Question 1

"Bad Hair Day." Molly started a new hair salon and leased space for the salon from Peggy. Unfortunately, Molly's styling caused some problems for customers. One customer's hair turned green from her bleaching process, and she burned another customer with a curling iron. Not surprisingly, Molly had little business and was unable to pay her lease payments as they came due. Peggy filed a lawsuit against Molly and obtained a judgment against Molly for $7,000 in past due rent. Peggy asked for a court-ordered judgment permitting the sheriff to seize and sell Molly's equipment including her hair-dryers, pedicure chair, nail polish, and other items, but the judge refused her request. Peggy did, however, obtain an order allowing her to seize $3,000 held in Molly's bank account with which to partially satisfy the debt. Peggy also discovered that Molly had for her personal use a wide-screen television set worth approximately $1,000 which was being held by Harold, a television repairer for the costs of repair. Peggy asked him to turn over the television because her lien had priority, but Harold refused.
-Assuming no exemption applies, which of the following will most likely be the result of the dispute between Harold and Peggy regarding the television set?

Accepted Answer

Both artisan's and mechanic's liens have priority over other types of liens; thus, they are called super-priority liens.

Question 2

"Defective Windows." Selina hired a contractor, Rex, to put new windows in her home that she purchased herself from Good Windows. Unfortunately, Rex made a mess of the windows. While the windows were initially in good shape, Rex cracked some, scratched others, and did not get the windows properly fitted into their frames. Selina received a bill for the windows from Good Windows, but she refused to pay. Selina was told that Good Windows would file a lien, but she believed that there was no basis upon which a lien would be granted. Rex, who refused responsibility for any problems, also filed a lien after Selina refused to pay him. -Assuming the court follows the reasoning of Bates County Redi-Mix Inc. v. Windler discussed in the text, which of the following is the most likely result if Good Windows proceeds with attempting to obtain a lien?

Accepted Answer

As recognized by the court in Bates County Redi-Mix Inc. v. Windler , a supplier of materials is entitled to a lien even if a contractor hired by a homeowner performs improper installation.

Question 3

"Rough Start." Debby, who just graduated from college, wanted to buy a new car. She, however, did not have much of a credit history, and the bank would not give her a loan unless she had a cosigner who agreed to be liable on the loan along with Debby. Debby's father cosigned with Debby on her loan at the bank. Debby also wanted to start a real estate business. She needed funds with which to do so. Her boyfriend, George, agreed in a signed writing with the bank that he would pay Debby's start-up loan for the real estate business if Debby did not do so. Unfortunately, Debby did not make any money in the real estate business. She went bankrupt as did George who had been acting as her receptionist.
-What is the effect, if any, of Debby's bankruptcy on the debt owed by her father?

Accepted Answer

While the surety or guarantor may assert that his or her bankruptcy or incapacity is a defense against paying the creditor, the surety or guarantor cannot use the debtor's bankruptcy or incapacity as a defense.

Question 4

Which of the following is true if a guarantor's oral promise to pay a debt is not in writing?

Accepted Answer

If a guarantor's oral promise to pay a debt is not in writing, the guarantor can raise the statute-of-frauds defense.

Question 5

"Bad Hair Day." Molly started a new hair salon and leased space for the salon from Peggy. Unfortunately, Molly's styling caused some problems for customers. One customer's hair turned green from her bleaching process, and she burned another customer with a curling iron. Not surprisingly, Molly had little business and was unable to pay her lease payments as they came due. Peggy filed a lawsuit against Molly and obtained a judgment against Molly for $7,000 in past due rent. Peggy asked for a court-ordered judgment permitting the sheriff to seize and sell Molly's equipment including her hair-dryers, pedicure chair, nail polish, and other items, but the judge refused her request. Peggy did, however, obtain an order allowing her to seize $3,000 held in Molly's bank account with which to partially satisfy the debt. Peggy also discovered that Molly had for her personal use a wide-screen television set worth approximately $1,000 which was being held by Harold, a television repairer for the costs of repair. Peggy asked him to turn over the television because her lien had priority, but Harold refused.
-Which of the following is the term for what Peggy requested when she requested that the judge have law enforcement officers seize and sell Molly's equipment?

Accepted Answer

A writ of execution is a judicial order authorizing a local law officer to seize and sell any of the debtor's nonexempt real or personal property within the court's geographic jurisdiction.

Question 6

If a surety or guarantor pays the debtor's obligation to the creditor, the surety or guarantor has a right to ______, which means that the surety or guarantor is entitled to all the rights that the creditor had against the debtor.

Accepted Answer

If a surety or guarantor pays the debtor's obligation to the creditor, the surety or guarantor has a right to subrogation, which means that the surety or guarantor is entitled to all the rights that the creditor had against the debtor.

Question 7

"Rough Start." Debby, who just graduated from college, wanted to buy a new car. She, however, did not have much of a credit history, and the bank would not give her a loan unless she had a cosigner who agreed to be liable on the loan along with Debby. Debby's father cosigned with Debby on her loan at the bank. Debby also wanted to start a real estate business. She needed funds with which to do so. Her boyfriend, George, agreed in a signed writing with the bank that he would pay Debby's start-up loan for the real estate business if Debby did not do so. Unfortunately, Debby did not make any money in the real estate business. She went bankrupt as did George who had been acting as her receptionist.
-What is the effect, if any, of Debby's bankruptcy on any debt owed by George?

