LAW 332 - Final

A promissory note is both a debt and evidence of the debt.

False

A security interest cannot become perfected without the filing of a security agreement.

False

Equitable redemption allows a lender to gain title and regain possession of a property.

False

Once a bankruptcy petition is properly filed, creditors can commence or continue most legal actions against the debtor to recover claims.

False

Every party who signs a negotiable instrument is potentially liable for payment of that instrument when it comes due.

True

If a bank's payment over a stop-payment order causes subsequent checks written on the drawer's account to be returned for insufficient funds, the bank will be liable for the drawer's resulting costs.

True

If an instrument is acquired as part of a corporate purchase of assets, the holder will have only the rights of an ordinary holder.

True

If only a bank's drive-through facility is open, a check deposited on Saturday will not trigger the bank's midnight deadline until the following Monday.

True

If the numerical and written amounts on a check differ, the check is payable in the written amount.

True

Improper filing of a financing statement can render a security interest unperfected.

True

In Missouri, mechanic's liens are recorded in the circuit court clerk's office of the county where the job is physically located.

True

In a Chapter 13 proceeding, the debtor retains possession of his or her assets.

True

In a Chapter 7 proceeding, the bankruptcy trustee collects the debtor's estate and reduces it to cash, preserving the interests of the debtor and creditors.

True

To be negotiable, if an instrument is not payable on demand, it must be payable at a definite time.

True

When a bank certifies a check, the bank is agreeing in advance to accept the check when it is presented for payment and to make payment with funds reserved for the purpose.

True

When a bank wrongfully dishonors a check, it is liable to the customer for any resulting damages.

True

Faro is an agent authorized to sign negotiable instruments on behalf of Global Supply Inc. To protect against potential liability on a note signed on the corporation's behalf, Faro should Faro is an agent authorized to sign negotiable instruments on behalf of Global Supply Inc. To protect against potential liability on a note signed on the corporation's behalf, Faro should

b. identify Global Supply and indicate his agency status.

Bern signs a check "pay to the order of College Bookstore" drawn on his account at Debit Bank to buy textbooks. Bern is a. the drawee. b. the drawer. c. none of the choices. d. the payee.

b. the drawer.

Franco buys a sofa from Grey at a garage sale. Franco writes Grey a check for $50 to pay for the couch. Grey is a. the drawer. b. the payee. c. the drawee. d. none of the choices.

b. the payee.

Because he or she was in the best position to prevent wrongdoing with respect to an instrument, transfer and presentment warranties attempt to shift liability to a. the party on whose account an unauthorized item is made or drawn. b. the person who dealt face to face with the wrongdoer. c. the holder of an unauthorized item when the wrongdoing is discovered. d. the drawee or payee on an instrument.

b. the person who dealt face to face with the wrongdoer.

Special requirements for the form and content of negotiable instruments are imposed by a. none of the choices. b. rules developed by merchants in the medieval world. c. the Lex Mercatoria as codified in England. d. the Uniform Commercial Code.

d. the Uniform Commercial Code.

To create an enforceable security interest between Mortgage Bank and National Property Company in a written security agreement, the agreement must be signed by a. a disinterested third-party witness. b. all of the choices. c. the creditor. d. the debtor.

d. the debtor.

The shelter principle permits a holder with notice of a claim or defense to attain HDC status by reacquiring the instrument from a later HDC.

False

Under Chapter 13, all debts are dischargeable.

False

Voluntary petitions may be filed to initiate Chapter 7 or Chapter 11, but not Chapter 13, bankruptcies.

False

When a customer makes a deposit into a checking account, the customer becomes a debtor, and the bank a creditor, for the amount deposited.

False

A person who takes a demand instrument knowing that demand has been made has notice that the instrument is overdue.

True

A person who transfers an instrument for consideration warrants to all subsequent transferees and holders who take the instrument in good faith that all signatures on the item are authentic and authorized.

True

An instrument that orders the drawee to pay a certain sum of money, usually to a third-party payee, is a draft.

True

Any debtor who is eligible for bankruptcy relief under Chapter 7 is eligible under Chapter 11.

True

Attachment ensures that a security interest between a debtor and a secured party is effective.

