LW 406 Exam II: Commercial Paper & ALL Quizzes

A note, otherwise negotiable, containing the phrase: "Payable on January 1, 2030, but if my Uncle Joe dies before this note is due, it shall become payable 10 days after distribution of his estate." is: Select one or more: a. negotiable. b. non-negotiable, because it is payable upon the happening of an event which is uncertain as to the time of occurrence. This is payable at a definite time subject to acceleration. c. non-negotiable, because "post obituary" notes do not state a definite time for payment. d. non-negotiable, because payment is conditional upon Uncle Joe's death.

A. Negotiable

Is a dated instrument payable "when this year's corn crop is harvested" payable at a definite time?

No

If the Maker or drawer signs his instrument with a big "X" on the signature line? Is this sufficient? What is the test?

Yes, it is sufficient if he has Present Intent to Authenticate

Do the following instruments contain the words of negotiability? If so, do they create order or bearer paper? "Pay to John Doe or bearer"

Yes, it's negotiable and bearer paper

Does this destroy negotiability: "Payable on Sept. 12, 2006, subject to extension at the option of the maker"?

Yes; "option of the maker" requires further definite time to maintain negotiability

On June 12, Bank lends Dan Debtor $20,000 to purchase a piece of equipment taking in return a security interest in the equipment. Dan obtains the equipment that afternoon. On June 18, Dan files a bankruptcy petition. Who would have priority? Select one or more: a. The bank. b. The trustee in bankruptcy.

b. The trustee in bankruptcy.

John, Paul and Jones sign a promissory note for $15,000. When the instrument becomes due, Hank Holder demands the full $15,000 from John. How much does John have to pay?

$15,000

Michelle operates a bookstore in the name of Best Books. She orders a shipment of books from her supplier, financing the purchase. In return for the books, she signs and delivers to Information, Inc., the following promissory note. Promissory Note June 30, 2015 Ninety (90) days from date, I promise to pay to pay to the order of Information, Inc., the sum of $10,000 with interest at the prime rate as set by the Last National Bank on today's date. This amount is for supplies purchased pursuant to a contract entered into between the parties on today's date. In the event that the holder shall deem himself to be insecure, the entire obligation becomes immediately due and payable. If the maker is unable to pay the note when it becomes due, the note may be extended for 30 days, at the option of the maker. In the event of default, the maker agrees to pay collection costs and attorney's fees. /s/ Best Books Best Books This instrument is: Select one or more: a. negotiable. b. nonnegotiable because the reference to the prime rate means that one must leave the face of the instrument to discover the interest rate; therefore the maker is not promising to pay a fixed amount. c. nonnegotiable because the addition of attorney's fees means that the maker is not promising to pay a fixed amount. d. nonnegotiable because the addition of collection costs means that the maker is not promising to pay a fixed amount.

A. Negotiable

Promissory Note June 30, 2015 Ninety (90) days from date, I promise to pay to pay to the order of Information, Inc., the sum of $10,000 with interest at the prime rate as set by the Last National Bank on today's date. This amount is for supplies purchased pursuant to a contract entered into between the parties on today's date. In the event that the holder shall deem himself to be insecure, the entire obligation becomes immediately due and payable. If the maker is unable to pay the note when it becomes due, the note may be extended for 30 days, at the option of the maker. In the event of default, the maker agrees to pay collection costs and attorney's fees. /s/ Best Books Best Books This instrument is: Select one or more: a. negotiable. b. Nonnegotiable because reference to the consideration (supplies) means that the note is conditional upon delivery of the supplies. c. Nonnegotiable because the promise is make pursuant to another contract. That means that the promise is conditional upon the terms in that second contract. d. Nonnegotiable because it is signed "Best Books." This is not a valid signature.

A. Negotiable

On June 1, 2015, M & M Machinery makes a promissory note payable to the First National Bank which is payable on June 1, 2017. First indorses it and negotiates it to the Last National Bank on July 3, 2015. Last presents the note for payment to M & M on June 15, 2017. First claims that it was discharged by the late presentment. Is it correct? Select one or more: a. Yes b. No

B. No

A two-party instrument in which the party to pay is called the maker and the other party is called the payee is: Select one or more: a. a draft. b. a promissory note. c. a certificate of deposit. d. a check.

B. a promissory note

Doug Drawer made out a check to "cash" and gave it to Pete. Is Pete a holder?

Bearer paper; yes

A woman posing as Smith offers to sell a car titled in the name of Susan Smith. Bob accepts and issues a check in the name of Susan Smith to pay for the car. When Bob discovers that the name transferring the title was forged, that woman with whom he dealt was not Susan and that the indorsement on the check was forged, he demands that his bank recredit his account. Who bears the loss? Explain.

Bob bears the loss; where drawer is induced by imposter to issue instrument, the drawer bears the loss; Imposter Rule

Greg Rick makes a check payable to the order of Lynn Young for $500. Lynn negotiates the check to Bob Belville who fraudulently changes the amount of the check to read $5000 and deposits it into his account with the Columbia National Bank. Columbia national presents it for payment to the payor Last National bank which pays the item and debits Greg's account for $5000. Who bears the loss? Explain.

Columbia National Bank bears the loss; sue "up the chain" bc they were first to deal with wrongdoer

Dan draws a check payable to Popeye for $5000. Popeye indorses the check and negotiates it to Olive Oil. Olive Oil takes the check to the drawee who certifies the check, and then Olive negotiates the check to Brutus. What is the effect of the certification?

Drawee becomes primarily liable; Olive Oil and Popeye (primary indorsers) are discharged, and Dan (drawer) is discharged

Joe Jones is in possession of a check payable "to the order of Joe Jones". Joe indorses it specially to Pam Smith and gives it to Pam. Pam indorses it "without recourse, /s/ Pam Smith." After Joe Jones's special indorsement, this is bearer paper. True or False?

False

Mom buys a new car giving Shifty Car Deals a promissory note for $10,000 as payment. Shifty negotiates the note to the ABC Bank, a holder in due course. Mom soon discovers that the car is not as it was represented to be: the brakes do not work, the transmission is in need of repair, and the odometer had been turned back. She refuses to pay the promissory note. Does she have to?

