to take possession immediately on default. The secured party doesn’t need to involve courts or public officials if they can get possession without a breach of peace
If the debtor resists repossession, the secured party must obtain a court order for possession and have the sheriff take possession from the debtor
Writ of replevin: a court order directing the sheriff to take possession of the collateral

Replevin action steps:

the secured creditor files a civil action against the debtor
immediately upon filing, the creditor can move for an order granting immediate temporary possession pending the outcome of the case
court issues writ of replevin (usually its conditioned on creditor posting a bond just in case the debtor ultimately prevails in the replevin action)
sheriff takes possession of the collateral and gives it to the creditor
creditor can then complete foreclosure by selling the collateral