True

Because liability for payment on a negotiable instrument is immediate when the instrument is signed or issued, no action by the holder is required.

True

Because negotiable instruments were originally paper documents, they are sometimes referred to as a commercial paper.

True

For most collateral, possession by a secured party is impractical because it denies the debtor the right to use or derive income from the property to pay the debt.

True

It is not a material alteration to change the figures on a check so that they agree with the written amount, and thus, any holder is entitled to enforce the check.

True

The borrower is typically required to pay all property taxes, assessments, and other claims against the property.

True

The destruction or mutilation of an instrument is considered cancellation, and thus discharges the liability of all parties, only if it is done with the intention of eliminating obligation on the instrument.

True

All bankruptcy proceedings are held in a. local small-claims courts. b. special cross-jurisdictional debtors courts. c. state bankruptcy courts. d. federal bankruptcy courts.

d. federal bankruptcy courts.

A difference between the handwriting in the body of a check and in the signature affects the validity of the item and will bar a holder from HDC status.

False

A fixed-rate mortgage is a standard mortgage with an adjustable rate of interest.

False

A holder can impair the value of collateral given to secure payment of an instrument without affecting the liability of parties who would benefit from the collateral in the event of nonpayment.

False

Providing only a debtor's trade name in a financing statement is sufficient for perfection even if the trade name is not the legal name of the business.

False

The UCC's classification or definition of collateral does not affect where or how to perfect a security interest.

False

The death of a customer automatically revokes a bank's authority to accept, pay, or collect an item drawn by the customer on an account with the bank.

False

The instrument normally filed to give public notice to third parties of a secured party's security interest is collateral.

False

A debtor must have title to collateral to give a secured party a security interest in the property.

False

A holder who takes a negotiable instrument from a thief cannot become an HDC even if the item was acquired in good faith and there was no reason to be suspicious of the transaction.

False

A secured party perfects a claim by filing a financing statement with the debtor.

False

A security interest can cover only property in which the debtor has present rights.

False

An individual who borrows funds from a financial institution to purchase real property by taking out a mortgage is a mortgagee.

False

Bankruptcy relief is provided under state, not federal, law.

False

Because a mortgage involves a transfer of real property, it need not be in writing.

False

Because a writ of attachment is a prejudgment remedy, a debtor does not need to be given notice and an opportunity to be heard before the property is seized.

False

Businesses must be technically insolvent to file for bankruptcy relief.

False

For a negotiable instrument to operate practically as a substitute for cash, it must be easily transferable and uncollectible.

False

If a check is made "payable to the order of Marcus or Nathan," both parties' indorsements are necessary for negotiation.

False

If an instrument does not specify a time for payment and the instrument must be paid on presentment, it is not negotiable.

False

In Missouri, all financing statements are filed with the recorder of deeds in the county where collateral is located.

False

Most creditors require a borrower to purchase mortgage insurance if the borrower makes a down payment of at least 20 percent of the purchase price.

False

Most liens have little practical use, because liens generally do not take priority over other claims to the same property.

False

A bank is not obligated to pay an uncertified check presented for payment more than six months from its date.

True

A lender can require a borrower to maintain the property in such a way that the lender's investment is protected.

True

A mortgage gives a creditor a lien on a debtor's real property as security for payment of a debt.

True

To avoid liability for negligence, a customer must examine monthly bank statements and canceled checks promptly and with reasonable care, and report any forged signatures to the bank.

True

To avoid the risk of loss from theft, a holder can convert a blank indorsement to a special indorsement by writing, above the signature of the indorser, the name of the indorsee.

True

Usually, an indorsement is unqualified, which means that the indorser is guaranteeing payment on an instrument, in addition to transferring title to it.

True

When a bank is both the drawer and drawee, a check functions the same as cash because the bank has committed itself to paying the item on demand.

True

To make Credit Bank a collecting agent on a check "payable to the order of Duane," Duane should a. indorse the check "for deposit only." b. indorse the check "without recourse." c. refrain from signing the check before delivering it to Credit Bank. d. write, above his signature, "Pay to Credit Bank."

a. indorse the check "for deposit only."

