673
Chapter 28
Creditors’ Rights
and Remedies
See Separate Lecture Outline System
INTRODUCTION
Historically, debtors and their families were punished for any inability to pay debts, including involuntary servitude and
imprisonment. Today, of course, the legal system helps and protects debtors and their families. This chapter concerns various
rights and remedies available through statutory and common law (other than UCC Article 9) to assist debtors and creditors in
resolving their disputes without a debtor’s having to resort to bankruptcy (discussed in Chapter 30). For students, guaranty and
suretyship is the most difficult subject in this chapter.
674 INSTRUCTOR’S MANUAL TO ACCOMPANY BUSINESS LAW, TWELFTH EDITION
ADDITIONAL RESOURCES—
VIDEO SUPPLEMENTS
The following video supplements relate to topics discussed in this chapter—
PowerPoint Slides
To highlight some of this chapter’s key points, you might use the Lecture Review PowerPoint slides compiled for
Chapter 28.
Business Law Digital Video Library
The Business Law Digital Video Library at www.cengage.com/blaw/dvl offers a variety of videos for group or
individual review. Clips on topics covered in this chapter include the following.
• LawFlix
him into selling his property.).
CHAPTER OUTLINE
I. Laws Assisting Creditors
A. LIENS
A lien creditor has priority over an unperfected secured party. Mechanic’s and artisan’s liens also have priority
over a perfected secured party unless a statute provides otherwise.
1. Mechanic’s Liens
2. Artisan’s Liens
An artisan’s lien, too, is a fairly simple device. Normally, the lienholder must have retained possession of
the property and have agreed to provide services on a cash, not a credit, basis. To protect a lien and
CHAPTER 28: CREDITORS’ RIGHTS AND REMEDIES 675
cash.
(1975 c.648 § 9)
Artisan’s Lien
Under an artisan’s lien, a creditor can recover payment from a debtor for labor and materials furnished in the
repair of personal property. The following excerpts from Oregon Revised Statutes (Or. Rev. St. §§87.152, 87.172,
87.182) provide an example of some of the details of a statutory artisan’s lien.
1989 OREGON REVISED STATUTES
TITLE 9. MORTGAGES AND LIENS
CHAPTER 87. STATUTORY LIENS
POSSESSORY CHATTEL LIENS
87.152. Possessory lien for labor or material expended on a chattel.
A person who makes, alters, repairs, transports, stores, pastures, cares for, provides services for, supplies materials for
or performs labor on a chattel at the request of the owner or lawful possessor of the chattel has a lien on that chattel
in the possession of the person for the reasonable or agreed charges for labor, materials or services of the person, and
the person may retain possession of the chattel until those charges are paid.
(1975 c.648 § 3)
87.172. Time period before foreclosure allowed.
(1) Except as otherwise provided in this section, a person claiming a lien under ORS 87.152 to 87.162 must retain the
chattel that is subject to the lien for at least 60 days after the lien attaches to the chattel before foreclosing the lien.
(2) A person claiming a lien under ORS 87.152 for cost of care, materials and services bestowed on an animal must
dog or cat, the period shall be at least 15 days.
(3) A person claiming a lien under ORS 87.152 for the cost of removing, towing or storage of a vehicle that is appraised
at a value of $750 or less by a person who holds a permit issued under ORS 819.230 must retain the vehicle at least 30
days after the lien attaches to the vehicle before foreclosing the lien.
(1975 c.648 § 7; 1979 c.401 § 1; 1981 c.861 § 1; 1983 c.338 § 881)
87.182. Effect of prior security interest on method of foreclosure.
(1) When a lien created by ORS 87.162 is subordinate to a prior duly perfected security interest in a chattel as provided
in ORS 87.146, the lien created by ORS 87.162 shall be foreclosed by suit as provided in ORS chapter 88.
