20 July 2017

Picking Up On Drop Shipping

Warning: Deep inside commercial finance baseball.

Drop shipping, for those not in the business of wholesale distribution, is the term applied when a middleman (typically a wholesaler) buys goods from a manufacturer and has them delivered directly to a retailer. In other words, the wholesaler buys but never takes physical possession of the goods. Wholesalers do this for two reasons: it saves them the cost of (re)delivery and they typically require payment from their retailer before their payment is due to the manufacturer. Playing that margin of perhaps 30 days can add up to measurable interest when we're talking about sales of millions of dollars of goods.

But what if the wholesaler files bankruptcy between the time the manufacturer "drops" the goods on the retailer but before the manufacturer has been paid? Does such a manufacturer simply find itself in the pool of all other unsecured creditors, getting perhaps 10 cents on the dollar (if it's lucky)? Or does it have the power to reclaim the goods themselves?

Congress, in its search to advance the common good, wanted to protect manufacturers (and other sellers) generally and so granted sellers who deliver goods to a buyer within 20 days of the bankruptcy filing a limited "priority" over other unsecured creditors. But what if the goods are delivered within the 20-day window but to the wholesaler's retailing buyer, not the wholesaler itself? SOL, per the bankruptcy court in Delaware. The Bankruptcy Code's priority provision speaks in terms of delivery to the buyer-debtor and so doesn't protect the manufacturer who innocently agrees to drop ship directly to the retailer. Read all about it in Bill Rochelle's piece here.

In addition to Bankruptcy, I regularly teach Secured Transactions. And, as I regularly explain to students in both courses, there's a much better way for a seller to protect itself from the risk of a bankrupt buyer: retain a purchase-money security interest.

I won't bore folks with the technicalities of a PMSI except to raise one question: Does a seller get the benefit of the extra 20-day window in which to perfect when goods are drop shipped? Pre-shipment perfection plus a subordination agreement from the holder of a conflicting security interest will always work but sometimes in the flurry of business activity the seller doesn't get around to perfecting (much less getting a senior secured creditor to subordinate) until some point post-shipment.

Here's the relevant text of UCC 9-317(e):
[I]f a person files a financing statement with respect to a purchase-money security interest before or within 20 days after the debtor receives delivery of the collateral, the security interest takes priority over the rights of a buyer, lessee, or lien creditor which arise between the time the security interest attaches and the time of filing.
You'd think--or at least I'd think--that the intersection of delayed perfection and drop shipments would be resolved in the text of the statue, its Official Comments, or the case law. If this question has been answered, I can't find it.

If I can go out on a limb and predict what I think most courts would answer it would be like what we see in connection with the bankruptcy priority: "delivery" to a debtor means physical delivery to the wholesale debtor, not to a retail buyer from the debtor. I'm not sure this makes any sense from the perspective of the policy of Art. 9 (or bankruptcy law for that matter) but that's my bet for now.

(For my earlier discussion of a similar topic--consignments--in connection with the first bankruptcy of Family Christian Stores go here. If you're interested in an overview of this area of the law, you can read my article, How Revised Article 9 Will Turn the Trustee's Strong Arm into a Weak Finger that can be downloaded here or here.)

18 July 2017

Perversely Good News For Some Student Loan Borrowers

Toward the back-end of the previous decade, as the mortgage loan crisis hit bottom, a number of entities seeking to foreclose mortgages found themselves in a pickle: they didn't have the promissory note evidencing the debt secured by the mortgage. Mortgages are recorded in the real estate records of the county in which the property is located. Promissory notes, however, are (or should be) held by the lender or the entity to which the lender sells the debt.

Many folks may not understand that their initial mortgage lender within a month sells the promissory note and assigns the underlying mortgage (or deed of trust, it amounts to much the same thing). Initial lenders don't want to wait 30 years to get paid. They'd prefer to take a discount from a long-term investor for immediate cash. In theory, the note is endorsed or assigned to the buyer and physically transferred as well. If and when it comes time to foreclose, at least in the half of U.S. states that require foreclosures to go through a judicial process, failure of the foreclosing buyer to have possession of the note may be fatal to the action.

