Question 1

Fact Pattern 28-3B 
Mary's home is in a state that has a $30,000 homestead exemption. Mary de?faults on a $60,000 debt that she owes to Nina. Mary's home is sold at auc?tion for $80,000.
-Refer to Fact Pattern 28-3B. Nina may recover

Accepted Answer

Mary's home is sold for $80,000, and with the $30,000 homestead exemption, the remaining $50,000 should go towards paying off Mary's debt to Nina, allowing Nina to recover that amount.

Question 2

Ross and Sally agree to guarantee Tim's debt. Ross's maximum liabil?ity is $30,000, and Sally's is $20,000. Tim owes $20,000 and is in default. Ross pays the creditor the entire amount. In the ab?sence of an agree?ment to the contrary, Ross can recover from Sally

Accepted Answer

Ross paid the entire amount of $20,000, which is within his maximum liability of $30,000. Since Sally's maximum liability is $20,000, Ross can recover half of what he paid, which is $10,000.

Question 3

Dora, Ed, and Fran are co-sureties of Glen's debt to Hi-Credit Company. Dora pays Glen's entire debt. Dora's right to seek proportionate pay?ments from Ed and Fran is the right of

Accepted Answer

Dora has the right to seek proportionate payments from Ed and Fran through the doctrine of contribution, which allows co-sureties to share the burden of a debt proportionate to their share of the obligation. This means that if Dora paid more than her share, she can seek reimbursement from the other co-sureties to ensure that each party pays their fair share of the debt. Redemption is when the debtor repays the debt to the creditor, reimbursement is when one party is reimbursed for expenses paid on behalf of another, and subrogation is when one party is substituted for another in terms of their rights and obligations. None of these concepts apply in this scenario.

Question 4

Jay is a surety for Karen's loan from Little Bank. Jay's right to be repaid by Karen after having paid her debt is the right of

Accepted Answer

The right of reimbursement allows Jay, as a surety, to recover the amount he paid on behalf of Karen from Karen herself.

Question 5

Rhonda's debt to Skyler is past due. Skyler brings a legal action against A to collect the debt. To ensure that a judgment in Skyler's favor will be collectible, Skyler asks the court to order the seizure of Rhonda's property. Exempt from such an order in most states would be

Accepted Answer

In most states, Rhonda's family home (also known as a homestead) is exempt from seizure to satisfy a debt. The exemption may apply to the entire value of the home or up to a specified amount, depending on state law. However, Rhonda's other real property may not be exempt, meaning it could be seized to satisfy the debt.

Question 6

Fact Pattern 28-1A 
Dina asks Edie to co-sign a credit application so that she can borrow money and buy a truck from Finest Quality Motors.
-Refer to Fact Pattern 28-1A. If Edie is a guarantor, then the guaranty is re?quired to be in writing because of

Accepted Answer

The Statute of Frauds requires that guarantees or promises to answer for the debt of another must be in writing to be enforced. Therefore, if Edie is a guarantor, the guaranty must be in writing to be legally enforceable. Options A, B, and C are not relevant to the requirement of a written guaranty.

Question 7

Refer to Fact Pattern 28-3B. If Nina recovers less than she is owed, she can realize the difference from

Accepted Answer

Nina can only realize the difference from nonexempt property that Mary owns. Exempt property is protected from collection by creditors. Property owned by other members of Mary's family is not relevant in this case.

Question 8

Fact Pattern 28-2B 
Rico signs a lease on behalf of Start-Up, Inc., with Town Properties Corporation. As part of the lease, Rico signs a document titled "GUARANTY," which states that it is "an absolute guaranty" of the lease's performance.
-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

Accepted Answer

Rico signed a document that is an "absolute guaranty" of the lease's performance. This means that if Start-Up fails to pay rent, Rico will be liable for the unpaid amount in addition to Start-Up.

Question 9

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

Accepted Answer

In most states, equipment that Brick uses in a business up to a specified amount is exempt from seizure in a debt collection action. This is known as a "tools of the trade" exemption and is designed to ensure that individuals can continue to earn a livelihood even if they have outstanding debts. Brick's personal property, however, is generally not exempt from seizure unless he opts to claim certain exemptions provided by state law.

Question 10

Fact Pattern 28-1A 
Dina asks Edie to co-sign a credit application so that she can borrow money and buy a truck from Finest Quality Motors.
-Refer to Fact Pattern 28-1A. If Edie signs the application but fails to con?di?tion her signature on Finest's agreement to pursue its legal remedies against Dina before looking to her, then Edie is

Accepted Answer

Edie is a surety because she did not condition her obligation on Finest pursuing Dina first, meaning she is directly liable for the debt if Dina defaults.