Bob's Barber Shop borrows from first Credit Company and then Debit Loans LLC, using the same property as collateral for both loans. Debit Loans perfects its security interest. Credit Company does not. The debtor defaults on both loans. The party with first rights to the collateral is a. Debit Loans LLC. b. Bob's Barber Shop. c. Credit Company. d. Credit and Debit in proportion to the outstanding value of their loans.

a. Debit Loans LLC.

Kiosk Jewelers borrows from Lender Inc. and Mortgage Company, using the same collateral. Only Mortgage Company has a perfected security interest. Kiosk defaults on both loans. The party with first rights to the collateral is a. Kiosk Jewelers. b. Lender Inc. c. none of the choices. d. Mortgage Company.

a. Kiosk Jewelers.

Lamont and Marcel collaborate to defraud Nina, who is induced to give Marcel a note payable to Marcel's order. Marcel indorses the note for value to Orson, an HDC. Later, Orson sells the note to Lamont. Under the shelter principle, a. Lamont cannot acquire HDC rights in the note. b. Lamont attains HDC status by acquiring the note. c. Orson's right to repurchase the note from Lamont is limited. d. the principal amount of the note is sheltered without recourse.

a. Lamont cannot acquire HDC rights in the note.

Ciera presents an instrument that states "pay to the order of Duff" to East Bank for payment. As the most common type of negotiable instrument regulated by the Uniform Commercial Code, this is a. a check. b. an electronic fund transfer. c. a payment via a mobile device. d. a substitute check.

a. a check.

Coastal Bank agrees to lend Dobie the funds to buy a beach house. The loan has an unchanging rate of interest—the amount of each payment will be the same for the duration of the loan. In this deal, the borrower is a. a mortgagor. b. a surety. c. a guarantor. d. a mortgagee.

a. a mortgagor.

To purchase a house, Elma obtains a mortgage loan from Fidelity Bank. Later, Elma is unable to make payments on the loan. Meanwhile, the market value of the house has declined. Fidelity agrees to a sale of the property for less than the amount due on the loan. This is a. a short sale. b. a workout agreement. c. forbearance. d. a foreclosure.

a. a short sale.

Dag signs a check "pay to the order of Eton" drawn on Dag's account at First Bank and dates the check "May 1." Eton presents the check to the bank for payment on December 15. This is a. a stale check. b. a certified check. c. a cashier's check. d. an overdraft.

a. a stale check.

Quint signs a check "pay to the order of Rona" drawn on Quint's account at Suburban Bank. Quint has $400 in his account but the amount of the check is $500, which the bank pays. This is a. an overdraft. b. a dishonored check. c. a stale check. d. a certified check.

a. an overdraft.

Eligible for relief on a petition in bankruptcy under Chapter 11 is a. any debtor who is eligible under Chapter 7, and railroads. b. any party who is not eligible under a different chapter of the Code. c. an individual, not a partnership or a corporation, with regular income and debts of less than a certain amount. d. any "person" except railroads and certain financial institutions.

a. any debtor who is eligible under Chapter 7, and railroads.

To buy a townhouse, Becky obtains a mortgage loan from Countywide Bank. The lender should record the mortgage to a. be officially on record as holding an interest in the property. b. secure itself in the position of an unsecured creditor. c. preserve a copy of the loan in a separate location. d. obtain reimbursement for a portion of the loan if the debtor defaults.

a. be officially on record as holding an interest in the property.

A payee or indorsee whose name is misspelled on an instrument a. can indorse with the misspelled name, the correct name, or both. b. is prevented from negotiating the instrument further. c. must indorse with the correct name. d. must indorse with the misspelled name.

a. can indorse with the misspelled name, the correct name, or both.

Fern has six nieces, ages five to sixteen. She writes an instrument for $50 that states, "Pay to the order of my niece." The instrument is a. nonnegotiable, because there is no specific person identified. b. nonnegotiable, because the amount of money is less than $500. c. negotiable. d. nonnegotiable, because it is illegal to write an order instrument payable to a relative.

a. nonnegotiable, because there is no specific person identified.

Edna is the payee of a bearer instrument—a promissory note in the amount of $10,000. Flem offers to irrigate Edna's ranch next week in exchange for the note. She agrees and delivers the note to Flem. Flem is a. not an HDC, because he did not yet give value for the instrument. b. an HDC, because he promised to perform services at a future date. c. not an HDC, because he did not acquire the instrument in good faith. d. an HDC, because the transferor was the original payee on the note.

a. not an HDC, because he did not yet give value for the instrument.

