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Business Law
Q:
Fiona borrows $1,000 from Garden State Bank, using her motorcycle as collateral. To perfect its security interest, the bank must file its financing statement with
a. the secretary of state.
b. the county clerk.
c. the city treasurer.
d. the ward alderman.
Q:
The payment of Yves's debt to Zac is guaranteed by Yves's personal property. Their agreement identifies Yves's property by serial number. To establish Zac's interest, this is most likely
a. irrelevant.
b. not sufficient.
c. sufficient if it accurately describes the collateral.
d. sufficient unless it is too tedious to review.
Q:
Kathy is the secured party in a transaction with Julie, who is the debtor. The collateral is a 2007 Chevrolet F150 pick-up truck. Kathy files a financing statement in which she describes the collateral as "a vehicle." To perfect Kathy's interest this is
a. not sufficient.
b. sufficient.
c. sufficient as long as the financing statement also includes Julie's signature.
d. sufficient as long as the financing statement also includes the location of the collateral.
Q:
Khalil holds a security interest in inventory owned by Luc. Khalil protects his claim to the inventory in the event of Luc's default by
a. assignment.
b. perfection.
c. redemption.
d. retention.
Q:
The payment of Hu's debt to Ian is guaranteed by Hu's personal property. To give notice of his interest in Hu's property to other creditors, Ian is most likely to
a. attach a bright label to Hu's property.
b. e-mail other potential creditors.
c. file a financing statement with the appropriate authority.
d. publish a collection notice in local newspapers.
Q:
The payment of John's debt to Kirsten is guaranteed by John's personal property. Kirsten is most likely to perfect her interest by
a. attaching a bright label to John's property.
b. calculating the precise amount of John's debt.
c. correcting grammatical errors in the parties' written agreement.
d. filing a financing statement with the appropriate authority.
Q:
The payment of Jose's debt to Klint is guaranteed by Jose's personal property. The process by which Klint can protect himself against the claims of third parties to this property is
a. attachment.
b. default.
c. perfection.
d. termination.
Q:
Sally is the secured party in a transaction with Lilly, who is the debtor. Sally files a financing statement with the appropriate state official. The financing statement must contain
a. Lilly's signature.
b. Sally's bank account information.
c. Lilly's credit report.
d. a photograph of the collateral.
Q:
Jim files a uniform financing statement giving notice to the public that he has a secured interest in collateral belonging to Phil, who is the debtor named in the statement. This uniform statement form is now used in
a. all states.
b. no states.
c. only one statePennsylvania.
d. some states with several different forms used in other states.
Q:
Olaf is the creditor in a transaction with Phil. Once certain requirements are met, Olaf's rights will attach, which means that Olaf will have
a. an indivisible ownership right to Phil's property.
b. an enforceable security interest in Phil's property.
c. a notice affixed to Phil's property.
d. the permission of a court to seize Phil's property.
Q:
Clear Lake Credit Corporation lends funds to Donny, a consumer, to apply to the cost of a boat, which is the collateral for the loan. An enforceable security interest requires
a. a written agreement and Clear Lake's possession of the boat.
b. a written agreement or Clear Lake's possession of the boat.
c. the boat seller's acknowledgement of the loan in writing.
d. Donny's possession of the boat.
Q:
The payment of Eden's debt to Flem is guaranteed by Eden's personal property. This property is
a. a secured party.
b. a secured transaction.
c. a security interest.
d. collateral.
Q:
The payment of Frida's debt to Gianini is guaranteed by Frida's personal property. Gianini is
a. a debtor.
b. a secured party.
c. a secured transaction.
d. a security interest.
Q:
Jason is the creditor in a transaction with Carol, who is the debtor. Which of the following requirements is not necessary for Jason to have an enforceable security interest?
a. The collateral must be in Jason's possession, or there must be a written or authenticated security agreement.
b. Jason must give value to Carol.
c. Carol must have rights to the collateral.
d. The collateral must be tangible.
Q:
Jane is the secured party in a secured transaction with Margaret. Jane could also be referred to as the
a. debtor.
b. secured creditor.
c. collateral.
d. filing officer.
Q:
The payment of Waldo's debt to Main Street Bank is guaranteed by Waldo's personal property. This is governed by
a. the Uniform Commercial Code.
b. the Federal Trade Commission.
c. the U.S. Constitution's commerce clause.
d. the Bankruptcy Reform Act of 2005.
