978-1285770178 Lecture Note BL ComLaw 1e IM-Ch20 Part 3

CHAPTER 20: CREDITORS’ RIGHTS AND REMEDIES 19

whole or in part.

2. How does an artisan’s lien work? Through an artisan’s lien, a creditor (a jeweler with whom a customer

leaves jewelry to be repaired, for instance) can recover payment for labor and materials furnished to repair personal

property. Normally, the creditor must have possession of the property and have agreed to provide services on a cash,

not credit, basis. The lien exists as long as the creditor has possession and terminates when possession is

voluntarily, permanently surrendered. The lien is lost if a third party obtains rights in the property while it is out of the

creditor’s possession. (To protect the lien and surrender possession at the same time, a creditor must record notice of

the lien under state lien law.) The creditor may foreclose on the property (after notice to the owner) and sell it to

satisfy the debt.

3. How does attachment work? The creditor files with the court an affidavit stating that the debtor is in default

amount of the debt plus interest and costs). If the debtor does not or cannot pay, a creditor goes back to court and

obtains a writ of execution. The writ, usually issued by the clerk of the court, directs the sheriff or other officer to seize

and sell any of the debtor’s nonexempt property that is within the court’s geographic jurisdiction (usually the county in

which the courthouse is located). Sale proceeds are used to pay the judgment and the costs of the sale. Any excess

is paid to the debtor.

states, a creditor must go to court for a separate order of garnishment for each pay period.

6. What are the differences between contracts of suretyship and guaranty contracts? Contracts of surety-

ship and guaranty contracts involve third parties’ promises to be responsible for principals’ obligations. Under a

contract of suretyship, the third party—the surety—is primarily liable. When a debt is due, the creditor can hold the

7. What types of property are exempt from attachment or levy of execution? Each state provides a home–

stead exemption, which permits a debtor to retain the family home, either in its entirety or up to a specified dollar

amount, free from the claims of unsecured creditors or trustees in bankruptcy. (Some states allow the exemption only

if the debtor has a family.) Personal property that is most often exempt (up to at least a specified dollar amount)

includes: (1) household furniture; (2) clothing and certain personal possessions (family pictures, a Bible); (3) a vehicle

20 INSTRUCTOR’S MANUAL FOR BUSINESS LAW: COMMERCIAL LAW FOR ACCOUNTANTS

whole or in part.

difference through a deficiency judgment, which is obtained in a separate action. A deficiency judgment entitles the

creditor to recover this difference from a sale of a debtor’s other nonexempt property. Before a foreclosure sale, a

mortgagor can redeem the property by paying the debt, plus any interest and costs. (This right is known as the equity

of redemption. In some states, a mortgagor may redeem property within a certain time—called a statutory period of

redemption—after the sale.)

9. How might a notice of default and foreclosure actually benefit a debtor? A debtor benefits most from

having a debt forgiven and paying a debt is the most common method to accomplish this end. If a notice of default

and foreclosure prompts an otherwise tardy debtor into paying down a debt, the debtor benefits by preventing

damage to his or her credit ratings. Other debtors also benefit because creditors are encouraged to make more credit

might resemble those that already exist to regulate real estate and mortgages and other advertising at the federal

level. No, although some applicable federal regulation of marketing already exists, because the states should more

appropriately regulate the advertising of real property and mortgages and other aspects of such transactions that

occur within their borders.

tend to arise.

2. Ask students to find and read their state’s garnishment statutes to identify dollar exemptions and local

garnishment procedure, and to determine whether a creditor has to return to court for separate orders to garnish, for

example, an employee’s paychecks.

5. Have students research local cases concerning the mortgages, foreclosures, and laws discussed in this

chapter. In some communities, there is an abundance of such cases. Local newspapers and local courthouses are

potential sources. Specific topics or specific cases could be assigned to students individually, in small groups, or to

the class as a whole. Once they have looked at some of the cases, ask students under what common fact situations

whole or in part.

