Question 1

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.

Accepted Answer

Thomas, who is the principal debtor, and First Bank, which is the creditor, had entered into a binding modification of their agreement.Their failure to notify Victor of this modification discharges Victor as surety to the extent of the value of the three cars that were sold.This doctrine is an equitable doctrine that is designed to protect the surety's right of subrogation.

Question 2

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

Accepted Answer

A) True 
 B)False  True

Question 3

Sureties have a right of exoneration against their cosureties.

Accepted Answer

A) True 
 B)False  True

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

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

Accepted Answer

A)  There was no consideration for the surety agreement.
B)  There was a modification of the underlying contract.
C)  The creditor knew the loan was risky and did not dissolve it.
D)  There was fraud in the execution of the surety agreement.

Question 6

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?

Accepted Answer

The answer of Elmer agreed to act as the conditional...

Question 7

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:

Accepted Answer

A)  subject to any purchase money security interest automatically perfected.
B)  subject to all security interests in the goods.
C)  free of any purchase money security interest automatically perfected.
D)  free of a security interest perfected by filing.

Question 8

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:

Accepted Answer

A)  farm products.
B)  fixtures.
C)  consumer goods.
D)  inventory.

Question 9

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

Accepted Answer

A)  Mortgage on a house
B)  Purchase of waterfront property
C)  Financing purchase of a sailboat
D)  Mechanic's lien on an automobile

Question 10

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.

Accepted Answer

A) True 
 B)False

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

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.

Accepted Answer

The answer of Karl loaned Linda $100,000.Madeline agreed to act...

Question 13

Specialized suretyships would include:

Accepted Answer

A)  fidelity.
B)  incorporate.
C)  non-official.
D)  legislative.

Question 14

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

Accepted Answer

A)  By the secured party's filing a financing statement in the designated public office
B)  By the secured party's taking or retaining possession of the collateral
C)  Automatically, on the attachment of the security interest
D)  By the secured party having a signed agreement describing the collateral in detail.

Question 15

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:

Accepted Answer

A)  between Leighton Bank and Ramos Bank, Ramos has priority because it advanced the funds before Leighton Bank did.
B)  between Leighton Bank and Ramos Bank, Leighton Bank has priority because it was the first to deal with Dayton in the matter.
C)  between Leighton Bank and Ramos Bank, Leighton Bank has priority because priority among security interests perfected by filing is determined by the order in which the financing statements were filed.
D)  neither bank needed to check filings of financing statements because the filings had no impact on which bank had priority.

Question 16

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.

Accepted Answer

A) True 
 B)False

Question 17

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.

Accepted Answer

A) True 
 B)False

Question 18

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:

Accepted Answer

A)  investment property.
B)  chattel paper.
C)  a document of title.
D)  negotiable instruments.

Question 19

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.

Accepted Answer

A) True 
 B)False

Question 20

Goods and other inventory items cannot be used as collateral.

Accepted Answer

A) True 
 B)False

Exam 37: Secured Transactions and Suretyship

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.

Specialized suretyships would include:

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

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.

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.