Question 1

Barth borrows funds from City Bank to pay his tuition. His mother Debi co-signs the credit application. After the loan agreement is signed, Barth agrees to a higher rate of interest without telling Debi. She is

Accepted Answer

Debi is discharged from the agreement because Barth altered the terms of the loan agreement without her knowledge or consent, which can release a co-signer from their obligations.

Question 2

Rancho West owes Silo & Barn Inc. $5,000 on their contract, but refuses to pay. To collect, Silo files a mechanic's lien, under which security for the debt is represented by

Accepted Answer

A mechanic's lien is typically filed on the real estate property where work was performed or materials were supplied, and serves as a security interest for unpaid debts related to that work or materials. Therefore, Rancho's real estate would be the property represented by the mechanic's lien.

Question 3

Petro Refinery asks Quality Bank for a loan to increase its inventory. Quality requires Rose, Petro's president, to sign a personal guaranty to pay the debt if Petro defaults. Rose is a guarantor. The guaranty is required to be in writing because

Accepted Answer

The main purpose rule does not apply in this situation because the guaranty is for a commercial loan, not a consumer loan. Therefore, the guaranty can be in writing and enforceable.

Question 4

Brewery Company's debt to Credit Service is past due. Credit obtains a judgment against Brewery, but the firm refuses to pay. Credit asks the court to order the seizure of Brewery's property. This is a request for

Accepted Answer

A writ of execution is a court order that allows a creditor to seize a debtor's property to satisfy a debt after a judgment has been obtained. In this scenario, Credit Service has obtained a judgment against Brewery Company, which means they have the right to seek payment through the seizure of Brewery's property. Therefore, Credit's request to the court is for a writ of execution, not an artisan's lien, mechanic's lien or writ of attachment.

Question 5

United Contractors Inc. holds a lien on Vista Estate's real property. This property can be sold to satisfy the debt if, before the sale, notice is given to

Accepted Answer

Notice of the lien must be given to the property owner (Vista Estate), as they have the right to know about any claims on their property. While it may be a good practice to notify other creditors or the public, it is not legally required. The state may be notified through the filing of the lien with the appropriate government agency.

Question 6

Equipment Company holds a lien on Fertile Farm's equipment. The equipment can be sold to satisfy the debt

Accepted Answer

The owner of the equipment must be given notice before the sale in order to allow them the opportunity to pay off the debt or make arrangements to have the equipment removed from the lien. This is known as the right of redemption. Notice to other creditors or the general public is not necessary.

Question 7

Consumer Credit Inc. (CCI) lends $1,000 to Dave. Eve acts as Dave's surety. If Eve pays the loan, she gets

Accepted Answer

If Eve, as a surety, pays the loan, she is entitled to step into the shoes of the creditor (CCI) and obtain any rights that CCI had against Dave. This is known as the right of subrogation.

Question 8

Business Sales Inc.'s debt to Cartage Company is past due. Cartage brings a legal action against Business Sales to collect. To ensure that a judgment in the creditor's favor will be collectible, Cartage asks the court to order the seizure of the debtor's property. This is a request for

Accepted Answer

A writ of attachment is a request to seize a debtor's property to ensure that a judgment in the creditor's favor will be collectible. An artisan's lien is a claim against specific property, typically given to repair or maintain that property. A mechanic's lien is similar to an artisan's lien, but typically pertains to a mechanic's work on a vehicle. A writ of execution is a court order for the sale of property to satisfy a judgment. None of these options fit the scenario given as well as a writ of attachment.

Question 9

Building Company adds a shipping dock to the property of Corporate Complex, but the owner does not pay. Building files a lien on Corporate's property. The property

Accepted Answer

Filing a lien on the property means that the property can be held to guarantee payment of the debt. This does not automatically mean that the property has to be sold or returned to the debtor.

Question 10

To make a sale to Gourmet Inc., Hill Valley Commodities asks Gourmet's outside accountant Ina to co-sign a credit application. According to the terms, if Gourmet defaults, Hill Valley can look to her for payment without first pursuing legal remedies against Gourmet. Tina is

Accepted Answer

Ina is a surety because she has agreed to be responsible for Gourmet's debt without requiring Hill Valley to first pursue legal remedies against Gourmet. A surety is directly liable for the debt.

Question 11

Rashi is a student at State University. In need of funds to pay for tuition and books, Rashi asks Tiempo Loans, Inc., for a short-term loan. The lender agrees to make a loan if Rashi will have someone who is financially responsible guarantee the loan payments. Umberto, a well-known businessperson and a friend of Rashi's family, calls Tiempo and agrees to pay the loan if Rashi cannot. Because of Umberto's reputation, the loan is made. Rashi is making the payments, but because of illness he is unable to work for one month. He asks Tiempo to extend the loan for three months. The lender agrees, raising the interest rate for the extended period. Umberto is not notified of the extension (and thus does not consent to it). One month later, Rashi drops out of school. All attempts to collect the remainder of the loan from Rashi fail. Can Tiempo assert a claim against Umberto on the debt?

Accepted Answer

The answer of Rashi is a student at State University....

Question 12

The roof in Rosalyn's house springs a leak. She contracts with Shelter Roofing & Restoration Company to repair the roof and fix the damage to the house. Rosalyn pays 10 percent of the price in advance. Shelter Roofing does the work, but Rosalyn refuses to pay the rest of the price. What can Shelter Roofing do, and how is it done?

Accepted Answer

The answer of The roof in Rosalyn's house springs a...

Quiz 25: Security Interests and Creditors Rights