Mom has to pay; personal defenses (failure of consideration) not sufficient

John Smith, the President of Money Corp signed the following promissory notes as authorized by Money Corp. Who is liable? b. The note is signed "Money Corp, by John Smith, President"

Money Corp is liable; agent indicated he's signing in a representative capacity through "by"

John Smith, the President of Money Corp signed the following promissory notes as authorized by Money Corp. Who is liable? c. The note is signed "Money Corp, by John Smith"

Money Corp is liable; agent indicated he's signing in a representative capacity through "by"

John Smith, the President of Money Corp signed the following promissory notes as authorized by Money Corp. Who is liable? a. The note is signed "Money Corp."

Money Corp is liable; agent's name is not on the instrument

Do the following instruments contain the words of negotiability? If so, do they create order or bearer paper? "Pay to John Doe

No

On Jan. 15 Mickey Mouse drew a check upon the XYZ Bank payable to Minnie Mouse for $500. Minnie took the check to the Grocery Store and negotiated it to them in exchange for cheese. The Grocery Store deposited the check in their account with the ABC Bank. ABC presented the check for payment to the XYZ Bank on Friday January 17. The check was marked "NSF" and returned to ABC on Monday January 20. On Friday January 24 ABC phoned the Grocery Store and gave notice of dishonor. On Monday January 27, the manager of the Grocery Store mailed a notice of dishonor to Minnie. The notice was received on January 31. Mickey has filed a petition in bankruptcy. Did XYZ make a timely dishonor?

No

A sells a car to M taking as payment a promissory note made payable to A. The car is a real lemon and M immediately begins having problems with it. A sells the note to C who becomes a holder in due course (HDC). C gives the note to his daughter (D) as a birthday present. M refuses to pay D. Is D a HDC? Can she claim the rights of a HDC?

No, D is not an HDC bc no value has been given (gift); however, D has HDC rights passed down from C

Dan writes a check payable to Pierre Payee on June 1, 1994. Hank purchases the check on September 4, 1994. Is Hank a holder in due course.

No, Hank is not an HDC; check is overdue bc more than 90 days after its date

Mom gives a promissory note to Pete for $100. Pete crudely raises the amount to $1000 and negotiates it to Hank. Is Hank a holder in due course?

No, because there's notice of a forgery/material alteration

Diana wrote a check payable to the order of Pee Wee. Pee Wee indorsed the check "without recourse" and delivered it to Roger. Roger indorsed the check and delivered it to Howard. Howard made a timely presentment of the check to the drawee for payment. The drawee dishonored it and Howard gave timely notice to all parties. 2. Can Howard enforce the check against Pee Wee?

No, he signed it as a qualified indorsement "without recourse"

"I promise to pay to the order of The Music Shop $800 for a stereo. /s/ Joe College." If otherwise negotiable, does this language render the instrument non-negotiable?

No, it does not become non-negotiable. You area allowed to state consideration as an implied condition.

Dan Drawer issues on March 1 a check to Pete Payee. Pete indorses the check to Hank Holder on April 3. Hank presents the check to the drawee on May 5. The drawee dishonors the check because of insufficient funds. Hank promptly gives Pete and Dan notice of dishonor. 1. Can Hank hold Pete liable on his indorser's K?

No, it wasn't presented within 30 days of indorsement, so he is discharged

Doug Drawer made out a check payable "to the order of Pam Payee" and gave the check to Rick. Is Rick a holder?

No, it's order paper; Pam didn't indorse the check so Rick cannot be a holder

Is the following a promise: "I.O.U., John Doe or bearer $80. /s/ Jane Roe"?

No, just an acknowledgement of an obligation to pay

Does this destroy negotiability: "Payable on Sept. 12, 2004, but if my potato crop fails that year, payment shall be extended until Nov. 8 of the following year"?

No, negotiable bc it gives a further definite time; not conditional on crop just when they will pay

Dan draws a check to Pete upon the 1st National Bank for $500. When the item is presented for payment it is dishonored. Can Pete as a holder hold 1st liable on its drawee's K?

No, no liability unless drawee accepts it (becomes an acceptor) through signature

Is a note negotiable which promises to pay 100 subway tokens?

No, not for money (test of gov't sanctions)

Pete, the payee on a $100 note issued by the Maker, agrees with Hank to deliver the note in exchange for 100 widgets. Has Hank given value?

No, promise has not yet been fulfilled/given value; Hank has not given any consideration

Frank Forger buys a new car giving Shifty Car Deals a promissory note for $10,000 as payment. He, however forges Mom's name to the promissory note representing himself as Mom. Shifty negotiates the note to the ABC Bank, a holder in due course. Mom soon discovers the forgery and she refuses to pay the promissory note. Does she have to?

No, she has no liability bc the forgery is a real defense

Pete has $500 in his account. He deposits a check drawn by Dawn in the amount of $700. Later that afternoon he cashes a check for $400. The next morning he writes a check to his grocery store for $500. The same morning the bank is presented with a check for $100, which it pays, and one for $1000 which it dishonors for insufficient funds. It then learns that Dawn's check has not been paid. Is the bank a HDC of Dawn's check? To what extent?

No, the bank is not an HDC. Pete hasn't withdrawn anything from the $700 check (FIFO) so has not given value and is not an HDC

On March 1, Michael Maker issues a promissory note payable on December 31 to Pete Payee in return for computer equipment. Pete indorses the note to Hank Holder on April 3. Hank buys the note in good faith and without notice. On December 31, Mike fails to pay the note because the computer equipment was never delivered. Hank promptly gives Pete notice of the dishonor and attempts to enforce the note. Pete claims he was discharged because presentment was not made on December 31st. Is he correct?

No. Indorsers are not owed the right of presentment; 30 day requirement applies to checks, not notes

Does this destroy negotiability: "Payable on Sept. 12, 2006 subject to extension at the option of the holder"?

