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CLFP EXAM - Leasing Law Questions &
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What is Statutory Law? ๐ธ๐ธ : Includes law enacted by legislative bodies such as state legislatures and US Congress. The Uniform Commercial Code or "UCC" is a body of the state statutory law. What is Regulatory Law? ๐ธ๐ธ : Consists of regulations adopted by public bodies. Examples of regulatory law are regulations issued by the Internal Revenue Service (IRS) or the Securities Exchange Commission (SEC). Generally regulatory laws are not binding up the courts in the manner or statutory laws, but may be subject to broader interpretation What is Federal Law? ๐ธ๐ธ : Encompasses laws adopted by the US Congress such as the IRS and Bankruptcy Code. Although federal case precedent may be important in interpreting these and other statutory laws, federal common law generally has little application to equipment leasing and finance transactions What is State Law? ๐ธ๐ธ : General more relevant to the day to day leasing operations. State law include the UCC and cases interpreting it. Particular sate statutory tax laws are also important in leasing consideration
What is Conflicts of Law? ๐ธ๐ธ : Refers to inconsistencies in laws from state to state. Because state laws are not uniform, the concept of "conflict of laws" often comes into play. This is the concept under which a court chooses to apply the law of one state over another. For example,, the usury law of a given sate my hold a lease unenforceable, while the law of another state will allow it to be enforced as written What is "choice of law" provision? ๐ธ๐ธ : language added to lease documents in which the lease states that the law of a particular state will be applied in any dispute regarding the lease. Generally speaking the courts uphold the choice of law if the overall transaction bear some "reasonable" relation" to the states law is chosen What is Contract Law? ๐ธ๐ธ : Generally a matter of state law. Although certain statues are important to contract enforcement, case law plays a major role in each state. Requirements for a "valid enforceable contract" include "an offer and acceptance evidencing a mutual agreement on principal terms and consideration, or something of value, given or promised by each party." What is Capacity? ๐ธ๐ธ : Each party must be legally able to enter into a contract.
1.) the term of the lease is equal to or greater than the remaining economic life of the goods
- the lessee is bound to renew for economic life or own the property 3.) the lessee has the option to renew the lease for no or nominal consideration upon compliance with the lease 4.) the lessee has the option to own the goods for no or nominal consideration upon compliance of the lease A transaction does not create a security interest merely because of what? ๐ธ๐ธ : 1.) the present value of the consideration the lessee is obligated to pay the lessor for the right of possession and use is substantially equal to or greater than the FMV at the time the lease was entered 2.) the lessee assumes the risk of loss of the goods or agrees to pay taxes, insurance, filings, maintenance etc related to the property 3.) the lessee has the option to renew or own 4.) The lessee has the option to renew for a fixed rent equal to or greater then the FMV at the time of the option 5.) The lessee has an option to become the owner of the goods at a price >= FMV at the time of the option When is a lease renewal not nominal?
๐ธ๐ธ : 1.) when the option to renew is granted the rent is stated to be fair market rent determined at the time of the option 2.) when the option to renew is granted the price is stated to be fair market value at the time of the option How are "reasonably predictable" and "useful economic life" determined? ๐ธ๐ธ : with reference to the facts and circumstances at the time the transaction is entered. What is Present Value? ๐ธ๐ธ : the amount as of the date of one or more future payments discounted to the certain date. If not specified by the contract, the discount rate is determined by the courts as a commercially reasonable at the time the transaction was entered. How is "residual position" used by courts to designate lease vs. loan? ๐ธ๐ธ : If the lease allows the lessee to purchase the asset for substantially less than the FMV, the lease will be deemed a secured loan What are other consideration the courts use in determining lease vs. loan treatment? ๐ธ๐ธ : 1 .) length of term vs. economic useful life 2.) responsibility to pay state and local tax, 3.) operating expenses and insurance
Contrast True Lease/Secured Loan - Filing/Title ๐ธ๐ธ : It is not required for a lessor to file a UCC for a true lease. Leases are not governed by UCC Article 9 and there is not filing requirement under article 2A. Contrast True Lease/Secured Loan - Residual ๐ธ๐ธ : With respect to vehicles, aircraft and other titled equipment true leases require the lessor to be shown as the owner. Whereas secured loans require notation on certificate of title of the lender's interest. What rights does a lessee enjoy in a True Lease? ๐ธ๐ธ : Use and enjoyment of the leased equipment free from interference of the lessor as long as the lessee has not defaulted. What rights does the lessor enjoy in a True Lease? ๐ธ๐ธ : The rights of ownership including tax benefits and the right to increase in value What rights does a lessee enjoy in a Secured Loan? ๐ธ๐ธ : Right to purchase the equipment at the end of the lease. The lessee also has rights to the asset appreciation What rights does a lessor enjoy in Secured Loan?