To create an enforceable security interest for a loan, in terms of the collateral, the debtor must have a. rights in it. b. title to it. c. proof of its value. d. possession of it.

a. rights in it.

Faye forges Greta's signature on a check "payable to the order of Faye" drawn on Greta's account at Home Bank. Most likely, if the bank pays the check a. the bank will have to recredit Greta's account. b. Greta will be liable for the amount. c. the loss will be apportioned among all of the bank's customers. d. the Federal Reserve will reimburse all parties for their costs.

a. the bank will have to recredit Greta's account.

Under Chapter 13, a repayment plan must provide for a. the same treatment of each claim within a particular class of claim. b. all of the choices. c. the turnover of the debtor's future income to the creditors. d. full payment of all claims, without exception.

a. the same treatment of each claim within a particular class of claim.

Transfer of a note "payable to the order of Credit Company" by delivery to Debit Associates, with the payee's indorsement, for consideration, extends warranty liability a. to any subsequent holder who takes the instrument in good faith. b. only to Debit and its immediate transferee. c. only to Debit. d. none of the choices .

a. to any subsequent holder who takes the instrument in good faith.

Because a mortgage involves the transfer of real property, to comply with the Statute of Frauds, it must be a. written. b. witnessed by a disinterested third party. c. recorded. d. in good faith.

a. written.

Bravo co-signs a $15,000 note payable to College Loan Company enabling Dios to obtain a student loan. The terms of the note stated that Bravo signed "on behalf of" Dios. If Dios stops making payments on the debt, Bravo is a. not liable because Bravo signed "on behalf of" Dios. b. primarily liable. c. discharged from any obligation. d. secondarily liable.

b. primarily liable.

Lon is Mill Corporation's agent and is authorized to write checks on the firm's account in North Bank. Lon writes a check "pay to the order of Ocean Shipping." Lon signs the check "Mill Corporation by Lon, agent." The bank dishonors the check. Liability extends to a. Lon. b. Mill Corporation. c. Ocean Shipping. d. North Bank.

b. Mill Corporation.

A certificate of deposit (CD) is issued when Lo-Risk Invest LLC deposits funds with Money Bank on the bank's promise to repay the funds, with interest, on a certain date. Lo-Risk cannot withdraw the funds before the date of maturity because a. a CD is not a three-party instrument. b. a CD is a time deposit. c. a CD cannot be sold or negotiated to a third party before maturity. d. the bank is both the issuer of the instrument and the drawee.

b. a CD is a time deposit.

Coki receives a payroll check from Data Solutions Inc. and indorses it by signing her name on the back of the check. This is a. a restrictive indorsement. b. a blank indorsement. c. a special indorsement. d. a qualified indorsement.

b. a blank indorsement.

Elmer pays Fidelity Bank $1,000 plus a service fee to draw a check on itself made payable to Go Delivery Service. This is a. an overdraft. b. a cashier's check. c. a stale check. d. a stop-payment order.

b. a cashier's check.

Rico agrees to buy a bicycle from Salvatore for $250. Salvatore agrees to deliver the bike on September 1. Rico writes a draft for $250 payable to Salvatore on September 1. This is a. none of the choices. b. a time draft. c. a sight draft. d. a promissory note.

b. a time draft.

Brew Pub Company's debt to Credit Service is past due. Credit obtains a judgment against Brew, but the firm refuses to pay. Credit asks the court to order the seizure of Brew's property. This is a request for a. a writ of attachment. b. a writ of execution. c. a mechanic's lien. d. an artisan's lien.

b. a writ of execution.

Personal property that is most often exempt from satisfaction of a creditor's judgment debt on a debtor's default, up to a specified amount, includes a. a vehicle for transportation. b. all of the choices. c. certain classified animals, usually including livestock. d. equipment used in a business or trade, such as tools.

b. all of the choices.

Leno makes a gift of a check to Millie who takes it in good faith and without notice of any claim, defense, or defect. With respect to this check, Millie is a. a good faith purchaser. b. an ordinary holder. c. an acceptor. d. an ordinary holder in due course.

b. an ordinary holder.

