Chapter 28 Creditors’ Rights and Remedies.

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N.B.: TYPE indicates that a question is new, modified, or unchanged, as follows. N A question new to this edition of the Test Bank. + A question modified from the previous edition of the Test Ban... k. = A question included in the previous edition of the Test Bank. TRUE/FALSE QUESTIONS A1. A mechanic’s lien can be enforced to recover payment from a debtor for labor and materials in the repair of personal property. : F PAGE: 546 TYPE: + NAT: AACSB Analytic AICPA Legal A2. If a debtor does not pay a mechanic’s lien, the debtor’s property can be sold to sat¬isfy the debt. : T PAGE: 546 TYPE: + NAT: AACSB Analytic AICPA Legal A3. A default occurs when a debtor fails to pay a creditor as promised. : T PAGE: 546 TYPE: = NAT: AACSB Analytic AICPA Legal A4. An artisan’s lien is possessory. : T PAGE: 547 TYPE: + NAT: AACSB Analytic AICPA Legal A5. An attachment is a court-ordered seizure and taking into custody of prop¬erty prior to the securing of a judgment for a past-due debt. : T PAGE: 547 TYPE: = NAT: AACSB Analytic AICPA Legal A6. If a creditor obtains a judgment against a debtor and the debtor cannot or will not pay the judgment, the dispute is at an end. : F PAGE: 548 TYPE: N NAT: AACSB Analytic AICPA Legal A7. Federal law governs garnishment actions. : F PAGE: 548 TYPE: N NAT: AACSB Analytic AICPA Legal A8. All of a debtor’s pay can be gar¬nished. : F PAGE: 548 TYPE: = NAT: AACSB Analytic AICPA Legal A9. Creditors may contract with a debtor for discharge of the debtor’s liquidated debts. : T PAGE: 549 TYPE: N NAT: AACSB Analytic AICPA Legal A10. The distinctions between a surety and a guarantor have been abolished in all states. : F PAGE: 550 TYPE: N NAT: AACSB Analytic AICPA Legal A11. A surety is primarily liable for the debt of a principal. : T PAGE: 550 TYPE: + NAT: AACSB Analytic AICPA Legal A12. A guarantor can be required to pay an obligation only after the principal debtor defaults. : T PAGE: 550 TYPE: N NAT: AACSB Analytic AICPA Legal A13. A guaranty contract must be in writing to be enforceable. : F PAGE: 550 TYPE: = NAT: AACSB Analytic AICPA Legal A14. In a suretyship relationship, a third person’s credit becomes the security for a debt. : T PAGE: 550 TYPE: N NAT: AACSB Analytic AICPA Legal A15. Payment of the principal obligation will not discharge the surety from the obligation. : F PAGE: 552 TYPE: + NAT: AACSB Analytic AICPA Legal A16. If a creditor surrenders collateral to the debtor without the consent of the guarantor, this can reduce the obligation of the guarantor. : T PAGE: 552 TYPE: N NAT: AACSB Analytic AICPA Legal A17. If the debtor offers to pay the debt owed to a creditor but the creditor re¬fuses the tender, the surety remains obligated on the debt. : F PAGE: 552 TYPE: = NAT: AACSB Analytic AICPA Legal A18. A homestead exemption allows a debtor to subtract the value of the family home from the amount of a debt. : F PAGE: 552 TYPE: N NAT: AACSB Analytic AICPA Legal A19. In a few states, statutes allow the homestead exemption only if the judgment debtor has a family. : T PAGE: 552 TYPE: N NAT: AACSB Analytic AICPA Legal A20. A debtor’s vehicle is never exempt from satisfaction of a judgment debt. : F PAGE: 554 TYPE: N NAT: AACSB Analytic AICPA Legal MULTIPLE CHOICE QUESTIONS A1. Residence Painting Company has a claim against Stuart’s property to satisfy a debt that takes priority over other claims against the same property. This is a. a lien. b. a violation of most state laws. c. a writ of attachment. d. a garnishment. : A PAGE: 546 TYPE: + NAT: AACSB Reflective AICPA Legal A2. Pruit performs a contract with Quint to reshingle the roof on Quint’s house, but Quint does not pay. Pruit notifies Quint that the property will be sold to satisfy the debt. This is a. a judicial lien. b. a mechanic’s lien. c. an artisan’s lien. d. a violation of most state laws. : B PAGE: 546 TYPE: = NAT: AACSB Reflective AICPA Legal A3. Diego performs a contract with Elwood to add a swimming pool