Accepted Answer

While the surety or guarantor may assert that his or her bankruptcy or incapacity is a defense against paying the creditor, the surety or guarantor cannot use the debtor's bankruptcy or incapacity as a defense.

Question 8

Which of the following may occur when a third party agrees to be liable for a debtor's loan either primarily or secondarily?

Accepted Answer

When a third party agrees to be liable for a debtor's loan, the party creates either a suretyship or a guaranty arrangement.

Question 9

"Defective Windows." Selina hired a contractor, Rex, to put new windows in her home that she purchased herself from Good Windows. Unfortunately, Rex made a mess of the windows. While the windows were initially in good shape, Rex cracked some, scratched others, and did not get the windows properly fitted into their frames. Selina received a bill for the windows from Good Windows, but she refused to pay. Selina was told that Good Windows would file a lien, but she believed that there was no basis upon which a lien would be granted. Rex, who refused responsibility for any problems, also filed a lien after Selina refused to pay him.

-Which of the following is the most likely result if Rex proceeds with attempting to obtain and enforce a lien?

Accepted Answer

Creating a lien on property does not automatically ensure that a contractor will receive money. If a contractor performs deficient work, the mechanic's lien may not be enforced.

Question 10

"Rough Start." Debby, who just graduated from college, wanted to buy a new car. She, however, did not have much of a credit history, and the bank would not give her a loan unless she had a cosigner who agreed to be liable on the loan along with Debby. Debby's father cosigned with Debby on her loan at the bank. Debby also wanted to start a real estate business. She needed funds with which to do so. Her boyfriend, George, agreed in a signed writing with the bank that he would pay Debby's start-up loan for the real estate business if Debby did not do so. Unfortunately, Debby did not make any money in the real estate business. She went bankrupt as did George who had been acting as her receptionist.
-Which of the following is the correct term for the agreement entered into between Debby's father and the bank?

Accepted Answer

A suretyship is a contract between a creditor and a third party who agrees to pay another person's debt. This third party, also known as the surety or cosigner, is primarily liable for the debt.

Question 11

"Bad Hair Day." Molly started a new hair salon and leased space for the salon from Peggy. Unfortunately, Molly's styling caused some problems for customers. One customer's hair turned green from her bleaching process, and she burned another customer with a curling iron. Not surprisingly, Molly had little business and was unable to pay her lease payments as they came due. Peggy filed a lawsuit against Molly and obtained a judgment against Molly for $7,000 in past due rent. Peggy asked for a court-ordered judgment permitting the sheriff to seize and sell Molly's equipment including her hair-dryers, pedicure chair, nail polish, and other items, but the judge refused her request. Peggy did, however, obtain an order allowing her to seize $3,000 held in Molly's bank account with which to partially satisfy the debt. Peggy also discovered that Molly had for her personal use a wide-screen television set worth approximately $1,000 which was being held by Harold, a television repairer for the costs of repair. Peggy asked him to turn over the television because her lien had priority, but Harold refused.
-What is the most likely reason that the judge refused to allow the sheriff to seize Molly's equipment?

Accepted Answer

The following items are typically exempt from seizure:1. Household goods, appliances, and furniture (usually up to a set value).2. Clothing.3. Equity in a vehicle (usually up to a set value).4. Tools and instruments needed to carry on a trade.

Question 12

Which of the following is a transfer or assignment by a debtor of title to property to a trustee or an assignee who sells the property with the proceeds of the sale going to pay creditors on a pro rata basis?

Accepted Answer

A voluntary action the debtor can make to pay debts is to transfer, or assign, title of his or her property to a trustee or an assignee who sells the property to pay the creditors on a pro rata basis with the proceeds of the sale. This transfer of title is called assignment for the benefit of creditors.

Question 13

"Defective Windows." Selina hired a contractor, Rex, to put new windows in her home that she purchased herself from Good Windows. Unfortunately, Rex made a mess of the windows. While the windows were initially in good shape, Rex cracked some, scratched others, and did not get the windows properly fitted into their frames. Selina received a bill for the windows from Good Windows, but she refused to pay. Selina was told that Good Windows would file a lien, but she believed that there was no basis upon which a lien would be granted. Rex, who refused responsibility for any problems, also filed a lien after Selina refused to pay him.

-Which of the following is the type of lien that Rex would likely seek?

Accepted Answer

When a person hires a worker to make improvements on real property but is later unable to pay the worker, the worker can create a mechanic's lien on the person's improved real property.

Question 14

A ______ is a contract between a creditor and a third party who agrees to pay another person's debt and is primarily liable for the debt whereas in a ______, a third party, must pay a debt only after the debtor has defaulted.

Accepted Answer

A suretyship is a contract between a creditor and a third party who agrees to pay another person's debt. This third party, also known as the surety or cosigner, is primarily liable for the debt. In a guaranty, the third party, usually called the guarantor, must pay the debt only after the debtor has defaulted.