EXPLANATIONS OF SELECTED FOOTNOTES IN THE TEXT

VERNON’S TEXAS STATUTES AND CODES ANNOTATED

CONSTITUTION OF THE STATE OF TEXAS 1876

ARTICLE XVI. GENERAL PROVISIONS

§ 28. Garnishment of wages

Sec. 28. No current wages for personal service shall ever be subject to garnishment, except for the en–

forcement of court-ordered child support payments.

1991 Pocket Part Credit(s)

Amended Nov. 8, 1983.

HISTORICAL NOTES

1991 Pocket Part Historical Notes

Amendment adopted in 1983 was proposed by H.J.R. No. 1, Acts 1983, 68th Leg., p. 6693.

the payment of debts through garnishment. Under the Consumer Credit Protection Act, for example, a debtor can

retain a certain amount of income. The following is 15 U.S.C.A. Section 1673—that is, Section 1673 of Title 15 of the

United States Code (which sets out that specific restriction) as it appears in United States Code Annotated.

UNITED STATES CODE ANNOTATED

TITLE 15. COMMERCE AND TRADE

CHAPTER 41—CONSUMER CREDIT PROTECTION

SUBCHAPTER II—RESTRICTIONS ON GARNISHMENT

§ 1673. Restriction on garnishment

(a) Maximum allowable garnishment

Except as provided in subsection (b) of this section and in section 1675 of this title, the maximum part of the

aggregate disposable earnings of an individual for any workweek which is subjected to garnishment may not

exceed

(1) 25 per centum of his disposable earnings for that week, or

(2) the amount by which his disposable earnings for that week exceed thirty times the Federal minimum

hourly wage prescribed by section 206(a)(1) of Title 29 in effect at the time the earnings are payable,

22 INSTRUCTOR’S MANUAL FOR BUSINESS LAW: COMMERCIAL LAW FOR ACCOUNTANTS

whichever is less. In the case of earnings for any pay period other than a week, the Secretary of Labor shall

by regulation prescribe a multiple of the Federal minimum hourly wage equivalent in effect to that set forth in

paragraph (2).

(b) Exceptions

(1) The restrictions of subsection (a) of this section do not apply in the case of

(A) any order for the support of any person issued by a court of competent jurisdiction or in accordance with

an administrative procedure, which is established by State law, which affords substantial due process, and

which is subject to judicial review.

(B) any order of any court of the United States having jurisdiction over cases under chapter 13 of Title 11.

(C) any debt due for any State or Federal tax.

(2) The maximum part of the aggregate disposable earnings of an individual for any workweek which is

subject to garnishment to enforce any order for the support of any person shall not exceed—

(A) where such individual is supporting his spouse or dependent child (other than a spouse or child with

respect to whose support such order is used), 50 per centum of such individual’s disposable earnings for that

week; and

(B) where such individual is not supporting such a spouse or dependent child described in clause (A), 60 per

centum of such individual’s disposable earnings for that week;

except that, with respect to the disposable earnings of any individual for any workweek, the 50 per centum

specified in clause (A) shall be deemed to be 55 per centum and the 60 per centum specified in clause (B)

shall be deemed to be 65 per centum, if and to the extent that such earnings are subject to garnishment to

enforce a support order with respect to a period which is prior to the twelve-week period which ends with the

beginning of such workweek.

(c) Execution or enforcement of garnishment order or process prohibited

No court of the United States or any State, and no State (or officer or agency thereof), may make, execute, or

enforce any order or process in violation of this section.

(Pub. L. 90-321, Title III, § 303, May 29, 1968, 82 Stat. 163; Pub. L. 95-30, Title V, § 501(e)(1)-(3), May 23,

1977, 91 Stat. 161, 162; Pub. L. 95-598, Title III, § 312(a), Nov. 6, 1978, 92 Stat. 2676.)

HISTORICAL NOTES

HISTORICAL AND STATUTORY NOTES

References in Text. Chapter 13 of Title 11, referred to in subsec. (b)(1)(B), is § 1301 et seq. of Title 11,

Bankruptcy.

1978 Amendment. Subsec. (b)(1)(B). Pub.L. 95–598 substituted “court of the United States having jurisdiction

over cases under chapter 13 of Title 11” for “court of bankruptcy under chapter XIII of the Bankruptcy Act”.

