ART9WW77PROBLEMSET#1

LOPUCKI & WARREN PROBLEM SET ONE CB pp.3-19

A Really Short Summary
Creditors are either secured or unsecured. A secured creditor has a lien, a
property interest in collateral (the property subject to the lien), that secures
repayment of a secured obligation (SO). An unsecured creditor has no SO, no
lien, and no collateral. A secured creditors lien in collateral can be created by
contract, by statute, or by judicial proceedings.
A secured creditor can force repayment of a SO in default by foreclosing
its lien in collateral. In order to force repayment of a debt in default, an
unsecured creditor usually must become a secured creditor the hard and
expensive way (1) by recovering a final money judgment against the debtor, (2)
by obtaining a judicial lien in nonexempt property, and (3) by foreclosing the
judicial lien. Three common methods for an unsecured judgment creditor to
obtain a judicial lien are: (1) levy of execution upon nonexempt real estate or
fixtures of the judgment debtor and nonexempt tangible personal property
owned and controlled by the judgment debtor; (2) service of a writ of
garnishment upon a third party owing a nonexempt debt to the judgment debtor
or in control of nonexempt tangible personal property of the judgment debtor; or
(3) recording an abstract of a money judgment (an AOJ) in the real estate
records of a county in which the judgment debtors present or future nonexempt
real estate or fixtures are located, which imposes a judgment lien upon the
nonexempt real estate and fixtures.
However, an unsecured creditor occasionally can collect his or her
unsecured debt without acquiring and foreclosing a judicial lien. If Jacks $5,000
unsecured debt to Jill was due and Jill also owed Jack a $6,000 unsecured debt,

Jill could collect Jacks $5,000 unsecured debt to her by setting off $5,000 of her
unsecured debt to Jack. Setoff is accomplished by giving notice of setoff to the
debtor whose debt is due. Bandy v. First State Bank, 835 S.W.2d 609 (Tex. 1992)
is a TX Supreme Court case approving a banks use of setoff.
A Short Summary
1.

A person owing a legal obligation that can be reduced to a money

judgment is a debtor. A person owed a legal obligation that can be reduced to

a money judgment is a creditor. See CB p.3. The debtor/creditor relationship
can arise from a voluntary transaction, like a loan, or from an involuntary
transaction, like the commission of a tort. A tortfeasor is an involuntary debtor
and the person injured by the tort is an involuntary creditor.
2.

Unless a creditor contracts for secured status or is granted secured status

by statute, the creditor is unsecured. Unsecured creditors, also called general

or ordinary creditors, typically must resort to state-law judicial collection
procedures in order to compel payment of a debt that is in default. The first step
under state collection law is recovery of a final money judgment against the
debtor. Many lower cost alternatives, including self-help seizure of the debtors
property and harassing dunning, are prohibited by law in order to forestall
physical conflicts between unsecured creditors and debtors. But remember the
setoff of unsecured debts exception.
Recovery of a final money judgment does not transform an unsecured
creditor into a secured creditor. Recovery of a final money judgment merely
makes an unsecured creditor an unsecured judgment creditor - an unsecured
creditor with a judgment. An unsecured final money judgment is a hunting

license for nonexempt property of the judgment debtor that can be the subject
of judicial collection proceedings.
3.

Two basic judicial collection proceedings are: (1) issue of a writ of

execution by the clerk of the court that rendered a final money judgment, and (2)
issue of a writ of garnishment by the clerk of the court that rendered a final
money judgment. A writ of execution authorizes a court officer - a sheriff or a
constable - to levy the writ of execution upon nonexempt property of the
judgment debtor. Levy of the writ of execution makes the judgment creditor
secured by creating an execution lien in the levied-upon property. With
respect to nonexempt tangible personal property that is under the control of the
judgment debtor, levy consists of physical seizure of the property by a court
officer. With respect to nonexempt real estate or fixtures of the judgment debtor,
a constructive levy is entered in the land records. With respect to nonexempt
intangible personal property of the judgment debtor and nonexempt tangible
personal property of the judgment debtor that is under the control of a third
party, a writ of execution is not effective. The judgment creditor must obtain
issue of a writ of garnishment by the clerk of the court that rendered the final
money judgment. See CB p.470. Service of the writ of garnishment makes the
judgment creditor secured by creating a garnishment lien in the nonexempt
property of the judgment debtor under the control of the third party served with
the writ, who is called a garnishee. If no defenses are sustained, the court orders
the garnishee either to deliver the judgment debtors nonexempt tangible
personal property to the judgment creditor or to pay to the judgment creditor a
mature nonexempt debt that the garnishee owes to the judgment debtor.

4.

