978-1285770178 Solution Manual BL ComLaw 1e SM-Ch20

in whole or in part.

CHAPTER 20

CREDITORS’ RIGHTS AND BANKRUPTCY

in whole or in part.

CHAPTER 20: CREDITORS’ RIGHTS AND BANKRUPTCY 3

in whole or in part.

4A. Why do states require strict compliance with the provisions of their foreclosure

laws, such as the requirement in this case that the lender own the note at the time of the

complaint? Exact compliance with legal requirements prevents the court from being crowded

with complaints in which parties are sued on the wrong basis or for the wrong remedy. Exact

compliance with legal requirements also protects innocent parties from being haled into court by

unscrupulous lenders and others.

CASE 20.3—QUESTIONS (PAGE 392)

WHAT IF THE FACTS WERE DIFFERENT?

Suppose that the parties had carefully read the contract before they signed it. If they had

been sure that the agreement stated what they intended and if everything discussed was

in writing, how might the outcome of this case have been different? Most likely, the dispute

would have been avoided, or the court would have ruled differently. The court pointed out that

“the issue in this case could have been easily avoided by careful attention to the language of the

Guaranty and communication between the parties. If Riviera did not intend personal liability, he

should have said so. Wilson could have pressed Riviera to sign only in his individual capacity or

modified its Guaranty to clearly specify Riviera as the Guarantor.”

THE ECONOMIC DIMENSION

Why would a landlord, a lender, or any creditor require a guaranty? A guaranty represents

an assurance or at least a promise of payment from a third party in the event of default by a

principal debtor on a debt. In the Wilson case, the principal debtor was a corporation. The

guaranty was signed by the firm’s founder and president. When the corporation defaulted on its

lease, the guarantor argued that he had signed the document only as a representative of the

firm. But a court ruled that the guarantor was personally liable—to hold otherwise would have

had the “absurd” result of making the corporation the guarantor of its own lease.

ANSWERS TO QUESTIONS IN THE REVIEWING FEATURE

AT THE END OF THE CHAPTER

1A. Artisan’s lien

Under New Mexico law it is understood that materials for a plane would include parts provided in

repair services, but not fuel, oil and oxygen that are consumed in the use of the plane. Executive

Aviation had no right to seize the plane; it was not in its possession.

2A. Judicial liens

A writ of attachment is a court-ordered seizure and taking into custody of property prior to the

securing of a judgment for a past-due debt; a writ of execution is used after a judgment is

obtained and a court order to secure the property is received.

4 UNIT FIVE: CREDITORS’ RIGHTS AND BANKRUPTCY

in whole or in part.

3A. Bank account

Executive can search for assets, such as funds, to satisfy the debt. It would ask the court of a

writ of attachment so it establishes a security interest in the funds, which can reduce the

likelihood they will be used for other purposes.

4A. Suretyship or guaranty

It is a guaranty because the promise by Fasco was in writing and made him secondarily liable in

case the principal, Air Ruidoso, defaulted.

ANSWER TO DEBATE THIS QUESTION IN THE REVIEWING FEATURE

AT THE END OF THE CHAPTER

Because writs of attachment are a prejudgment remedy for nonpayment of a debt,

they are unfair and should be abolished. Normally, one is considered innocent until proven

guilty, but not with writs of attachment, for they occur prior to a trial and judgment. Therefore,

laws should be passed removing them for the statute books. After a trial and judgment, then a

losing defendant’s property should be seize to satisfy an unpaid debt.

If writs of attachment were abolished, then debtors could quickly sell attachable property

and abscond with the resulting funds prior to a trial and judgment for nonpayment of a legally

binding debt. In the long run, there would be less credit extended to individuals and to

businesses because of this increased risk.

ANSWERS TO ISSUE SPOTTERS IN THE EXAMPREP FEATURE

AT THE END OF THE CHAPTER

1A. Jorge contracts with Larry of Midwest Roofing to fix Jorge’s roof. Jorge pays half

of the contract price in advance. Larry and Midwest complete the job, but Jorge refuses

to pay the rest of the price. What can Larry and Midwest do? Each of the parties can place

a mechanic’s lien on the debtor’s property. If the debtor does not pay what is owed, the property

can be sold to satisfy the debt. The only requirements are that the lien be filed within a specific

time from the time of the work, depending on the state statute, and notice of the foreclosure and

sale must be given to the debtor in advance.

2A. Alyssa owes Don $5,000 and refuses to pay. Don obtains a garnishment order and

serves it on Alyssa’s employer. If the employer complies with the order and Alyssa stays

on the job, is one order enough to garnish all of Alyssa’s wages for each pay period until

the debt is paid? Why? No. In some states, a creditor must go back to court for a separate

order of garnishment for each pay period. Also, federal and state laws limit the amount of

money that can be garnished from a debtor’s pay.

CHAPTER 20: CREDITORS’ RIGHTS AND BANKRUPTCY 5

in whole or in part.

ANSWERS TO BUSINESS SCENARIOS AND BUSINESS CASE PROBLEMS

AT THE END OF THE CHAPTER

20-1A. Liens

(Chapter 20—Pages 382–385)

than remain silent when they have notice that improvements are being made on their property or

they will be estopped from attacking a mechanic’s lien. Here, the Bladavichs knew that the

20-2A. Liens

(Chapter 20—Pages 382–385)

Three basic actions are available to Holiday:

(a) Attachment—a court-ordered seizure of nonexempt property prior

(b) Writ of execution, upon reducing the debt to judgment. The writ is an order issued

by the clerk directing the sheriff or other officer of the court to seize (levy) nonexempt

property of the debtor located within the court’s jurisdiction. The property is then sold,

and the proceeds are used to pay for the judgment and cost of sale, with any surplus

for each pay period.

Holiday can proceed with any one or a combination of these three actions. Because the

property may be removed from the jurisdiction, and perhaps Kanahara himself may leave the

jurisdiction (he may quit his job), prompt action is important.

in whole or in part.

8 UNIT FIVE: CREDITORS’ RIGHTS AND BANKRUPTCY

in whole or in part.

state intermediate appellate court affirmed. “The terms of the guaranty compel us to reject all

permutations of this argument. * * * It is no defense to the guaranty that other funds may be

available [now or] in the future to be applied to the bank’s debt.”

20-8A. A QUESTION OF ETHICS—Guaranty

(a) Both at trial and on appeal, the triers of fact were not convinced of Li’s arguments.

the Statute of Frauds. A guarantee is similar to a suretyship and is a contract in which a party,

sometimes referred to as a secondary obligor, “contracts to fulfill an obligation upon the default

20-9A. SPECIAL CASE ANALYSIS—Foreclosure

Case No. 20.2

McLean v. JP Morgan Chase Bank National Association

District Court of Appeal of Florida, 2012.

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

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