Why wasn't possession of the promissory note always transferred to the buyer of the loan? Carelessness, mostly. After all, in the run-up to the mortgage crisis, no one believed it could ever happen. And if there would never be a need to foreclose, failure to have possession of the note wouldn't be a big deal.

It turns out the same sort of sloppiness has occurred with some student loan notes. Go here to read the story in the New York Times. Turns out that some buyers of bundles of private student loans (which make up a relatively small portion of the student loan market) have been as careless as their mortgage-loan forbears. And they too have been met with the successful defense of "show me the note."

A pleasing result to the borrower, no doubt, but one that raises a moral question: should a borrower who has received a loan be entitled to avoid repayment on a "technicality?" If it makes any difference, this so-called technicality is an old one; it's been part of the law of negotiable instruments for hundreds of years.

(For some of my musings on morality in this general ballpark go here and here.)

13 July 2017

Nine Into Eleven X 2

Did you miss my post here about my latest article? That addresses common interest communities (think condo and home owner associations) in bankruptcy?


 
33 Emory Bankr. Dev. J. 455 (2017)


Don't fret. To the right you can see a picture of the snappy cover of volume 33 of the Emory Bankruptcy Developments Journal. And if you go here or here, you can download my article for your own collection. Or for that of your association lawyer.*







* Can you identify the biblical allusion in Emory's seal?


11 July 2017

A Quarter Million

Even though page-views on my blog will never approach the number of hits on Jim Duane's YouTube sensation, it has passed the 250,000 views post.

I'm pleased that a number of folks have read at least something of my idiosyncratic takes on this, that, or the other thing. Neither of the webmasters at the law schools where I've taught have known how to classify my random thoughts, which is okay with me. As I observed some time ago here and here
Blogging has forced me to write, and thus think, more clearly about what I've read. It is one thing to read through an article; it is another to read it with enough care to restate, analyze, and critique the author's thesis. Blogging has also occasioned more complete reading. To blog about a book or an article makes it more likely that I have read the whole. Non-scholarly blogging about, say, places I've visited or movies we're seen, also tends to focus my attention on the experience, to be a more active observer. Finally, blogging spreads the audience for my scholarly works. The audience for articles published by law review is naturally small but blogging has gotten a few non-academics to read some of what I've written.
So, I plan to keep on. Blogging has been a net positive for me as I hope it will continue to be for you.


10 July 2017

Vindicated!

I'm gratified to learn that my "guilty pleasure" of continuing fondness for Progressive Rock has been echoed by another source, The Economist (here) no less. Since my post a half-decade ago here, you may be happy to know that I've acquired a turntable and so can listen to my old vinyl to my heart's content.

03 July 2017

A Pre-Independence Day Thought

Merely some links with brief comments. First, go here to read a nice post by James Bratt (on whom I posted in another context herehere, and here). Bratt discusses three Colonial models of the relationship between adherents of one or another Reformed Christian tradition and the civil government in their particular polity. Bratt does a good job of explaining why, for example, we cannot extrapolate from Puritan New England to the middle colonies to the South. There was no unity of approach among the colonies and their residents on such matters.

On the first hand,
New England Puritans aimed at making the visible and invisible churches as synonymous as possible. At the same time their churches were state-supported to the exclusion of all others with the aim of thoroughly reforming not only church but also state and society. This was to be a "Bible commonwealth" founded on covenants both civil and ecclesiastical, drawn at once with each other and with God.

