§1: Laws Assisting Creditors • Liens: • Consensual. • Statutory. • Judicial. • Other Remedies: composition agreements, ABC’s. • Suretyship.
Liens  • Consensual Liens. • Personal property as collateral (UCC Art. 9 UCC Secured Transactions). • Real property as collateral (Mortgage). • Statutory Liens. • Mechanic’s Lien. • Artisan’s Lien. • Innkeeper’s Lien. • Judicial Liens: Attachments, Writs of Execution, Garnishment.
Liens  • Mechanic’s Lien: Nonpossessory filed lien on real estate for labor/services. • 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.
Mortgage  • Mortgagor (Debtor-Borrower). • Mortgagee (Creditor-Lender). • Debtor Defaults: Foreclosure - go through court to have sheriff seize, advertise, and sell property.
Mortgage  • 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.
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.
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.
§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
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.
Guaranty • Secondarily liable, debtor must default, creditor has attempted to collect from the debtor. • Statute of Frauds requires guaranty to be in writing.
Defenses of Surety & Guarantor  • 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.
Defenses of Surety & Guarantor  • 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.
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.
§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.
Case 29.1: Herpel, Inc. v. Straub Capital Corp. • FACTS: • Herpel agreed to make a mantel for a house owned in part by Straub Capital Corp. The mantel was delivered, but the buyers were not satisfied. • Herpel took it back, worked on it some more, and redelivered it five weeks later. The buyers did not pay. • Herpel filed a mechanic’s lien 113 days after the first delivery, but less than 90 days after the redelivery. A state statute limits the time for filing to 90 days. • Herpel then filed an action against the buyers in a Florida state court to foreclose.
Case 29.1: Herpel, Inc. v. Straub Capital Corp. • HELD: FOR HERPEL. • “[I]t is clear that the additional work on the mantel was performed to complete the job in compliance with the contract” and thus the filing was timely.
Case 29.2: U.S. v. Smith(Garnishment) • FACTS: • For years, Charles Smith asked his friends and acquaintances to invest their money in his business schemes, but he used most of the money for personal expenses. • Smith was convicted of criminal fraud and ordered to repay his victims by turning over, each month, the entire amount of his pension. • Smith appealed, claiming that it violated the “anti-alienation” provision of ERISA.
Case 29.2: U.S. v. Smith(Garnishment) • HELD: FOR SMITH. REVERSED. • Fourth Circuit vacated the order and remanded the case for a re-determination of the amount that Smith should pay, based on “a balance of the victims’ interest in compensation and Smith’s other financial resources. • The statute is clear. Congress has made a policy decision to protect the ERISA income of retirees, even if that decision prevents others from securing relief for the wrongs done them.
Case 29.3: Wilson Court v. Tony Maroni’s(Guaranty) • FACTS: • Tony Maroni’s leased space owned by Wilson Court. • Riviera, Maroni’s president, signed the lease and a guaranty. On the signature line of the guaranty, Riviera wrote “President” after his name. The guaranty did not specifically identify who was bound, referring only to “the undersigned” or “Guarantor.” Riviera also signed the lease in a representative capacity, but the lease clearly indicated that only Tony Maroni’s was bound by it terms. • When Tony Maroni’s defaulted on the lease, Wilson sued Riviera.
Case 29.3: Wilson Court v. Tony Maroni’s(Guaranty) • HELD: FOR WILSON. • Riviera is personally liable. • The “combination of circumstances” made the guaranty “ambiguous,” said the court. This ambiguity was created by Riviera, so it was construed against him. • “If Riviera signed the Guaranty only in his representative capacity, Tony Maroni’s would be both Tenant and Guarantor, rendering the Guaranty provisions absurd.”