Exam 37: Secured Transactions and Suretyship

A purchaser of a house who buys the property "subject to" the mortgage is not personally liable for the mortgage, nor is he a surety for the mortgage obligation.

What contractual defenses are available to those parties involved in surety relationships?

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?

What term is used to describe the creation of a security interest that is enforceable against the debtor?

Darlene uses her computer 75 percent of its usage time for her business and 25 percent of its usage time for personal and family purposes. Under Article 9, the computer would be classified as equipment.

Steve defaults on a car loan secured by his car and guaranteed by both Sam and Dave. Subrogation would allow Sam, who paid Steve's full obligation to:

A field warehouse, under Article 9 of the UCC, is:

Which of the following is true?

Payment of the debt or performance of the obligation discharges both the principal debtor and the surety.

The surety does not have the right of contribution from cosureties.

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.

The creditor's rights against the principal debtor are determined by the contract between them.

What party(ies) is\are involved in a suretyship relationship?

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.

First Finance Company filed its financing statement for a purchase money security interest in Donald's lawn tractor on March 1. Donald purchased the lawn tractor on February 21. If Donald files for bankruptcy on February 28, the trustee will have priority because the bankruptcy petition is filed before the creditor perfects.

Article 9 of the UCC governs financing transactions involving security interests in real property.

Explain how the 1998 Revisions to Article 9 facilitate electronic filing of a financing statement.

Upon the surety's payment of the principal debtor's entire obligation, the surety gets no rights.

"Value" under Article 9 of the UCC is defined as including:

Willton Bros. obtains from Marbowe Manufacturing a line of credit of $100,000, of which Willton initially uses $27,000 for purchase of inventory. Marbowe may only have a security interest in the inventory that covers the initial $27,000 advance.