(2) Except as provided in subsection (1) of this section, liens created by ORS 87.152 to 87.162 may be foreclosed by suit
as provided in ORS chapter 88, or by sale of the chattel subject to the lien at public auction to the highest bidder for
amount thereof, and the amount actually due thereon; and if made payable in a specified kind of money or currency,
3. Judicial Liens
These liens help ensure that a judgment is collectible.
a. Writ of Attachment
Prejudgment attachment requires notice to the debtor and a hearing (under the Fourteenth
Amendment’s due process clause). The creditor must have an enforceable right to payment, file an
affidavit, and post a bond. The court issues a writ of attachment. The sheriff seizes the debtor’s
property, which can be sold to satisfy the judgment.
b. Writ of Execution
If a debtor does not or cannot pay an adverse judgment, the creditor can go back to court for a writ of
execution. The sheriff seizes the debtor’s property, which can be sold to satisfy the judgment. Before
the property is sold, the debtor can pay the judgment and redeem the property.
ADDITIONAL BACKGROUND—
Writ of Execution
If a creditor is successful in a suit against a debtor, the court awards the creditor a judgment against the debtor
(usually for the amount of the debt plus interest and costs incurred in obtaining the judgment). If the debtor does not
pay the judgment, the creditor can go back to court and obtain a writ of execution under which some of the debtor’s
property can be seized and sold. The following excerpts from Nevada Revised Statutes (Nev. Rev. St. §§21.010, 21.020,
21.080, 21.110) provide an example of some of the details of a writ of execution.
NEVADA REVISED STATUTES
21.010. Writ of execution: Limitations of time.
Except as otherwise provided in NRS 125B.050 for enforcement of a judgment for support of a child, the party in whose
enforcement as prescribed in this chapter. The writ ceases to be effective when the judgment expires.
586.)
21.020. Writ of execution: Issuance; contents.
The writ of execution must be issued in the name of the State of Nevada, sealed with the seal of the court, and
execution in like manner as upon writs of attachments. Gold dust and bullion shall be returned by the officer as so
1. If it is against the property of the judgment debtor, it must require the sheriff to satisfy the judgment, with interest,
out of the personal property of the debtor, and, if sufficient personal property cannot be found, then out of his real
when the abstract or certified copy of the judgment or decree was recorded in the office of the county recorder of the
2. If it is against real or personal property in the hands of the personal representatives, heirs, devisees, legatees,
4. If it is issued on a judgment made payable in a specified kind of money or currency, as provided in NRS 17.120, the
writ must also require the sheriff to satisfy it in the kind of money or currency in which the judgment is made payable,
and the sheriff shall refuse payment in any other kind of money or currency; and in case of levy and sale of the
collected.
5. If it is for the delivery of the possession of real or personal property, it must require the sheriff to deliver the
possession of the property, particularly describing it, to the person entitled thereto, and may at the same time require
of the party against whom it was rendered, and the value of the property for which the judgment was recovered to be
21.080. Property liable to execution; property not affected by execution until levy; exemption of spendthrift
trusts.
1. All goods, chattels, moneys and other property, real and personal, of the judgment debtor, or any interest therein of
the judgment debtor not exempt by law, and all property and rights of property seized and held under attachment in
the action, shall be liable to execution. Subject to the provisions of chapter 104 of NRS, shares and interests in any
2. This chapter does not authorize the seizure of, or other interference with, any money, thing in action, lands or other
property held in spendthrift trust for a judgment debtor, or held in such trust for any beneficiary, pursuant to any
debtor or beneficiary himself.
(CPA 1911, § 345; 1939, p. 60; CL 1929 (1941 Supp.), § 8843; 1965, p. 913.)
21.110. Execution of writ by sheriff.
The sheriff shall, in the manner provided for writs of attachments in NRS 31.060, execute the writ against the property
levy only on such part of the property as the judgment debtor may indicate; provided:
1. That the judgment debtor may indicate at the time of the levy such part.
2. That the property indicated be amply sufficient to satisfy such judgment and fees.
(CPA 1911, § 347; RL 1912, § 5289; CL 1929, § 8845; 1989, ch. 208, § 3, p. 463.)
B. GARNISHMENT
Garnishment is a collection remedy directed at a debtor’s property or rights held by a third person (typically, an
employer or a bank).
