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Simple English definitions for legal terms
absolute-bar rule
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A quick definition of absolute-bar rule:
The absolute-bar rule is a law that says if a creditor sells something that a borrower used as collateral for a loan in a way that is not fair, they cannot ask the borrower to pay any remaining debt. For example, if someone borrows money and uses their car as collateral, the creditor cannot sell the car for much less than it is worth and then ask the borrower to pay the difference. The law requires that the creditor sell the collateral in a fair way and notify the borrower before doing so. This rule is part of the Uniform Commercial Code and has been adopted by California.
A more thorough explanation:
The absolute-bar rule is a legal principle that prevents a creditor from obtaining a deficiency judgment if they dispose of collateral in a commercially unreasonable manner. This means that if a debtor defaults on a loan and the creditor takes possession of the collateral (such as a car or house), they must sell it in a way that is fair and reasonable. If they do not, they cannot seek additional payment from the debtor.
For example, the Uniform Commercial Code (UCC) and the California Commercial Code (COM) both require that creditors dispose of collateral in a commercially reasonable manner. They also require that debtors be notified before the collateral is sold. If a creditor fails to follow these rules and sells the collateral for less than it is worth, they cannot seek a deficiency judgment against the debtor.
One example of the absolute-bar rule in action is the case of Beardmore v. Am. Summit Fin. Holdings, L.L.C. In this case, the court applied the absolute-bar rule even though the Texas legislature had abandoned it. This was because the creditor had sold the collateral before the law changed, so they were still subject to the old rule.
Overall, the absolute-bar rule is an important protection for debtors. It ensures that creditors cannot take advantage of them by selling their collateral for less than it is worth and then seeking additional payment.