Welcome to the Week 4 podcast for the course Advanced Business Law. This week’s topic is “Debtor/Creditor Relationships.” In the melodramas of the 1800s, one familiar character was the evil landlord that entered the stage to the boos and hisses of the audience, where he inevitably showed no mercy towards the lovely heroine and her family. The debtor-creditor relationship has advanced significantly since those days. Contracts and collateral, as well as a wide area of negotiable instruments, provide both options and protection to the parties in a transaction. What is the difference between an unsecured loan and a secured loan? What is a bill of lading and why is it needed? This week you will be introduced to these different types of agreements that may be formulated between a creditor and a debtor, as well as the various tools or negotiable instruments that may be used in the transactions. By the end of this week you will be able to: • Identify the different types of negotiable instruments, their purposes, and the parties to each type • Differentiate between the parties and terminology in connection with both unsecured and secured credit transactions • Demonstrate the requirements for creating a valid security interest by attachment • Evaluate the methods that can be used to establish the priority of a security interest through perfection • Explain the general and special priority rules for security interests and the rights of creditors upon a debtor’s default Let’s look at an overview of the resources that you’ll be using this week. This week’s topic is “Debtor/Creditor Relationships.” Read Chapter 14, titled “Negotiable Instruments,” and Chapter 16, titled “Creditors’ Rights and Bankruptcy,” from the course text Business Law Today: The Essentials. Chapter 14 details the concept of negotiable instruments, including the different types of negotiable instruments, how they may be transferred, and the different types of liability that can be associated with these instruments. The first section of Chapter 16 focuses on the topic of creditors’ rights. You will be introduced to the concept of security and explore laws protecting both creditors and debtors. This week, you will participate in one Discussion. Here is the prompt for the topic, “Strategic Default”: Due to fluctuations in the housing market, some investors may discover that they have purchased property at the most inopportune time. With market values falling, individuals may find themselves in the inauspicious position of owing much more than the property is currently valued at—they are “underwater” on their mortgage. Conduct online research regarding the concept of a strategic default, then respond to the following questions: • Should the collateral be the only exposed asset if there is a secured transaction? Should the creditor be able to go after the debtor beyond the collateral? • Should it be different if the default is on a home mortgage versus a car loan? • As a business consultant, one of your clients is considering a strategic default on her home mortgage. What advice would you give her? With these thoughts in mind: Post an initial statement by Day 3 that expresses your thoughts on strategic default. The length of your response should be a minimum of 150 words. Read a selection of your colleagues’ postings. Respond by Day 5 to two or more of your colleagues' postings in one or more of the following ways: • Ask a probing question. • Share an insight from having read your colleague’s posting. • Offer and support an opinion. • Make a suggestion. • Expand on your colleague’s posting. Return to this Discussion in a few days to read the responses to your initial posting. Note what you learned and the insights you gained as a result of the comments your colleagues made. Be sure to support your work with specific citations from the Learning Resources and any additional sources. This week, you will complete two Application Assignments. The topic of the first assignment is “Security Interests.” In extending high-risk credit to individuals or businesses, it is often necessary for the lenders to have some means of protecting themselves from default or bankruptcy on the part of the debtor. One of the mechanisms that can help protect creditors from the effects of bankruptcy or default is the establishment of a security interest. In a 2- to 3-paragraph paper, respond to the following: • How do you go about creating a security interest? • Why would you even want to create a security interest? • How do security interests facilitate businesses being able to borrow money? • Lastly, why is perfection so important in connection with security interests? Your written assignments must follow APA guidelines. Be sure to support your work with specific citations from this week’s Learning Resources and additional scholarly sources as appropriate. Save your Application as a “.doc” or “.rtf” file with the filename “APP4A+last name+your first initial”. For example, Sally Ride’s assignment filename would be “APP4ARideS”. Use the Submit an Assignment link, choose the Week 4: Application 1 Dropbox, and then add your Application as an attachment. Submit your Application Assignment to the Dropbox by Day 7. The topic of the second Application Assignment is “Negotiable Instruments.” Negotiable instruments are among the most common tools for financial transactions. Whether a check, a draft, a promissory note or a certificate of deposit, negotiable instruments allow for business transactions to occur more smoothly, while legally protecting the parties involved. Using the information presented in the scenario below respond to the following in a 1- to 2-page paper: Mary has started a company that will provide computer hardware and software for processing orders for companies who sell moderately high volumes of merchandise over the Internet. For a typical customer, Mary will sell a hardware and software package to the customer along with a multiyear maintenance contract, typically 2, 3, or 4 years. The customer will incur a significant up-front charge for the equipment, followed by monthly charges for the maintenance plan. Mary plans to allow her customers to pay for the equipment itself over the time of the maintenance plan. Thus, if the customer gets a 3-year maintenance plan, the customer will have up to 3 years to pay for the equipment. In order to acquire its facilities and equipment, Mary’s company will need to borrow money. Discuss the common situations where Mary’s company is likely to make use of negotiable instruments, and in particular, the risks associated with the use of negotiable instruments. Your written assignments must follow APA guidelines. Be sure to support your work with specific citations from this week’s Learning Resources and additional scholarly sources as appropriate. Save your Application as a “.doc” or “.rtf” file with the filename “APP4B+last name+your first initial”. For example, Sally Ride’s assignment filename would be “APP4BRideS”. Use the Submit an Assignment link, choose the Week 4: Application 2 Dropbox, and then add your Application as an attachment. Submit your Application Assignment to the Dropbox by Day 7. This week, you will complete a Tutorial Quiz. It is recommended that you complete the Tutorial Quiz by Day 7 of the week. This week, you have a Forward Thinking note to keep in mind after you complete this week’s assignments. Next week, you will participate in a group simulation of a bankruptcy negotiation. You may want to look ahead and read through the parameters of the Application Assignment, so that when you receive your role assignment, you will be ready to move forward.
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