STATE OF MICHIGAN

FRANK J. KELLEY, ATTORNEY GENERAL

Opinion No. 5398

November 29, 1978

CONSTITUTIONAL LAW:

Requirement of hearing prior to execution of wage assignment given as security

LABOR AND EMPLOYMENT:

Requirement of hearing prior to execution of wage assignment given as security

SECURED TRANSACTIONS:

Requirement of hearing prior to execution of wage assignment given as security

HUSBAND AND WIFE:

Execution, without consent of a wife, of a wage assignment of salary, wages or compensation of husband with consent of the wife

A creditor who wishes to execute a wage assignment must provide the borrower/employee with a court hearing to determine the validity of the wage assignment and the fact that the employee is in default.

A wage assignment of a wife given in conjunction with a promissory note filed by both husband and wife is enforceable without the wife's consent.

Honorable H. Lynn Jondahl

State Representative

The Capitol

Lansing, Michigan 48909

You have requested my opinion regarding the enforceability of a wage assignment against a debtor's employer pursuant to section 17 of the Small Loans Act, 1939 PA 21, MCLA 493.17; MSA 23.667(17).

1939 PA 21, supra, Sec. 17 provides:

It is thus clear that, except as authorized by the statute, no assignment or order given as security for the payment of any salary, wages, commissions or other compensation for services is valid.

The question arises, however, as to whether, when a borrower is in default, the lender may assert the wage assignment without judicial process by simply serving a verified copy of the wage assignment upon the employer of the borrower, together with a sworn statement of the amount unpaid on the loan and a printed copy of section 17 of the Act. ⁽¹⁾

It has been held that an assignment of wages to be earned in the future is invalid at law, but is valid in equity as an agreement to take effect when the wages are earned. Kane v Clough, 36 Mich 436, 439; 24 AR 599 (1877).

Const 1963, art 1, Sec. 17 provides that no person shall be deprived of his property without due process of law, and the Fourteenth Amendment to the United States Constitution also provides that no State deprive any person of his property without due process of law.

It will be noted that 1939 PA 21, Sec. 17, supra, makes no provision for notification to the borrower/employee that the wage assignment is being enforced by the lender. The section provides only for notification to and service upon the employer. Thus, the borrower/employee is deprived of notice and an opportunity to establish that the loan is not in default.

In Sniadach v Family Finance Corp, 395 US 337; 89 S Ct 1820; 23 L Ed 2d 349 (1968), the Supreme Court held that any deprivation of property interest must be preceded by notice and an opportunity for hearing appropriate to the nature of the case. Thus, the court struck down a Wisconsin statute permitting a creditor to garnishee part of the debtor's wages prior to the initiation of a lawsuit against the debtor.

The fundamental rights enunciated in Sniadach were extended to repossession of property without a hearing. Fuentes v Shevin, 407 US 67; 92 S Ct 1983; 32 L Ed 2d 556 (1972). The Michigan Court of Appeals, following Fuentes, ruled that the Michigan replevin statutes were defective in failing to afford a defendant a hearing prior to the taking of his property. Inter-City Motor Sales v Szymanski, 42 Mich App 112; 201 NW2d 378 (1972). Subsequently, however, in Hill v Michigan National Bank, 58 Mich App 430; 228 NW2d 407 (1975), the Court found that, since the self-help repossession provisions of the Uniform Commercial Code, MCLA 440.9503; MSA 19.9503 do not invoke 'state action', it does not constitute the taking of property without due process. In so ruling, the Court reasoned:

Although a wage assignment is not identical to a prejudgment garnishment or replevin, it indisputably involves the identical 'specialized type of property' dealt with in Sniadach in striking down prejudgment garnishment of wages.

It will also be noted that 1939 PA 21, Sec. 17, supra, is substantially different in its effect from the self-help repossession statute referred to in Hill v Michigan National Bank, supra, and the enforcement of a warehouseman's lien referred to in Flagg Bros, Inc. v Brooks ⁽²⁾ in several respects. First, the wage assignment provision is directed solely to salary, wages, commissions or other compensation of an employee. Second, the enforcement does not involve taking property in the hands of the employee but, rather, salary, wages, commissions or other compensation in the possession of the employer. Third, no consent by the employer is given to a wage assignment. Fourth, authority to enforce the wage assignment is by service of the assignment upon the employer by the lender without any need to notify the borrower/employee.

