Ch 17,18,19,20

To be negotiable, an instrument must be in writing.

true

Under Chapter 13, the automatic stay applies only to consumer debt, not business debt.

true

When a secured debt is paid, the secured party does not need to file a termination statement in all cases.

true

Eli owes Fatima $200,000. A court awards Fatima a judgment in this amount. To satisfy the judgment, Eli's home is sold at public auction for $150,000. The state homestead exemption is $50,000. Fatima gets a. $0 b. $50,000 c. $100,000 d. $150,000

$100,000

Devon loses his bank access card. He realizes his loss the next day but waits a week to call Estuary Bank, his bank. Meanwhile, Floria finds and uses Devom's card to withdraw $5,000 from his account. Devon is responsible for a. 0 b. $50 c. $500 d. $5000

$500

Giana writes a check on her account at Harbor Bay Bank to Itzak, a famous investor. The person purporting to be Itzak is an imposter, however, named Jeno. Jeno negotiates the check to the bank. Liability for the check is on a. Harbor Bay Bank b. Giana c. Itzak d. Jeno

Harbor Bay Bank

Ismail and Jody agree to act as guarantors on a loan made by Keenan. Keenan defaults on the payments and Jody refuses to pay. If Ismail pays the debt, he can recover from a. Keenan and Jody under the right of reimbursement b. Keenan and Jody under the right of proportionate liability c. Keenan under the right of subrogation and Jody under the right of contribution d. neither Keenan or Jody

Keenan under the right of subrogation and Jody under the right of contribution

Jillian is the holder and payee of check drawn by Kerri on Laramie Bank. Jillian takes the check to the bank to have it certified. After cerification a. Kerri is discharged on the check b. Kerri is primarily liable on the check c. the bank is discharged on the check d. the bank is secondarily liable on the check

Kerri is discharged on the check

Pixie writes a check for $600 drawn on her account at Quest Bank and presents it to Rocco. When Rocco presents the check for payment, the bank dishonors it. Rocco may sue a. the bank for dishonoring the check b. Pixie on the underlying obligation c. both the bank and Pixie d. none of the choices

Pixie on the underlying obligation

Regine issues a check to Super Discount Store is payment on her account. Tisha, Super Discount's accountant, forges the store's indorsement and deposits the check in her bank account. Urban Bank, Regine's bank, pays the check. Regine can recover from a. no one b. Tisha, but not Urban Bank c. Urban Bank, which can recover from Tisha d. Urban Bank, which cannot recover from Tisha

Urban Bank, which can recover from Tisha

Unbound Sales Company is incorporated in Virginia, with its chief executive office in the state of Washington. Using equipment as collateral, Unbound borrows $5,000 from Xtra Credit, Inc. To perfect its security interest, Xtra needs to file its financing statement in a. any convenient state b. Virginia only c. Virginia and Washington d. Washington only

Virginia only

Hometown Bank's cutoff hour is 2 P.M. The bank receives a check drawn on the account of Icicle Treats Corporation, one of its customers, at 4 P.M. Monday, presented by Jaclyn, not a bank customer. The bank uses deferred posting. The bank may timely dishonor the check by midnight a. Monday b. Tuesday c. Wednesday d. Thursday

Wednesday

Cali owns Diner Diner, which he uses as collateral to borrow $10,000 from Finance Bank. To be effective, the security agreement must include a. a description that reasonably identifies the collateral only. b. a description that reasonably identifies the collateral and Cali's signature. c. Cali's signature only. d. neither a description that reasonably identifies the collateral nor Cali's signature

a description that reasonably identifies the collateral and Cali's signature

Main St. Corporation has not paid any of its fifteen creditors, six of whom have unsecured claims of more than $8,000. The creditors can force Main St. into bankruptcy through a. a family-farmer bankruptcy plan b. a repayment plan c. no part of the bankruptcy code d. a liquidation or a reorganization