๐ธ๐ธ : Rights to rents, indemnification and other benefits stated in the lease document. What is the UCC? ๐ธ๐ธ : A body of laws proposed by the National Conference of Commissioners on Uniform State Laws and the American Law Institute What is significant about UCC Article 2? ๐ธ๐ธ : Deals with the sale of goods which are generally described as tangible personal property. Article 2 is relevant when the lessor may be the supplier or vendor of the equipment. Article 2 offers "implied warranties" where the goods are assumed fit for use for ordinary purposes. What is significant about UCC Article 9? ๐ธ๐ธ : Deals exclusively with the creation of security interest in personal property. It has not impact on leases, just secured loans. What is a Financing Statement? ๐ธ๐ธ : With Secured Loans, lending files a UCC - 1 financing statement with the SOS publicly demonstrate a lenders security interest in the asset. Includes name and address of the lender and debtor and a description of the equipment. What are some key points in dealing with Article 9.
๐ธ๐ธ : 1.) all warranties offered by the supplier are deemed to pass to the lessee automatically 2.) hell or higher water clause which indicates the lessee must pay the payments regardless of the performance of the equipment. What is bankruptcy? ๐ธ๐ธ : Protection offered to individuals, corporations and other legal entities giving them time to reorganize their debts. May be either "liquidating" or "reorganizing" What is Chapter 7 Bankruptcy? ๐ธ๐ธ : A liquidating bankruptcy in which the entity will stop operating and it assets will be sold to pay creditors. What is Chapter 11 Bankruptcy? ๐ธ๐ธ : A re organizational bankruptcy in which the debtor has hopes continuing to do business and returning to profitability. May propose "plan for reorganization" that provides for a liquidation of business. What is Chapter 9 Bankruptcy? ๐ธ๐ธ : Applies to government bankruptcies. What is Chapter 12 Bankruptcy?
๐ธ๐ธ : Applies to family farm bankruptcies. What is Chapter 13 Bankruptcy? ๐ธ๐ธ : Applies to individual bankruptcies. What is Debtor in Possession? ๐ธ๐ธ : In Chapter 11 bk, debtor stays in control of its business Describe the Bankruptcy Procedure. ๐ธ๐ธ : 1 .) filing petition (voluntary or involuntary) 2.) Automatic Stay - prohibit action against debtor other than through the court. 3.) If Chapter 11, prepare Plan of Reorganization which outlines repayment of debt. 4.) Assumption/Rejection of debt. Submitted prior to Plan of Reorganization, if accepted must be paid by debtor per agreement. If rejected, lessor can recover equipment; What is a Relief from Automatic Stay? ๐ธ๐ธ : During the Automatic Stay portion of bankruptcy proceedings, a Relief from Automatic Stay must be filed and approved by the court in order to take action on a asset. What is a Proof of Claim?
๐ธ๐ธ : When filing to do business in a particular state, a "registered agent" is typically required - perhaps a local lawyer or third party service to receive services of law suites against the foreign corporation. What are some key concerns in determining "doing business" in a particular state? ๐ธ๐ธ : 1 .) the presence of an office or place of business; 2.) the presence of an agent employed by the foreign corporation 3.) Foreign corp representatives routinely visit the sate renting hotel rooms etc. 4.) the value of the property owned by the foreign corporation and the volume of the business transacted. What are a Lessor's disadvantages for failing to "qualifying to do business" in a state? ๐ธ๐ธ : 1 .) potential penalty 2.) may not sue or use courts within the state 3.) both can be cured by retroactively filing to do business (and pay retroactive fees) in the state What are a Lessee's disadvantages for failing to "qualifying to do business" in a state? ๐ธ๐ธ : 1.) cannot obtain written confirmation for teh state that it has legal right to transaction business in the state, has not dissolved or failed to pay taxes 2.) certain legal rights in a foreign foreign jurisdiction may be impaired
What tax consideration must be made in multi state operations? ๐ธ๐ธ : 1.) Property tax is property is located regardless of whether the owner is registered to do business 2.) Sale & Use tax are payable on equipment purchased in the state 3.) Income tax are generally payable whenever a lessor's business is generated What is unique about California licensing requirements? ๐ธ๐ธ : 1.) California Finance Lender Law (CFLL) contains Division 9 of the California Finance Code which requires lenders to be licensed for transaction business and defines finance lender as "any person who is engaged in the business of making consumer loans or making commercial loans" Who is covered by CFLL requirements? ๐ธ๐ธ : Brokers and originators defined as "any person engaged in the business of negotiating or performing an act as a broker in connection with loans made by a finance lender What are the requirements to qualify CFLL licnese? ๐ธ๐ธ : 1 .) net worth of $25, 2.) maintain $25,000 surety bond 3.) lack of criminal history 4.) lack of a record of non-compliance with regulatory requirements.
