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Chapter 29 Other Creditor’ Remedies and Suretyship

Chapter 29 Other Creditor’ Remedies and Suretyship. §1: Laws Assisting Creditors. Liens: Consensual. Statutory. Judicial. Other Remedies: composition agreements, ABC’s. Suretyship. Liens [1]. Consensual Liens. Personal property as collateral (UCC Art. 9 UCC Secured Transactions).

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Chapter 29 Other Creditor’ Remedies and Suretyship

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  1. Chapter 29 Other Creditor’ Remediesand Suretyship

  2. §1: Laws Assisting Creditors • Liens: • Consensual. • Statutory. • Judicial. • Other Remedies: composition agreements, ABC’s. • Suretyship.

  3. Liens [1] • Consensual Liens. • Personal property as collateral (UCC Art. 9 UCC Secured Transactions). • Real property as collateral (Mortgage).

  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.

  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).

  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.

  7. Mortgage Foreclosure [1] • Mortgagor (Debtor-Borrower). • Mortgagee (Creditor-Lender). • Debtor Defaults: Foreclosure - go through court to have sheriff seize, advertise, and sell property.

  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.

  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.

  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 Creditor Surety / Guarantor

  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.

  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).

  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.

  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.

  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.

  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.

  17. Law on the Web • Creditor-Debtor relationships at Cornell U. • U.S. Department of Labor on garnishment. • Legal Research Exercise on the Web.

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