Under Chapter 7, once the proceeds of the bankruptcy estate have been distributed, the debtor's remaining debts a. paid by the court. b. are discharged. c. renewed without legal action as obligations of the debtor. d. subject to legal actions to recover any unpaid amounts.

b. are discharged.

Loan Office Inc. has a security interest against Manufacturing Company that is enforceable. In other words, with respect to the collateral, the creditor's rights are said to a. process. b. attach. c. mature. d. perfect.

b. attach.

Dana draws a check on Equity Bank, and asks the bank to agree in advance to accept the check by setting aside sufficient funds to cover the amount. If Equity agrees, the check will be considered a. cashed. b. certified. c. deposited. d. provisionally credited.

b. certified.

Rico borrows funds from Suburban Bank secured by Rico's house. Rico defaults on the debt. The bank's options include a. retaining the security interest and pursuing a judicial remedy. b. disposing of the collateral in any commercially reasonable manner. c. repossessing the collateral and disavowing the security interest. d. destroying the collateral and collecting the unpaid debt from Reg.

b. disposing of the collateral in any commercially reasonable manner.

The payment of Commerce Inc.'s debt to Debt Service LLC is guaranteed by the firm's property. Debt Service is most likely to perfect its interest by a. calculating the precise amount of the debt. b. filing a financing statement with the appropriate authority. c. correcting grammatical errors in the parties' written agreement. d. insuring the property for the full amount of its value.

b. filing a financing statement with the appropriate authority.

Gillis writes a check to Harley as payment for a game player but soon discovers it is broken. Gillis goes to the drawee bank and orally authorizes Ilene, a bank officer, to stop payment on the check. This order is valid for a. six months. b. fourteen days. c. six days. d. any stated period of time.

b. fourteen days.

On the back of a check "payable to Huan," Huan signs her name and negotiates the item to Ito. To avoid liability on the item if it is later dishonored, Ito should a. write, above Huan's signature, "Pay to Ito." b. indorse the check "without recourse." c. make a copy of the check and place it in a secure location. d. immediately indorse the check in blank.

b. indorse the check "without recourse."

Bauxite Mine borrows $60,000 from Commerce Bank, with the loan secured by the borrower's property. The debtor defaults on the loan. Commerce relinquishes its security interest to seek a judicial remedy. To obtain funds to satisfy the debt by a seizure and sale of the borrower's nonexempt property, after a writ is issued, the creditor can use the process of a. retention. b. levy. c. execution. d. redemption.

b. levy.

Gary writes a check drawn on Hill Bank for $400 "payable to Ian" on May 1. Gary dies on May 3. Ian presents the check to the bank on May 5. Unaware of Gary's death, the bank a. must consult with Gary's heirs before paying the check. b. may pay the check. c. can do nothing until Ian claims an interest in the account. d. must certify the check.

b. may pay the check.

Bok buys an espresso machine from Coffee Gadgets, which bills him for $100. He writes out a check drawn on Dios Bank, but later, believing that the machine is defective, issues a stop-payment order. Dios a. need not follow Bok's order unless the check was certified. b. must stop payment if the bank has a reasonable time to act. c. need not follow Bok's order because it was issued after the check. d. is liable to Coffee Gadgets for the amount of the check.

b. must stop payment if the bank has a reasonable time to act.

Jaime signs an instrument using a "J" with a swirl around it. With this mark for a signature, the instrument is a. nonnegotiable, because an initial does not state the signer's name. b. negotiable. c. nonnegotiable, because an initial is not a signature. d. nonnegotiable, because a simple initial implies a lack of binding intent.

b. negotiable.

Marin writes on a piece of paper, "I owe you $600," signs it, and gives it to Nye. This instrument is a. negotiable. b. nonnegotiable, because it does not include an express promise to pay. c. nonnegotiable, because it does not recite any consideration. d. nonnegotiable, because it does not state any conditions to payment.

b. nonnegotiable, because it does not include an express promise to pay.

Ready Credit Inc. holds a security interest in inventory owned by Soy Products Inc. Ready Credit can protect its claim to the inventory in the event of Soy Products' default by a. redemption. b. perfection. c. assignment. d. retention.

b. perfection.