a liquidation or a reorganization

Riche Niche Store, Inc., files for bankruptcy. A corporation can file a petition in bankruptcy for relief through a. a liquidation only b. a reorganization only c. no part of the bankruptcy code d. a liquidation or a reorganization

a liquidation or a reorganization

This instrument is a. a check b. a promissory note c. a sight draft d. a trade acceptance

a promissory note

Ciera is the sole proprietor of Dinero Cafe, which owes debts in an amount more than Ciera believes she and the cafe can repay. The creditors agree that liquidating the business would not be in their best interests. To stay in business, Ciera could file a petition in bankruptcy for relief through a. a liquidation b. a family-farmer bankruptcy plan c. a reorganization or a repayment plan d. no part of the bankruptcy code

a reorganization or a repayment plan

Hailey indorses a check, "Pay to Ideal Equipment Corp. if it delivers the backhoe by June 1, 2010." a. a blank indorsement b. a qualified indorsement c. a restrictive indorsement d. a special indorsement

a restrictive indorsement

Farley signs a note payable to the order of Gabriella. Gabriella indorses the note and gives it to Heather as payment for a debt. Heather presents it to Farley, who pays it. Farley's payment discharges a. all of the parties b. only Farley c. only Gabriella d. only Heather

all of the parties

To pay for a new truck, Frutos AgriFarms issues a draft in favor of Gunnit Motors, Inc. A draft is a. a promise to pay money b. a promise to deliver goods at a future date c. a conditional promise to pay money d. an unconditional written order to pay money

an unconditional written order to pay money

Grande Trucks, Inc. (GTI), repossesses a truck (not a consumer good subject a purchase-money security interest) from Hiway Transport Company, and decides to keep it instead of reselling it. GTI sends written notice of this intent to the debtor. GTI must also send notice to a. any junior lien claimant who has filed a statutory lien or security interest and any secure party from whom GTI has received notice b. only a junior lien claimant who has filed a statutory lien on security interest in the truck c. only a secured party from whom GTI has received notice of a claim in the truck d. none of the choices

any junior lien claimant who has filed a statutory lien or security interest and any secure party from whom GTI has received notice

Based on a Sample CPA Exam Question. Deka accepts a promissory note from Erich. For Deka to be a holder in due course (HDC) of the note a. all prior holders must have HDCs b. Deka must be the payee of the note c. the note must be negotiable d. the note must be "Payable to Bearer"

the note must be negotiable

Roman Makes out an instrument that states he promises to pay $600 and gives it to Selena. To be negotiable, this instrument must a. be payable to order or to bearer b. be signed by the payee c. contain references to all agreements between the parties d. contain necessary conditions of payment

be payable to order or to bearer

Jenna gives a $500 note to Keyton to deliver a load of fresh seafood to Jenna's store. On delivery, the seafood is spoiled. Jenna may defend her decision not to pay the note based on a. breach of warranty b. lack of consideration c. fraud in the inducement d. undue influence

breach of warranty

The rights and duties of a bank and its customers are contractual.

true

Varsity Bank demands payment on the instrument from Uriana. Uriana refuses, claiming that Titan breached rheir purchase agreement. Varsity a. can collect from Uriana because Varsity is an HDC b. can collect from Shae, but not Uriana, because Shae knew of Uriana's claim c. cannot collect from Uriana because Shea was not an HDC d. cannot collect from Uriana because of Titan's breach

can collect from Uriana because Varsity is an HDC

Varsity Bank a. can negotiate the instrument further only by indorsing it b. cannot be an HDC because Shae indorsed without recourse c. is an HDC only because Shae indorsed the instrument d. is not an HDC because the instrument is nonnegotiable

can negotiate the instrument further only by indorsing it

A person who does not qualify as an HDC _____(can/cannot) acquire the rights of an HDC if a person who does not qualify as an HDC acquires an instrument from an HDC. A holder who was a party to fraud or illegality affecting an instrument _________ (can/cannot) improve his or her status by repurchasing the instrument from a later HDC. A holder who, as a prior holder, had notice of a claim or defense against the instrument __________ (can/cannot) improve his or her status by repurchasing it from a later HDC.

