Chapter 28
Creditors’ Rights
and Remedies
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
A1. A mechanic’s lien can be enforced to recover payment from a debtor for labor and
materials in the repair of personal property.
A2. If a debtor does not pay a mechanic’s lien, the debtor’s property can be sold to satisfy
the debt.
A3. A default occurs when a debtor fails to pay a creditor as promised.
A4. An artisan’s lien is possessory.
A5. An attachment is a court-ordered seizure and taking into custody of property prior to
the securing of a judgment for a past-due debt.
A6. If a creditor obtains a judgment against a debtor and the debtor cannot or will not pay
the judgment, the dispute is at an end.
A7. Federal law governs garnishment actions.
A8. All of a debtor’s pay can be garnished.
A9. Creditors may contract with a debtor for discharge of the debtor’s liquidated debts.
A10. The distinctions between a surety and a guarantor have been abolished in all states.
A11. A surety is primarily liable for the debt of a principal.
A12. A guarantor can be required to pay an obligation only after the principal debtor
defaults.
A13. A guaranty contract must be in writing to be enforceable.
A14. In a suretyship relationship, a third person’s credit becomes the security for a debt.
A15. Payment of the principal obligation will not discharge the surety from the obligation.
A16. If a creditor surrenders collateral to the debtor without the consent of the guarantor,
this can reduce the obligation of the guarantor.
A17. If the debtor offers to pay the debt owed to a creditor but the creditor refuses the
tender, the surety remains obligated on the debt.
A18. A homestead exemption allows a debtor to subtract the value of the family home
from the amount of a debt.
A19. In a few states, statutes allow the homestead exemption only if the judgment debtor
has a family.
A20. A debtor’s vehicle is never exempt from satisfaction of a judgment debt.
MULTIPLE CHOICE QUESTIONS
A1. Residence Painting Company has a claim against Stuart’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 writ of attachment.
d. a garnishment.
A2. Pruit performs a contract with Quint to reshingle the roof on Quint’s house, but Quint
does not pay. Pruit notifies Quint 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.
A3. Diego performs a contract with Elwood to add a swimming pool to Elwood’s property, but
Elwood does not pay. Diego can file a lien on Elwood’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.
A4. Francie’s debt to Gage is past due. Gage brings a legal action against Francie to collect
the debt. To ensure that a judgment in Gage’s favor will be collectible, Gage asks the
court to order the seizure of Francie’s property. This is a request for
a. a guaranty (or suretyship) contract.
b. an order that would violate most state laws.
c. a writ of attachment.
d. an order of receivership.
A5. Delia refuses to pay Ewing $500 in cash on their contract to repair certain theater sets,
which Ewing still possesses. Ewing’s lien on the sets will terminate
a. if Ewing continues to maintain possession.
b. if Ewing does not file a written notice of lien within thirty days.
c. if Ewing voluntarily surrenders possession.
d. within thirty days.
A6. Ping’s debt to Oak Furniture Warehouse is past due. Oak obtains a judgment against
Ping, but Ping refuses to pay it. Oak asks the court for an order that directs the sheriff
to seize and sell any of Ping’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.
A7. Sydney borrows money from Rite Now Loan Company. For Rite Now to obtain a writ
of execution, Sydney must
a. be unable or refuse to pay the amount of a judgment.
b. be unable to redeem Sydney’s exempt property.
c. notify Rite Now in writing (in a “writ”) of his intent.
d. surrender possession of his property to a court.
A8. Flip’s debt to George is past due. George brings a legal action against Flip to collect
the debt. George asks the court to order Home Bank, in which Flip has an account, to
pay a portion of the funds to George. 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. an artisan’s lien.
A9. Kyla’s debt to Lark is past due. Lark obtains an order of garnishment to require Kyla’s
employer My Pi Pizza Restaurant to pay part of Kyla’s paycheck to Lark. The law
a. limits the amount that can be taken from Kyla’s take-home pay.
b. permits My Pi to dismiss Kyla because her wages are garnished.
c. practically does not allow Lark to collect the awarded amount.
d. requires My Pi to retain Kyla as an employee until the debt is paid.
A10. Liu and Midge—Nero’s creditors—contract with Nero for the discharge of Nero’s
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.