No; "option of the holder"

**Frank Forger steals a pad of checks from Dan Drawer. On January 2, the bank pays a forged check #1 for $100. On January 5, the bank pays forged check #2 for $150. On January 10, Dan receives his statement revealing the forged checks. On February 2, the bank pays check #3 forged by Frank for $500. Forged checks #4 and 5 are paid on February 15 for $1000 and $1500. On February 27, Dan notifies the bank of the irregularities and demands that the bank recredit his account for all 5 items.

Not notified promptly (>30 days); bank not liable for any checks after Feb 10th (#4 and #5)

Mr. Crook steals one of Dan Drawer's checks with the Premium Bank. He makes it payable to himself, forges Dan's signature, and deposits it in his account with the Downtown Bank. The Downtown Bank transfers it to the Second National Bank who transfers it to the Third National Bank, who presents it for payment to Premium. The Premium Bank pays the item and charges Dan's account. a. What is Dan's recourse against his bank, the Premium Bank?

Premium Bank must recredit Dan's account

Dan issues a check payable to Pete Payee. Mr. Crook steals the check forging Pete's indorsement on the back and deposits it in his account with the First National Bank. First transfers the item to Second national and Second presents the check to the Payor Bank for payment. The Payor Bank pays the item and charges Dan's account. Who has liability?

Premium has order paper without good title (does not have Pete's indorsement); can sue up the chain until First National Bank bears the loss

Mom Maker makes a promissory note payable to Pete Payee on June 1, 1998. Pete indorses it and negotiates it to Hank Holder. Hank presents it for payment on June 1, 1999. Mom claims that she was discharged because the presentment was not timely. Is she correct?

She is incorrect and liable; as a maker, she has primary liability and should've paid 6/1/98 even without presentment (makers on notes are not owed rights of presentment)

Is a note, otherwise negotiable, containing the following language negotiable: "This note is executed in conjunction with a K dated 1/1/99."

This is negotiable; underlying agreement does not destroy negotiability

The First Bank agrees to lend David $10,000 if Thomas agrees to act as as a note for $12,000 payable to First Bank. Thomas indorses it before delivery to First. First sells the note at discount ($11,000) to the Stone Age Finance Co. What is the liability of Thomas?

Thomas is an accomodation indorser and has the same liability & rights; liable for $11,000

The First Bank agrees to lend David $10,000 if Thomas agrees to act as a surety. David issues a note for $12,000 payable to First Bank. Thomas and David sign as makers and deliver the note to First Bank. First sells the note at discount ($11,000) to the Stone Age Finance Co. What is the liability of Thomas?

Thomas is an accomodation maker and has the same liability and rights; liable for $12,000

Mr. Crook steals one of Dan Drawer's checks with the Premium Bank. He makes it payable to himself, forges Dan's signature, and deposits it in his account with the Downtown Bank. The Downtown Bank transfers it to the Second National Bank who transfers it to the Third National Bank, who presents it for payment to Premium. The Premium Bank pays the item and charges Dan's account. b. Assuming that Premium recredits Dan's account, what is their recourse against prior collecting bank?

Transfer warranty of genuine signatures will not work bc premium is not a transferee; cannot win and bears loss

The Treasurer of XYZ Corporation draws a check naming Supplier Co., a non-existent company, as the payee, forges the indorsement and cashes the check. Who bears the loss?

XYZ corporation bears the loss; "padded payroll"/Fictitious Payee Rule

Pete, the payee on a $3000 note, sells it to Beneficial Finance Co. at discount for $2200. Is the Finance Co. a HDC? To what extent?

Yes, 100%; performed 100% of what they said they'd do.

Dan Drawer draws a check on January 1, payable to Pete Payee and drawn on the Second National Bank. Pete indorsed it on January 5th and deposits in his account with the Third National Bank. The Third National Bank begins their process of sorting the check by computer. Before they have completed the task and routed Dan's check for presentment to the Second National Bank, their computer "goes down." They are unable to continue until the computer malfunction is corrected on January 13th. The check is presented for payment on January 13th. Is this delay excused?

Yes, assuming they acted reasonably, because it was out of their control

A note provides for payment of $1000 with interest at the prime rate." Is this a fixed amount?

Yes, can reference info not contained in the instrument (prime rate)

Is a dated instrument payable "within 10 years after date" payable at a definite time?

Yes, definite time

A note provides for payment of "$1000 with 6% interest." Is this a fixed amount?

Yes, fixed amount plus interest; still based on face of note

Pete, the payee on a $3000 note, sells it to Beneficial Finance Co. at discount for $2200. What if they pay $1100 of the promised $2200 and then receive notice of a fraud? Is the Finance Co a HDC? To what extent?

Yes, for 50% of the 3000 (1100/2200)(3000)= $1500

Dan Drawer issues on March 1 a check to Pete Payee. Pete indorses the check to Hank Holder on April 3. Hank presents the check to the drawee on May 5. The drawee dishonors the check because of insufficient funds. Hank promptly gives Pete and Dan notice of dishonor. 2. Can Hank hold Dan liable on his drawer's K?

Yes, if the drawee bank did not go insolvent between 4/1 and 4/3 (during delay)

Does a note signed by John Brown in the trade name of Civil War Gift Shop have a signature sufficient to satisfy the signature requirement?

Yes, includes trade names & with present intent to authenticate

Do the following instruments contain the words of negotiability? If so, do they create order or bearer paper? "Pay to the order of John Doe or bearer"

Yes, it's negotiable; both order and bearer -> bearer paper

On June 3, Dan Drawer draws a check on the 2d National Bank payable to Grocery store for groceries purchased on that day. On June 5, Dan dies. On June 7, the 2d National Bank learns of Dan's death. On June 10, the check is presented for payment. Is the check properly payable by the 2d National Bank?

Yes, it's within 10 days of the death, and they haven't been ordered to stop payment

Is a note with the following clause negotiable? "Payable on January 13, 2010, but in the event that the holder shall deem himself insecure, then this note shall be immediately due at the holder's option."