If an instrument is acquired as part of a corporate purchase of assets, the holder will have only the rights of an ordinary holder. a. qualified. b. primary. c. impaired. d. secondary.

b. primary.

If a voluntary petition in bankruptcy is found to be proper, the court's entry of an order for relief a. discharges the debtor's obligations. b. puts into place an automatic stay. c. distributes the debtor's assets to his or her creditors. d. dismisses the petition.

b. puts into place an automatic stay.

The UCC does not define the term default. This encourages the parties to a secured transaction to a. provide the creditor with the maximum protection possible. b. stipulate the conditions that will constitute a default. c. include standards that align with the concept of unconscionability. d. run counter to the UCC's provision regarding good faith.

b. stipulate the conditions that will constitute a default.

To create an enforceable security interest between Finance Corporation and Global Trade Inc. in a written security agreement, the agreement must contain a description of a. the debtor. b. the collateral. c. the creditor. d. all of the choices.

b. the collateral.

Baer writes a check for $500 "payable to Cary" drawn on Baer's account at Debit Bank. Cary indorses and sells the check to Esau, who deposits the check in his account at Fidelity Bank. Fidelity dishonors the check. Baer or Cary may be liable for payment of the check if a. the drawer of the check does not repudiate the dishonor. b. timely notice of dishonor is given. c. more than thirty days have elapsed since the check was written. d. the check was not properly presented for payment.

b. timely notice of dishonor is given.

To operate practically as a substitute for cash or a credit device, a negotiable instrument must be a. qualified with a promise to set aside the qualification. b. transferable without the danger of being uncollectable. c. conditional without the risk of being collectable. d. payable without recourse.

b. transferable without the danger of being uncollectable.

Colin signs a note "payable to the order of Debit Bank." The bank indorses the note in blank and negotiates it to Equity Funds, which sells it to Financial Investments. The transfer of the note from Equity to Financial gives rise to a. none of the choices. b. warranty liability. c. signature liability. d. contractual liability.

b. warranty liability.

Brie, Cam, and Dei are co-sureties of Edie's debt to Finance LLC. Brie pays the entire debt. Her right of contribution entitles her to recover any amount paid above the surety's obligation from a. Finance LLC. b. none of the parties. c. Cam and Dei. d. Edie.

c. Cam and Dei.

To buy a truck under warranty from Detour Motors, Eli, a consumer, signs a note payable to the dealer. The note includes the notice required by FTC Rule 433. The dealer sells the note to Finance Company, which takes it in good faith, for value, and unaware of any defenses against payment. Eli discovers that the truck is defective and returns it to Detour Motors. The consumer can assert the breach of warranty to avoid payment on the note against a. no one. b. Finance Company only. c. Detour Motors and Finance Company. d. Detour Motors only.

c. Detour Motors and Finance Company.

Ranch West owes Silo & Barn Inc. $5,000 on their contract, but refuses to pay. To collect, Silo files a mechanic's lien, under which security for the debt is represented by a. property held by a third party. b. the $5,000 owed on the contract. c. Ranch's real estate. d. Ranch's personal property.

c. Ranch's real estate.

United Contractors Inc. holds a lien on Vista Estate's real property. This property can be sold to satisfy the debt if, before the sale, notice is given to a. Vista Estate's other creditors. b. the state in which the property is located. c. Vista Estate. d. the general public.

c. Vista Estate.

To buy a home, Lois pays part of the purchase price up front in cash and borrows the rest of the funds from Members Credit Union. The part of the purchase price paid up front is a. a mortgage. b. a prepayment penalty. c. a down payment. d. a short sale.

c. a down payment.

Construction Company has a claim against Diners Café to satisfy a debt that takes priority over other claims against the same property. This is a. a garnishment. b. a fraud. c. a lien. d. a guaranty.

c. a lien.

A voluntary petition in bankruptcy must include a. proof of each creditor's claim. b. a statement indicating that the debtor understands basic economics. c. a list of the debtor's creditors and the amount of the debt owed to each. d. all of the choices.

c. a list of the debtor's creditors and the amount of the debt owed to each.

