Question 1

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

Accepted Answer

This is a mechanic's lien, which is a legal claim against property as security for payment of a debt owed for work done on the property. Mechanic's liens are commonly used in the construction industry when a contractor or subcontractor is not paid for work done on a property. The lien gives the contractor or subcontractor the right to sell the property to recover the debt owed.

Question 2

In a few states, statutes allow the homestead exemption only if the judgment debtor has a family.

Accepted Answer

This is true in some states, as they require the judgment debtor to have a family in order to qualify for the homestead exemption. However, this is not the case in all states, as each state has its own laws and regulations regarding exemptions.

Question 3

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

Accepted Answer

In most states, the time frame to file a mechanic's lien is between 60 to 120 days from the last date labor or materials were provided. This is the best option because it provides a specific time frame within which Francis must act to protect his interests.

Question 4

A guaranty contract must always be in writing to be enforceable.

Accepted Answer

The answer of A guaranty contract must always be in...

Question 5

A homestead exemption allows a debtor to subtract the value of the family home from the amount of a debt.

Accepted Answer

The answer of A homestead exemption allows a debtor to...

Question 6

A creditor's composition agreement may be entirely enforceable.

Accepted Answer

A creditor's composition agreement is a legally binding contract between a debtor and their creditors, in which the creditors agree to accept a percentage of the amount owed in exchange for the debtor's promise to pay that reduced amount. As long as the agreement is entered into voluntarily, and no fraudulent or coercive activities were involved, the composition agreement is enforceable under the law.

Question 7

A surety can never assert fraud as a defense.

Accepted Answer

A surety can assert fraud as a defense in certain circumstances, such as if the principal or creditor engaged in fraudulent conduct that induced the surety to enter into the agreement. However, the mere fact that the principal committed fraud does not automatically release the surety from their obligations under the bond or contract.

Question 8

A guarantor can be required to pay an obligation only after the principal debtor defaults.

Accepted Answer

This is the general rule regarding guarantors. They are only required to pay the obligation if the principal debtor fails to do so (i.e. defaults).

Question 9

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

Accepted Answer

In most states, a construction company can create a lien on a property by filing a written notice of lien. This gives the company a security interest in the property until the debt is satisfied. This is a common remedy for construction companies when a customer fails to pay for services rendered. A creditor's composition agreement, writ of attachment, and writ of execution are all legal remedies, but they are not typically used in this type of situation.

Question 10

A creditor must exhaust all legal remedies against the principal debtor before holding the surety responsible for payment.

Accepted Answer

The answer of A creditor must exhaust all legal remedies...

Question 11

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.

Accepted Answer

This is known as the principle of subrogation, which allows the surety or guarantor to step into the shoes of the creditor and seek reimbursement from the debtor for any amounts paid.

Question 12

A surety cannot assert the principal debtor's bankruptcy as a defense to avoid liability on the debtor's obligation.

Accepted Answer

A surety is responsible for fulfilling the obligation of the principal debtor in the event that the debtor defaults. Bankruptcy of the debtor does not release the surety from their responsibility to fulfill the obligation.

Question 13

Creditors can agree with a debtor to discharge the debtor's debts on payment of a sum less than that owed.

Accepted Answer

This is known as a debt settlement or a negotiated settlement. Creditors may agree to this in order to at least recover some of the money owed to them, rather than risk getting nothing if the debtor defaults on the entire debt.

Question 14

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

Accepted Answer

A claim against a property that takes priority over other claims is known as a lien.

Question 15

A surety can assert the debtor's bankruptcy as a defense.

Accepted Answer

The answer of A surety can assert the debtor's bankruptcy...

Question 16

A guarantor is secondarily liable on an obliga?tion.

Accepted Answer

A guarantor is someone who agrees to pay back a debt or fulfill an obligation if the primary borrower defaults. This means that the guarantor is secondarily liable, or liable only if the primary borrower fails to fulfill their obligations.

Question 17

If a creditor surrenders collateral to the debtor without the consent of the guarantor, this can reduce the obligation of the guarantor.

Accepted Answer

If a creditor surrenders collateral to the debtor without the consent of the guarantor, the guarantor's obligation may be reduced because the guarantor's potential sources of recovery have been diminished. This is known as the doctrine of impairment of collateral.

Question 18

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.

Accepted Answer

This is known as the "material alteration rule," and it is based on the principle that a surety is only responsible for the specific obligations outlined in the original loan contract. If the creditor and debtor alter the terms of the contract without the surety's consent, the surety may be released from liability for any additional obligations that may arise as a result of the change, but only to the extent that they suffer a loss as a result of the change.

Question 19

A debtor's vehicle is never exempt from satisfaction of a judgment debt.

Accepted Answer

This statement is false. Depending on the state's laws, a debtor's vehicle may be exempt from satisfaction of a judgment debt up to a certain value or if it is necessary for the debtor's livelihood.

Question 20

Portia owes Bon $500 on their contract, but refuses to pay. To collect, Bon files a me?chanic's lien, under which security for the debt is repre?sented by

Accepted Answer

A mechanic's lien is a legal claim against a property as security for payment of a debt (in this case, the $500 owed under the contract). Therefore, the best choice is B, Portia's real estate. Option A (Portia's personal property) may be subject to a different type of lien, such as a judgment lien, but not a mechanic's lien. Option C (the $500 owed under the contract) and option D (the contract) are not sufficient as security for a mechanic's lien, as they are intangible assets and cannot be directly seized to satisfy a debt.

Quiz 24: Other Creditors Remedies and Suretyship