to Elwood’s property, but Elwood does not pay. Diego can file a lien on Elwood’s property if, from the last date labor or materials were provided, he acts a. immediately. b. within 60 to 120 days. c. within two years. d. within a reasonable time. : B PAGE: 546 TYPE: N NAT: AACSB Reflective AICPA Legal A4. Francie’s debt to Gage is past due. Gage brings a legal action against Francie to collect the debt. To ensure that a judgment in Gage’s favor will be collectible, Gage asks the court to order the seizure of Francie’s property. This is a request for a. a guaranty (or suretyship) contract. b. an order that would violate most state laws. c. a writ of attachment. d. an order of receivership. : C PAGE: 547 TYPE: + NAT: AACSB Reflective AICPA Legal A5. Delia refuses to pay Ewing $500 in cash on their contract to repair certain theater sets, which Ewing still possesses. Ewing’s lien on the sets will terminate a. if Ewing continues to maintain possession. b. if Ewing does not file a written notice of lien within thirty days. c. if Ewing voluntarily surrenders possession. d. within thirty days. : C PAGE: 547 TYPE: = NAT: AACSB Reflective AICPA Legal A6. Ping’s debt to Oak Furniture Warehouse is past due. Oak obtains a judgment against Ping, but Ping refuses to pay it. Oak asks the court for an order that directs the sheriff to seize and sell any of Ping’s nonexempt real or personal property that is within the court’s geographic jurisdiction. This is a request for a. a writ of execution. b. a composition agreement. c. an order that would violate most state laws. d. an order of garnishment. : A PAGE: 548 TYPE: N NAT: AACSB Reflective AICPA Legal A7. Sydney borrows money from Rite Now Loan Company. For Rite Now to obtain a writ of execu¬tion, Sydney must a. be unable or refuse to pay the amount of a judgment. b. be unable to redeem Sydney’s exempt property. c. notify Rite Now in writing (in a “writ”) of his intent. d. surrender possession of his property to a court. : A PAGE: 548 TYPE: N NAT: AACSB Reflective AICPA Legal A8. Flip’s debt to George is past due. George brings a legal action against Flip to collect the debt. George asks the court to order Home Bank, in which Flip has an account, to pay a portion of the funds to George. This is a request for a. a writ of execution. b. an order of garnishment. c. an order that would violate most state laws. d. an artisan’s lien. : B PAGE: 548 TYPE: + NAT: AACSB Reflective AICPA Legal A9. Kyla’s debt to Lark is past due. Lark obtains an order of garnishment to require Kyla’s employer My Pi Pizza Restaurant to pay part of Kyla’s paycheck to Lark. The law a. limits the amount that can be taken from Kyla’s take-home pay. b. permits My Pi to dismiss Kyla because her wages are garnished. c. practically does not allow Lark to collect the awarded amount. d. requires My Pi to retain Kyla as an employee until the debt is paid. : A PAGE: 548 TYPE: N NAT: AACSB Reflective AICPA Legal A10. Liu and Midge—Nero’s creditors—contract with Nero for the discharge of Nero’s liquidated debts on payment of a lesser sum. This is a. a composition agreement. b. a subrogation. c. a suretyship agreement. d. in violation of most states’ laws. : A PAGE: 549 TYPE: = NAT: AACSB Reflective AICPA Legal A11. Speedy Delivery Company buys a white van from Tom’s Terrific Vehicles, on credit under a guaranty signed by Ulysses, Speedy’s president, making him personally liable if Speedy does not pay. Ulysses is a. a surety. b. a lienor. c. a guarantor. d. a creditor. : C PAGE: 550 TYPE: N NAT: AACSB Reflective AICPA Legal Fact Pattern 28-1A (Questions A12–A15 apply) Dollar Value Motors asks Estimable Bank for a loan to increase its vehicle inventory. Estimable requires Flair, Dollar Value’s president, sign a personal guaranty to pay the debt if Dollar Value defaults. Meanwhile, to buy a pick-up truck from Dollar Value, Gina asks Harper to co-sign a credit application. A12. Refer to Fact Pattern 28-1A. If Harper signs the application but fails to con-di¬tion her signature on Dollar Value’s