On the second,
The Middle Atlantic region of New York, New Jersey, and Pennsylvania constituted the most ethnically and religiously pluralistic society in North America, and the five Reformed groups who settled in the area (Dutch, Huguenot, German, Scots, and Ulster Irish) had to make their way in a patchwork society. Here any claim of religious establishment was a pipe-dream while civil politics plumbed the depths of factionalism and self-interest. ... Conflict of all sorts was endemic in these circumstances, and a tenacious defense of rights well indicated. Order and harmony had to be achieved by measures that rose above the designs of any particular group. The Calvinist solution lay in its old strain of constitutionalism and due process ...

Finally, 
In the Deep South Presbyterian and Reformed settlers dwelled in a different environment still, one predicated on slavery from the very beginning. ... South Carolina quickly became the only mainland colony with an enslaved majority... Evangelizing efforts in the slave quarters were only accepted once it had become clear that conversion did not entail manumission. Evangelical religion made its advances in this region by accepting a twofold contract: that the most slavery-dependent region of colonial America would be run in the name of the purest libertarian ideology, and that civil government would be free of any carping from the church

Bratt goes on to provide his take on some present-day applications of a blend of these three models. My point here, however, is only to make us aware that there were three models and that none encompassed the whole of Colonial America and that it’s a fool’s errand for Christians of any stripe to take any one as the model for what should be the relationship among the Christian faith, civil government, and society in the twenty-first century.

28 June 2017

Exciting PACA News!

(Warning: More inside legal-agribusiness baseball.)

(For my previous warning go here.)

Cognoscenti of the federal Perishable Agricultural Commodities Act (PACA) and the revised (as of 2001) state law in Article 9 of the Uniform Commercial Code will be excited to know that the Ninth Circuit en banc will take up a fascinating case that presents a collision between the purpose (but not the text) of PACA and some eye-glazing finagling in revised Article 9. Read a brief summary from the American Bankruptcy Institute here.

As I wrote here,
PACA permits unpaid farmer-sellers of perishable agricultural products, typically fruits and vegetables, to get their money from their buyers ahead of virtually all other unpaid creditors. Now, I'm all in favor of folks getting what's owed them but why should sophisticated corporate farmers get paid ahead of everyone else? What about employees of a now-defunct buyer? What about all the other creditors who are getting stiffed? What about the buyer's bank?

The federal priority for payment afforded certain farmers is bad policy: "PACA is evidence of the continuing infatuation of Americans with the virtuous yeoman farmer of yesteryear. No matter that farming today is a fully integrated corporate enterprise that bears almost no relationship to what most Americans imagine; farmers today are the beneficiaries of much federal largess." On the other hand, what the revisers of Article 9 did for the benefit of purchasers of accounts receivable (which is too complicated to explain here) is equally an example of the success of rent-seeking.

So who should win in Boulder Fruit Express & Heger Organic Farm Sales v. Transportation Factoring, Inc.? My bet is that the Ninth Circuit will distinguish its earlier precedent and hold for the farmers. The federal statute usually prevails in close cases and the changes in law at the state-level Article 9 after Congress enacted PACA probably warrant such a result.

(For some earlier musings on PACA go here. For an article I wrote last century about PACA go here.)

27 June 2017

Warning!

To the 68+ million Americans who live in a condominium or are part of a homeowners association.

Check those financial statements (particularly the reserves) closely. And be sure there's enough insurance and that the premiums are being paid.

If you want to know why, feel free to download and read my just-published article, Nine Into Eleven: Accounting for Common Interest Communities in Bankruptcy, 33 Emory Bankr. Dev. J. 455. You can get to it at either Bepress here or SSRN here.