1. Garnishment Proceedings
2. Laws Limiting the Amount of Wages Subject to Garnishment
Federal and state laws limit the amount that can be garnished from wages. State laws often provide for
Case 28.1: Indiana Surgical Specialists v. Griffin
Helen Griffin owed Indiana Surgical Services a certain amount. When the debt was not paid, Indiana Surgical filed a
CHAPTER 28: CREDITORS’ RIGHTS AND REMEDIES 679
suit in an Indiana small claims court against Griffin. Griffin did not respond, and the court issued a default judgment
against her. Four years later, Indiana Surgical learned that Griffin worked for MDS Courier Services. Indiana Surgical
obtained a garnishment order against MDS to withhold Griffin’s earnings. MDS refused. According to MDS, Griffin was a
subcontractor, called as needed, compensated per job at “thirty-five percent of whatever she does,” and paid on a
biweekly basis. The court ruled that “the judgment debtor is a subcontractor, and not an employee,” and that her
earnings could not be garnished. Indiana Surgical appealed.
court reversed the decision of the lower court and remanded the case. Griffin received “periodic payments of
necessity of bankruptcy, sought to regulate garnishment in its usual sense as a levy on periodic payments of
compensation needed to support the wage earner and his family on a week-to-week, month-to–month basis.”
…………………………………………………………..……………………………………………………………………
Notes and Questions
Would a lump sum payment—for example, severance pay—made to an employee fall within the statutory
meaning of “earnings” applied in this case? No. The appellate court explained that it would not “because it was not a
periodic payment of compensation.” MDS suggested that Griffin received similar lump sum payments, but the court did
not agree “[b]ecause Griffin was paid on a bi–weekly basis for her work.”
Many employers do not want to be troubled with a garnishment order covering an employee’s wages and would
of an employee’s wages? For employers, compliance with garnishment procedures (appearing in court, filing
documents, establishing and maintaining records relating to the garnishment, and so on) requires time. Time is a costly
resource, and garnishment proceedings are burdensome because employers are not compensated for their time. Also,
an employer is an innocent third party caught in the middle of a creditor-debtor dispute.
ANSWER TO “THE ETHICAL DIMENSION” QUESTION IN CASE 28.1
Should some people be exempt from garnishment orders? Explain why or why not. There are persons whom it
would seem unethical or at least unfair to subject to garnishment orders. The mentally and physically disabled and
their caregivers, the single parent head of a poverty-level household with children, and elderly individuals with limited
incomes are examples.
ANSWER TO “THE LEGAL ENVIRONMENT DIMENSION”
QUESTION IN CASE 28.1
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services would fall within the definition. Of course, payments to contractors might include reimbursement for building
C. CREDITORS’ COMPOSITION AGREEMENTS
A composition agreement discharges only those debts of creditors who agree.
II. Suretyship and Guaranty
A. SURETY
A surety is primarily liable: the creditor can hold the surety responsible for payment of the debt when the debt is
due, without first exhausting all remedies against the debtor. A surety agreement does not have to be in writing
to be enforceable (but it usually is).
CASE SYNOPSIS—
Case 28.2: Overseas Private Investment Corp. v. Kim
Majestic Group Korea, Ltd., borrowed $1.5 million from Overseas Private Investment Corp. (OPIC) to finance a
Ruby Tuesday’s restaurant in Korea. Nam Koo Kim, the sole owner of Majestic, and his wife Hee Sun Kim signed
personal guaranties for the loan. Majestic defaulted. The loan was restructured—Nam signed a note to pay the loan if
Majestic again defaulted and Hee signed a new personal guaranty. When Majestic re-defaulted, OPIC filed a suit in a
New York state court against the Kims to recover. The court issued a judgment in the plaintiff’s favor. The defendants
appealed.
its face and specifically provide that the wife has guaranteed full payment of the promissory note, In fact, immediately
Deferral Letter, aggress to all terms and conditions . . . and confirms that the Personal Guaranty is . . . in full force and
Notes and Questions
If the agreement had not specified that Hee was personally guaranteeing the loan, should the court have given
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weight to the lack of such language in the guaranty? Why or why not? Probably not. The agreement that Hee signed
appeared to be unambiguously a personal guaranty. Given the reasoning of the court in this case, it seems unlikely that
the omission of the word “personal” would have had an effect on its interpretation of the guaranty.
writing. The dispute in this case could have been easily avoided by careful attention to the language of the guaranty. If
arrangement.