As the Vitale case on CB p. 6 illustrates, a judgment creditors attorney

must identify the judgment debtors leviable assets and give a court officer clear
instructions with respect to both the location of the assets and levy procedure.
Otherwise, the court officer is likely to do nothing except return a writ of
execution to the clerk of court marked unsatisfied. The judgment debtor has
no obligation to disclose leviable assets if the judgment creditor merely asks. In
order to compel the judgment debtor to answer truthfully, the judgment creditor
must subpoena the judgment debtor for a formal examination under oath. For
an examination under oath to be productive, the questions must be carefully
framed. Moreover, levy must follow promptly. As in Vitale, failure promptly to
garnish a bank in which the judgment debtor has an account will give the
judgment debtor time to withdraw the account balance. Another impediment to
collection of a money judgment is state exemption laws. Exemption laws
immunize specified real and personal property that is claimed as exempt by the
judgment debtor from levy and garnishment by an unsecured judgment creditor.
Individuals alone can claim property as exempt. Corporations and partnerships
have no exemptions.
5. There are three types of judicial liens that commonly can be created in
collecting a final money judgment. In addition to the previously-mentioned
execution liens and garnishment liens, a judgment lien can arise in the judgment
debtors nonexempt real estate or fixtures. A judgment lien is created by the
recording in county land records of an abstract of a money judgment (an AOJ).
See CB p. 470. A judgment lien automatically attaches to nonexempt real estate
and fixtures in the county either owned by the judgment debtor at the time of
recording of the AOJ or acquired by the judgment debtor thereafter.

6.

Ordinary unsecured debts usually must be collected through recovery of a

money judgment and creation and foreclosure of a judicial lien in nonexempt

property of the judgment debtor. The issue of a court order requiring a debtor
to pay an unsecured debt or to go to jail is limited to high priority debts, like
delinquent child support. Failure to pay an ordinary unsecured debt also is not a
crime. Criminal punishment is reserved for nonpayment of high priority
unsecured debts, like delinquent child support.
7.

Under the Law of the Course, a writ of execution and a writ of

garnishment can remain effective for three months from the date of issue. Only
one writ of execution can be outstanding at a time but multiple levies can be
made under the outstanding writ. However, the effectiveness of an outstanding
writ of execution or writ of garnishment is terminated by a court officers
return of the writ to the clerk of the issuing court. Return consists of
physical surrender of the writ of execution to the clerk of court endorsed with a
description of any or no action by the court officer. An unsatisfied
endorsement means that the court officer has done nothing. The statement
Levied on a Ford pickup TX license plate ZYM456 at 10:00am on January 6,
2005 describes levy of execution upon the pickup.
8. On CB pp.16-17, the Wisconsin Exemption Laws appear. Like most
exemption statutes, the Wisconsin statutes list categories of property that are
exemptable by individuals; e.g., consumer goods, deposit accounts (bank
accounts), and a residential homestead. Most of these categories have dollar
ceilings, which in the case of the Wisconsin residential homestead exemption is
$75,000. General exemption laws apply only to judicial liens. Contractual and
statutory liens are not subject to general exemption laws.

Vitale CB p.6 (N.J. Super. Ct. 1982)

Vitale (V) recovered a default judgment

for $6,317, plus costs, against Hotel (H) for wrongful failure to verify that V was Hs
employee at the time of an automobile accident, which had deprived V of benefits
under an insurance policy. Isrealow (I), Vs attorney, learned the H held the liquor
license for the Fast Lane, a punk rock bar that was open from 10:00pm to 2:00am,
mostly on summer weekends. From the clerk of the court in which the default
judgment was entered, I obtained a writ of execution. I mailed the writ to Lanzaro
(L), the Sheriff of Monmouth County, with instructions for the Sheriff to levy upon all
money and personal property at the Fast Lane. The sheriffs office complained that it
would be impossible to levy during the Fast Lanes limited operating hours but I was
adamant. After Deputy Guinan and an accompanying Asbury Park police officer were
turned away by the Fast Lanes bouncers, Guinan told I that a special court order
would be necessary to gain access to the Fast Lane. I obtained an order that the
sheriff be allowed access to the bar. The order authorized the arrest of anyone who
interfered. With the aid of this special court order, Deputy Guinan succeeded in
levying execution upon (seizing pursuant to the writ) $714 in cash and additional
personal property. However, the noncash personal property that Guinan levied upon
was owned by Hs landlord rather than H and was returned to the landlord. The
sheriffs office refused Is instructions to make additional levies under the writ of
execution.
The court observed that a writ of execution remained effective for three
months from its date of issue. However, a writs three-month period of effectiveness
would be terminated prematurely if a court officer returned the writ earlier.
Return consisted of physical delivery of the writ of execution to the clerk of the
issuing court with the court officers description of the results of any attempted levy.

The marking of a returned writ as either unsatisfied or nulla bona (no goods)
meant that a successful levy had not been made. If L had returned the writ marked
satisfied to the extent of $714 immediately after the $714 levy, the effectiveness of
the writ would have terminated. However, I could have obtained issue of a
supplementary alias writ of execution and instructed the sheriff to levy under the
supplementary writ. But I could not obtain an alias writ while the original writ of
execution remained outstanding. L consequently had blocked further collection by
refusing both to make another levy under the original writ and to return the original
writ to the clerk of court that had issued it.
Held: repeated levies are possible under an issued writ of execution during its
three-month period of effectiveness. It would not have been unreasonable for I to
have requested eight additional levies if that was necessary to satisfy Vs judgment.
The special court order authorizing access to the Fast Lane precluded any further
threats of violence from the bouncers. Because L had failed to comply with Is
reasonable instructions with respect to the writ of execution and the Fast Lane had
closed for the winter, L was liable to V for the uncollected balance of Vs judgment in
the action for amercement of the sheriff that I had brought upon behalf of V.
Ellerbee CB p.12 (Cal. App. 2010) Notwithstanding Ellerbees attorneys
written instructions to serve a writ of execution upon specific persons as soon as
possible because time was of the essence, the sheriff delayed service for over
a month and a half in one instance and over a month in another. Ellerbee, who had
collected nothing on his judgment, sued the county for negligence but lost. Held: the
sheriff had discretion as to the time of service of the outstanding writ of execution as
long as the sheriff acted before the effectiveness of the writ expired. Ellerbee is a
more common result than Vitale.