Cribbing from my abstract:
Ever more Americans live in a common interest community such as a homeowners’ association or condominium. Common interest communities restrict the uses owners may make of their property but provide benefits to the owners. The community association pays for these benefits by levying assessments on the owners’ property. Common interest communities offer a wide variety of benefits that can be divided into between public and private. Local municipalities typically provide public benefits at taxpayer expense; private entities usually afford private benefits at the consumer’s expense.
Like both public and private entities, common interest communities can experience the problem of financial distress. The ultimate solution to financial distress is relief under the Bankruptcy Code. Private entities are eligible for relief under chapter 11; public entities—municipalities—are eligible for relief under chapter 9. Chapter 9 affords municipalities significant protections compared to private entities under chapter 11 because of the irreducible political sovereignty of municipalities. Nonetheless, even though common interest communities also provide public goods, they are eligible for relief only under chapter 11 and thus lack the protections afforded by chapter 9.
Chapter 11 of the Code should be amended in two ways to afford common interest communities some of the benefits of chapter 9. Specifically: (1) the standard of the best interests of creditors in a proposed chapter 11 plan of reorganization should not be evaluated against a hypothetical chapter 7 liquidation; and (2) a common interest community should be able to cram down its plan without regard to retention by the community of its assets. Without these amendments, common interest communities in financial distress and their members will be less likely to reorganize, and the cost of providing public goods will revert to the local community and its taxpayers. 

26 June 2017

"Calvin and the Whigs" Part 3

(You can read parts 1 and 2 of my comments on Ruben Alvarado’s “Calvin and the Whigs: A Study in Historical Political Authority” here and here.)

My final observation will deal with one of the two men who dominate the conclusion of Alvarado’s study of the decline and fall of the Augustinian dialectic that had provided the framework for Western political theology and practice for a millennium. Alvarado discusses Hugo Grotius and John Locke at length but I’ll limit my comments to Locke, whose work more directly influenced the North American scene.

The short-lived ideology of royal supremacy in England had largely evaporated by the 1680s. The historical claims of Filmer’s Patriarcha were no longer credible. And, after the disastrous results of the English Civil War and the failure of Cromwell’s Commonwealth and Protectorate, hopes for a thoroughgoing Protestant reformation of society and politics were only a pipe dream. Nor, however, was the traditional Church of England up for the task of providing a counterweight to Parliament’s assumption of ultimate political power. It thus came to John Locke to provide a supra-historical theory to justify parliamentary supremacy.

In his “Two Treatises of Civil Government” Locke postulated his well-known “state of nature” in which all adults possess, by nature, a panoply of rights emanating from the right of self-defense. Of those, “property became central to the legal order.” Alvarado makes an interesting observation at this point: parental authority, to the extent it continues over adult children, is a function of the right to property:
The obedience to parents which one notices even from children of adult age is not essentially due to an innate parental authority but rather the indirect authority [read: power] parents wield through the disposition of their estate. The demand for obedience in certain matters is often a condition for reception of property by inheritance. It is this power which one so often confuses with parental authority.
The appearance of parental authority is thus collapsed into power over property and the feigned subordination of adult children eventually becomes habitual, a false consciousness, as it were.

By a short extension, parental power over property becomes the foundation of continuing political authority. Each new generation impliedly contracts to accept the existing political arrangement. How so?  “Because estates are subject to the laws of the polity, the acceptance of an inheritance thereby obliges one to submit to the laws of the commonwealth.” And who makes the laws of the commonwealth? The majority. 

One the one hand,
All of this is but the adaptation of the [then] current English parliamentarian and common-law institutional agenda to an a priori natural-rights theory. It is also the sellout of social order to the interests of property; for having eliminated the theocratic moorings of the social order, a new foundation was being established, that of property rights …
But on the other,
[Since] taxes are levied by the consent of the governed, of the majority … the will of the majority supersedes the will of the individual, and the liberty which individuals are supposed to have retained from the state of nature appears to have receded dramatically.
Not surprisingly, we have the tiresome and unresolvable political dialectic of contemporary American politics—individual property rights vs. a majoritarian reallocation of property—all framed in terms of promises of ever-greater economic growth, i.e., more property for everyone!

