Chapter 24
Other Creditors’ Remedies
and Suretyship
N.B.: TYPE indicates that a question is new, modified, or unchanged, as follows.
N A question new to this edition of the Test Bank.
+ A question modified from the previous edition of the Test Bank,
= A question included in the previous edition of the Test Bank.
TRUE/FALSE QUESTIONS
1. A lien is an encumbrance on property to satisfy a debt or protect a claim for the
payment of a debt.
2. Liens usually do not take priority over other claims against the same property.
3. A mechanic’s lien can be enforced to obtain payment for work that adds value
to real property.
4. A mechanic’s lien is possessory.
5. If a debtor does not pay a mechanic’s lien, the debtor’s property can be sold to
satisfy the debt.
6. An artisan’s lien is a security device created at statutory law through which a
creditor can recover payment for labor and materials used to increase the value
of real property.
7. An artisan’s lien is effective only if a creditor has possession of the property.
8. To use attachment as a remedy, a creditor must have an enforceable right to
payment of the debt.
9. A writ of execution is a writ that puts in force a court decree or judgment.
10. Once a writ of execution has been issued, the debtor cannot pay the judgment
and redeem the property until after a sale has taken place.
11. A default occurs when a debtor fails to pay a creditor as promised.
12. An attachment is a court-ordered seizure and taking into custody of property
before a judgment is obtained on a past-due debt.
13. If a creditor wins a judgment against a debtor and the debtor will not or cannot
pay the amount due, the dispute is at an end.
14. A writ of execution applies to a debtor’s nonexempt real or personal property
wherever located.
15. A surety can be required to pay an obligation only after the principal debtor
defaults and usually only after the creditor has made an attempt to collect from
the debtor.
16. Federal law governs garnishment actions.
17. There is no limit to the amount that can be taken from a debtor’s weekly take–
home pay through garnishment.
18. In a suretyship relationship, a third person’s credit becomes the security for a
debt.
19. A surety is primarily liable for the debt of a principal.
4 UNIT THREE: COMMERCIAL TRANSACTIONS
20. In some states, a judgment creditor must obtain a separate order of gar-
nishment to cover each of the debtor’s pay periods.
21. A creditor’s composition agreement may be entirely enforceable.
22. Creditors can agree with a debtor to discharge the debtor’s debts on payment
of a sum less than that owed.
23. A creditor must exhaust all legal remedies against the principal debtor before
holding the surety responsible for payment.
24. A guarantor is secondarily liable on an obligation.
25. A guarantor can be required to pay an obligation only after the principal debtor
defaults.
26. A guaranty contract must always be in writing to be enforceable.
27. A material change in a loan contract between a creditor and a debtor dis–
charges a surety only to the extent that the surety suffers a loss.
28. A surety can assert the debtor’s bankruptcy as a defense.
29. A surety can never assert fraud as a defense.
30. If a creditor surrenders collateral to the debtor without the consent of the
guarantor, this can reduce the obligation of the guarantor.
31. A surety cannot assert the principal debtor’s bankruptcy as a defense to avoid
liability on the debtor’s obligation.
32. When a surety or guarantor pays a debt owed to a creditor, he or she acquires
any right that the creditor had against the debtor.
33. A homestead exemption allows a debtor to subtract the value of the family
home from the amount of a debt.
34. In a few states, statutes allow the homestead exemption only if the judgment
debtor has a family.
35. A debtor’s vehicle is never exempt from satisfaction of a judgment debt.
MULTIPLE CHOICE QUESTIONS
1. Custom Cabinets & Carpentry Company has a claim against Duane’s property
to satisfy a debt that takes priority over other claims against the same property.
This is
a. a lien.
b. a violation of most state laws.
c. a composition agreement.
d. a contract of suretyship.
2. Portia owes Bon $500 on their contract, but refuses to pay. To collect, Bon files
a mechanic’s lien, under which security for the debt is represented by
a. Portia’s personal property.
b. Portia’s real estate.
c. the $500 owed under the contract.
d. the contract.