A11. Speedy Delivery Company buys a white van from Tom’s Terrific Vehicles, on credit
under a guaranty signed by Ulysses, Speedy’s president, making him personally liable
if Speedy does not pay. Ulysses is
a. a surety.
b. a lienor.
c. a guarantor.
d. a creditor.
Fact Pattern 28–1A (Questions A12–A15 apply)
Dollar Value Motors asks Estimable Bank for a loan to increase its vehicle inventory.
Estimable requires Flair, Dollar Value’s president, sign a personal guaranty to pay the debt if
Dollar Value defaults. Meanwhile, to buy a pick-up truck from Dollar Value, Gina asks Harper
to co-sign a credit application.
A12. Refer to Fact Pattern 28-1A. If Harper signs the application but fails to condition her
signature on Dollar Value’s agreement to pursue its legal remedies against Gina
before looking to her, then Harper is
a. a surety.
b. a lienor.
c. a guarantor.
d. a creditor.
A13. Refer to Fact Pattern 28-1A. If Flair is a guarantor, then the guaranty is required to be
in writing because of
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.
A14. Refer to Fact Pattern 28-1A. If Harper signs the application only after language is
included that requires Dollar Value to exhaust its legal remedies against Gina before
looking to her, then Harper is
a. a surety.
b. a lienor.
c. a guarantor.
d. a creditor.
A15. Refer to Fact Pattern 28-1A. If, after the loan agreement is signed, Gina agrees to a
higher rate of interest without telling Harper, then Harper 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.
A16. Rita is a surety for Serena’s loan from Title Lenders, Inc. Rita’s right to “step into the
shoes” of Title Lenders, after paying Serena’s debt, and exercise any of the Title
Lenders’s rights against Serena is the right of
a. contribution.
b. redemption.
c. reimbursement.
d. subrogation.
A17. Doral, Eduard, and Francesca are co–sureties of Glenda’s debt to Hi-Credit Company.
Doral pays Glenda’s entire debt. Doral’s right to seek proportionate payments from
Eduard and Francesca is the right of
a. contribution.
b. redemption.
c. reimbursement.
d. subrogation.
A18. Rosa and Sally agree to guarantee Timon’s debt. Rosa’s maximum liability is $30,000,
and Sally’s is $20,000. Timon owes $20,000 and is in default. Rosa pays the creditor
the entire amount. In the absence of an agreement to the contrary, Rosa can recover
from Sally
a. $8,000.
b. $10,000.
c. $20,000.
d. 0.
A19. Ronda’s debt to Skye is past due. Skye brings a legal action against Ronda to collect
the debt. To ensure that a judgment in Skye’s favor will be collectible, Skye asks the
court to order the seizure of Ronda’s property. Exempt from such an order in most
states would be
a. all of Ronda’s real property.
b. as much of Ronda’s real property as Ronda opts to exempt.
c. none of Ronda’s real property.
d. Ronda’s family home in its entirety or up to a specified amount.
A20. Laurel defaults on a loan owed to Maverick Bank. As a creditor, Maverick may attempt
to place liens on all of Laurel’s property except
a. motor vehicles used to commute to work.
b. stock in various corporations.
c. items that Laurel selects.
d. vacant commercial property.
ESSAY QUESTIONS
A1. Wanda owes Xtra Credit Company $5,000 but refuses to pay. Xtra Credit obtains a
garnishment order and serves it on Wanda’s employer, Young Nursery & Garden, Inc.
If Young complies with the order and Wanda stays on the job, is one order enough to
garnish all of Wanda’s wages for each pay period until the debt is paid?
A2. Smartt Software Company borrows $10,000 from Term ‘N All Loans, Inc., but cannot
repay the loan when it comes due. Term ‘N All refuses to extend the time for
repayment unless Smartt can provide an acceptable surety. Uno Venture Corporation
agrees to act as a surety for the loan after Smartt offers the firm a discount on
software and shows Uno financial statements, compiled with Term ‘N All’s assistance,
that misrepresent Smartt’s financial situation. Later, after Uno uses the discount to
buy software, Smartt again defaults on repayment of the loan, and Term ‘N All files a
suit against Uno to collect the amount of the debt. Is Uno liable? Why or why not?