agreement to pursue its legal remedies against Gina before looking to her, then Harper is a. a surety. b. a lienor. c. a guarantor. d. a creditor. : A PAGE: 550 TYPE: + NAT: AACSB Reflective AICPA Legal A13. Refer to Fact Pattern 28-1A. If Flair is a guarantor, then the guaranty is re-quired to be in writing because of a. the debtor’s right of redemption. b. the co-signer’s right of contribution. c. the creditor’s transfer of possession. d. the Statute of Frauds. : D PAGE: 550 TYPE: = NAT: AACSB Reflective AICPA Legal A14. Refer to Fact Pattern 28-1A. If Harper signs the application only after lan-guage is included that requires Dollar Value to exhaust its legal remedies against Gina before looking to her, then Harper is a. a surety. b. a lienor. c. a guarantor. d. a creditor. : C PAGE: 550 TYPE: + NAT: AACSB Reflective AICPA Legal A15. Refer to Fact Pattern 28-1A. If, after the loan agreement is signed, Gina agrees to a higher rate of interest without telling Harper, then Harper is a. discharged from the agreement. b. liable at the higher rate of interest. c. liable at the lower rate of interest. d. liable for the principal only. : A PAGE: 552 TYPE: = NAT: AACSB Reflective AICPA Legal A16. Rita is a surety for Serena’s loan from Title Lenders, Inc. Rita’s right to “step into the shoes” of Title Lenders, after paying Serena’s debt, and ex¬er¬cise any of the Title Lenders’s rights against Serena is the right of a. contribution. b. redemption. c. reimbursement. d. subrogation. : D PAGE: 553 TYPE: = NAT: AACSB Reflective AICPA Legal A17. Doral, Eduard, and Francesca are co-sureties of Glenda’s debt to Hi-Credit Company. Doral pays Glenda’s entire debt. Doral’s right to seek proportionate pay¬ments from Eduard and Francesca is the right of a. contribution. b. redemption. c. reimbursement. d. subrogation. : A PAGE: 553 TYPE: = NAT: AACSB Reflective AICPA Legal A18. Rosa and Sally agree to guarantee Timon’s debt. Rosa’s maximum liabil¬ity is $30,000, and Sally’s is $20,000. Timon owes $20,000 and is in default. Rosa pays the creditor the entire amount. In the ab¬sence of an agree¬ment to the contrary, Rosa can recover from Sally a. $8,000. b. $10,000. c. $20,000. d. 0. : A PAGE: 553 TYPE: = NAT: AACSB Reflective AICPA Legal A19. Ronda’s debt to Skye is past due. Skye brings a legal action against Ronda to collect the debt. To ensure that a judgment in Skye’s favor will be collectible, Skye asks the court to order the seizure of Ronda’s property. Exempt from such an order in most states would be a. all of Ronda’s real property. b. as much of Ronda’s real property as Ronda opts to exempt. c. none of Ronda’s real property. d. Ronda’s family home in its entirety or up to a specified amount. A20. Laurel defaults on a loan owed to Maverick Bank. As a creditor, Maverick may attempt to place liens on all of Laurel’s property except a. motor vehicles used to commute to work. b. stock in various corporations. c. items that Laurel selects. d. vacant commercial property. ESSAY QUESTIONS A1. Wanda owes Xtra Credit Company $5,000 but refuses to pay. Xtra Credit ob-tains a garnishment order and serves it on Wanda’s employer, Young Nursery & Garden, Inc. If Young complies with the order and Wanda stays on the job, is one order enough to garnish all of Wanda’s wages for each pay period until the debt is paid? A2. Smartt Software Company borrows $10,000 from Term ‘N All Loans, Inc., but cannot repay the loan when it comes due. Term ‘N All refuses to ex¬tend the time for repayment unless Smartt can provide an acceptable surety. Uno Venture Corporation agrees to act as a surety for the loan af¬ter Smartt offers the firm a discount on software and shows Uno financial statements, compiled with Term ‘N All’s assistance, that misrepresent Smartt’s financial situation. Later, after Uno uses the discount to buy software, Smartt again defaults on repayment of the loan, and Term ‘N All files a suit against Uno to collect the amount of the debt. Is Uno liable? Why or why not? 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