Yes, negotiable; acceleration does not destroy negotiability

Is an instrument which contains no time for payment negotiable?

Yes, payable on demand

Is a note negotiable which calls for payment in 100 Swiss francs?

Yes, sanctioned by a government

On Jan. 15 Mickey Mouse drew a check upon the XYZ Bank payable to Minnie Mouse for $500. Minnie took the check to the Grocery Store and negotiated it to them in exchange for cheese. The Grocery Store deposited the check in their account with the ABC Bank. ABC presented the check for payment to the XYZ Bank on Friday January 17. The check was marked "NSF" and returned to ABC on Monday January 20. On Friday January 24 ABC phoned the Grocery Store and gave notice of dishonor. On Monday January 27, the manager of the Grocery Store mailed a notice of dishonor to Minnie. The notice was received on January 31. Mickey has filed a petition in bankruptcy. 3. Did the Grocery Store give timely notice of dishonor?

Yes, the store is not a bank, so it has 30 days

Pete, the payee on a $100 note issued by the Maker, agrees with Hank to deliver the note in exchange for 100 widgets. Hank delivers 50 widgets. Has Hank given value? To what extent?

Yes, to the extent of the 50 widgets (50/100)(100) = $50; HDC for half the value of that note and regular holder for other half

Diana wrote a check payable to the order of Pee Wee. Pee Wee indorsed the check "without recourse" and delivered it to Roger. Roger indorsed the check and delivered it to Howard. Howard made a timely presentment of the check to the drawee for payment. The drawee dishonored it and Howard gave timely notice to all parties. 1. Can Howard enforce the check against Roger?

Yes; presentment, dishonor, & notice of dishonor

On May 19, Dale sells Sue a piece of equipment and receives a purchase money security interest to secure payment of the purchase price. The property is delivered to Sue the same day. On May 25, an unsecured creditor levies on the same equipment creating a judgment lien. On May 28, Dale files a financing statement. If both Dale and the judgment lien creditor claim an interest in the piece of equipment, who has priority? Select one or more: a. Dale has priority. A holder of a PMSI who perfects within 20 days from the date the debtor receives delivery of the collateral has priority over a subsequent lien creditor. b. Dale has priority. He was automatically perfected on 5/19 because he has a PMSI. c. The lien creditor has priority. On the date the lien was created, Dale was unperfected. A lien creditor beats an unperfected security interest. d. Two of the above.

a. Dale has priority. A holder of a PMSI who perfects within 20 days from the date the debtor receives delivery of the collateral has priority over a subsequent lien creditor.

On April 1, Dan grants a security interest to First National Bank in equipment. First fails to file a financing statement. On May 1, Dan grants a security interest to Second National Bank in the same equipment. Second fails to file a financing statement. If Dan fails to pay both First and Second, who has priority? Select one or more: a. First has priority. Between two unperfected secured parties, the first security interest to attach and to be enforceable against the debtor has priority. b. First has priority. A security interest in equipment is automatically perfected for 20 days. c. Second has priority. Because both parties are unperfected, whoever claims the collateral first wins. d. Neither party can enforce the security interest against Dan because neither of them perfected their security interest.

a. First has priority. Between two unperfected secured parties, the first security interest to attach and to be enforceable against the debtor has priority.

Payne borrowed $500 from the First National Bank, executing a promissory note promising repayment. At the time the loan was made to Payne, Gem agreed with First that Gem would repay the loan if Payne failed to do so. Gem signed the back of the note as surety. Under the circumstances: Select one or more: a. Gem is secondarily liable to repay the loan. b. Both Gem and Payne are primarily liable to repay the loan. c. Gem is free from liability on the loan since he did not indicate that he was signing as a "Surety." d. Gem is primarily liable to repay the loan.

a. Gem is secondarily liable to repay the loan.

Dan buys a television set from Lemon Appliances giving Lemon a security interest in the television to secure repayment. Lemon fails to file a financing statement. Dan then borrows $5000 from the Last National Bank giving Last a security interest in the same television set to secure repayment. Last files a financing statement. If Dan fails to repay both Lemon and Last, who has priority in the television set? Select one or more: a. Lemon has priority. They were automatically perfected. Therefore, the first party to perfect has priority. b. Last has priority. Lemon failed to file a financing statement. Therefore it was unperfected. A perfected security interest beats an unperfected security interest.

a. Lemon has priority. They were automatically perfected. Therefore, the first party to perfect has priority.

Which of the following satisfies the requirements for negotiability, assuming the other requirements are also met? Select one or more: a. Mary Maker promises to pay to the order of Bob King $5,000 for his car. b. Mary Maker promises to pay to the order of Bob King $5000 for his car only if it is in good working order. c. The note states that it is "subject to" the contract for sale between the parties dated August 31, 2019. d. The note states that the rights and obligations of the parties with respect to this note are stated in an agreement dated April 13, 2019.

a. Mary Maker promises to pay to the order of Bob King $5,000 for his car.

Danielle Dabney writes a check drawn on the Last National Bank and made payable to Penny Pepper. Before the check can be delivered to Penny, Tom Thief steals the check and forges her signature. Tom takes the check to the First Avenue Grocery Store and the Grocery Store takes the check as payment for groceries. First then deposits the check into its account with the Second National Bank, who negotiates it to the Third National Bank, who presents it for payment to Last. Select one or more: a. The Grocery Store has breached both the presentment warranty and transfer warranty of good title. b. Last National can sue Third National Bank for breach of the presentment warranty of good title, but cannot sue further up the chain. c.If Last National sues Third National, Third can sue either Second or First for breach of the presentment warrant of good title. d.If Last National sues Third National, Third can sue Second but not First for breach of the transfer warranty of good title.

a. The Grocery Store has breached both the presentment warranty and transfer warranty of good title.

Under Article 3, which of the following circumstances would prevent a person from becoming a HDC? Select one or more: a. The person was notified that payment was refused. b. The person was notified that one of the prior indorsers was discharged. c. The note was used as collateral for a loan. d. The note was purchased at discount and the purchaser was aware of that fact.

a. The person was notified that payment was refused.

