Test 3 Flashcards
Draft
A three party instrument. A check is a type
of a draft which is always drawn on a bank and
payable on demand
Note
A two party instrument containing a
promise to pay a sum certain in money. A CD is
considered to be a type of a note.
Face of the instrument
Words of negotiability must be on the face of the
instrument
Exception: A check can say “Pay to” and still be
negotiable.
Order Paper
delivery (possession) plus
endorsement
Bearer Paper
mere delivery is enough
Restrictive endorsement
places
restrictions on the transfer of the paper.
For ex. “For deposit only”
Qualified endorsement
“Without
Recourse” – destroys any sort of
contractual liability.
“Endorsement in blank”
merely signing
your name creates bearer paper
Who may be a HDC?
Holder
Value
In good faith
Without notice of a defense (For instance, the holder was notified that
payment was refused.)
A HDC is not subject to personal defenses
Breach of contract
Lack of consideration
Unauthorized completion
Fraud in the inducement
Non-delivery
Ordinary duress or undue influence
Mental incapacity
Attachment
the requirements are: security
agreement, value, debtor must have rights in the
collateral. Note: If the creditor has possession of
the collateral, the security agreement may be oral.
Question: Is filing a financing statement a
requirement for attachment? NO
Perfection
of a security interest permits the
secured party to protect its interest by establishing
priority over the claims of most subsequent
creditors.
Perfection security interest may occur when
the creditor
has possession of the collateral (Ex. Pawnbroker). Note:
The best way to perfect a security interest in a negotiable
instrument is for the creditor to have possession
Perfected security interest may exist if….
a financing
statement is filed
Consumer goods
Automatic perfection when consumer
goods are initially sold to a consumer . This perfected
security interest may be lost if goods are sold to another
consumer.
Voluntary
the debtor need not be insolvent
You may not force a farmer, persons owing
less than —or a charitable organization
into bankruptcy
18,600
If there are 12 or more creditors, at least ??
must sign the petition.
3
T/F: Firm is allowed to reorganize its financial structure and
remain in business
True!
S & Ls, banks and insurance companies are not
allowed to file Ch. 11
Which of the following statements regarding negotiable instruments is not correct?
A certificate of deposit is issued by a bank
An instrument that is otherwise negotiable on its face states “Pay to Jenny Larson.” Which of the following statements is (are) correct?
It is negotiable if it is a check
Under the negotiable instruments article of the UCC, an endorsement of an instrument “for deposit only” is an example of what type of endorsement?
Restrictive
To the extent that a holder of a negotiable promissory note is a holder in due course, the holder takes the note free of which of the following defense?
Nonperformance of a condition precedent
Under the Revised Secured Transactions Article of the UCC, which of the following requirements is necessary to have a security interest attach?
Debtor had rights in the collateral - Yes!
Proper filling of a security agreement- No!
Value given by the creditor- Yes!
Perfection of a security interest permits the secured party to protect its interest by?
Establishing priority over the claims of most subsequent secured creditors
Which of the following transactions would illustrate a secured party perfecting its security interest by taking possession of the collateral?
A pawnbroker lending money
Under the Revised UCC Secured Transaction Article, which of the following actions will BEST perfect a security interest in a negotiable instrument against any other party?
Taking possession of the instrument
In which of the following cases does a seller have automatic perfection of a security interest as soon as attachment takes place?
Only Purchase money security interest in consumer goods
Mars can perfect to file a financing statement or take possession of the computers if the sale is made to?
consumers
Which of the following conditions, if any, must a debtor meet to file a voluntary bankruptcy petition under chapter 7 of the Federal Bankruptcy code?
Insolvency- No!
Three or more creditors - No!
Which of the following prevents a person from becoming a “holder in due course”?
That person notified that payment was refused
Which of the following does a seller/ creditor have automatic perfection of a security interest with attachment?
A purchase money security interest in consumer goods
Mars makes and sells TVs to wholesalers, retailers and consumers. Mars can perfect its security interest in the TVs
w/o filing a financing statement or taking possession w/sales to consumers
Which of the following won’t be discharged in bankruptcy?
Judgement from an accident while debtor was driving a car (DUI)
Which of the following acts by the debtor could result in the bankruptcy court revoking the debtor’s discharge?
Failing to following an order of the court
Which of the following types of debts are non-dischargeable in bankruptcy
All of the above are non-dischargeable:
-Debts for Homeowner Association Fees
-Death caused while intoxicated when operating an aircraft
-Injury caused while intoxicated when driving any motor vehicle
Which of the following is/are allowed as a federal exemption under bankruptcy?
All of above:
-Unemployment compensation
-Some specified value in one’s books and tools of the trade
-Some specified amount of equity in one car