In addition, there is no provision by which either the employee or employer may contest the execution of the assignment. In contrast, MCLA 440.9507; MSA 19.9507 provides a procedure to a consumer who has had his or her property repossessed by self-help.

I am therefore of the opinion that a borrower is entitled to a hearing prior to having his salary, wages, commissions or other compensation withheld by an employer as a result of service of a wage assignment by a lender.

Although the legislature failed to provide a procedure by which a borrower/employee is given a hearing prior to the execution of a wage assignment, this omission does not render the substantive portions of 1939 PA 21, Sec. 17, supra, unconstitutional. This provision imposes certain conditions and limitations on the right of a lender who seeks to obtain security for the loan in the form of a wage assignment. It is a substantive statute and the failure of the legislature to provide a constitutional procedure for enforcement of the substantive law does not render the substantive portions of the statute unconstitutional. For example, in Morrisey v Brewer, 408 US 471; 92 S Ct 2593; 33 L Ed 2d 484 (1972), the United States Supreme Court held that a parolee who is alleged to have violated his parole is entitled to a probable cause hearing and a full hearing before he may be recommitted to the penal institution. The fact that the parole violation statute failed to provide this procedure did not render the statute unconstitutional; the Court repaired the deficiency in the statute by delineating the procedure to be followed by the corrections authorities in order to give the alleged parole violator due process. See also Goldberg v Kelly, 397 US 254; 90 S Ct 1011; 25 L Ed 2d 287 (1970), involving the right of a welfare recipient to a hearing before welfare benefits may be terminated.

It will therefore be necessary for a creditor who wishes to execute a wage assignment to provide the borrower/employee a hearing. A court hearing may be obtained, for example, by service of a complaint upon the employee alleging the fact of execution of a valid wage assignment and the fact that the employee is in default. Having obtained a judicial determination of the truth of these facts, the lender may then attach a copy of the Court order to the wage assignment, in which case the employer may pay the sums due to the lender without risk of being obligated to pay the employee his full salary, wages, commissions or other compensation due.

The requirement of the hearing may, of course, be waived by the borrower/employee, in which case no hearing will be required. As to the manner in which a hearing may be waived, it will be noted that the waiver of a due process right must be made voluntarily, intelligently and knowingly. Fuentes, supra.

You have further inquired as to whether a wage assignment of a husband's wages, given in conjunction with a promissory note signed by both husband and wife, is enforceable without the wife's consent.

At common law, a husband is responsible for the support and care of his wife. 41 CJS, Husband and Wife, Sec. 15. However, the fact that a husband is obligated to support his wife, does not mean that the wife enjoys an interest or estate in the financial source from which the husband meets his obligation to support his wife; in this case, his wages. The obligation to support has been declared to be neither a 'debt' in the legal sense of the word, Romaine v Chauncey, 129 NY 566; 29 NE 826, nor a property right, Eaton v Davis, 176 Va 330; 10 SE2d 893. Similarly, at common law, the wife, on marriage, acquires no interest in the personal property of her husband nor in personalty which he acquires during marriage. 41 CJS, Husband and Wife, Sec. 18. A husband's earnings remain his own property. Houston v Colonial Trust Co, 266 SW2d 231 (1954); Rasmussen v Oshkosh Savings & Loan Association, 151 NW2d 730; 35 Wisc 2d 605 (1967); Hedaya v Hedaya, 327 NYS 2d 720; 68 Misc 2d 165 (1969).

An analysis of the Married Women's Property Act, 1855 PA 168, 1911 PA 196, 1917 PA 158; the Equal Credit Opportunity Act, 1974 PA 246; and the Michigan Constitution of 1963 reveals that no rights are created thereby in a wife to her husband's wages, and it is my opinion that, if a wage assignment is taken under the circumstances you have posited, the failure of the wife to receive any of the proceeds of the loan will not affect the enforcement of the wage assignment.

Frank J. Kelley