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
B1. State law governs the procedures that must be followed to create a mechanic’s lien.
B2. When a person contracts for improvements on real property but does not
immediately pay for the improvements, the creditor can place a mechanic’s lien on
the property.
B3. Modern statutes permit the holder of an artisan’s lien to foreclose and sell the
property subject to the lien to satisfy the debt.
B4. To use attachment as a remedy, a creditor must have possession of (be “attached” to)
a debtor’s property.
346 TEST BANK B—UNIT SIX: CREDITORS’ RIGHTS AND BANKRUPTCY
B5. A writ of execution is a court order to execute a debtor after the entry of a final
judgment in a creditor’s lawsuit against the debtor.
B6. A creditor can garnish almost all types of property.
B7. Under federal law, an employer can dismiss an employee because his or her wages
are being garnished.
B8. A creditor’s composition agreement is usually held to be unenforceable.
B9. Creditors may not contract with a debtor for payment of a sum less than that owed.
B10. With a guaranty arrangement, the guarantor is secondarily liable.
B11. The distinctions between a surety and a guarantor are recognized in all states.
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B12. Payment of the principal obligation will not discharge the guarantor from the
obligation.
B13. Making any material modification in the terms of a debtor’s contract, without the
consent of the surety, will not discharge the surety’s obligation.
B14. A guarantor can assert the principal debtor’s bankruptcy as a defense to avoid liability
on the obligation.
B15. A surety can assert his or her own bankruptcy as a defense to avoid liability on a
principal debtor’s obligation.
B16. The law protects debtors as well as creditors.
B17. Each state permits a debtor to retain the family home, in its entirety or in part, free
from the claims of unsecured creditors.
B18. Subrogation refers to the right of a co-surety to recover from the other co-sureties the
amount paid above his or her proportionate share of a debt.
B19. A surety is not entitled to receive from the debtor outlays made on behalf of the
suretyship arrangement.
348 TEST BANK B—UNIT SIX: CREDITORS’ RIGHTS AND BANKRUPTCY
B20. Personal property that is most often exempt from satisfaction of judgment debts does
not include livestock.
MULTIPLE CHOICE QUESTIONS
B1. Urbana performs a contract with Virgil to add a sun porch to Virgil’s house, but Virgil
does not pay. In most states, Urbana can create a lien and place it on Virgil’s property
by filing
a. a written guaranty contract.
b. a writ of attachment.
c. a writ of execution.
d. a written notice of lien.
B2. Loni delivers her Mazda to be repaired at Nile’s Body Shop. Loni agrees to pay cash.
Nile performs, but Loni does not pay. Nile tells Loni that he will keep the car until she
pays. This is
a. a judicial lien.
b. a mechanic’s lien.
c. an artisan’s lien.
d. a violation of most states’ laws.
CHAPTER 28: CREDITORS’ RIGHTS AND REMEDIES 349
B3. Bartleby owes $5,000 to Countryside Credit Union. As a prejudgment remedy to
collect the debt, Countryside could use
a. attachment.
b. contribution.
c. execution.
d. subrogation.
B4. Dolf borrows money from Elin. Dolf defaults. To use attachment as a remedy, Elin
must first
a. file a suit against Dolf.
b. lose a suit against Dolf.
c. succeed in a suit against Dolf.
d. take possession of Dolf’s property.
B5. Suchin’s debt to Trixie is past due. Trixie obtains a judgment against Suchin to collect
the debt, but Suchin refuses to pay. Trixie asks the court to order the seizure and sale
of Suchin’s property. This is a request for
a. a guaranty (or suretyship) contract.
b. an order that would violate most states’ laws.
c. an order of receivership.
d. a writ of execution.
350 TEST BANK B—UNIT SIX: CREDITORS’ RIGHTS AND BANKRUPTCY
B6. Khali’s debt to Lew is past due. Lew obtains a judgment against Khali to collect the
debt, but Khali refuses to pay. Lew asks the court to order Khali’s employer to pay a
portion of Khali’s paycheck to Lew. This is a request for
a. a mechanic’s lien.
b. an order of garnishment.
c. an order that would violate most state laws.
d. a writ of attachment.
B7. Mike owes $12,000 to Nora, $6,000 to Owen, and $6,000 to Pat. The three creditors
enter into an agreement with Mike to discharge the debts on payment of a sum of
$12,000 to them, to be divided proportionately. This is
a. a composition agreement.
b. a guaranty agreement.
c. a judicial lien.
d. a suretyship agreement.
Fact Pattern 28-1B (Questions B8–B10 apply)
Chocolate! Chocolate! Corporation is a new company that needs to borrow money to meet
its payroll. Dayna, president and owner of Chocolate! Chocolate!, asks Evermore Credit Union
to loan the funds to Chocolate! Chocolate!
B8. Refer to Fact Pattern 28-1B. If Evermore insists that Dayna sign the loan application,
making her personally liable for payment whether or not Chocolate! Chocolate!
defaults, Dayna will be
a. a surety.
b. a lienor.
c. a garnishee.
d. a guarantor.
