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Exam 37: Secured Transactions and Suretyship

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Question 1

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Stanmore Corporation obtains from Southwell Manufacturing a line of credit of $50,000 to help set up a new distribution center.   Stanmore initially uses $17,000 for purchase of inventory. Southwell only has a security interest in the inventory that covers that initial $17,000 advance.

A) True
B) False

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Question 2

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Article 9 of the UCC applies to a security interest without consent that arises by operation of law, such as a mechanic's lien.

A) True
B) False

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Question 3

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Mary financed her 72" high-definition TV with a bank, but is now delinquent on her payments. The bank holds a security interest in the TV. In most states, when Mary is not at home and without her knowledge, bank personnel may enter Mary's home to repossess the TV.

A security interest is ineffective against the debtor until it "attaches."

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

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.

If Sharpe Finance Co. has a secured interest in Jeff's car and Jeff is in default, in most states, Sharpe may take the car from in front of Jeff's house without getting a court order.

The principal debtor's lack of capacity due to his status as a minor may be used by the surety to avoid payment of the obligation.

Upon paying the principal debtor's entire obligation, the surety is __________ the rights of the creditor.

When Mark bought new office furniture on credit, Bartin's Office Supply Co. filed a financing statement. What would be required on the financing statement?

If the main purpose of the promisor (surety) is to obtain an economic benefit that he did not previously enjoy, the promise is not within the statute of frauds.

If conflicting security interests and agricultural liens are unperfected, then the first to attach or become effective has priority. If neither attaches or becomes effective, all of the creditors are general, unsecured creditors.

Two or more sureties bound for the same debt of a principal debtor are known as:

If Regency Services, Inc. wishes to protect itself against the possible dishonesty of Chad, an employee who will be handling corporate funds, Regency may purchase a(n) :

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

A tangible or electronic record that evidences both a monetary interest and security interest in or a lease of specific goods is known as:

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.

If the principal debtor defaults, the surety has rights against the principal debtor, third parties, and cosureties. These rights would include:

Perfection is required in order for the secured party to enforce rights against the debtor.

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?