But what, in Locke’s schema, is the place of the Church? Although a Latitudinarian Anglican himself, in his Letter on Toleration Locke propounded a view that accorded with the Separatist take on the Church, that it was the voluntary gathering of like-minded co-religionists. There was no way that a church so understood could function as a meaningful counterweight to the supreme Parliamentary state:
With his ascription of supreme power to the legislative, Locke fell into the same trap as have all the political theorists following Bodin, who ascribe an absolute sovereignty to a human institution. There is simply no way to stand against that power except by revolution … precisely the situation [Augustinian ---> Medieval --> Reformed] constitutionalism was meant to avert.
Alvarado makes some interesting observations on other long-term effects that the Lockean understanding of legislative supremacy has had. You should read them for yourself. Suffice it to say that “Calvin and the Whigs” is a useful tool in the resourcement of early-modern Protestant thought. While no fundamental change to our current political settlement is in the offing, Alvarado’s book helps explain how we got ourselves where we are.


(For those interested in another review of “Calvin and the Whigs,” feel free to subscribe to AdFontes, the monthly journal published by Davenant Trust.

22 June 2017

Covfefe 2017: Concluding Thoughts

(For previous posts about this year's Convivium go here, here, here, and here.)

A few comments on Joseph Minich's paper "Divine Absence and Classical Theism in the Modern World" will serve as the coda to my brief summaries of the Convivium Irenicum 2017. Minich took as his springboard Dietrich Bonhoeffer's well-known assertion in a letter to his friend Eberhard Bethge from prison in 1944:
We cannot be honest unless we recognize that we have to live in the world etsi deus non daretur [translation: "as if there were no God"]. And this is just what we do recognize--before God! God himself compels us to recognize it. So our coming of age leads us to a true recognition of our situation before God. God would have us know that we must live as men who manage our lives without him. The God who is with us is the God who forsakes us (Mark 15:34). The God who lets us live in the world without the working hypothesis of God is the God before whom we stand continually. Before God and with God we live without God. God lets himself be pushed out of the world on to the cross. He is weak and powerless in the world, and that is precisely the way, the only way, in which he is with us and helps us. Matt. 8:17 makes it quite clear that Christ helps us, not by virtue of his omnipotence, but by virtue of his weakness and suffering.
Much ink has been spilled over precisely what Bonhoeffer meant that "we [Christians] must live as men who manage our lives without [God]" and, thankfully, Minich didn't take us into the arcana of Bonhoeffer studies. Instead, he asked us to consider Bonhoeffer's cryptic comment in light of Charles Taylor's sustained argument in "This Secular Age." In one post from my long-running series on Taylor's work, I observed that
Life in a secular age ... suggests that “we have moved from a world in which the place of fullness was understood as unproblematically outside of or ‘beyond’ human life, to a conflicted age in which this construal is challenged by others which place it . . . ‘within’ human life.”  Taylor’s understanding  of “fullness” is that place where life is “fuller, richer, deeper, more worthwhile, more what it should be.”  Of course, for all but a very few believers most of life is not lived in such a place; rather, a “middle place,” or ordinary time, is a stable condition where a routine order of life somehow maintains a sense of contact with the place of fullness.
It seems--according to me and I think Minich would agree--that Bonhoeffer was urging Christians to avoid the short-sighted comfort of such a "middle space" and live, as do their unbelieving compatriots, as if God did not exist but, at the same time, unlike their unbelieving fellows, fully participating in the "fullness" that the weakness of Christ holds forth.

Minich's long-ish paper made many more points of interest and value but you'll have to wait until the publication of the Convivium proceedings to read them for yourself.

13 June 2017

Covfefe 2017: More Miscellaneous Thoughts

(Go here and here to read my summaries of the valuable remarks on contemporary Trinitarian issues by Fred Sanders. And go here to read brief comments on presentations by David Haines and Alastair Roberts.)

Christopher Dorn also addressed the Trinity but his paper discussed how the Trinity did not appear in the Reformed orders of worship for celebration of the Lord's Supper. This lapse is puzzling in light of the centrality of the Trinity in the Eucharistic Prayers of the 4th and 5th centuries and the fully orthodox treatment of the Trinity in the theological works of the leaders among the Reformation. 

