BLaw Exam #4
The law regarding the kinds of credit that may be applied to personal property is:
Art. 9 of the UCC
of the bankruptcy code means liquidation and fair distribution of the debtor's non-exempt assets to the creditors.
Chapter 7
The law of negotiable instruments has it origins in:
England
Tiny borrows $20,000 from First Bank. Mike is the surety on the loan. Tiny defaults and First Bank requires Mike to pay the balance of the loan. In this case, Mike may sue:
Tiny to reimburse or exonerate him
Under Article 3 of the UCC, a check is:
a draft drawn on a bank and payable on demand
If a creditor is successful in a legal action against a debtor, the court will award the creditor:
a judgment lien
A commercial instrument where one party has a legal obligation to pay another party a certain sum of money and involves a maker and a payee only is called:
a note
A suretyship for a small business is usually:
a pledge of personal assets by the owners
Under Article 3 of the UCC, a note is:
a promise by one party to pay a certain sum of money to another party; two parties are involved: the maker and the payee; payment may be set at a date in the future
Every year people file for bankruptcy
about 1.5 million
Fiduciary duties include:
accounting, notification, performance, loyalty and reasonable care
Agency by estoppel:
actions by the principal lead a person to believe that the presumed agent has authority to act on the principal's behalf
The agent's ability to transact business on behalf of and for the principal depends on whether the agent possesses:
actual or apparent authority
When you go on vacation you give your neighbor authority to pick up your mail and watch for burglars for you. You tell the neighbor not to go into the house or let anyone else in. A fire on the hills threatens your house. The neighbor goes in to carry out valuables before the house burns. This action is:
an agency through operation of law
When a company gives credit to a customer, it may create:
an installment account or an open account
Under Article 3 of the UCC, a draft is:
an unconditional written order to pay that involves three parties: drawer, drawee, payee; the drawee may be a bank, person, or business; payment may be set at a future time
When a draft guarantees payment for goods in international trade, the draft is called a:
bill of exchange
Payment practices vary around the world. Islamic law is interpreted by many Muslims to mean that interest payments are prohibited by the Koran. In practice, this means that in countries that practice Islamic law:
borrowing is done by lending arrangements that pay the equivalent of interest
An agency coupled with an interest is created:
by an agent who has paid for the right to exercise authority with regard to a business
In In re Darby Darby had filed for Chapter 13 bankruptcy. The cable company refused to provide him service despite his promise of future payments. The appeals court held that:
cable service is not a utility that had to be provided
A secured creditor is one who:
can take a debtor's property to try to satisfy the debt
If a debtor is insolvent, the unsecured creditor:
cannot collect the bill
A form of check in which the bank is both the drawer and the drawee is called a:
cashier's check/note
An "acknowledgment by a bank" that it has received money from a customer with a promise by the bank that it will repay the money received at a date specified or, in some instances, on demand is a:
certificate of deposit
Hill owned a roofing business that had an account at Lowe's to buy supplies. He sold the business to his employees who had used the account. When he sold the business, he asked a person at Lowe's to close the account. The account documents stated that to close the account, Hill must contact Lowe's headquarters in writing, but he did not. His former employees ran up a bill on the account. Lowe's sued Hill for the balance due as the former employees were bankrupt. Most likely, the court would hold that Lowe's could:
collect from Hill because he failed to close the account properly
Millie takes her old VW to George's garage for repairs. George works on a cash only basis. He fixes the problems for $687. He tells her he will keep the car until she pays. Millie pays $150. George may:
continue to hold onto the car until Millie pays and force the sale of the car
The duties of a principal to an agent DO NOT include:
cooperating with the agent paying agent for services rendered reimbursing the agent for any reasonable expense indemnifying the agent for legal liability incurred in completing the purpose of the agency
A business that extends credit to buyers should establish:
credit and collection policies
To raise needed capital, small companies most often rely on:
debt financing
Under a Chapter 13 bankruptcy the:
debtor keeps the estate's property and the estate is administered jointly with a court-appointed trustee
When a payee wants to get cash immediately for a draft he can sell it to another party, but interest must be paid:
discounting the draft
Scott is an agent for Lee and his duties require him to fly to Chicago from Cleveland. Scott gets up late and misses his flight to Chicago so he has to buy a second plane ticket. As principal, Lee:
does not have a duty to reimburse Scott for the second plane ticket because it was Scott's fault he had to buy it
What defense(s) is (are) available to sureties?