Scarlett O'Hara makes a promissory note payable to Rhett Butler, repayment to be made in a balloon payment at the end of the 12 month period. Furthermore, monthly interest payments are to be made in installments on the 15th of each month beginning in June. Rhett sells the note at a discount to the Rebel State Bank on the 17th of June. The note has written on it in big letters a penciled notation "missed paying first installment." Can Rebel State Bank qualify as an HDC? a. Yes. b. No.

a. Yes.

With regard to a prior perfected security interest in goods for which a financing statement has been filed, which of the following parties is most likely to have a superior interest in the same collateral? Select one or more: a. a buyer in the ordinary course of business who purchased the goods from a merchant. b. a subsequent buyer of consumer goods who purchased the goods from another consumer. c. the trustee in bankruptcy of the debtor. d. lien creditors of the debtor.

a. a buyer in the ordinary course of business who purchased the goods from a merchant.

Dennis Debtor files a bankruptcy petition on June 1. His estate includes an apartment complex. Rents received in July are: Select one or more: a. included in the estate. b. not included in the estate. This gives the debtor a fresh start. c. treated like an inheritance and included in the estate only if they are received with 180 days of the filing of the petition. d. Only included in the estate if the trustee can prove that they were fraudulent.

a. included in the estate.

Dave Drawer draws and delivers a check payable to the order of Speedy Star. Star endorses the check in blank and puts it in his wallet. Larsen E. Jones takes Star's wallet and attempts to use it to pay for groceries at the Second Avenue Grocery Store. Second requires a signature, so Jones forges the check "Charlie Dondo." This forgery: Select one or more: a. is irrelevant as far as negotiation is concerned. This is a forgery outside the chain of title since the check was bearer paper after Star's indorsement in blank. b. prevents Second Avenue from becoming a holder of this instrument. c. converts the check from order paper to bearer paper. d. converts the check from bearer paper to order paper.

a. is irrelevant as far as negotiation is concerned. This is a forgery outside the chain of title since the check was bearer paper after Star's indorsement in blank.

Promissory Note June 30, 2015 Ninety (90) days from date, I promise to pay to pay to the order of Information, Inc., the sum of $10,000 with interest at the prime rate as set by the Last National Bank on today's date. This amount is for supplies purchased pursuant to a contract entered into between the parties on today's date. In the event that the holder shall deem himself to be insecure, the entire obligation becomes immediately due and payable. If the maker is unable to pay the note when it becomes due, the note may be extended for 30 days, at the option of the maker. In the event of default, the maker agrees to pay collection costs and attorney's fees. /s/ Best Books Best Books This instrument is: Select one or more: a. negotiable. b. Nonnegotiable because payment 90 days from date means that the instrument is not payable at a definite time.Nonnegotiable because the extension at the option of the maker means the note is not payable at a definite time. c. Nonnegotiable because payment 90 days from date means that the instrument is not payable at a definite time. d. Nonnegotiable because the acceleration clause means that the note is not payable at a definite time.

a. negotiable.

A note otherwise negotiable is non-negotiable if it is: Select one or more: a. payable on June 1, 2019, subject to an extension at the option of the maker. If there is an extension at the option of the maker, it must be an extension to a further definite time in order for it to be negotiable. b. payable on June 1, 2019, subject to an extension at the option of the holder. c. payable on June 1, 2019, subject to an extension to June 1, 2020 at the option of the maker. d. Payable on June 1, 2019, but if my potato crop fails that year, payment is extended to December 1, 2019.

a. payable on June 1, 2019, subject to an extension at the option of the maker. If there is an extension at the option of the maker, it must be an extension to a further definite time in order for it to be negotiable.

On June 1, Sue files a petition in bankruptcy. On July 1, she inherits $500,000. Because the $500,000 is received after she filed the bankruptcy petition, this money is not part of Sue's estate. Select one or more: a. True b. False

b. False

Buffy writes a check payable to Muffy and delivers it to her. Muffy presents the check to the drawee, The Prep State Bank. The bank refuses to pay the check. Can Muffy, as a holder, hold the bank liable on its drawee's contract? Select one or more: a. Yes b. No

b. No

On June 1, 2015, M & M Machinery makes a promissory note payable to the First National Bank which is payable on June 1, 2017. First indorses it and negotiates it to the Last National Bank on July 3, 2015. Last presents the note for payment to M & M on June 15, 2017. M & M claims that it was discharged by the late presentment. Is it correct? Select one or more: a. Yes b. No

b. No

Party On Caterers files a petition in bankruptcy on June 1. On June 4, Caterers caters a party and earns $1500. How much of this money is included in the bankruptcy estate? Select one or more: a. $1500. b. None of it. c. $750 (assuming that the estate is paying 50% of unsecured claims). d. $1000, according to the Bankruptcy Code calculus.

b. None of it.

Robin buys a television set on credit granting Best Tv's (Best) a security interest in the television set to secure payment. When Robin sells the television set to her neighbor, Rosanne, she stops making payments on the set to Best. If Best attempts to enforce the security interest in the hands of Mrs Brown, who has priority? Select one or more: a. Rosanne has priority. Best failed to file a financing statement; therefore, they are unperfected. An unperfected secured party loses to a BFP. b. Rosanne has priority. A consumer buyer purchasing from a consumer seller has priority over a perfected security interest created by his seller unless the SP has filed a financing statement and unless she has knowledge of the security interest when she bought the tv. c. Best has priority. A perfected secured party beats a BFP. d. Best has priority. Best is automatically perfected because he has a PMSI in consumer goods. e. Two of the above.

b. Rosanne has priority. A consumer buyer purchasing from a consumer seller has priority over a perfected security interest created by his seller unless the SP has filed a financing statement and unless she has knowledge of the security interest when she bought the tv.