Q:
The payment of Brian's debt to Chuck is guaranteed by Brian's personal property. This is
a. an attachment.
b. a secured transaction.
c. perfection.
d. a violation of most state laws.
Q:
The price that a secured party obtains on a sale of collateral is all that the creditor can recover on the debt.
Q:
Proceeds from the disposition of collateral after default on the underlying debt are distributed equally among lienholders who have made demands.
Q:
To qualify as a commercially reasonable sale, a secured party's sale of collateral, after default and repossession, must be private.
Q:
On default, unless the security agreement states otherwise, the secured party has the right to take possession of the collateral.
Q:
In most situations, a termination statement must be filed or sent within twenty days after the debt is paid.
Q:
A secured party can release any collateral described in the financing statement, thereby terminating its security interest in that collateral.
Q:
To take goods free of any security interest, a buyer in the ordinary course of business cannot know about the interest.
Q:
A buyer in the ordinary course of business has priority over any security interest created by the seller.
Q:
The first security interest to be perfected is the last in priority over any other perfected security interests.
Q:
The last security interest to be perfected is the first in priority over any other perfected security interests.
Q:
The "first-in-time" rule means that an unperfected security interest takes priority over a perfected security interest.
Q:
A floating lien cannot apply to the proceeds of a sale of after-acquired property.
Q:
The concept of a floating lien applies to a constantly changing inventory.
Q:
Future advances against a line of credit can be subject to the same collateral.
Q:
A security agreements may provide for coverage of after-acquired property.
Q:
Proceeds consist of whatever is received when collateral is sold.
Q:
A financing statement is effective for five years from the date of filing.
Q:
A continuation statement is effective only if it is filed within six months before the expiration of a financing statement.
Q:
A purchase-money security interest in consumer goods is perfected automatically at the time of a credit sale.
Q:
The office in which a financing statement should be filed depends on the creditor's location.
Q:
A financing statement must include a description of the collateral by type or item.
Q:
A security interest is enforceable only if the collateral is in the secured party's possession.
Q:
A financing statement cannot be the same as the security agreement.
Q:
A financing statement must include the creditor's signature.
Q:
The method of perfecting a security interest does not depend on the classification of the collateral.
Q:
A security interest cannot be perfected without the filing of a financing statement.
Q:
Perfection refers to the quality of the collateral that secures a creditor's interest in a debtor's debt.
Q:
The failure to pay a debt as promised is known as default.
Q:
To create an enforceable security interest, the secured party must give value.
Q:
Attachment makes the security interest between a debtor and secured party ineffective.
Q:
For a creditor to have an enforceable security interest, the debtor must have rights in the collateral.
Q:
A security interest is not enforceable after the creditor's rights have attached to the collateral.
Q:
A debtor is the person in whose favor there is a security interest.
Q:
The person who owes the payment of a secured obligation is the secured party.
Q:
Secured transactions are governed by the Uniform Commercial Code (UCC).
Q:
Hoppy steals two checks from Eagle Retail Stores, Inc.a blank check and a check payable to the order of General Supplies Company (GSC), drawn on Eagle's account with First National Bank. Hoppy forges Eagle's signature on the blank check and makes it payable to himself. Hoppy forges GSC's indorsement on the back of the check payable to GSC, and adds "Pay to the order of Hoppy." At Friendly Credit, Inc., Hoppy indorses the back of both checks with his own name and gives them to Friendly for cash. Friendly does not know about the theft or the forged signatures and presents the checks to First National, which pays them. Eagle, which was not negligent, discovers the forgeries and asks First National to recredit its account. Who suffers the loss on each check?
Q:
Joy steals a check from Kyle, forges his signature, and transfers the check to Loco Loans, Inc., for value. Unaware that the signature is not Kyle's, Loco Loans presents the check to Metro Bank, the drawee, which cashes the check. Kyle discovers the forgery and insists that Metro recredit his account. Can Metro refuse? If not, from whom can the bank recover?
Q:
Jackie inserts a debit card issued by her bank into a machine and keys in her personal identification number. She is then able to withdraw $500 in cash. Jackie is using
a. an automated teller machine.
b. a point-of-sale system.
c. a direct deposit system.
d. an Internet payment system.