Question 15

"Bad Hair Day." Molly started a new hair salon and leased space for the salon from Peggy. Unfortunately, Molly's styling caused some problems for customers. One customer's hair turned green from her bleaching process, and she burned another customer with a curling iron. Not surprisingly, Molly had little business and was unable to pay her lease payments as they came due. Peggy filed a lawsuit against Molly and obtained a judgment against Molly for $7,000 in past due rent. Peggy asked for a court-ordered judgment permitting the sheriff to seize and sell Molly's equipment including her hair-dryers, pedicure chair, nail polish, and other items, but the judge refused her request. Peggy did, however, obtain an order allowing her to seize $3,000 held in Molly's bank account with which to partially satisfy the debt. Peggy also discovered that Molly had for her personal use a wide-screen television set worth approximately $1,000 which was being held by Harold, a television repairer for the costs of repair. Peggy asked him to turn over the television because her lien had priority, but Harold refused.
-What type of order allowed Peggy to seize money from Molly's bank account?

Accepted Answer

Under state law, a creditor may also ask for a garnishment, an order that satisfies a debt by seizing a debtor's property that is being held by a third party. A garnishment order is usually directed at a bank where the debtor has an account or at an employer who pays the debtor wages.

Question 16

"Rough Start." Debby, who just graduated from college, wanted to buy a new car. She, however, did not have much of a credit history, and the bank would not give her a loan unless she had a cosigner who agreed to be liable on the loan along with Debby. Debby's father cosigned with Debby on her loan at the bank. Debby also wanted to start a real estate business. She needed funds with which to do so. Her boyfriend, George, agreed in a signed writing with the bank that he would pay Debby's start-up loan for the real estate business if Debby did not do so. Unfortunately, Debby did not make any money in the real estate business. She went bankrupt as did George who had been acting as her receptionist.
-What is the effect of George's bankruptcy, if any, on the debt owed by George?

Accepted Answer

While the surety or guarantor may assert that his or her bankruptcy or incapacity is a defense against paying the creditor, the surety or guarantor cannot use the debtor's bankruptcy or incapacity as a defense.

Question 17

Which of the following is the lien of a judgment that arises when a motion for a new trial has been denied?

Accepted Answer

A consummate lien is the lien of a judgment creditor that arises when a motion for a new trial has been denied.

Question 18

"Rough Start." Debby, who just graduated from college, wanted to buy a new car. She, however, did not have much of a credit history, and the bank would not give her a loan unless she had a cosigner who agreed to be liable on the loan along with Debby. Debby's father cosigned with Debby on her loan at the bank. Debby also wanted to start a real estate business. She needed funds with which to do so. Her boyfriend, George, agreed in a signed writing with the bank that he would pay Debby's start-up loan for the real estate business if Debby did not do so. Unfortunately, Debby did not make any money in the real estate business. She went bankrupt as did George who had been acting as her receptionist.
-Which of the following is the correct term for the agreement entered into between George and the bank?

Accepted Answer

In a guaranty, the third party, usually called the guarantor, must pay the debt only after the debtor has defaulted.

Question 19

Which of the following is a claim to property in which the lienholder has the right to be in possession of the property until the debt is paid?

Accepted Answer

A possessory lien is a claim to property in which the lienholder has the right to be in possession of the property until the debt is paid.

Question 20

"Defective Windows." Selina hired a contractor, Rex, to put new windows in her home that she purchased herself from Good Windows. Unfortunately, Rex made a mess of the windows. While the windows were initially in good shape, Rex cracked some, scratched others, and did not get the windows properly fitted into their frames. Selina received a bill for the windows from Good Windows, but she refused to pay. Selina was told that Good Windows would file a lien, but she believed that there was no basis upon which a lien would be granted. Rex, who refused responsibility for any problems, also filed a lien after Selina refused to pay him. -Assuming the court follows the reasoning of Bates County Redi-Mix Inc. v. Windler, which of the following is true regarding the type of lien, if any, that Good Windows is entitled to obtain prior to going to court?

Accepted Answer

As recognized by the court in Bates County Redi-Mix Inc. v. Windler, a supplier of materials is entitled to a mechanic's lien even if a contractor hired by a homeowner performs improper installation.

Quiz 31: Other Creditors Remedies and Suretyship

Which of the following is true if a guarantor's oral promise to pay a debt is not in writing?

If a surety or guarantor pays the debtor's obligation to the creditor, the surety or guarantor has a right to ______, which means that the surety or guarantor is entitled to all the rights that the creditor had against the debtor.

Which of the following may occur when a third party agrees to be liable for a debtor's loan either primarily or secondarily?

Which of the following is a transfer or assignment by a debtor of title to property to a trustee or an assignee who sells the property with the proceeds of the sale going to pay creditors on a pro rata basis?

A is a contract between a creditor and a third party who agrees to pay another person's debt and is primarily liable for the debt whereas in a , a third party, must pay a debt only after the debtor has defaulted.

Which of the following is the lien of a judgment that arises when a motion for a new trial has been denied?

Which of the following is a claim to property in which the lienholder has the right to be in possession of the property until the debt is paid?