Sue indorses a check "without recourse" an negotiates thee check to the Big Grocery Store in exchange for groceries. Big Grocery indorses the check and deposits the check in its account at State Bank. State Bank indorses and delivers the check to the drawee bank, Magnolia Bank for payment. Who has made a transfer warranty? Select one or more: a. State Bank b. Sue and Big Grocery, c. Sue only. d. Big Grocery only.

b. Sue and Big Grocery,

John induces Paul by fraud to make a note payable to John. John negotiates it to George, who in good faith and without notice of the fraud. George gives it to Ringo as a birthday gift. When Ringo attempts to collect from Paul, Paul asserts the defense of fraud in the inducement. a. Ringo is a HDC, and since the defense of fraud in the inducement is a personal defense, it is not good against Ringo. b. While Ringo is not a HDC, he acquired the instrument through a HDC, thus acquiring the rights of a HDC, and Paul's defense of fraud in inducement is not good against Ringo. c. Ringo is not a HDC and has not acquired George's HDC rights. d. Ringo is a HDC as long as he did not know that the note was overdue when he acquired it. e. While Ringo is not a HDC, he acquired the instrument through a HDC, thus acquiring the rights of a HDC; however, Paul's defense of fraud in inducement is a real defense and is good against Ringo.

b. While Ringo is not a HDC, he acquired the instrument through a HDC, thus acquiring the rights of a HDC, and Paul's defense of fraud in inducement is not good against Ringo.

A $5000 promissory note payable to order of Neptune is discounted to Bane by blank indorsement for $4000. King steals the note from Bane and sells it to Ott, who promises to pay King $4500. After paying King, $3000, Ott learns that King stole the note. Ott makes no further payment to King. Ott is Select one or more: a. A holder in due course to the extent of $5000. b. An ordinary holder to the extent of $4500. c. A holder in due course to the extent of $3,333. d. A holder in due course to the extent of $4000.

c. A holder in due course to the extent of $3,333.

Commercial Factors, Inc., purchased for $1,500 a $2,100 promissory note payable in two years. It paid $500 initially and promised to pay the balance ($1,000) within 10 days. Before Commercial Factors paid the balance, it learned that the note had been obtained originally by fraud in the inducement. To what extent will Commercial factors be considered a HDC? Select one or more: a. Commercial Factors is not a HDC because of the 25% discount. b. Commercial Factors will qualify as a HDC for $2,000 if it pays the additional $1,000. c. Commercial Factors will qualify as a HDC of $700 regardless of whether it pays the additional $1,000. d. Commercial Factors will qualify as a HDC of $500 regardless of whether it pays the additional $1,000. e. Commercial Factors will qualify as a HDC to the extent of $1,500.

c. Commercial Factors will qualify as a HDC of $700 regardless of whether it pays the additional $1,000.

Dave buys a television set for his home from Better Buy (BB), an electronics store. Texas Bank has a security interest in all of BB's inventory and it has perfected by filing a financing statement. If BB defaults on its loan to Texas Bank, can Texas enforce its security interest against the television in Dave's possession? In other words, can Texas repossess the television? Select one or more: a. Texas can repossess the television set from Dave. It has a perfected security interest and perfected security interests beat BFPs. b. Texas can repossess the television set from Dave. Dave could take free from Texas's security interest unless Texas filed a financing statement. Here, because Texas filed a financing statement, Dave loses. c. Dave can keep the television set. A BOC takes free of a security interest (even a perfected security interest) created by his seller even if he has knowledge of the security interest and even if the secured party has filed a financing statement. d. Dave can keep the television set but only if he did not have knowledge of the security interest at the time he bought the tv. e. Two of the above.

c. Dave can keep the television set. A BOC takes free of a security interest (even a perfected security interest) created by his seller even if he has knowledge of the security interest and even if the secured party has filed a financing statement.

On January 15, Bean granted Davis a security interest in a negotiable document under the terms of a written security agreement. On February 5, Bean granted Franklin a security interest in the same document. Franklin promptly filed a financing statement. On February 7, Davis filed a financing statement. If Bean defaults (fails to pay both David and Franklin), who has priority in the document? Select one or more: a. Davis has priority; his security interest was automatically perfected. b. Davis has priority; he perfected his security interest by filing a financing statement in a timely manner. c. Franklin has priority. d. Two of the above.

c. Franklin has priority.

Dan Drawer wrote a check for $500 to Dr. I.N. Cisor as payment for dental services rendered. Two days later the crown fell out of Dan's mouth indicating that the work had not been done properly. Dan stopped payment on the check. However, before Dan did so,. Dr. Cisor negotiated the check to Hank Holder, a HDC. Select one or more: a. Hank will be able to recover on the instrument because a HDC takes free of all claims and defenses. b. Hank will not be able to recover on the instrument because a HDC takes subject to all defenses. c. Hank will be able to recover on the instrument because a HDC takes free of personal defenses, and Dan has only a personal defense. d. Hank will not be able to recover on the instrument because a HDC does not take free of real defenses, and Dan has a real defense.

c. Hank will be able to recover on the instrument because a HDC takes free of personal defenses, and Dan has only a personal defense.

Maggie Maker writes a note payable to the order of Bill Johnson. Bill signs his name on the back of the check and gives the note to Lynn. Lynn signs her name and adds "Pay P.J. McDougal." What is the status of this note? Select one or more: a. It is bearer paper. b. It is bearer paper after Lynn's blank indorsement. c. It is now order paper and cannot be negotiated without P.J.'s indorsement. d. It is now order paper and can be negotiated by delivery only.

c. It is now order paper and cannot be negotiated without P.J.'s indorsement.

Debbie borrows $5,000 from Carly. Debbie then grants a security interest to Last National Bank in equipment to secure a $10,000 loan. Last fails to file a financing statement. When Debbie fails to repay both Last and Carly, Carly claims priority since Last failed to file a financing statement. Who has priority? Select one or more: a. Carly has priority; since Last failed to file a financing statement, Last is unperfected. b. Carly has priority. Since her debt came before Last's debt, she is "first in time, first in right." c. Last has priority. A security interest, even an unperfected security interest, has priority over an unsecured creditor. d. Last has priority. A security interest in equipment is automatically perfected.

c. Last has priority. A security interest, even an unperfected security interest, has priority over an unsecured creditor.

