Exam 37: Secured Transactions and Suretyship

Thomas borrowed $100,000 from First Bank, which asked that he both put up collateral and provide a surety. Consequently, Thomas provided the bank with a security interest in his antique car collection and asked Victor to act as a surety.Victor agreed to do so and signed a surety agreement with the bank.Thomas made several payments on the loan and then asked First Bank for permission to sell three of his cars.First Bank agreed, but it never notified Victor of the sale of the collateral.Thomas then defaults on the loan.First Bank now wants Victor to pay the remainder of the loan.Must Victor pay? Explain.

A security interest in consumer goods, except motor vehicles, is automatically perfected upon attachment.

Sureties have a right of exoneration against their cosureties.

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

Which of the following would not help a surety defend himself from payment of a debt?

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?

A buyer of goods who buys without knowledge of a security interest, for value, and primarily for personal, family, or household purposes takes the goods:

Jill owns and operates a donut shop.Under the Code, the flour, sugar, and other goods used by Jill to make donuts are classified as:

Article 9 of the UCC would govern transactions involving which one of the following?

A creditor will have to exhaust all the possible legal procedures to try to collect from the principal debtor before he can collect from a conditional guarantor of collection.

In a suretyship, the creditor's rights against the principal debtor are determined primarily by the contract between them.

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.

Specialized suretyships would include:

Which of the following is NOT a method by which a security interest be perfected in collateral?

Dayton Hardware Store and Leighton Bank enter a loan agreement in which Leighton agrees to lend $10,000 on the security of Dayton's existing store equipment.A security agreement is executed and a financing statement is filed, but no funds are advanced.A week later, Dayton enters a loan agreement with Ramos Bank in which Ramos agrees to lend $10,000 on the security of the same store equipment.The funds are advanced, a security agreement is executed, and a financing statement is filed.A week later, Leighton Bank advances the agreed $10,000.Dayton defaults on both loans.In this case:

Melissa signs a suretyship agreement that contains both her name and that of her friend Gayle as intended cosureties.Gayle did not sign the agreement.Melissa is liable since she signed the agreement.

Substantial compliance with Article 9's financing statement requirements is sufficient for a valid perfection, despite minor errors in the statement that are not seriously misleading.

A dealer sells goods on credit to a buyer who uses the goods as equipment.The dealer keeps a purchase money security interest in the goods.The dealer then borrows against the security agreement of the buyer along with the dealer's security interest in the collateral.The collateral provided by the dealer to his lender in this type of transaction is:

First Finance Company perfected its security interest in Donald's auto on March 1.Second Finance Company perfected its security interest in the same auto on April 1.If both parties have properly filed their finance statements, First Finance Company has a priority interest in the auto.

Goods and other inventory items cannot be used as collateral.