ANSWERS TO QUESTIONS AT THE END OF CASE 28.2
1. If the guaranty agreement had not been in writing, would the agreement have been enforceable? Explain. The
purpose exception should apply. The husband was the sole owner of the business, however, and the court could hold
on this issue would depend on state law and case precedents in the court’s jurisdiction.
2. A guarantor can be required to pay a debt only after the principal debtor defaults. Which party was the principal
debtor in this case? The principal debtor in this case was Majestic Group Korea, Ltd., the company that entered into
the loan agreement with the Overseas Private Investment Corporation (OPIC) to obtain financing for the restaurant in
South Korea. After Majestic defaulted on its loan to OPIC, OPIC was within its rights to look to the guarantor, Kim’s
wife, for payment.
ADDITIONAL CASES ADDRESSING THIS ISSUE —
Recent cases involving sureties or guarantors include the following.
• Mercantile Bank, N.A. v. Loy, 77 S.W.3d 93 (Mo.App. S.D. 2002) (under the express terms of the parties’ contract,
the guarantors assumed primary liability for the debts of a now-bankrupt corporation, and thus, the creditor bank’s
failure to perfect its security interest in the corporation’s vehicles, equipment, and other assets, did not constitute a
lack of good faith and fair dealing).
material obtained using distributor’s purchasing order).
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C. ACTIONS RELEASING THE SURETY AND THE GUARANTOR
Any material change in the contract between principal and creditor without prior consent of the surety (or
guarantor) may discharge the surety, even if the change does not affect the risk. If the debt is paid, or tender of
payment is made and rejected, the surety is discharged.
D. DEFENSES OF THE SURETY AND THE GUARANTOR
A surety can assert his or her own defenses or use any defenses available to the principal (except personal de-
fenses). This is the most important concept in suretyship, because most defenses available to a surety are those
of the principal.
E. RIGHTS OF THE SURETY AND THE GUARANTOR
III. Protection for Debtors
A. EXEMPTED REAL PROPERTY
Each state allows a homestead exemption, which permits a debtor to retain all or part of the family home free
from the claims of unsecured creditors or trustees in bankruptcy.
B. EXEMPTED PERSONAL PROPERTY
Personal property that is most often exempt (up to at least a specified dollar amount) includes—
• Household furniture.
• Clothing and certain personal possessions.
• A vehicle (or vehicles) for transportation.
• Certain animals.
• Equipment the debtor uses in a business or trade.
TEACHING SUGGESTIONS
1. It is important that students tie together the material on debtors and creditors. You might ask them (or explain to
them) what the law attempts to do in this area and why—that the legal system attempts to provide a framework for
2. To distinguish for students among the various creditors’ remedies discussed in this chapter, use a timeline
representing litigation on a debt and place each remedy at the point on the line when it might be used.
3. It may help students to understand how this material fits into the general scheme of creditors’ rights and remedies
by briefly defining and classifying liens, and noting the priority of a lien creditor. For example, a lien is a claim against a
debtor’s property that must be satisfied before the property (or its proceeds) is available to satisfy other creditors’
before a judgment (for example, through prejudgment attachment) or after it (for example, through a writ of execu–
4. Sometimes, students confuse prejudgment attachment with the concept of attachment in the context of a secured
transaction. For that reason, it can be important to explain the difference. Prejudgment attachment occurs at the time
of or immediately after commencement of a suit but before entry of a final judgment. Attachment in the context of a
the interest is perfected.