Dan Drawer wrote a check on October 31, to the Grocery Store $80. The Grocery Store cashed the check at its bank on February 3, and it bounced on February 15, when the drawee bank informed the bank that Joe had stopped payment because groceries had been spoiled. Is the bank a HDC? Select one or more: a. Yes, since it gave value to the Grocery Store for the check. b. Yes, since the bank had no notice of Dan's claim against the Grocery Store. c. No, because the bank had knowledge that the check was overdue. d. Two of the above (If you think two of the above are correct, check only choice 4).

c. No, because the bank had knowledge that the check was overdue.

Tom grants Alabama Bank a security interest in "all equipment now owned or hereafter acquired" on February 1. Alabama Bank advances Tom $10,000 based on their agreement and files a financing statement. On March 1, Tom buys a new oven granting the supplier (Ovens, Inc.) a PMSI. Ovens files a financing statement on March 9. Tom defaults on both loans and Alabama Bank and Ovens are claiming an interest in the oven. Who has priority? Select one or more: a. Alabama Bank has priority; they were the first to perfect their security interest. b. Alabama Bank has priority; in order for Ovens to have priority over a prior perfected secured party, they had to be perfected when Tom acquired the oven. c. Ovens has priority. As a PMSP of non-inventory collateral, they can get priority over prior perfected secured parties as long as they perfect within 20 days from the date the debtor acquires the collateral. d. Two of the above.

c. Ovens has priority. As a PMSP of non-inventory collateral, they can get priority over prior perfected secured parties as long as they perfect within 20 days from the date the debtor acquires the collateral.

One of the requirements needed for a holder of a negotiable instrument to be a holder in due course is the value requirement. Ruper is the holder of a $1000 check written out to her. Which of the following would not satisfy the value requirement? Select one or more: a. Ruper received the check from a tax client to pay off a four-month old debt. b. Ruper took the check in exchange for a negotiable note for $1200 which was dueon that day. c. Ruper received the check in exchange for a promise to do certain specified services three months later. d. Ruper received the check for a tax service dept for a close relative.

c. Ruper received the check in exchange for a promise to do certain specified services three months later.

On April 1, Dan grants a security interest to First National Bank in equipment. First fails to file a financing statement. On May 1, Dan grants a security interest to Second National Bank in the same equipment. Second promptly files a financing statement. On May 5, First files a financing statement. If Dan fails to pay both First and Second, who has priority? Select one or more: a. First has priority because its security interest attached before Second's security interest. b. First has priority because between two perfected secured parties the first security interest to be enforceable against the debtor has priority. c. Second has priority because between two perfected secured parties, the first one to file or to be perfected has priority. d. First has priority. Filing was not the proper method to perfect a security interest in equipment. Therefore, both security interests are unperfected and the first unperfected security interest has priority.

c. Second has priority because between two perfected secured parties, the first one to file or to be perfected has priority.

On April 1, Dan grants a security interest to First National Bank in equipment. First fails to file a financing statement. On May 1, Dan grants a security interest to Second National Bank in the same equipment. Second promptly files a financing statement. If Dan fails to pay both First and Second, who has priority? Select one or more: a. First has priority since Dan gave First the security interest before Second. First in time, first in right. b. First has priority. Dan had no right to grant a security interest to Second in the same collateral. Therefore, the second security interest was invalid. c. Second has security because it perfected its security interest. A perfected security interest beats an unperfected security interest.

c. Second has security because it perfected its security interest. A perfected security interest beats an unperfected security interest.

On January 15, the Appliance Store sells Dan Debtor a television set on credit for his own personal use, taking in return a security interest in the television set to secure repayment. The Appliance Store fails to file a financing statement at that time. On April 1, Dan files a bankruptcy petition. On April 5, the Appliance Store files a financing statement. The trustee has contested the priority of the security interest. Select one or more: a. The trustee will win since he has the rights of a lien creditor obtaining a lien on the date of bankruptcy. b. The trustee will win because the Appliance Store could only perfect its security interest by filing and it filed too late. c. The Appliance Store will win. d. Two of the above.

c. The Appliance Store will win.

Acme is the holder of a check which was originally drawn by Dante and made payable to Sylvia. Sylvia properly indorsed the check to Field. Field had the check certified by the drawee bank and then indorsed the check to Bates. As a result: Select one or more: a. Field is discharged from liability. b. Dante alone is discharged from liability. c. The drawee bank becomes primarily liable and both Sylvia and Dante are discharged. d. The drawee bank becomes secondarily liable.

c. The drawee bank becomes primarily liable and both Sylvia and Dante are discharged. The drawer and prior endorsers are discharged.

A & M Construction buys $6000 worth of goods on credit from Joe on January 1, granting Joe a security interest in equipment to secure repayment. Joe files a financing statement on January 9. Joe files a petition in bankruptcy on January 15. Select one or more: a. The trustee can avoid this security interest as preferential because the transfer was made when the security interest was perfected on January 9. b. The trustee can avoid this security interest as preferential because the transfer was on account of an antecedent debt. c. The trustee cannot avoid this security interest as preferential. Because the security interest was perfected within 30 days of its creation, the perfection relates back and the transfer didn't occur until January 1. d. The trustee cannot avoid this security interest as preferential. Because the transfer occurred on January 1, it was made in exchange for a contemporaneous $6000 loan.

c. The trustee cannot avoid this security interest as preferential. Because the security interest was perfected within 30 days of its creation, the perfection relates back and the transfer didn't occur until January 1.

Peters Co. repairs computers. On February 9, Stark Electronics sold Peters a circuit tester on credit. Peters granted Stark a security interest in the circuit tester to secure payment of the purchase price and Stark promptly filed a financing statement. On April 13, Stark filed a petition in bankruptcy. If the trustee claims an interest in the circuit tester? Select one or more: a. The trustee is correct. He can void the security interest as preferential because it was granted within 90 days from the filing of the bankruptcy petition. b. The trustee is correct. He has priority over the security interest becasue he automatically takes title to all property of the debtor. c. The trustee is incorrect. Stark is a perfected secured party and perfected secured parties have priority over a trustee in bankruptcy. d. The trustee is incorrect. Because Stark has a PMSI, it automatically has priority over the trustee in bankruptcy.

c. The trustee is incorrect. Stark is a perfected secured party and perfected secured parties have priority over a trustee in bankruptcy.