Q:
Finance Bank receives a check drawn on the account of Get-Rich Industries, Inc., one of the bank's customers, at 3 p.m. Friday. Hildy, the presenter of the check, is not one of the bank's customers. The bank uses deferred posting with a 2 p.m. cutoff hour. If it decides to dishonor the check, it must do so by midnight
a. Saturday.
b. Sunday.
c. Monday.
d. Tuesday.
Q:
On Monday, Michelle deposits in her account at Fiscal Bank a local check for $500. After 5:00 p.m. on Friday, from these funds, Michelle can withdraw no more than
a. $100.
b. $400.
c. $500.
d. $600.
Q:
Tom draws a check, on his account in State Bank in New York, payable to Digital Media, Inc., in San Francisco. Digital deposits the check in its account at First National Bank.
Tom's bank is
a. the cashing bank.
b. the depositary bank.
c. the intermediary bank.
d. the payor bank.
Q:
Tom draws a check, on his account in State Bank in New York, payable to Digital Media, Inc., in San Francisco. Digital deposits the check in its account at First National Bank.
Digital's bank is
a. the cashing bank.
b. the depositary bank.
c. the intermediary bank.
d. the payor bank.
Q:
Roald writes a check for $700 to Savannah. Savannah indorses the check in blank and transfers it to Twitchell, who alters the check to read $7,000 and presents it to Union Bank, the drawee, for payment. The bank cashes it. Roald discovers the alteration and files a suit against the bank. Roald can recover
a. $7,000.
b. $6,300.
c. $700.
d. 0.
Q:
Clyde issues a check payable to Discount Mart. Elle, Discount's cashier, forges the store's indorsement and deposits the check in her bank account. Clyde's bank, Main Street Bank, pays the check. Clyde can recover from
a. Elle, but not Main Street Bank.
b. Main Street Bank, which cannot recover from Elle.
c. Main Street Bank, which can recover from Elle.
d. no one.
Q:
Horace can write checks on his account at InterCity Bank. Jemma steals the checks, forges Horace's signature, and cashes the checks at InterCity. The bank is excused from any liability if, after receipt of the first forged check, Horace fails to report the forgeries within
a. fourteen days.
b. one year.
c. six days.
d. six months.
Q:
Dru signs a check "pay to the order of Eppie" drawn on Dru's account in Bayside Bank. Greta forges Eppie's indorsement. Bayside pays the check. Most likely
a. Dru will be liable for the amount.
b. Eppie will have to pay Dru for the amount.
c. Bayside will have to recredit Dru's account.
d. the Federal Reserve will reimburse all parties for their costs.
Q:
Valley Bank retains the cancelled checks of its customers. Valley must be able to provide customers with legible copies of checks paid for
a. one year.
b. five years.
c. seven years.
d. nine years.
Q:
Simon signs a check "pay to the order of Tilly" drawn on Simon's account in United Bank. Vela forges Tilly's indorsement, First Federal Bank cashes the check, and Vela disappears. United pays First Federal and debits Simon's account. Most likely, the ultimate loss will fall on
a. Simon.
b. Trudy.
c. United Bank.
d. First Federal Bank.
Q:
Brandy forges Caleb's signature on a check "payable to the order of Brandy" drawn on Caleb's account in Downtown Bank. Caleb's forged signature is
a. effective if an innocent third party accepts the check.
b. effective to the degree that it matches Caleb's genuine signature.
c. effective to the extent that Downtown Bank debits Caleb's account.
d. not effective.
Q:
Trudy forges Uma's signature on a check "payable to the order of Trudy" drawn on Uma's account in Verity Bank. Most likely, if the bank pays the check
a. the Federal Reserve will reimburse all parties for their costs.
b. the loss will be apportioned among all of Verity's customers.
c. Uma will be liable for the amount.
d. Verity will have to recredit Uma's account.
Q:
Mary writes a check drawn on County Bank for $400 "payable to Bill" on May 1. Mary dies on May 3. Bill presents the check to County Bank on May 5. County Bank
a. may not pay the check.
b. may pay the check.
c. must consult with Mary's heirs before paying the check.
d. must read Mary's will before paying the check.
