Exam 37: Secured Transactions and Suretyship

If a financing statement in movable property is properly filed and the debtor moves to another state, the security interest remains perfected if the financing statement is filed in the new state within four months of the move.

UCC Article 9 applies to secured transactions in which the debtor provides a security interest to secure payment of a debt, such as pledging warehoused goods to a creditor or the creditor's having a mechanic's lien against the debtor's property.

Assume you are the creditor in each of the following situations. Identify the kind of security agreement that is involved in each transaction and explain how you would perfect that agreement. _a. You are the creditor (Evergromby Bank), and you lend Brisco Baines $5,000 for a sound system. b. National Bank loans Donna $5,000 to purchase a computer for use in her store office. c. Garth needs cash for gambling debts. He brings in his gold ring to secure a $500 loan. _{This is a purchase money security interest in consumer goods. It is automatically}

Elmer agreed to act as the conditional guarantor of collection on a debt of $50,000 that Fred owed to Gloria. Fred paid Elmer a premium to serve as surety. If Fred defaults on the debt, what are Gloria's rights against Elmer?

Fred agreed to loan George $10,000 for his retail store for which George signed a promissory note. Two months later, Fred heard that George's business was in trouble and that he might not be able to repay the loan. As a result of hearing this information, Fred asked Herman to guarantee the loan. Herman gave a glowing oral endorsement of George and of George's business and then orally promised to pay the $10,000 if George did not. Herman has done business with George for 10 years and George buys his entire inventory from Herman's wholesale outlet. Herman adds that George is his major customer. Is Herman's agreement to pay the $10,000 if George does not pay it enforceable?

The same item may be classified as either equipment or consumer goods, depending on how it is used by the debtor.

A primary reason for requiring a surety is to reduce the creditor's risk of loss.

Karl loaned Linda $100,000. Madeline agreed to act as surety for $100,000. Nora agreed to act as surety for $75,000, and Orville agreed to act as surety for $25,000. Linda later defaulted on the loan, and Karl is now demanding payment from Nora and Orville. What amount do Nora and Orville have to pay? If Nora and Orville pay, does Madeline have any obligation? Explain.

Diane, who is seventeen years old, purchased an auto from Elvira on credit. Florence agreed to act as surety and signed a written surety agreement. At the time of purchase, Diane specifically asked Elvira about the condition of the car's motor and was told that it had just been replaced with a new one and was in fine condition. This was blatantly untrue, because Elvira knew it was in terrible shape and would only last a short time. The auto has now stopped running and Diane refuses to make any more payments. Elvira is now proceeding against Diane and Florence. What defenses, if any are available to (a) Diane and (b) Florence? _{Diane is a minor. She may assert her minority status as a defense. She may also}