Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
1
CHAPTER 29
CREDITORS’ RIGHTS AND REMEDIES
ANSWER TO CRITICAL THINKING QUESTION
IN THE FEATURE
ETHICS TODAY—CRITICAL THINKING
Is it fair that property or wage garnishments may “surprise” a judgment debtor? Of
ANSWERS TO QUESTIONS
AT THE ENDS OF THE CASES
CASE 29.1—LEGAL REASONING QUESTIONS
1. How did the California legislature define the term “completion”? Was this definition
clear? Discuss. California Civil Code Section 3115, which governed mechanic’s liens when
the contractor in this case filed its lien, provided, “Each original contractor, in order to enforce a
2 UNIT SIX: CREDITORS’ RIGHTS AND BANKRUPTCY
2. How did the owner of the project at the center of this case want the court to interpret
“completion”? What arguments support this contention? Castellino Villas, LLC, the owner
of the project at the center of the Picerne case, argued that completion should have been
3. Ultimately, how did the court define “completion”? Why? In the Picerne case, the court
defined completion as “actual completion of the work of improvement.” The court quoted the
CHAPTER 29: CREDITORS’ RIGHTS AND BANKRUPTCY 3
CASE 29.2—CRITICAL THINKING
LEGAL ENVIRONMENT
If Chase cannot prove that it owned the note at the time of its complaint, what will happen
next? Will Chase prevail? Why or why not? If Chase cannot prove that it owned the note as
of May 11, 2009, the trial court will dismiss the complaint. Chase would then file another
CASE 29.3—CRITICAL THINKING
E-COMMERCE
Do the principles applied to a written guaranty in this case also govern electronically
recorded agreements and contracts entered into online? Why or why not? Yes.
Electronically recorded agreements and contracts entered into online are governed by the
4 UNIT SIX: CREDITORS’ RIGHTS AND BANKRUPTCY
WHAT IF THE FACTS WERE DIFFERENT?
Suppose that O’Neill had alleged a history of performance with HSBC that would have
made his reliance on the complained-of representations reasonable. Could this have
changed the result? In the HSBC case, the court upheld a fully negotiated and voluntarily
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
2A. Judicial liens
A writ of attachment is a court-ordered seizure and taking into custody of property prior to the
3A. Bank account
Executive can search for assets, such as funds, to satisfy the debt. It would ask the court of a
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,
CHAPTER 29: CREDITORS’ RIGHTS AND BANKRUPTCY 5
ANSWERS TO ISSUE SPOTTERS
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
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
ANSWERS TO BUSINESS SCENARIOS
AT THE END OF THE CHAPTER
29-1A. Liens
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)
6 UNIT SIX: CREDITORS’ RIGHTS AND BANKRUPTCY
(c) Garnishment of the wages owed to Kanahara by the Cross-Bar Packing
Corp. Whenever a third person, the garnishee, owes a debt, such as wages, to the
29-2A. Liens
Kandahari’s has basically two remedies in this situation. The best remedy would be to file a
mechanic’s lien on the home of Nabil. When a person furnishes labor and materials to improve
the realty of the owner and does not receive payment, that person can file a mechanic’s lien
against the property. The filing must take place within a statutory period (usually 60 to 120
days), measured in most states from the last day the materials or labor were furnished. Failure
by Nabil to pay the debt after the filing allows lienholder Kandahari’s to foreclose on the real
ANSWERS TO BUSINESS CASE PROBLEMS
AT THE END OF THE CHAPTER
29–3A. Foreclosure on mortgages and liens
The purpose of the Mechanics’ Lien Act is to protect those who, in good faith, furnish material or
labor for construction of buildings. However, following a judicial foreclosure, the priority of claims
CHAPTER 29: CREDITORS’ RIGHTS AND BANKRUPTCY 7
29–4A. Guaranty
No, Martinez’s argument that the bank could not enforce his guaranty while other funds were
available to satisfy K&V's debt—for example, that the debt might be paid out of the proceeds of
a sale of corporate assets—is not an effective defense to the guaranty in the Community case.