Q:
Jon writes a check to LocoMotion, Inc., as payment for a golf cart but soon discovers the cart is broken. He goes to Fairway Bank, the drawee, and orally authorizes Lolly, a bank officer, to stop payment on the check. This order is valid for
a. fourteen days.
b. fourteen months.
c. fourteen attempts to cash it.
d. fourteen subsequent "on-us" items.
Q:
Echo takes her car to Fix-It, Inc., which repairs the car and bills Echo for $500. Echo writes out a check drawn on Capital Bank, but later, believing that Fix-It did not repair the car properly, issues a stop-payment order.
Capital Bank
a. is liable to Fix-It for the amount of the check.
b. must stop payment if Capital has a reasonable time to act.
c. need not stop payment unless Echo had a valid reason to act.
d. need not follow Echo's order unless the check was certified.
Q:
Echo takes her car to Fix-It, Inc., which repairs the car and bills Echo for $500. Echo writes out a check drawn on Capital Bank, but later, believing that Fix-It did not repair the car properly, issues a stop-payment order.
Capital Bank pays the check. Capital
a. can sue Echo for a wrongful stop-payment order.
b. can sue Fix-It for breach of contract.
c. can sue no one because it paid a check that was not properly payable.
d. is liable for Echo's loss due to the wrongful payment.
Q:
Dhani signs a check "pay to the order of Etan" drawn on Dhani's account in First State Bank and dates the check "May 1." Etan presents the check to the bank for payment on December 15. This is
a. a cashier's check.
b. an overdraft.
c. a certified check.
d. a stale check.
Q:
Jacob writes Phillip an uncertified check for $500 on January 1. Seven months later, Phillip presents the check at the bank. The bank pays the check in good faith without consulting Jacob. The bank
a. does not have the right to charge Jacob's account for $500.
b. only has the right to charge Jacob's account for $250.
c. has the right to charge Jacob's account for $500.
d. can be held liable for breach of contract.
Q:
Elton presents an uncertified check for payment more than six months after its date. The check was drawn by Dakota on her account in First Community Bank. The usual banking practice in such a case is to
a. cash the check.
b. consult the customer.
c. refuse to cash the check.
d. ask the payee what he or she would prefer.
Q:
Shakira issues a check drawn on Thrifty Bank to Ranch & Farm Supply to pay for a rototiller. Later, Shakira discovers a defect in the device and orders Thrifty to stop payment on the check. Shakira does not renew the order, and the bank clears the check eight months later. The bank
a. must recredit Shakira's account.
b. must obtain funds from Ranch & Farm to cover the check.
c. must substitute acceptable goods.
d. need not recredit Shakira's account.
Q:
Daria writes a check for $100 drawn on Village Bank and presents it to Fast Cash, Inc., for payment. If the check is not backed by sufficient funds, Daria may be prosecuted for
a. forgery.
b. fraud.
c. negligence.
d. nothing.
Q:
Luc writes a check for $1,000 drawn on Ridgetop Bank and presents it to Bianca. Bianca presents the check for payment to Ridgetop Bank, which dishonors it for insufficient funds. The party most likely liable to Bianca is
a. Luc in a civil suit.
b. Luc in a criminal prosecution.
c. Ridgetop Bank in an administrative proceeding.
d. neither Luc nor Ridgetop Bank.
Q:
Jen signs a check "pay to the order of Key" drawn on Jen's account in Little Bank to buy Key's car. If there are insufficient funds in Jen's account to cover the amount of the check, but the bank pays it, this creates
a. a cashier's check.
b. an overdraft.
c. a stale check.
d. a stop-payment order.
Q:
Little Local Bank wrongfully fails to honor a check signed by its customer Andrea. Little Local Bank is
a. not liable to Andrea for damages resulting from its refusal to pay.
b. only liable to Andrea for damages resulting from its refusal to pay if Andrea takes action against the bank within one business day of the failure to honor the check.
c. only liable to Andrea for one half of the damages resulting from its refusal to pay.
d. liable to Andrea for damages resulting from its refusal to pay.
Q:
Julia opens a checking account with Washington Bank and deposits funds into the account. Julia and Washington Bank
a. do not have a contractual relationship.
b. have a creditor-debtor relationship in which Julia is the creditor and Washington Bank is the debtor.
c. have a creditor-debtor relationship in which Washington Bank is the creditor and Julia bank is the debtor.
d. do not have a creditor-debtor relationship.