3. Kendall performs a contract with Lainie to add a covered porch and a pool deck
to Lainie’s house, but Lainie does not pay. Kendall notifies Lainie that the
property will be sold to satisfy the debt. This is
a. a judicial lien.
b. a mechanic’s lien.
c. an artisan’s lien.
d. a violation of most state laws.
4. Francis performs a contract with Genie to add a garage to Genie’s property, but
Genie does not pay. Francis can file a lien on Genie’s property if, from the last date
labor or materials were provided, he acts
a. immediately.
b. within 60 to 120 days.
c. within two years.
d. within a reasonable time.
5. Builders Construction Company performs a contract with Christina to add a sun
porch to her house, but she does not pay. In most states, Builders Construction
could create a lien and place it on Christina’s property by filing
a. a creditor’s composition agreement.
b. a writ of attachment.
c. a writ of execution.
d. a written notice of lien.
6. Portia owes Bon $500 on their roof repair contract, but refuses to pay. To
collect, Bon files a mechanic’s lien. Under a mechanic’s lien, security for the
debt is represented by
a. Portia’s personal property.
b. Portia’s real estate.
c. the $500 owed under the contract.
d. the contract.
7. Michael contracts with Jill to fix the brakes on her Honda Civic. Jill leaves her
car with Michael, but refuses to pay when the work is done. Michael refuses to
return the car until she pays. Michael’s lien on Jill’s car will end
a. in thirty days.
b. in sixty days.
c. when Michael voluntarily surrenders possession of the car.
d. when Jill obtains a court order requiring Michael to return the car.
8. Oscar refuses to pay Petra $500 in cash on their contract to repair Oscar’s
washing machine, which Petra still possesses at her repair shop. Petra’s lien
on the machine will terminate
a. if Petra continues to maintain possession.
b. if Petra does not file a written notice of lien within thirty days.
c. if Petra voluntarily surrenders possession.
d. within thirty days.
9. Sasha’s debt to Tully is past due. Tully brings a legal action against Sasha to
collect the debt. To ensure that a judgment in Tully’s favor will be collectible, he
asks the court to order the seizure of Sasha’s property. This is a request for
a. a contract of suretyship.
b. an order that would violate most state laws.
c. a writ of attachment.
d. an order of receivership.
10. Helene’s debt to Imprints Printers is past due. Imprints obtains a judgment
against Helene, but she refuses to pay it. Imprints asks the court for an order
that directs the sheriff to seize and sell any of Helene’s nonexempt real or
personal property that is within the court’s geographic jurisdiction. This is a
request for
a. a writ of execution.
b. a composition agreement.
c. an order that would violate most state laws.
d. an order of garnishment.
11. Oliver borrows money from Peerless Loan Company. For Peerless to obtain a
writ of execution, Oliver must
a. be unable or refuse to pay the amount of a judgment.
b. be unable to redeem Oliver’s exempt property.
c. notify Imprints in writing (in a “writ”) of his intent.
d. surrender possession of his property to a court.
12. Jessie’s debt to Kayla is past due. Kayla brings a legal action against Jessie to
collect the debt. Kayla asks the court to order Liberty Bank, in which Jessie has
an account, to pay a portion of the funds to Kayla. This is a request for
a. a writ of execution.
b. an order of garnishment.
c. an order that would violate most state laws.
d. a composition agreement.
13. Ronald’s debt to Greg is past due. Ronald obtains a judgment against Greg to
collect the debt, but Greg will not pay. Ronald requests a writ of execution. The
property that is seized under the writ of execution must be
a. in Ronald’s possession.
b. in Greg’s possession.
c. in the possession of Greg’s employer or other third party.
d. located within the court’s geographic jurisdiction.
14. Friendly Credit Corporation (FCC) believes that Gary may dispose of the
assets that FCC expects to receive as payment for Gary’s debt before FCC can
obtain a judgment. FCC may ask a court to issue a writ of
a. attachment.
b. contribution.
c. execution.
d. redemption.