Motor Sales Inc. signs an instrument that promises to pay National Parts Company a certain price, with interest, for a shipment of auto parts. It is necessary to know when the instrument is due in order to a. determine the value of the instrument. b. calculate when a statute of limitations may apply. c. all of the choices. d. know when the interest will accrue.

c. all of the choices.

Under Chapter 7 and Chapter 11 a. the automatic stay provision applies. b. the same principles govern the entry of the order for relief. c. all of the choices. d. petitions can be filed voluntarily or involuntarily.

c. all of the choices.

Compared to Chapter 7 and 11 plans, a Chapter 13 plan a. is more expensive and more complicated. b. permits any interested party to file a repayment plan. c. allows a debtor to retain possession of his or her assets. d. permits creditors to force a debtor into involuntary bankruptcy.

c. allows a debtor to retain possession of his or her assets.

Resources Inc. receives a check from Steel Products Company and indorses it with a stamped imprint of its name on the back. This converts the check to a. a non-transferable instrument. b. a special indorsement. c. an order instrument. d. a bearer instrument.

c. an order instrument.

Auto Sales & Finance wants to get paid for its goods and services, so it will not sell goods or lend funds unless payment is guaranteed. To obtain those goods or services, a customer or borrower might pledge a. allegiance. b. a composition agreement. c. collateral. d. forbearance.

c. collateral.

Under Chapter 7, creditors are paid in a certain order of priority. The highest-priority class comprises claims for a. the debtor's equity in his or her residence. b. debts related to motor vehicles, household goods, and trade tools. c. domestic support. d. student loans.

c. domestic support.

Housewares Inc. warrants its goods to be free of defects. Ivy issues an instrument to Housewares for the purchase of an appliance that proves to be defective. With respect to payment on the instrument, Ivy a. cannot avoid it. b. is liable only to a subsequent holder of the instrument. c. has a personal defense. d. has a universal defense.

c. has a personal defense.

An involuntary bankruptcy occurs when a debtor a. is unable to pay his or her debts as they come due. b. files forms designated for the purpose. c. is forced into bankruptcy proceedings by his or her creditors. d. has debts that exceed the fair market value of his or her assets.

c. is forced into bankruptcy proceedings by his or her creditors.

Bogart presents a sight draft to Commerce Bank for payment. A bank employee writes accepted across the face of the instrument, and adds the date and the bank's signature. The draft is a. acknowledged as received, but not payable without further verification. b. accepted and will be payable by the close of the next business day. c. payable immediately or within a stated time after sight. d. payable ninety days after sight.

c. payable immediately or within a stated time after sight.

With respect to debtors, the main goal of bankruptcy law is to a. encourage the continued use of credit. b. shield assets from creditors' claims. c. provide a new start without creditors' claims. d. ensure that third parties will continue to guarantee loans.

c. provide a new start without creditors' claims.

An instrument payable to two or more persons without an "and" or an "or" between the parties' names, such as a check "payable to the order of Gerhard Hans," a. must be converted to a bearer instrument to be negotiated. b. requires the indorsement of both of the parties to be negotiated. c. requires the indorsement of only one the parties to be negotiated. d. is nonnegotiable.

c. requires the indorsement of only one the parties to be negotiated.

Under any chapter of the Bankruptcy Code, failing to file the necessary documents with the debtor's petition for relief can result in a. the discharge of the debtor's obligations. b. the distribution of the debtor's assets to his or her creditors. c. the dismissal of the petition. d. an automatic stay.

c. the dismissal of the petition.

An instrument, such as a check, drawn payable to an organization a. is nonnegotiable. b. must be converted to a bearer instrument to be negotiated further. c. must be indorsed with a stamped imprint of the name of the entity. d. can be negotiated by an authorized representative of the entity.

d. can be negotiated by an authorized representative of the entity.

Yang files a petition in bankruptcy under Chapter 7. Zhen takes control over her property and reduces it to money for distribution. Zhen is a. a debtor who filed jointly for bankruptcy under a single petition. b. a secured creditor. c. a bankruptcy court judge. d. a bankruptcy trustee.

d. a bankruptcy trustee.

In addition to financial statements, each voluntary petition in bankruptcy must include a. a statement of preference for one creditor over another. b. a plan outlining how debt payments will be made. c. a creditors' agreement allowing the debtor to continue in business. d. a certificate proving the receipt of credit counseling.

d. a certificate proving the receipt of credit counseling.