can; cannot; cannot

A ____________(contract of suretyship/guaranty contract) is a promise to a creditor made by a third person to be responsible for a debtor's obligation. A _________(guarantor/surety) responsible for payment of the debt when the debt is due, without first exhausting all remedies against the debtor. A _____________(contract of suretyship/guaranty contract) also includes a promise to answer for a principal's obligation, but a _____________(guarantor/surety) is secondarily liable--that is, because ordinarily a debtor would not otherwise be declared in default.

contract of suretyship; surety; surety; guaranty contract; guarantor

Generally, in a secured transaction, the ____________(creditor/debtor) files a financing statement with the appropriate state office. When the debt is paid, the _______________(creditor/debtor) may also send a termination statement to the officer with whom the financing statement was filed.

creditor; creditor

Koko buys three television sets from Laszlo, paying with a check. When the sets prove defective, Koko orders Metro Bank, the drawee, to stop payment on the check. This order is valid for fourteen a. years b. months c. weeks d. days

days

A depositor is the _______(drawee/drawer) of a check. The depositor is the bank's ________(creditor/debtor) as to the amount on deposit in the depositor's account. The depositor is the bank's ________(agent/principal) in the deposit contract. The bank is the _________(creditor/debtor) as to the amount on deposit in the depositor's account. The bank is the depositor' _________(agent/principal) in the handling of the account and in the collection process.

drawer; creditor; principal; drawee; debtor; agent

Whiz Electronics Stores sell consumer products. To create a purchase-money security interest in a computer bought by Xian, Whiz must a. assign to a collection agent a portion of Whiz's accounts payable b. assign to a collecting agent a portion of Whiz's accounts receivable c. extend credit for part or all of the purchase price of the computer d. refer Xian to Zippee Cash Company, a third-party lender

extend credit for part or all of the purchase price of the computer

Carlotta files a petition in bankruptcy for relief through a liquidation proceeding. She may be denied a discharge if she a. fails to explain a loss of assets b. fails to list a debt c. owes back taxes d. owes domestic support payments

fails to explain a loss of assets

A bank's duty to honor its customer's checks is absolute.

false; a bank's duty to honor its customer's checks is not absolute (although when a bank receives an item payable form a customer's account, but there are insufficient funds in the account to cover the amount, the bank can choose to pay it and charge the customer's account). failing to pay an overdraft will not subject the bank to criminal prosecution, though a person who writes a bad check may be prosecuted (and sued)

After a default, and before a secured party disposes of the collateral, a debtor cannot exercise the right of redemption.

false; a debtor who has defaulted has redemption rights. before the secured party decides to retain the collateral or before it is disposed of, the debtor can take back the collateral by tendering performance of all secured obligations and paying the secure party's expenses. (other secured parties have this same right)

A forged drawer's signature on a check is effective as the signature of the person whose name is signed.

false; a forged drawer's signature on a check has no legal effect as the signature of the party whose name is signed. if the bank pays the check, the bank must recredit the customer's account (unless the customer's negligence contributed substantially to the forgery)

A holder who has knowledge of a defense against payment on an instrument can become an HDC.

false; a holder who knows or has reason to know of a claim to an instrument or a defense against payment on it cannot become an HDC. futhermore, such a holder cannot change his or her status by selling the instrument and repurchasing it from a later HDC in attempt to take advantage of the shelter principle

A mechanic's lien involves personal property.

false; a mechanic's lien involves real property. an artisan's lien or an innkeeper's lien involves personal property

A negotiable instrument can be transferred only by negotiation.

false; a negotiable instrument can be transferred by assignment or negotiation. when a transfer fails to qualify as a negotiation, it becomes an assignment and is governed by the rules of assignment under contract law

A secured creditor's right to proceeds exists for twenty days after receipt only if the proceeds are forwarded to the secured party.

false; a security interest in proceeds perfects automatically and remains perfected, in most cases, for at least twenty days after the debtor's receipt of the proceeds