15. A court awards a judgment to Alice, who is the creditor, against Ada, who is the
debtor. After the judgment, Alice requests a court order to seize Ada’s property
to ensure that the judgment will be collectible. This is
a. a judicial lien.
b. a writ of attachment.
c. a writ of execution.
d. a violation of most state laws.
16. Nell’s debt to Olsen is past due. Olsen obtains an order of garnishment to
require Nell’s employer Pro Transmission Service, Inc., to pay part of Nell’s
paycheck to Olsen. The law
a. limits the amount that can be taken from Nell’s take-home pay.
b. permits Olsen to dismiss Nell because her wages are garnished.
c. practically does not allow Olsen to collect the awarded amount.
d. requires Pro to retain Nell as an employee until the debt is paid.
17. Lenders Loan Company and Mortgage Service Corporation—Nadya’s
creditors—contract with Nadya for the discharge of her liquidated debts on
payment of a lesser sum. This is
a. a composition agreement.
b. a subrogation.
c. a suretyship agreement.
d. in violation of most states’ laws.
Fact Pattern 24-1 (Questions 18–21 apply)
Petro Oil Refinery asks Quality Bank for a loan to increase its oil inventory. Quality
requires Robin, Petro’s president, sign a personal guaranty to pay the debt if Petro
defaults. Meanwhile, to sell fifty barrels of refined oil to Slick Lubricants, Inc., Petro
asks its outside accountant Tina to co-sign a credit application.
18. Refer to Fact Pattern 24-1. If Tina signs the application but fails to condition
her signature on Petro’s agreement to pursue its legal remedies against Slick
before looking to her, then Tina is
a. a surety.
b. a lienor.
c. a guarantor.
d. a creditor.
19. Refer to Fact Pattern 24-1. If Tina signs the application only after language is
included that requires Petro to exhaust its legal remedies against Slick before
looking to her, then Tina is
a. a surety.
b. a lienor.
c. a guarantor.
d. a creditor.
20. Refer to Fact Pattern 24-1. If Robin is a guarantor, then the guaranty is re–
quired to be in writing because of
CHAPTER 24: OTHER CREDITORS’ REMEDIES AND SURETYSHIP 13
a. the debtor’s right of redemption.
b. the co-signer’s right of contribution.
c. the creditor’s transfer of possession.
d. the Statute of Frauds.
21. Refer to Fact Pattern 24-1. If, after the loan agreement is signed, Slick agrees
to a higher rate of interest without telling Tina, then Tina is
a. discharged from the agreement.
b. liable at the higher rate of interest.
c. liable at the lower rate of interest.
d. liable for the principal only.
22. Muffins-2-Go buys a truck from Street Vehicles, Inc., under a contract signed
by Riley, Muffins-2-Go’s president, making him personally liable if Muffins-2-Go
does not pay the loan. Riley is
a. a guarantor.
b. a surety.
c. a co-surety.
d. a co-creditor.
23. Dina asks Edie to co-sign a credit application so that she can borrow money
and buy a truck from First Street Motors. If, after the loan agreement is signed,
Dina agrees to a higher rate of interest without telling Edie, then Edie is
a. discharged from the agreement.
b. liable at the higher rate of interest.
c. liable at the lower rate of interest.
d. liable for the principal only.
24. William is a surety for Jeannie’s loan from Richard. Richard knows of William’s
existence. When the loan comes due, Jeannie tries to pay Richard, but Richard
rejects the payment. William is
a. released from any obligation on the debt.
b. required to pay the amount of the debt to Richard.
c. required to pay up to half of the amount of the debt to Richard.
d. required to pay the amount of the debt to Jeannie.
25. Maggie is a surety for Juli’s debt to Bill. Bill and Juli decide to make material
changes to the original contract without consulting Maggie. Maggie is
a. still bound by the contract.
b. discharged completely.
c. still bound by the contract, but allowed to make additional changes to
the contract.
d. still bound by the contract unless she contests it within 30 days of the
changes.
