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.

Question

Quizplus · Accepted Answer

A composition agreement is a contract between a debtor and two or more creditors in which the creditors agree to accept a lesser amount than is owed in full satisfaction of their claims. In this case, Nora, Owen, and Pat have agreed to discharge Mike's debts for a payment of $12,000 divided proportionately. A guaranty agreement is an agreement in which one person agrees to be responsible for the debt or obligation of another person. A judicial lien is a court-ordered lien placed on a debtor's property to secure payment of a debt. A suretyship agreement is an agreement in which one person guarantees the performance or payment of another person's obligation. None of these options accurately describe the agreement between Mike, Nora, Owen, and Pat.

Mike Owes $12,000 to Nora,$6,000 to Owen,and $6,000 to Pat