5. It could be explained that there are four types of statutory foreclosure: (1) strict foreclosure, allowed in a few
states in which, after a period following default, the mortgagee acquires absolute title to the property; (2) entry, or writ
of entry, allowed in a few states in which, on default, the mortgagee obtains a writ entitling him or her to possession,
and after a period, the mortgagee receives absolute title; (3) power of sale, permitted in most states, according to
which a sale can follow guidelines stated in the mortgage agreement instead of statutory guidelines; and (4)
foreclosure sale, the usual method. The last type of foreclosure is discussed in the text.
Cyberlaw Link
How might the availability of personal financial information on the Internet affect the debt and credit
arrangements outlined in this chapter?
DISCUSSION QUESTIONS
1. How does a mechanic’s lien work? A creditor (a roofer, a painter) can file a mechanic’s lien on real property when he
2. How does an artisan’s lien work? Through an artisan’s lien, a creditor (a jeweler with whom a customer leaves jewelry
3. How does attachment work? The creditor files with the court an affidavit stating that the debtor is in default and
4. How does a writ of execution work? The court enters a judgment against the debtor (normally for the amount of the
5. How does garnishment work? A garnishment order is ordinarily served on, for example, an employer so that part of an
6. What are the differences between contracts of suretyship and guaranty contracts? Contracts of suretyship and
7. What types of property are exempt from attachment or levy of execution? Each state provides a homestead
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.)
ACTIVITY AND RESEARCH ASSIGNMENTS
1. Have students research local cases concerning the creditors’ remedies discussed in this chapter. Specific remedies or
2. Ask students to find and read their state’s garnishment statutes to identify dollar exemptions and local garnishment
3. Have students find and read their state’s exemption statutes to determine what property is exempt from levy of
execution and attachment. Ask them to identify the amount of the homestead exemption and whether it has any restrictions,
and what kind and amount of personal property is exempt.
EXPLANATIONS OF SELECTED FOOTNOTES IN THE TEXT
Footnote 5: While federal and state laws generally limit the amount of money that can be garnished from an
employee’s paycheck, a few states, including Texas, do not permit garnishment of wages at all, except under a child-support
order. The following is Article 16, Section 28 of the Texas state constitution—the provision that prohibits most garnishments—
as it appears in Vernon’s Texas Statutes and Codes Annotated.
VERNON’S TEXAS STATUTES AND CODES ANNOTATED
CONSTITUTION OF THE STATE OF TEXAS 1876
ARTICLE XVI. GENERAL PROVISIONS
Sec. 28. No current wages for personal service shall ever be subject to garnishment, except for the enforcement 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.
Footnote 6: Federal law provides a minimal framework to protect debtors from losing all their income to 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
686 INSTRUCTOR’S MANUAL TO ACCOMPANY BUSINESS LAW, TWELFTH EDITION
§ 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,
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
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
(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.
CHAPTER 28: CREDITORS’ RIGHTS AND REMEDIES 687
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
affords substantial due process, and which is subject to judicial review” for “of any court for the support of any person”
Effective Date of 1978 Amendment. Amendment by Pub.L. 95-598 effective Oct. 1, 1979, see § 402(a) of Pub.L. 95-598,
subsection [amending this section and section 1675 of this title] shall take effect on the first day of the first calendar
Effective Date. Section effective July 1, 1970, see § 504(c) of Pub.L. 90-321, set out as an Effective Date note under §
Legislative History. For legislative history and purpose of Pub.L. 90-321, see 1968 U.S. Code Cong. and Adm. News, p.
1962. See, also, Pub.L. 95-30, 1977 U.S. Code Cong. and Adm. News, p. 185.
ANSWERS TO ESSAY QUESTIONS IN
STUDY GUIDE TO ACCOMPANY BUSINESS LAW, TWELFTH EDITION
BY HOLLOWELL & MILLER
1. What is a lien? What are the four ways in which a lien can arise? What is a lienholder’s priority compared to other
creditors? A lien is a claim against a debtor’s property that must be satisfied before the property (or its proceeds) is available to
2. What are the differences between contracts of suretyship and guaranty contracts? Contracts of suretyship 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 surety liable for its payment
without first exhausting remedies against the debtor. (A suretyship agreement does not have to be in writing to be
enforceable.) Under a guaranty contract, the third party—the guarantor—is secondarily liable. The creditor cannot hold the
guarantor liable until the principal defaults (and usually a creditor must have attempted to collect from the principal, because
usually a debtor would not otherwise be declared to be in default). (A guaranty contract must be in writing to be enforceable
unless the “main purpose” exception applies.)