1977 Amendment. Subsec. (b). Pub.L. 95-30, § 501(e)(1), (2), designated existing provisions as par. (1) and

existing pars. (1), (2), and (3) as subpars. (A), (B), and (C) thereof, substituted “for the support of any person

issued by a court of competent jurisdiction or in accordance with an administrative procedure, which is

whole or in part.

24 INSTRUCTOR’S MANUAL FOR BUSINESS LAW: COMMERCIAL LAW FOR ACCOUNTANTS

whole or in part.

ANSWERS TO QUESTIONS—

 SPECIAL CASE ANALYSIS 

Case No. 20.2

McLean v. JPMorgan Chase Bank, N.A.

District Court of Appeal of Florida, 2012.

79 So.3d 170

(a) Issue: The dispute in this case focused on an attempt to enforce an unpaid note. Who argued that

the note should not be enforced, and on what ground? Robert McLean, the appellant in this case and the

party against whom enforcement of the note was sought, contended that the note should not be enforced on

the ground that JPMorgan Chase Bank, the appellee and the party attempting to enforce the note, did not

have standing.

Chase had filed a foreclosure action in a Florida state court against McLean. The complaint alleged that

Chase was entitled to enforce a mortgage and note on which McLean had defaulted. But the mortgage that

Chase showed to the court identified a different mortgagee and lender, and Chase claimed that the note had

been “lost, stolen, or destroyed.” Later, Chase produced a mortgage assignment that was dated three days

after the bank had initiated foreclosure. Eventually, Chase filed the original note but it was undated. Despite

the discrepancies, the court granted a summary judgment in Chase’s favor. McLean appealed.

(b) Rule of Law: What must a party prove at the time that a complaint is filed to be entitled to enforce

a note? In any foreclosure proceeding, the party seeking foreclosure must demonstrate that it has standing to

foreclose. And a party’s standing is determined at the time the complaint was filed.

There are several ways that the holder of a mortgage note might show standing to foreclose. If an

indorsement of the note shows that its holder is entitled to payment, the holder can establish standing by

showing that the indorsement occurred before the suit. For example, if the note reflects on its face that the

indorsement occurred before the filing of the complaint, this would establish standing. Or a holder might

provide correspondence or some other affidavit of ownership to prove its status as a holder of the note on the

date the suit was filed.

(c) Applying the Rule of Law: How did the court apply the rule of law to the circumstances in this

case? The court applied the rule of law—that a party seeking foreclosure must have standing to foreclose

when it files its complaint—to the circumstances in this case to reverse a lower court’s judgment in favor of

JPMorgan Chase Bank and remand the case. Chase had not shown it had standing at the time the complaint

was filed. To establish standing, on remand Chase would have to prove that it owned the note at the time of

the complaint or file a new complaint.

Here, Chase had filed a foreclosure action in a Florida state court against Robert McLean. The complaint

alleged that Chase was entitled to enforce a note on which McLean had defaulted. But the mortgage that

Chase showed to the court identified a different mortgagee and lender, and the mortgage assignment that

Chase eventually provided was dated three days after Chase had filed its complaint. The note that Chase

showed the court was undated.

(d) Conclusion: After applying the rule of law to the case, what did the court conclude? Who

benefited from this decision? After applying the rule of law, the court concluded that Chase would be

whole or in part.

entitled to summary judgment, if the bank could show that it was the holder of the note on the date the

complaint was filed. “By contrast, if the evidence shows that the note was endorsed to Chase after the lawsuit

was filed, then Chase had no standing at the time the complaint was filed, in which case the trial court should

dismiss the instant lawsuit and Chase must file a new complaint.”

Robert McLean, the appellant in this case and the party against whom enforcement of the note was

sought, benefited from this decision. At least temporarily, he avoided foreclosure. This allowed him more time

to obtain funds to pay the note or to negotiate more favorable terms with Chase (or whichever other party

might have been entitled to enforce the note). The delay might have been enough to stop foreclosure

proceedings altogether, subject to the decision of the party who could prove standing and thereby foreclose.