The guaranty contract terms determine the extent and time of the guarantor’s liability. Thus, a
29–5A. BUSINESS CASE PROBLEM WITH SAMPLE ANSWER—Liens
Among the liens discussed in this chapter, a mechanic’s lien would likely be most effective to
Jirak in its attempt to collect the unpaid cost of its work for the Balks. A creditor can place a
mechanic’s lien on the real property of a debtor who has contracted for improvements to the
8 UNIT SIX: CREDITORS’ RIGHTS AND BANKRUPTCY
CHAPTER 29: CREDITORS’ RIGHTS AND BANKRUPTCY 9
29–6A. Laws assisting creditors
In response to the Groggs’ motion, Grand Harbour can successfully argue any or all of the
following.
1. The Groggs did not provide any evidence to support their claim that the
funds garnished from their bank accounts and delivered to Grand Harbour represented
exempt Social Security and pension proceeds.
Grand Harbour might also assert that under the circumstances only the bankruptcy trustee (a
party who has authority over a debtor’s assets during a bankruptcy proceeding) could avoid the
transfer of the funds from the banks.
In any case, with garnishment, a creditor can obtain a debtor’s funds or other property in
the possession of a third party. A proceeding for garnishment of property, other than personal
In the actual case on which this problem is based, the court in which the Groggs filed
their “motion for return of funds to debtors” denied the motion. A state intermediate appellate
court affirmed, based on the arguments noted here. In addition, the Groggs cited no authority to
support their claim for a return of the funds.
29-7A. 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.
(b) The reviewing court did agree with Li that there was no proof that she signed the
10 UNIT SIX: CREDITORS’ RIGHTS AND BANKRUPTCY
29-8A. SPECIAL CASE ANALYSIS—Liens
Case No. 29.1
Picerne Construction Corp. v. Castellino Villas
California Court of Appeal, Third District, 2016
244 Cal.App.4th 1201, 199 Cal.Rptr.3d 257
(a) Issue: What statutory term was the focus of the dispute in this case? Why? The
statutory term at the center of the dispute in the Picerne case can be found in California Civil
Code Section 3115, which covered mechanic’s liens when Picerne, the plaintiff and contractor in
this case, filed its lien against Castellino, the defendant and property owner. That statute
(b) Rule of Law: Under the state statute that applied in this case, what must a party
show to enforce a lien? To enforce a lien under the state statute that applied in this case, a party
must show that it is an original contractor, that it had a contract for a work of improvement
owned by the party against whom enforcement of the lien is sought, that the lien has been
recorded, and that its filing occurred with ninety days after the completion of the work.
CHAPTER 29: CREDITORS’ RIGHTS AND BANKRUPTCY 11
(c) Applying the Rule of Law: What proof supported the plaintiff’s attempt to enforce
its lien? What did the defendant argue in opposition? The primary proof in support of the
plaintiff’s attempt to enforce its lien in this case was a document titled “Owner’s Acceptance of
Site,” which was signed on September 8 by John Olsen, Castellino’s representative for the
(d) Conclusion: How did the court resolve the dispute between the creditor and
debtor here? Who benefited from this decision? The court resolved the dispute between the
creditor and debtor here by holding that the contractor had timely filed its lien.
This case involved a mechanic’s lien filed to recover the unpaid price on a contract to
build an apartment complex. The property owner had accepted the work, in writing, and the
contract had been performed. At issue was the timelines of the filing of the lien. The project
owner argued that completion should be interpreted to mean substantial completion, in which
case the filing was too late.
12 UNIT SIX: CREDITORS’ RIGHTS AND BANKRUPTCY
ANSWERS TO LEGAL REASONING GROUP ACTIVITY QUESTIONS
AT THE END OF THE CHAPTER
29-9A. Attachment
(a) The purpose of attachment is to secure certain property for the payment of a
(b) To obtain an order for attachment, a creditor must show that it has an enforceable
right to payment of the debt.