Warranty liability does not bind parties who only present instruments for payment.

false; all transferors of negotiable instruments, including those who present instruments for payment, make certain implied warranties regarding the instruments. for example, a person who transfers an instrument for payment warrants to any other person who in good faith accepts or pays the instrument, with some exceptions, that the instrument has not been altered

With some exceptions, the same principles cover liquidations and reorganizations.

false; any individual can be a debtor under Chapter 7, and any debtor who is liable on a claim held by a creditor may file for bankruptcy under Chapter 7. a debtor does not have to be insolvent

If a bank fails to honor a customer's stop-payment order, it may be liable to the customer for more than the amount of the loss suffered by the drawer because of the wrongful payment.

false; if a bank pays a check over a customer's proper stop-payment order, the bank is obligated to recredit the customer's account, but only for the amount of the actual loss suffered by the drawer because of the wrongful payment

A financing statement is not effective if it is filed electronically.

false; perfection is the process by which secured parties protect themselves against the claims of third parties who may wish to have their debts satisfied out of the same collateral. in most situations, this process involves filing a financing statement with a state official. that filing may be accomplished by a paper filing or electronically

Personal defenses can be raised to avoid payment to an HDC.

false; personal defenses (such as breach of contact or breach of warranty) can be used to avoid payment to an ordinary holder, but only universal defenses are good against an HDC

No small business can avoid creditors' committees under Chapter 11.

false; some small businesses--those who do not own or manage real estate and do not have debts of more than $2 million--can choose to avoid creditors' committees under Chapter 11. those who choose to do so, however, are subject to shorter deadlines with respect to filing a reorganization plan

To be valid, a financing statement does not need to contain a description of the collateral.

false; the financing statement must include the names of the debtor and creditor, and describe the collateral. also, to avoid problems arising from different descriptions, a secured party can repeat the security agreement's description in the financing statement or file the two together

An instrument payable to the order of a specific person is not negotiable.

false; this is an order instrument. order instruments that meet the requirements for negotiability are negotiable. an instrument that contains any indication that does not purport to designate a specific payee (for example, "payable to bearer") is a bearer instrument. a bearer instrument that meets the requirements for negotiability is also negotiable. when an instrument is not negotiable, it may be transferred by assignment

An employer can dismiss an employee due to garnishment.

false; this is prohibited under federal law. garnishment of an employee's wages for any one indebtedness cannot be a ground for dismissal of an employee

A surety cannot use defenses available to the debtor to avoid liability on an obligation to a creditor.

false; this is the most important concept in suretyship: a surety can use any defenses available to debtor (except personal defenses) to avoid liability on the obligation to the creditor. note, though, that a debtor does need not to have defaulted on underlying obligation before a surety can be required to answer for the debt. before a guarantor can be required to answer for the debt of a debtor, the debtor must have defaulted on the underlying obligation, however

A business debtor who files for Chapter 11 protection cannot continue in business.

false; under chapter 11, the creditors and the debtor formulate a plan under which the debtor pays some of the debts, the other debts are discharged, and the debtor is then allowed to continue the operation of his or her business

All funds deposited in all bank accounts must be available for withdrawal no later than the next business day.

false; under the expedited funds availability act of 1987, there are different availability schedule for different funds, depending on such factors as the location of the bank on which an item is drawn, what type of item it is, the age and activity of an account, and the amount of the item

When two secured parties have perfected security interests in the same collateral, generally the last to perfect has priority.

false; when more than one creditor claims a security interest in the same collateral, the first interest to be filed takes priority. the first to attach has priority if none of the interests has been perfected

Davy borrows money form EZ Credit, Inc. Davy defaults. To use attachment as a remedy EZ must first a. be unable to collect the amount of a judgement against Davy b. file a suit against Davy c. lose a suit against Davy d. succeed in a suit against Davy

file a suit against Davy

When two or more secured parties have perfected security interests in the same collateral, generally the ___________(first/last) to perfect has priority. When two conflicting security interests are unperfected, the ________(first/last) to attach has priority.

