Chapter 29 Other Creditor’ Remedies and Suretyship §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). Liens  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. 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). 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. Mortgage Foreclosure  Mortgagor (Debtor-Borrower). Mortgagee (Creditor-Lender). Debtor Defaults: Foreclosure - go through court to have sheriff seize, advertise, and sell property. Mortgage Foreclosure  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. 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. Case 29.3: Wilson Court Limited Partnership v. Tony Maroni’s (1998). 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. Law on the Web Creditor-Debtor relationships at Cornell U. U.S. Department of Labor on garnishment. Legal Research Exercise on the Web.