In any event, the work of the World Council of Churches in the 1960's attempted to rectify this situation but, like the ecumenical movement generally, this effort of the WCC--some of its best--has failed to "reform" the liturgies of the Lord's Supper in conservative Reformed churches. Dorn's conclusion, with which I fully concur, is that
If contemporary Reformed liturgists and worship leaders conclude that a Eucharistic Prayer misrepresents the gift-character of the Lord's Supper due to its themes of sacrifice, and therefore must be rejected, they should at least ensure that those Trinitarian themes that are in fact consistent with a Reformed theology of the Lord's Supper are embodied in the liturgies that they develop for their worship today.
Paul Nedelisky, now a Convivium regular and analytic gadfly, pressed his audience on the doctrine of divine simplicity (God has no parts even though the relations among Father, Son and Spirit are not identical). Like discussions of the relationships of the persons of the Trinity generally, divine simplicity is difficult to comprehend and has been expressed in philosophical terms that frequently bear meanings that are not "commonsense." Nor can we "read off" divine simplicity from the text of Scripture. Thus, in Nedelisky's words, divine simplicity is neither an essential nor a dogmatic truth. Not false, mind you, but rationally contestable.

It would not be an understatement to report that his audience remained unpersuaded. For me anyway, while it is certainly true that divine simplicity came to be expressed in a historically contingent manner, I continue to believe that the concept of divine simplicity is a necessary truth. Just don't ask me to explain it.

08 June 2017

Convivium 2017: Some Miscellaneous Thoughts

A variety of folks in addition to Fred Sanders presented papers or engaged in roundtable discussions at this year's Covfefe. (Although how Donald Trump knew that was the esoteric name for the Convivium continues to elude us. Perhaps he's preparing a yuge piece on the doctrine of God to present at next year's event.) For my brief summaries of Sanders's lecture on the Trinity go here and here.

Thankfully, Québécois David Haines managed to stick to English while speaking on Natural Theology and Protestant Orthodoxy. In very short, Haines demonstrated that regardless of your stance as a Protestant (biblicist, confessionalist, or historicist), natural theology--that humans can know true things about God apart from special revelation--is a legitimate part of your heritage. Convinced me. In other words, whether based on the virtually undeniable teaching of Scripture itself, the range of Protestant confessions of faith, and the course of church history, natural theology is a quintessentially Protestant doctrine.

Alastair Roberts (blogger extraordinaire here) made several insightful points in his commentary. To be clear, however, what follows is my take on Roberts's remarks and should not be attributed to him tout court.

Evangelicalism's "gender wars" are ostensibly about authority and submission. Who has the elixir of authority, when do they have it, how far does submission go, etc.* But this, according to Roberts, is to misconceive the notion of "authority" in an important way. Authority is not in the first place about who has the God-given right to make a decision when two parties in an authority-submission relationship disagree. Authority is not principally about where the buck stops. Instead, authority represents the shaping, authorial role that the one(s) with the authority have as part-and-parcel of a given relationship.

Roberts's point is easier to see in the parent-child relationship. While a child's misbehavior may occasionally call on parents to exercise their authority in the judicial sense of punishment for a wrong, most of the time a parent's authority is exercised in the daily range of interactions with a child. Sometimes these interactions are explicitly didactic; at others, indeed, most of the time, they are exemplary. And it is the later instantiation of authority that has the far more significant role in shaping the child's life than the relatively rare punishments.

The fiercest critics of typical gender roles would find even this characterization of authority offensive. Yet within Evangelicalism, at least where exegesis and historical theology are taken seriously, a view of authority that is centered on and directed to virtuous practices that only rarely issues in declarative judgment could frame discussions in a less-fraught manner.


* This narrow construal of authority is then read back into the Trinity; hence; social trinitarianism.