first; first

Nile's $2,500 debt to Otmar is past due. To collect money from Niles's wages to pay the debt, Otmar can use a. an order of receivership b. a writ of attachment c. a writ of execution d. garnishment

garnishment

Eager Biz Company wants to borrow money from Finance State Bank. The bank insists that Gwen, Eager's president, agree to be personally liable for payment if Eager defaults. Gwen agrees. She is a. a bankruptcy trustee b. a guarantor c. a surety d. a creditor

guarantor

Cheap Credit, Inc., has a security interest in the proceeds from the sale of collateral owned by Dazzle Stores Company. This interest may remain perfected for longer than twenty days after Dazzle receives the proceeds a. if a filed financing statement covers the proceeds or the proceeds are identifiable cash proceeds b. only if a filed financing statement covers the proceeds c. only if the proceeds are identifiable cash proceeds d. under none of these circumstances

if a filed financing statement covers the proceeds or the proceeds are identifiable cash proceeds

Web Funds, Inc., an e-money issuer, may be subject to the Right to Financial Privacy Act if Web Funds a. does not accept deposits b. does not hold customer funds, whether or not the funds qualify as "deposits." c. investigates its customers' credit backgrounds d. issues a physical card similar to a debit card

issues a physical card similar to a debit card

Salty Snax Company issue a payroll check to Trevor drawn on its account at Unity Bank. This check will be stale if Trevor presents it for payment six a. months after it is issued b. months after he indorses c. weeks after he receives it d. weeks after the pay period that it covers

months after it is issued

This instrument is a. negotiable because it refers to a purchase agreement b. negotiable even though Uriana has the right to extend the due date c. nonnegotiable because Uriana has the right to extend the due date d. nonnegotiable because it refers to a purchase agreement

negotiable even though Uriana has the right to extend the due date

Titan presents Shae's check for payment, but Worth Bank, the drawee, refuses to pay. The party with primary liability for payment of the check is a. Uriana b. Worth Bank c. Shae d. no one

no one

Storage Warehouse, Inc., buys a forklife, but dos not make a payment on it for five months. The seller, Tool & Equip Company (T&E), repossesses it by towing it from a public street. Storage Warehouse sues T&E for breach of the peace. The plaintiff will likely a. not prevail because T&E did not use judicial process b. not prevail because T&E's repossession was not a breach of the peace c. prevail because Storage Warehouse did not default on the loan d. prevail because T&E's repossession was a breach of the peace

no prevail because T&E's repossession was not a breach of the peace

In the facts of the previous question, suppose that Griswold has access to the checks through Eula's carelessness. According to the reasoning of the majority in the Prestridge case, Frosty Bank would then be liable for the amount of a. all of the checks b. none of the checks c. the checks that were cashed less than thirty days after the statement was issued d. the checks that were cashed more than thirty days after the statement was issued

none of the checks

Under the fats of the previous question, according to the reasoning of the dissent in the Prestridge case, Frosty Bank is liable for the amount of a. all of the checks b. none of the checks c. the checks that were cashed less than thirty days after the statement was issued d. the checks that were cashed more than thirty days after the statement was issued

none of the checks

Hamish writes a check on his account at Indigo Bank to Jada to pay a preexisting debt. Jada negotiates the check to Kendra by indorsement. BeforeHamish or Jada may be liable on the check, it must be a. lost and unpaid b. presented for payment and dishonored, for which notice must be given c. presented for payment and dishonored, without notice d. presented for payment and paid

presented for payment and dishonored, for which notice must be given

Linwood Company writes a check to Maxime Corporation drawn on Linwood's account at Neighborly Bank. Maxime presents the check to the bank for payment. If the bank accepts the check, the bank is a. not liable for payment b. primarily liable for payment c. secondarily liable for payment d. simultaneously liable for payment

primarily liable for payment

Orion Industries, Inc., issues an instrument in favor of Pearly Credit Corporation. To be negotiable, the instrument need not a. be an unconditional promise or order to pay b. be payable on demand or at a specific time c. be signed by Orion Industries d. recite the consideration given in exchange for it