REVIEWING—
CREDITORS’ RIGHTS AND REMEDIES
Air Ruidoso, Ltd., operated a commuter airline and air charter service between Ruidoso, New Mexico, and airports
in Albuquerque and El Paso. Executive Aviation Center, Inc., provided services for airlines at the Albuquerque
International Airport. When Air Ruidoso failed to pay more than $10,000 that it owed for fuel, oil, and oxygen,
Executive Aviation took possession of Air Ruidoso’s plane, claiming that it had a lien on the plane. Ask your students to
answer the following questions, using the information presented in the chapter.
1. Can Executive Aviation establish an artisan’s lien on the plane? Why or why not? Under New Mexico law it is
2. Suppose that Executive Aviation files a lawsuit in court against Air Ruidoso for the $10,000 past-due debt. What
two methods discussed in this chapter would allow the court to seize Air Ruidoso’s plane to satisfy the debt? A writ of
attachment is a court-ordered seizure and taking into custody of property prior to the securing of a judgment for a
3. Suppose that Executive Aviation discovers that Air Ruidoso has sufficient assets in one of its bank accounts to pay
the past-due amount. How might Executive Aviation attempt to obtain access to these funds? 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
4. Suppose that a clause in the contract between Air Ruidoso and Executive Aviation provides that “if the airline
becomes insolvent, Braden Fasco, the chief executive officer of Air Ruidoso, agrees to cover its outstanding debts.” Is
this a suretyship or a guaranty agreement? It is a guaranty because the promise by Fasco was in writing and made him
secondarily liable in case the principal, Air Ruidoso, defaulted.
DEBATE THIS:
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
CHAPTER 28: CREDITORS’ RIGHTS AND REMEDIES 689
under the guaranty agreement. Therefore, summary judgment for the plaintiff was appropriate, and the appellate
from the ruling, and Hee Sum Kim did not. She was now legally required to pay the debt.
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
ANSWERS TO QUESTIONS—
SPECIAL CASE ANALYSIS
Case No. 28.2
Overseas Private Investment Corp. v. Kim
New York Supreme Court,
Appellate DIvision, 2010.
69 A.D.3d 1185,
895 N.Y.S.2d 217
(a) Issue: The main issue concerned the enforceability of a guaranty agreement. Who was arguing that the
agreement should not be enforced, and on what grounds? Hee Sun Kim, the wife of the sole owner of Majestic Group
Korea, Ltd., argued that the agreement should not be enforced because she had not been aware of the extent of her
liability under the guaranty. She had not participated in the negotiations resulting in the loan and had assumed that
her liability extended only to certain real property in Virginia that she owned. The loan agreement, however, stated
clearly that she was liable for the full amount of the debt should the principal debtor default.
(b) Rule of Law: What are the requirements for a guaranty agreement to be enforceable? The Statute of Frauds
requires that a guaranty be in writing to be enforceable. Unless it could be proved that that fraud, duress, or some
other wrongful act was involved in the formation of a guaranty agreement, the guaranty was enforceable, even if the
person signing it had not read the agreement.
(c) Applying the Rule of Law: How did the court apply the rule of law to the guaranty agreement in this case? The
court noted that defendant provided no evidence of fraud or duress, or other wrongful act, in the formation of the
guaranty agreement. Therefore, the defendant was liable under the guaranty for the full amount of the debt. This was
the rule of law even though the defendant claimed that she had not read the agreement and had not understood the
extent of her liability under the guaranty agreement at the time that she signed it.
(d) Conclusion: After applying the rule of law, what did the court conclude? Who benefited from the court’s
decision, the plaintiff or the defendants? The court concluded that defendant Hee Sun Kim was fully liable for the debt
690 INSTRUCTOR’S MANUAL TO ACCOMPANY BUSINESS LAW, TWELFTH EDITION