243
CHAPTER 28
CREDITORS’ RIGHTS AND REMEDIES
ANSWERS TO QUESTIONS
AT THE ENDS OF THE CASES
CASE 28.1—QUESTIONS (PAGE 549)
THE ETHICAL DIMENSION
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.
THE LEGAL ENVIRONMENT DIMENSION
Building contractors and subcontractors are typically classified as independent contractors. Could
payments to these parties also fall within the definition of earnings applied in this case? Discuss. Yes.
CASE 28.2—QUESTIONS (PAGE 552)
1A. If the guaranty agreement had not been in writing, would the agreement have been
enforceable? Explain. The Statute of Frauds requires guaranty contracts to be in writing to be
enforceable. If, however, the “main purpose” of the guaranty is to benefit the guarantor, the contract
need not be in writing to be enforceable. In this case, the plaintiff might argue that the wife’s main
purpose in signing the guaranty agreement was to secure a benefit for herself (derived through her
244 UNIT SIX: CREDITORS’ RIGHTS AND BANKRUPTCY
husband)—financing for the prospective restaurant in South Korea—and therefore the main purpose
exception should apply. The husband was the sole owner of the business, however, and the court could
hold that any benefit to the wife was too indirect to justify applying the main purpose exception. How
the could would rule on this issue would depend on state law and case precedents in the court’s
jurisdiction.
CHAPTER 28: CREDITORS’ RIGHTS AND REMEDIES 245
2A. 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.
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.
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
28-1A. Liens
(Chapter 28—Page 547)
Caleb has an artisan’s lien on Sylvia’s car. An artisan’s lien is a security device used to charge personal
property for labor performed on or value added to the property. Because an artisan’s lien is a
28-2A. QUESTION WITH SAMPLE ANSWER: Judicial liens
Three basic actions are available to Holiday:
(a) Attachment—a court-ordered seizure of nonexempt property prior
to Holiday’s reducing the debt to judgment. The grounds for granting the writ of attachment are
limited, but in most states (when submitted), the writ is granted upon introduction of evidence
248 UNIT SIX: CREDITORS’ RIGHTS AND BANKRUPTCY
28-3A. Mechanic’s liens
(Chapter 28—Pages 546–547 & 553–554)
Jane’s has basically two remedies in this situation. The best remedy would be to file a mechanic’s lien
on the home of Grant. When a person furnishes labor and materials to improve the realty of the owner
28-4A. Garnishment
(Chapter 28—Pages 548–549)
The court held that real estate commissions are personal earnings subject to garnishment. The court
acknowledged that “[a]pplying only the Ohio statute, the commissions earned by Susan Guinta as a
28-5A. CASE PROBLEM WITH SAMPLE ANSWER: Liens
The purpose of a mechanic’s lien is to provide security or protection to persons who improve the
property of others by furnishing materials and labor. Even if a property owner has not actually
28-6A. Attachment
(Chapter 28—Pages 547–548)
The purpose of attachment is to secure certain property for the payment of a judgment in the plaintiff’s
favor, pending that result. To obtain an order for attachment, a creditor must show that it has an
28–7A. Liens
(Chapter 28—Page 546)
The appellate court stated that: “It was the purpose of the UCC to prefer a service lien, common law or
28-8A. A QUESTION OF ETHICS: Guaranty
(a) Both at trial and on appeal, the triers of fact were not convinced of Li’s arguments. Li
held out Zhang as her manager and as a person authorized to bind the tenant to the lease.
28-9A. SPECIAL CASE ANALYSIS: Guaranty
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.