© 2004 West Legal Studies in Business A Division of Thomson Learning 1 Chapter 29 Other Creditor’ Remedies and Suretyship Chapter 29 Other Creditor’ Remedies and Suretyship

© 2004 West Legal Studies in Business A Division of Thomson Learning 2 §1: Laws Assisting Creditors Liens:  Consensual.  Statutory.  Judicial. Other Remedies: composition agreements, ABC’s. Suretyship. Liens:  Consensual.  Statutory.  Judicial. Other Remedies: composition agreements, ABC’s. Suretyship.

© 2004 West Legal Studies in Business A Division of Thomson Learning 3 Liens [1] Consensual Liens.  Personal property as collateral (UCC Art. 9 UCC Secured Transactions).  Real property as collateral (Mortgage). Consensual Liens.  Personal property as collateral (UCC Art. 9 UCC Secured Transactions).  Real property as collateral (Mortgage).

© 2004 West Legal Studies in Business A Division of Thomson Learning 4 Liens [2] Mechanic’s Lien: Nonpossessory filed lien on real estate for labor/services.  Case 29.1: AEG Holdings LLC v. Tri-Gems Builders Inc. (2002). Artisans’ Lien: Possessory lien on personal property for labor done to property. Innkeeper’s Lien: Possessory lien on baggage for unpaid hotel charges. Judicial Liens: Court-ordered seizure/sale of property. Mechanic’s Lien: Nonpossessory filed lien on real estate for labor/services.  Case 29.1: AEG Holdings LLC v. Tri-Gems Builders Inc. (2002). Artisans’ Lien: Possessory lien on personal property for labor done to property. Innkeeper’s Lien: Possessory lien on baggage for unpaid hotel charges. Judicial Liens: Court-ordered seizure/sale of property.

© 2004 West Legal Studies in Business A Division of Thomson Learning 5 Garnishment Permits a creditor to collect a debt by seizing property of the debtor held by a third party (garnishee). Proceedings governed by state law (Texas does not permit garnishment except for child support). Laws Limit Amount of Wages.  Case 29.2: Shanks v. Lowe (2001). Permits a creditor to collect a debt by seizing property of the debtor held by a third party (garnishee). Proceedings governed by state law (Texas does not permit garnishment except for child support). Laws Limit Amount of Wages.  Case 29.2: Shanks v. Lowe (2001).

© 2004 West Legal Studies in Business A Division of Thomson Learning 6 Creditor’s Composition Agreements Creditors take less than owed on a liquidated debt. Binding on those who agree because consideration given by each depending on one another. Creditors take less than owed on a liquidated debt. Binding on those who agree because consideration given by each depending on one another.

© 2004 West Legal Studies in Business A Division of Thomson Learning 7 Mortgage Foreclosure [1] Mortgagor (Debtor-Borrower). Mortgagee (Creditor-Lender). Debtor Defaults: Foreclosure - go through court to have sheriff seize, advertise, and sell property. Mortgagor (Debtor-Borrower). Mortgagee (Creditor-Lender). Debtor Defaults: Foreclosure - go through court to have sheriff seize, advertise, and sell property.

© 2004 West Legal Studies in Business A Division of Thomson Learning 8 Mortgage Foreclosure [ 2] Money goes to expenses of sale, creditors in descending order of priority, then debtor if any left. If there is still money owed to creditor after foreclosure there is a deficiency, and the debtor is still liable for this. Equity of redemption within statutory period of redemption by the debtor. Money goes to expenses of sale, creditors in descending order of priority, then debtor if any left. If there is still money owed to creditor after foreclosure there is a deficiency, and the debtor is still liable for this. Equity of redemption within statutory period of redemption by the debtor.

© 2004 West Legal Studies in Business A Division of Thomson Learning 9 Assignment for the Benefit of Creditors Debtor voluntarily transfers title to asset owned to a trustee who in turn sells or liquidates and pays creditors on a pro-rata basis. If creditor accepts he/she is bound.

© 2004 West Legal Studies in Business A Division of Thomson Learning 10 §2: Suretyship and Guaranty Promise by a third person (Surety/ Guarantor) to pay a the Creditor a debt owed by Debtor in the event the Debtor does not pay. Principal Debtor Principal Debtor Creditor Surety / Guarantor Surety / Guarantor

© 2004 West Legal Studies in Business A Division of Thomson Learning 11 Suretyship Express contract between the surety and the creditor. Creditor can demand payment from surety at any time after debt is due. Creditor need not exhaust all legal remedies against the debtor before holding the surety responsible. Express contract between the surety and the creditor. Creditor can demand payment from surety at any time after debt is due. Creditor need not exhaust all legal remedies against the debtor before holding the surety responsible.

© 2004 West Legal Studies in Business A Division of Thomson Learning 12 Guaranty Secondarily liable, debtor must default, creditor has attempted to collect from the debtor. Statute of Frauds requires guaranty to be in writing. Case 29.3: Wilson Court Limited Partnership v. Tony Maroni’s (1998). Secondarily liable, debtor must default, creditor has attempted to collect from the debtor. Statute of Frauds requires guaranty to be in writing. Case 29.3: Wilson Court Limited Partnership v. Tony Maroni’s (1998).

© 2004 West Legal Studies in Business A Division of Thomson Learning 13 Defenses of Surety & Guarantor [1] Surety can use any of the Debtor’s defenses EXCEPT incapacity, bankruptcy, or statute of limitations. Surety can use his own defenses, EXCEPT fraud between Debtor and Surety that is unknown by creditor. Surety can use any of the Debtor’s defenses EXCEPT incapacity, bankruptcy, or statute of limitations. Surety can use his own defenses, EXCEPT fraud between Debtor and Surety that is unknown by creditor.

© 2004 West Legal Studies in Business A Division of Thomson Learning 14 Defenses of Surety & Guarantor [2] Material contract modification between Debtor and Creditor will release a gratuitous surety and a compensated surety to the extent he suffers a loss. Surrender or impairment of the Debtor’s collateral releases surety to the extent he is damaged. Release of a co-surety releases surety to the extent he is damaged. Material contract modification between Debtor and Creditor will release a gratuitous surety and a compensated surety to the extent he suffers a loss. Surrender or impairment of the Debtor’s collateral releases surety to the extent he is damaged. Release of a co-surety releases surety to the extent he is damaged.

© 2004 West Legal Studies in Business A Division of Thomson Learning 15 Rights of Surety & Guarantor Right of Subrogation. Right of Reimbursement. Right of Contribution from Co-sureties.  Sureties in equal amounts.  Sureties in equal amounts, one or more co-sureties missing or insolvent. Right of Subrogation. Right of Reimbursement. Right of Contribution from Co-sureties.  Sureties in equal amounts.  Sureties in equal amounts, one or more co-sureties missing or insolvent.

© 2004 West Legal Studies in Business A Division of Thomson Learning 16 §3: Protection for Debtors Exemptions (Federal and State).  Homestead.  Personal property. Holder in Due Course does not work against consumers. Truth-in-Lending Act for consumers. Exemptions (Federal and State).  Homestead.  Personal property. Holder in Due Course does not work against consumers. Truth-in-Lending Act for consumers.

© 2004 West Legal Studies in Business A Division of Thomson Learning 17 Law on the Web Creditor-Debtor relationships at Cornell U. Creditor-Debtor relationships U.S. Department of Labor on garnishment. U.S. Department of Labor on garnishment Legal Research Exercise on the Web. Creditor-Debtor relationships at Cornell U. Creditor-Debtor relationships U.S. Department of Labor on garnishment. U.S. Department of Labor on garnishment Legal Research Exercise on the Web.