Which of the following purchasers will always own consumer goods free of a perfected security interest in the goods? Select one or more: a. A merchant who purchases the goods for resale. b. A merchant who purchases the goods for use in its business. c. A consumer who purchases the goods from a consumer purchaser who gave the security interest. The BFP in this case only has priority unless the SP filed a financing statement and unless the BFP had knowledge. d. A consumer who purchases the good in the ordinary course of business.

d. A consumer who purchases the good in the ordinary course of business.

Which of the following is not allowed as a federal exemption under the Federal Bankruptcy Code? Select one or more: a. Some specified equity in one motor vehicle. b. Unemployment compensation. c. Some specified amount of value in books and tools of one's trade. d. All of the above are exempt.

d. All of the above are exempt.

Angie writes a check payable to Brad. Brad indorses the check "without recourse" and delivers it to Cathy. Cathy indorses it and delivers it to Donna. Donna makes a timely presentment of the check to the drawee for payment. The drawee dishonors the check. Donna immediately notifies all parties. Donna can enforce the check against: Select one or more: a. all parties. b. Cathy and Brad. c. Cathy only. d. Cathy and Angie

d. Cathy and Angie

Which of the following conditions, if any, must a debtor meet to file a voluntary petition in Bankruptcy under chapter 7? Involvency Three or More Creditors Select one or more: a. Involvency: Yes . three or More Creditors: Yes b. Insolvency: Yes . Three or More Creditors: No c. Insolvency: No Three or more creditors: Yes d. Insolvency: No . Three or more creditors: No

d. Insolvency: No . Three or more creditors: No

A customer's account has a balance of $2000 at 9:00; at 10:00 he deposits check #1 in the amount of $2,000; and at 11:00 he deposits check #2 in the amount of $3,000. On the next day the customer withdraws $2,500 from the account. Thereafter, both checks bounce since payment has been stopped on each of them. Since the customer has vanished without a trace, the bank sues the drawer on the checks alleging HDC status. Select one or more: a. The bank is a HDC for the full value of each check. b. The bank is a HDC for the full value of check #1 and none of check #2. c. The bank is a HDC for only $2,500 of check #2 and none of check #1. d. The bank is a HDC for $500 of check #1 and none of check #2.

d. The bank is a HDC for $500 of check #1 and none of check #2.

Tom is in the business of selling appliances. He grants Alabama Bank a security interest in "all inventory now owned or hereafter acquired" on February 1. Alabama Bank advances Tom $10,000 based on their agreement and files a financing statement. On March 1, Tom orders a supply of new ovens for his inventory granting the supplier (Ovens, Inc.) a PMSI. Ovens files a financing statement on March 9. Tom defaults on both loans and Alabama Bank and Ovens are claiming an interest in the oven. Who has priority? Select one or more: a. Alabama Bank has priority; it was the first to perfects its security interest. b. Alabama Bank has priority; in order for a PMSP of inventory collateral to gain priority over a prior perfected secured party they had to give notice to Alabama Bank and to perfect their security interest at the time the debtor acquired the collateral. This is correct, but so is choice 2. c. Ovens has priority. As a PMSP of inventory collateral, it can get priority over prior-perfected secured party as long as it perfects within 20 days from the time the debtor acquired the collateral. d. Two of the above.

d. Two of the above.

A purchaser of a negotiable instrument would least likely be a holder in due course if, at the time of purchase, the instrument is Select one or more: a. purchased at a discount. b. collateral for a loan. c. payable to bearer on demand. d. overdue by three weeks e. two of the above (if you think two of the above are correct, check only Choice 5).

d. overdue by three weeks

Dan wrote a check payable to Pete and delivered it on January 1, 2016. On January 15, 2016, Pete indorsed it and delivered the check to Henry. On February 15, 2016, Henry indorsed it and delivered the check to Hank. Which of the following statements is correct? Select one or more: a. If Hank presented the check to the drawee bank for certification and they refused to certify, their refusal would constitute a dishonor. b. Hank presented the check to the drawee bank for payment on February 20, 2016, and the bank refused to pay. If Hank gives prompt notice of dishonor to all parties, Dan is liable on his drawer's contract. c. Hank presented the check to the drawee bank for payment on February 20, 2016, and the bank refused to pay. If Hank gives prompt notice of dishonor to all parties, Pete is liable on his indorser's contract. d. Hank presented the check to the drawee bank for payment on February 20, 2016, and the bank refused to pay. If Hank gives prompt notice of dishonor to all parties, Henry is liable on his indorser's contract. e. At least two of the above are correct (If you think at least two of the above are correct, choose only Choice 5).

e. At least two of the above are correct (If you think at least two of the above are correct, choose only Choice 5).

Andy decided to start a business. He needed a business loan. Mike agreed to loan Andy $100,000 if he would issue a promissory demand note to him in the amount of $110,000, and obtain a co-signer on the note. Andy agreed. Joey agreed to co-sign the note for Andy. Andy and Joey signed the front of the note and Andy issued it to Mike. Mike indorsed the note in blank and negotiated it to Friendly Finance Co. at a discount. Assume that Friendly is a HDC. Select one or more: a. Because Joey is a surety, his contract is set by law. It makes no difference whether he signs the front of the note or the back. b. If the note was not paid when due and Friendly demanded payment from Mike, Friendly can hold him liable on his contract only if Friendly first demands payment from Andy and Andy refuses payment. c. If Friendly demanded payment from Joey, Joey is only liable if Friendly can show that it presented the instrument first to Andy, it was dishonored and that Joey was given prompt notice of dishonor. d. All of the above (If you think all of the above are correct, choose only Choice 4). e. None of the above are true.

e. None of the above are true.