B9. Refer to Fact Pattern 28-1B. Generally, for a contract between Evermore and Dayna
with respect to liability for Chocolate! Chocolate!’s loan to be enforceable, it must be
in writing if Dayna is
CHAPTER 28: CREDITORS’ RIGHTS AND REMEDIES 351
a. a surety.
b. a lienor.
c. a garnishee.
d. a guarantor.
B10. Refer to Fact Pattern 28-1B. If Evermore insists that Dayna sign the loan application,
making her personally liable for payment only if Chocolate! Chocolate! defaults,
Dayna will be
a. a surety.
b. a lienor.
c. a garnishee.
d. a guarantor.
Fact Pattern 28-2B (Questions B11-B12 apply)
Rico signs a lease on behalf of Start-Up Games, Inc., with Tower Office Suites. As part of the
lease, Rico signs a document titled “GUARANTY,” which states that it is “an absolute
guaranty” of the lease’s performance.
B11. Refer to Fact Pattern 28-2B. If Start-Up stops paying the rent, it is most likely that li-
ability or loss for the unpaid amount will rest with
a. no one.
b. Rico and Start-Up.
c. Tower Office Suites.
d. the other tenants on the same property.
352 TEST BANK B—UNIT SIX: CREDITORS’ RIGHTS AND BANKRUPTCY
B12. Refer to Fact Pattern 28-2B. The reason for the result in the previous question is that
a. Rico signed a “GUARANTY.”
b. Tower Office Suites owns the property and can re-rent the premises.
c. the other tenants can equitably absorb a slight increase in rent.
d. Start-Up will likely move out when it stops paying the rent.
B13. Bill and Cody agree to guarantee Wyatt’s debt. Bill’s maximum liability is $60,000, and
Cody’s is $40,000. Wyatt owes $40,000 and is in default. Bill pays the creditor the
entire amount. In the absence of an agreement to the contrary, Bill can recover from
Cody
a. 0.
b. $16,000.
c. $20,000.
d. $40,000.
B14. Jay is a surety for Katelyn’s loan from Lucre Bank. Jay’s right to be repaid by Katelyn
after having paid her debt is the right of
a. contribution.
b. redemption.
c. reimbursement.
d. subrogation.
CHAPTER 28: CREDITORS’ RIGHTS AND REMEDIES 353
Fact Pattern 28-3B (Questions B15-B16 apply)
Dillon and Evan are brothers. They agree to act as guarantors on a loan made by their sister,
Fiona. Fiona defaults on the payments and Dillon refuses to pay. Evan pays the debt.
B15. Refer to Fact Pattern 28-3B. Evan can recover from Dillon under
a. the right of proportionate liability.
b. the right of reimbursement.
c. the right of contribution.
d. no right, because the parties are brothers.
B16. Refer to Fact Pattern 28-3B. Evan can recover from Fiona under
a. the right of proportionate liability.
b. the right of reimbursement.
c. the right of subrogation.
d. no one, because the parties are brother and sister.
Fact Pattern 28-4B (Questions B17-B19 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.
B17. Refer to Fact Pattern 28-4B. Nina may recover
a. 0.
b. $30,000.
c. $50,000.
d. $60,000.
354 TEST BANK B—UNIT SIX: CREDITORS’ RIGHTS AND BANKRUPTCY
B18. Refer to Fact Pattern 28-4B. Mary will receive
a. 0.
b. $30,000.
c. $50,000.
d. $60,000.
B19. Refer to Fact Pattern 28-4B. 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.
B20. Brick’s debt to Conry is past due. Conry brings a legal action against Brick to collect the
debt. To ensure that a judgment in Conry’s favor will be collectible, Conry asks the
court to order the seizure of Brick’s property. Exempt from such an order in most
states is
a. all of Brick’s personal property.
b. as much of Brick’s personal property as Brick opts to exempt.
c. equipment that Brick uses in a business up to a specified amount.
d. none of Brick’s personal property.
ESSAY QUESTIONS
B1. 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?
CHAPTER 28: CREDITORS’ RIGHTS AND REMEDIES 355
B2. Brie is a student at Collegiate University. In need of funds to pay for tuition and books,
Brie asks Dependable Bank for a short-term loan. The bank agrees to make a loan if
Brie will have someone who is financially responsible guarantee the loan payments.
Esperanza, a well-known businessperson and a friend of Brie’s family, calls the bank
and agrees to pay the loan if Brie cannot. Because of Esperanza’s reputation, the loan
is made. Brie is making the payments, but because of illness she is unable to work for
one month. She asks Dependable extend the loan for three months. The bank agrees,
raising the interest rate for the extended period. Esperanza is not notified of the
extension (and thus does not consent to it). One month later, Brie drops out of school.
All attempts to collect the remainder of the loan from Brie fail. Can Dependable assert
a claim against Esperanza on the debt?