recite the consideration given in exchange for it

Rici, a debtor, wants to confirm the amount of her outstanding secured debt with Swifty Loan Corporation. Rici can ask Swifty to confirm her view of the debt, without charge, every a. month b. six months c. year d. five years

six months

Vance files a petition in bankruptcy for relief through a liquidation proceeding. Assuming Vance passes the appropriate test, the debts most likely to be discharged include claims for a. back taxes accruing within three years before the petition was filed b. certain fines and penalties payable to the government c. domestic support d. student loans,if the payment would impose undue hardship on Bob

student loans, if the payment would impose undue hardship on Bob

Fleet National Bank pays a check on which has been forged the signature of the drawer, Gunhilde, who is the bank's customer. The bank must recredit her account for the entire amount of the check if a. Gunhilde's negligence substantially contributed to the forgery b. the amount of the check was less than $50 c. the amount of the check was more than $5,000 d. the bank's negligence substantially contributed to the forgery.

the bank's negligence substantially contributed to the forgery

More than thirty days after Eula receives her account statement from Frosty Bank, she notifies the bank that Grisworld forged Eul's name on a number of check that the bank has cashed. According to the reasoning of the majority in Prestridge v. Bank of Jena, Bigg is liable for the amount of a. all of the checks b. none of the checks c. the checks that were cashed less than thirty days after the statement was issued d. the checks that were cashed more than thirty days after the statement was issued

the checks that were cashed less than thirty days after the statement was issued

Careful Credit Corporation files a financing statement regarding a transaction with Delivery Services Company. To be valid, the financing statement must contain all of the following except a. a description of the collateral b. the debtor's name c. the reason for the transaction d. the secured party's name

the reason for the transaction

Safe-T Loans, Inc., wants to perfect its security interest in collateral owned by Tech Products Corporation. Most likely, Safe-T should file a financing statement with a. the city manager b. the county clerk c. the federal loan officer d. the secretary of state

the secretary of state

A bank that fails to investigate an error and report its conclusion promptly to the customer is in violation of the Electronic Fund Transfer Act (EFTA).

true

A bank that pays a customer's check bearing a forged indorsement must recredit the customer's account.

true

A bearer instrument in negotiated by delivery alone.

true

A check is a draft drawn on a bank.

true

A customer must examine the statements provided by the institution handling his or her account and notify it of any errors within sixty days.

true

A debtor must be insolvent to file a voluntary petition under Chapter 7.

true

A drawer to secondarily liable on the instrument.

true

A holder in due course (HDC) takes a negotiable instrument free of most defenses and all claims to it.

true

A secured party can release the collateral described in a financing statement even if the debtor has no paid the debt.

true

A security agreement determines most of the parties' rights and duties concerning the security interest.

true

A surety or guarantor is discharged from his or her obligation if the principal debtor pays the debt.

true

A writ of attachment is a court order to seize a debtor's property before the entry of a final judgement.

true

Attachment gives a creditor an enforceable security interest in collateral.

true

Default occurs most commonly when a debtor fails to repay the loan for which his or her property served as collateral.

true

Generally, funds must be available on the next business day for cash deposits.

true

Signature liability extends to nearly every person who signs a negotiable instrument.

true

Levon borrows $5,000 from Money Company, which files a financing statement on May 1, but does not sign a security agreement until it disburses the funds on May 5. Levon also borrows $5,000 from Newly Bank, which advances funds, files a financing statement, and signs a security agreement on May 2. He uses the same property as collateral for both loans. On his default, in a dispute over the collateral, Money Company will a. lose because Newly Bank perfected first b. lose because Newly Bank's interest attached first c. win because Money Company filed first d. win because Money Company's interest attached first

win because Money Company filed first

Newville Bank mistakenly pays one of Oswald's checks with a forged indorsement. Oswald can recover his loss from the bank if, after receipt of the bank statement, he notifies the bank within three a. years b. months c. weeks d. days

years