duress, fraud or impossibility
To transfer an instrument made "to the order" of the payee, the payee must:
endorse the instrument deliver the instrument to a third party
The sale of stock in the company or the sale of negotiable instruments that are subject to securities regulation is known as:
equity financing
Implied ratification of an agency occurs when the principal:
fails to object to the unauthorized activities of an agent and accepts the benefits of an unauthorized agreement with a third party
When a business lends another business money, it should perfect its security interest by:
filing its financing statement with the state secretary of state
If a payment amount is not specified in the agency agreement, a principal's duty to compensate means that the principal must pay the agent:
for the reasonable value of the services provided
If a negotiable instrument is transferred by negotiation, the transferee takes the instrument:
free of the transferor's responsibilities
A person authorized to execute all regular transactions connected with a business is called a:
general agent
In Fordyce Bank and Trust v. Bean Timberland, the bank lent Bean money to buy timber from landowners. Bean gave the bank security interests in the timber, which he sold to lumber companies that milled the logs into lumber. When Bean defaulted on the loan, the bank tried to collect from the lumber companies because it had a secured interest in the timber. The courts held that the bank:
gets nothing from the timber companies, they were not responsible for the security interests and breached no duty to the bank
If an instrument is found to be negotiable under the UCC, it may be freely traded without concern for any existing contract responsibilities if the instrument is in the possession of a holder in due course. To be a holder in due course, one must:
give value for the instrument, accept it without knowledge of any defects (for example, that it is overdue), and take the instrument in good faith
In General Electric Business Financial Services v. Silverman, where Silverman failed to repay a loan from GE Financial after his company went bankrupt, despite having signed a guarantee to repay the loan even if the company went bankrupt, the district court:
granted the plaintiff's movement for summary judgment because the Illinois Credit Agreement Act bars affirmative defenses that rely on oral promises that contradict the written terms of the agreement
The most common use of drafts is to:
guarantee payment for goods in international trade
allows a debtor to retain the family home up to a specified amount free from creditors' claims:
homestead exemption
Lyle is Thelma's agent. Thelma has made it clear to Lyle that she does not want him to sign the contracts that he negotiates; she retains that power. If, despite Thelma's instructions, Lyle negotiates and signs a contract with Tom committing Thelma to spend thousands of dollars, what will the consequences of Lyle's actions be?
if Tom was justified in presuming Lyle had authority to sign the contract, Thelma will be responsible
The principal's duty to indemnify the agent means the principal must:
insure the agent against losses suffered during the course of authorized transactions
Debt collections may be done by:
invoice follow-up letter phone call personal visit
A mortgage:
is a debt obligation (lien) attached to real property and gives the mortgagee the right to sell the property in case of default
If the principal does not pay the creditor, and the surety has to satisfy the debt, the principal:
is obligated to repay the surety
Suppose a hurricane is going to hit South Florida; there are two days to prepare for it and the owner of a house is on a raft trip in Brazil and cannot be reached. The next door neighbors spend $800 on plywood and other materials to protect the house from the hurricane. Legally, this expenditure is likely to be:
is the responsibility of the homeowner; there is agency by operation of law
Governments disfavor bearer instruments because:
law enforcement agencies find it difficult to trace money transferred in bearer form
A creditor is a person or business who:
lends money to someone else allows goods to be purchased by someone else allows services to be purchased by someone else
Filing for bankruptcy under Chapter 7 of the bankruptcy code results in of debts
liquidation
When a debtor petitions the court for Chapter 7 bankruptcy these must be presented:
lists of all creditors with amounts owed them list of all property owned by the debtor a statement of the financial affairs of the debtor a statement of the debtors current income and expenses
To deal with the increasingly international business scene, most countries have moved away from a "grab" theory of bankruptcy jurisdiction that gave control of assets to whichever bankruptcy court got control first to ____ approach
modified universalism
UCC's requirements for an instrument to be negotiable:
must be written must be an unconditional order or promise to pay must be signed by maker or drawer must be payable on demand or at a specified time must state a certain sum of money must be made out "to order" or "to bearer"
Don borrows $90,000 to buy a home. His mortgage is with Western Bank. Don is unable to make his mortgage payments. Western forecloses on Don's house and sells it in a judicial sale. The bank gets $95,000 for the house. In this case, it:
must return the extra $5,000 to Don
Most large certificates of deposit are:
negotiable insured by the FDIC for up to $100,000
Under a floating lien:
new inventory is used to replace collateral that is sold
If an instrument is determined to be nonnegotiable, and a dispute arises, Article 3 will:
not apply and the parties will need to resolve their dispute with reference to the common law of contracts
Negotiable instruments do not include:
notes certificates of deposit checks promissory notes
The most common form of credit is a(n):
open account
An agency may be established by:
operation of law or by oral agreement of the parties or by written agreement of the parties
Every year, creditors have to absorb in unpaid debt:
over $20 billion
A sight draft is:
payable upon presentation by the seller to the buyer of the goods
A legal document that establishes some agency relationships is known as:
power of attorney
Clark, a movie producer, was allowed to work at a movie production company's offices (ITC) out of courtesy. His business card listed the ITC address and his phone calls were handled by ITC staff. In the office, he made a deal to produce a movie for another company. When problems developed and the company, presuming Clark worked for ITC, sued ITC. The court would be likely to hold that ITC:
ratified Clark's actions and so became liable for his actions
Filing for bankruptcy under Chapter 13 of the bankruptcy code results in of debts
reorganization
the debtor makes a minimum monthly payment and more debt can be added to the account over time:
revolving account
A financial institution that receives a promissory note has the right to:
sell the note to another party
Negotiable instruments function as:
substitutes for cash credit devices devices for making business deals easier are subject to Article 3 of the UCC
When a creditor extends credit to a debtor, to protect itself, the creditor should:
take a security interest in an asset owned by the debtor and make sure to attach any security interest it takes
Candy bought a sofa from Max on credit. She is to make 5 monthly payments of $200 each. After one month Candy stops making payments. Max is a secured creditor; he may:
take steps to repossess the sofa from Candy
Apparent authority arises when:
the agent creates an appearance of authority in a principal that leads a third party to conclude reasonably that the agent has authority to act for the principal
In Associated Home and RV Sales v. Bank of Belen, a bookkeeper for Associated forged many checks on the account at the Bank of Belen. Associated sued the bank for negligence to recover the stolen funds. The appeals court held:
the bank could be liable under the UCC for negligence ; that would be determined at trial
Nonnegotiable instruments are governed by:
the common law of contracts
TP sells franchises in the Old Fast Food chain. TP sells a franchise to Choi for $100,000 by cashier's check. Choi then hears that TP is going out of business and tries to stop payment on the check. TP has already transferred the money to a third party who meets the UCC's requirements for a holder in due course. The bank paid that third party. TP declares it is out of business. In a subsequent lawsuit:
the court will find that the third party is a holder in due course and, despite the fact that TP has defrauded Choi, not require the third party to repay Choi
An attached interest means:
the customer has transferable rights in the collateral and has signed the debt instrument
Collateral refers to:
the debtor's assets to secure debt
The one who agreed to make a payment, such as a bank making a payment based on a document presented to it is:
the drawee
The one who issues or creates the document that requests payment, probably from a bank, is called:
the drawer
Credit terms must specify:
the interest rate, if any, that applies to the sum owed the principal of the debt payment dates
The one who receives payment from a negotiable instrument is called:
the payee
Billy wants to borrow $10,000 to start a male belly dancing business. Creditors are not anxious to lend him the funds. Billy convinces Gary to back-up the credit he gets from a bank. On the loan, Billy is:
the principal
Before passage of laws affecting negotiable instruments:
the right to payment was a contract right that could not be sold
If a negotiable instrument is assigned, the assignee has:
the same contract rights and responsibilities as the assignor
Lisa goes to the local appliance store and buys an oven on credit. The store extends her credit. The store's security interest in the oven perfects when:
the store files the financing statement with the Secretary of State
Billy wants to borrow $10,000 to start a male belly dancing business. Creditors are not anxious to lend him the funds. Billy convinces Gary to back-up his credit. Gary is:
the surety
In most states, which agencies must be in writing:
those that are for the sale of land
A creditor can obtain the property of a debtor:
through operation of law and if the debtor enters into such an arrangement
If an instrument is made , the party in possession is required only to deliver the instrument to transfer it.
to bearer
If a debtor cannot meet credit obligations it is said:
to default
The primary objective of the trustee is:
to maximize the amount of the debtor's assets available for distribution to creditors
Most creditors seek information about debtors from:
trade associations credit reporting agencies customer financial statements banks
Necessary to be a holder in due course:
transferee must give value for the negotiable instrument transferee must take the instrument without knowledge that it is overdue or defective transferee must take the instrument in good faith
In Cove Management v. AFLAC, Galgano, an independent contractor who solicited insurance business for AFLAC, rented office space from Cove under AFLAC's name. When Galgano defaulted on payments, Cove sued AFLAC contending that Galgano was its agent when he rented the office, so AFLAC was liable. The appeals court held that AFLAC:
was not obligated to the lease because Galgano did not have apparent authority to sign a lease that would bind AFLAC the district court was correct in its ruling that AFLAC was bound by the contract because Galgano had apparent authority
Agreement of the parties, ratification of the agent's activities by the principal, application of the doctrine of estoppel and operation of law are all:
ways that an agency may be established
An agency through operation of law is established:
when an emergency exists and the "agent's" actions are in the public interest
You post a notice at school that you will sell your laptop computer for $600. A buyer comes by your room to look at it while you are gone and your roommate sells it for $500, thinking you would be happy with that price, which you did not authorize
you can accept the deal by express or implied ratification