Question 11

Refer to Fact Pattern 28-2B. The reason for the result in the previous question is that

Accepted Answer

Rico's signature on the "GUARANTY" made him personally liable for the lease, regardless of whether Start-Up was successful or not.

Question 12

Fact Pattern 28-1B 
Beta Software Corporation is a new company that needs to borrow money to meet its payroll. Cliff, president and owner of Beta, asks First National Bank to loan Beta the funds.
-Refer to Fact Pattern 28-1B. If First National insists that Cliff sign the loan applica?tion, making himself personally liable for payment only if Beta de?faults, Cliff will be

Accepted Answer

If Cliff signs the loan application as a guarantor, he is only responsible for payment if Beta defaults on the loan. Therefore, he is not a surety.

Question 13

Fact Pattern 28-3B 
Mary's home is in a state that has a $30,000 homestead exemption. Mary de?faults on a $60,000 debt that she owes to Nina. Mary's home is sold at auc?tion for $80,000.
-Refer to Fact Pattern 28-3B. Mary will receive

Accepted Answer

Mary will receive the $30,000 homestead exemption that is allowed by her state. The remaining $50,000 will be used to pay off as much of her debt as possible, with any remaining balance still owed to Nina. Mary does not receive any proceeds beyond the homestead exemption.

Question 14

Fact Pattern 28-1A 
Dina asks Edie to co-sign a credit application so that she can borrow money and buy a truck from Finest Quality Motors.
-Refer to Fact Pattern 28-1A. If Edie signs the application only after lan?guage is included that requires Finest to exhaust its legal remedies against Dina before looking to her, then Edie is

Accepted Answer

Edie is a guarantor only because she has agreed to be responsible for the debt only after the creditor has exhausted all legal remedies against Dina, which is a characteristic of a guarantor, not a surety.

Question 15

Rita is a surety for Sue's loan from Total Finance Company. Rita's right to "step into the shoes" of Total Finance, after paying Sue's debt, and ex?er?cise any of the Total Finance's rights against Sue is the right of

Accepted Answer

The right of "stepping into the shoes" of Total Finance after paying Sue's debt and exercising any of its rights against Sue is known as subrogation. Therefore, option D is the correct answer. Contribution is the sharing of a debt among multiple debtors, redemption is the repurchase of property, and reimbursement is the repayment of expenses. None of these options are applicable to the scenario described in the question.

Question 16

Bret defaults on a loan owed to City Bank. As a creditor, City Bank may attempt to place liens on all of Bret's property except

Accepted Answer

Motor vehicles that the debtor uses to commute to work are often exempt from creditors' liens. This is because transportation to work is necessary for the debtor's continued employment and ability to repay debts. The other options, personal property consisting of stock in various corporations, property the debtor elects to exempt, and real property on which the debtor plans to open a retail store, are not automatically exempt and may be subject to liens.

Question 17

Bill and Cody agree to guarantee Dave's debt. Bill's maximum liabil?ity is $60,000, and Cody's is $40,000. Dave owes $40,000 and is in default. Bill pays the creditor the entire amount. In the ab?sence of an agree?ment to the contrary, Bill can recover from Cody

Accepted Answer

Bill paid $40,000, and Cody's maximum liability is $40,000. Therefore, Bill can recover $40,000 - $20,000 = $20,000 from Cody.

Question 18

Fact Pattern 28-1A 
Dina asks Edie to co-sign a credit application so that she can borrow money and buy a truck from Finest Quality Motors.
-Refer to Fact Pattern 28-1A. If, after the loan agreement is signed, Dina agrees to a higher rate of interest without telling Edie, then Edie is

Accepted Answer

If Dina agrees to a higher rate of interest without informing Edie, Edie is discharged from the agreement because the terms of the original agreement were altered without her consent.

Question 19

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 re?fuses to pay. Earl pays the debt. Earl can recover from

Accepted Answer

Under the right of contribution, Earl can recover from Drew for his share of the debt as they both agreed to act as guarantors. Meanwhile, under the right of subrogation, Flo can be held liable as she was the borrower who defaulted on the loan.

Question 20

Kwik Delivery Company buys a truck from Lucky Vehicles, Inc., under a guaranty signed by Mina, Kwik's president, who writes "President" after her signature. When Kwik does not pay for the truck, Lucky sues Mina, who claims that she did not intend to be bound by the guaranty. The court would most likely rule in favor of

Accepted Answer

Mina's signature clearly indicates her position as President of Kwik Delivery Company, and the guaranty contract is unambiguous. Therefore, Mina is bound by the guaranty she signed.

Quiz 28: Creditors Rights and Remedies

Fact Pattern 28-3B Mary's home is in a state that has a $30,000 homestead exemption. Mary de?faults on a $60,000 debt that she owes to Nina. Mary's home is sold at auc?tion for $80,000. -Refer to Fact Pattern 28-3B. Nina may recover