Capital Inc. holds a security interest in Discount Store's inventory. The parties agree that the interest will continue in the collateral even if it is sold, exchanged, or disposed of in some other way. This is a. the right of redemption. b. a continuation statement. c. a purchase-money security interest. d. a floating lien.

d. a floating lien.

Construction Inc. wants to agree with its creditors on a plan under which it pays a portion of its debt and is discharged of the rest. To accomplish this goal, the corporation should file a petition in bankruptcy under Chapter 11 for relief through a. a liquidation. b. a repayment plan. c. an adjustment plan. d. a reorganization.

d. a reorganization.

Because a party's authenticating intent with respect to a note is shown by the name of the party written on the line that calls for the name of that party, a. a signature of the name must be witnessed to effect an assignment. b. proof that an indorsement is legitimate is required to validate the note. c. the name must be handwritten to negotiate the note. d. a stamped imprint of the name can be sufficient to transfer the note.

d. a stamped imprint of the name can be sufficient to transfer the note.

To make a sale to Gourmet Inc., Hill Valley Commodities asks Gourmet's outside accountant Ingre to co-sign a credit application. According to the terms, if Gourmet defaults, Hill Valley can look to Ingre for payment without first pursuing legal remedies against Gourmet. Ingre is a. a lienor. b. a guarantor. c. a creditor. d. a surety.

d. a surety.

Business Inc.'s debt to Cartage Company is past due. Cartage brings a legal action against Business to collect. To ensure that a judgment in the creditor's favor will be collectible, Cartage asks the court to order the seizure of the debtor's property. This is a request for a. a mechanic's lien. b. a writ of execution. c. an artisan's lien. d. a writ of attachment.

d. a writ of attachment.

In good faith and for value, Joya gets from Kyle a negotiable bearer instrument. Joya does not know that Kyle stole the instrument. Joya is a. not an HDC, because Kyle did not acquire the instrument for value. b. not an HDC, because Kyle transferred the instrument without notice. c. not an HDC, because Kyle did not acquire the instrument in good faith. d. an HDC.

d. an HDC.

To buy a condo, Mary obtains a thirty-year mortgage with an interest rate that is fixed for three years and then adjusts annually. Mary's mortgage is a. a workout agreement. b. a fixed-rate mortgage. c. a short sale. d. an adjustable-rate mortgage.

d. an adjustable-rate mortgage.

At the time of the filing of the petition and the time of the filing of the plan, Chapter 13 imposes on the debtor the requirement of a. goodwill. b. substantial means. c. sufficient credit. d. good faith.

d. good faith.

To buy furniture, Gina, a consumer, signs a purchase agreement with Home Store, the seller, to pay $100 down and $50 per month until the price is paid. Home Store takes a security interest in the furniture. Because it was created as part of purchase agreement with a consumer, the security interest a. cannot be perfected. b. can be perfected only by filing. c. can be perfected only by repossession. d. is automatically perfected.

d. is automatically perfected.

Ruth takes her car to Service Center, which repairs the car and bills her for $500. She writes out a check drawn on Tempo Bank, but later, believing that Service Center did not fix the car properly, issues a stop-payment order. If Tempo pays the check, the bank a. can sue Ruth for a wrongful stop-payment order. b. is liable to Service Center for the time and trouble to return the payment. c. can sue Service Center for breach of contract. d. is liable for Ruth's loss due to the wrongful payment.

d. is liable for Ruth's loss due to the wrongful payment.

Chapter 7 of the Bankruptcy Code provides for a. the adjustment of debts of individuals—not businesses. b. the reorganization of the obligations of the debtor. c. the adjustment of debts of businesses—not individuals. d. liquidation proceedings.

d. liquidation proceedings.

Noah signs Ola's name to a check without Ola's authorization. Noah can be held personally liable for payment on the check by a. any holder. b. none of the choices. c. only an ordinary holder. d. only an HDC.

d. only an HDC.

Mara has a checking account at North Bank. Mara signs a check "payable to Ovid" drawn on Mara's account. North Bank is a. the drawer. b. the payee. c. none of the choices. d. the drawee.

d. the drawee.