On p.12 the CB observes that the untold hours that I had put in collecting Vs
small money judgment prove that law is not free, even if you prevail in court.
As both Vitale and Ellerbee illustrate, a judgment creditors attorney must
identify a judgment debtors leviable assets and give a court officer clear instructions
with respect to both the location of the assets and levy procedure. Otherwise, a court
officer is likely to do nothing except return a writ of execution marked unsatisfied.
Hypothetical 1: Jack was obligated to repay Jill $5,000 on January 15th but did not do
so. Jill does not have a contractual, a judicial, or a statutory lien.
Q What leverage does Jill have to compel Jack to pay his debt?
None unless Jill goes to court and gets a final money judgment against Jack or by
obtaining a judicial lien in nonexempt property.
Hypothetical 2: Jill had recovered a $5,000 final judgment against Jack on his
overdue debt. Jack owned an SUV estimated to be worth $20,000. The Wisconsin
exemption statutes in the casebook apply. Jack had claimed $12,000 in consumer
goods as exempt.
Q. Could Jills lawyer create a judicial lien in the SUV. If so, how?
Wisconsin only allows up to $4000 of the value of a motor vehicle to be exempt.
That leaves $16,000 available. Jill needs to go to court to get a final money
judgment and get a writ of execution from the clerk. The car gets sold and Jill
gets $5000. The remaining goes to Jack.

Hypothetical 3: The facts are the same as Hypothetical 2 except that Jacks SUV was
leased to Jacks brother-in-law on a long-term basis.
Service of the writ of garnishment.
Q Could Jills lawyer create a judicial lien in the SUV? If so, how?

Needs to get a final money judgment against Jack first. Then needs to file a writ
of execution with clear instructions for the sherriff on where to find the SUV and
the procedure for getting it. He can get this information by subpoenaing him.
Then has to foreclose the judicial lein.

Hypothetical 4: The facts are the same as Hypothetical 2 except that Jack did not
have an SUV. Jack had $10,000 in an account with a credit union.
Q Could Jills lawyer create a judicial lien in Jacks credit union account. If so,
how?
Yes because only $5000 is exempt. Will have to use a writ of garnishment because
the money is under the control of a third party.

Please resolve and be prepared to discuss in class CB Problems 1.1, 1.2,

1.4 & 1.5. An answer to Problem 1.6 has been provided.
1.1 Wait till they miss a quarterly payment or get the owner to sign a contract making
Benning a secured creditor.
1.2 In order to know whether Benning will get paid, I need to know if knopf has any
money. Ill need to subpoena Knopf to get him to tell me under oath. If Knopf
doesnt pay, Ill need to file a writ of execution to get property or real estate or a
writ of garnishment to take back money in the form of wages or property held by a
third party. Getting the sherriff to levy on the day care equipment is probably not
going to help much.
1.4Go to court to get a final money judgment against the wholesaler and then getting a
judicial lein in non-exempt property and foreclosing on the judicial lein.

1.5 a. you can get $11,000 from the Toyota unless it is considered business and farm
property.
b. cant get anything out of the house
c. can get $10,000 from equipment
d. can get a little bit more than $7,000 from bank accounts.
Need to move very quickly because he can always sell things and drain bank
accounts.
Problem 1.6 CB p.21
A.1. Specific Qs that TK could be asked to jog his memory about debts owing to
him: (a) Do you have an interest in any deposit account in your own name or in
any other name; (b) Have you lent any money that has not been repaid; (c) Have
you sold any property that has not been fully paid for; (d) Have you performed
any services for which you have not been paid; (e) Are you owed wages, salary, or
commissions; (f) Are you owed an income tax refund; (g) Is anyone liable to you
for injury to yourself or to your property; (h) Have you considered filing suit
against anyone? If so, for what and for how much; (i) Have you deposited money
with a utility company, a landlord, a lessor or anyone else; (j) Have you prepaid
for any purchases that you have not received; and (k) Have you paid medical or
dental bills for which you expect to be reimbursed by insurance?
A.2. To the extent that these Qs caused TK to recall debts that were owed to him,
you should ask him to provide the names and addresses of the obligors so that
writs of garnishment could be served on all obligors with significant obligations
before TK collects them. Remember the Vitale case. Vs lawyer learned about a
Fast Lane deposit account when deposing the president of Fast Lane but the
account was overdrawn when Vs lawyer belatedly attempted to garnish it.

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