26. Consumer Credit, Inc. (CCI), lends $1,000 to Joe. Kay acts as Joe’s surety. If
Kay pays the loan, she gets
a. any right that CCI had against Joe, but not a right to be reimbursed by
Joe.
b. a right to be reimbursed by Joe, but not any right that CCI had against
Joe.
c. any right that CCI had against Joe and a right to be reimbursed by Joe.
d. none of the choices.
27. Drew and Earl are brothers. They agree to act as guarantors on a loan made
by their sister, Flo. Flo defaults on the payments and Drew refuses to pay. Earl
pays the debt. Earl can recover from
a. Drew and Flo under the right of proportionate liability.
b. Drew and Flo under the right of reimbursement.
c. Drew under the right of contribution and Flo under the right of
subrogation.
d. no one, because the parties are brothers and sister.
28. Raoul is a surety for Suzu’s loan from Turnkey Credit, Inc. Raoul’s right to “step
into the shoes” of Turnkey, after paying Suzu’s debt, and exercise any of the
Turnkey’s rights against Suzu is the right of
a. contribution.
b. redemption.
c. reimbursement.
d. subrogation.
29. Bertram, Chaka, and Dougal are co–sureties of Erica’s debt to Finance Loan
Company. Bertram pays Erica’s entire debt. Bertram’s right to seek
proportionate payments from Chaka and Dougal is the right of
a. contribution.
b. redemption.
c. reimbursement.
d. subrogation.
Fact Pattern 24-2 (Questions 30–33 apply)
Mary’s home is in a state that has a $30,000 homestead exemption. Mary defaults on
a $60,000 debt that she owes to Nina. Mary’s home is sold at auction for $80,000.
30. Refer to Fact Pattern 24-2. If Nina recovers less than she is owed, she can
realize the difference from
a. any property that Mary owns.
b. only exempt property that Mary owns.
c. only nonexempt property that Mary owns.
d. property that any other member of Mary’s family owns.
31. Refer to Fact Pattern 24-2. Mary will receive
a. $0.
b. $30,000.
c. $50,000.
d. $60,000.
32. Refer to Fact Pattern 24-2. Nina may recover
a. $0.
b. $30,000.
c. $50,000.
d. $60,000.
33. Refer to Fact Pattern 24-2. Other property Mary may own that may be exempt
from satisfaction of judgment debts includes
a. any property that Mary wishes to exempt.
b. investments that Mary has made in her family’s businesses.
c. recreational vehicles that Mary uses on weekends.
d. tools that Mary uses in her trade.
34. Daphne defaults on a debt to Country Loan Corporation (CLC). As a creditor,
CLC can place liens on all of Daphne’s property except
a. motor vehicles used to commute to work.
b. stock in various corporations.
c. items that the debtor selects.
d. vacant commercial property.
35. Dana defaults on a debt to Rachel. Rachel will NOT be able to recover the debt
from
a. the sale of Dana’s prize winning pet dog.
b. the sale of Dana’s investments in stocks.
c. Dana’s wages.
d. Dana’s lottery winnings.
ESSAY QUESTIONS
1. A pipe in Gert’s house springs a leak. Gert contracts with Holly’s Plumbing &
Construction Company to repair the pipe and fix the damage to Gert’s house.
Gert pays 10 percent of the price in advance. Holly’s does the work, but Gert
refuses to pay the rest of the price. What can Holly’s do, and how is it done?
2. Abner owes Borrowers Bank $15,000 but refuses to pay. Borrowers wants to
obtain a garnishment order and serve it on Abner’s employer, Café de Jeuner.
What is the procedure for obtaining a garnishment order? Is one order enough
to garnish all of Abner’s wages for each pay period until the debt is paid? Can
Abner’s employer dismiss him due to the garnishment?
