UCC

Question 1

When does risk pass to buyer if seller is a merchant?

Answer 1

When buyer takes possession of goods

Question 2

Warranty of merchantability and warranty of title

Answer 2

The implied warranty of merchantability made by a merchant seller warrants that the goods are fit for their normal, intended purpose. The implied warranty of title assures the buyer that the seller has title to the goods and therefore has the right to sell them. Both of these warranties attach automatically upon the formation of the sales contract.

Question 3

Can an implied warranty of merchantability be disclaimed?

Answer 3

Yes - An implied warranty of merchantability can be disclaimed either orally or in writing, but the disclaimer must include the word merchantability and, if in writing, this must be conspicuous

Question 4

Implied warranty of fitness

Answer 4

The seller knows the particular purpose for which the buyer will use the goods and knows the buyer is relying on the seller’s skill or judgment to select suitable goods.

Question 5

3 types of express warranties

Answer 5

There are three types of express warranty under the Sales Article of the UCC (if made as part of the bargain or sale), they are:
1. Affirmations of fact or promises
2. Description of the goods
3 Sample or model - Bulk will conform exactly to the sample.

Question 6

Rowe Corp. purchased goods from Stair Co. that were shipped C.O.D. (cash on delivery). Under the Sales Article of the UCC, which of the following rights does Rowe have?
A. The right to inspect the goods before paying.
B. The right to possession of the goods before paying.
C. The right to reject nonconforming goods.
D. The right to delay payment for a reasonable period of time

Answer 6

C - A C.O.D. (cash on delivery) contract does not permit inspection before payment is made. However, if the goods turn out not be nonconforming, they may later be rejected by the buyer

Question 7

Under the Sales Article of the UCC, which of the following statements regarding liquidated damages is(are) correct?
I. The injured party may collect any amount of liquidated damages provided for in the contract.

II. The seller may retain a deposit of up to $500 when a buyer defaults even if there is no liquidated damages provision in the contract.

A. I only.
B. II only.
C. Both I and II.
D. Neither I nor II.

Answer 7

II only.

Where the seller justifiably withholds delivery of goods and the buyer has made a deposit or payment and there is no liquidated damage clause, the seller may keep $500 or 20% of the purchase price, whichever is less.

Question 8

How is a shipment of nonconforming goods treated?

Answer 8

As a breach of contract

Question 9

Under the Negotiable Instruments Article of the UCC, which of the following instruments is classified as a promise to pay?

A.
A check.

B.
A draft.

C.
A trade acceptance.

D.
A certificate of deposit.

Answer 9

D-Negotiable instruments can be classified as “order to pay” or “promise to pay” instruments. Drafts and checks are “order to pay” instruments. Notes and certificates of deposits are “promises” to pay instruments.

Question 10

Which of the following negotiable instruments is subject to the UCC Negotiable Instruments Article?
A. Corporate bearer bond with a maturity date of January 1, 20x1.
B. Installment note payable on the first day of each month.
C. Warehouse receipt.
D. Bill of lading payable to order.

Answer 10

B - The commercial paper article of the UCC covers only negotiable instruments. More specifically, it covers drafts, checks, notes, and certificates of deposit. An installment note fits this definition.

Question 11

Under the Negotiable Instruments Article of the UCC, the proper party to whom a check is presented for payment is

Answer 11

The drawer

Question 12

When is a note negotiable?

Answer 12

When the note is in writing and signed by the maker, is an unconditional promise to pay a sum certain in money on demand or at a definite date, and is payable to order or bearer, it is negotiable.

Question 13

Qualified endorsement

Answer 13

qualified endorsement is one that limits the warranties that the transferor of the instrument gives. This is the “without recourse” endorsement, an endorsement that eliminates one of the five transferor warranties.

Question 14

Requirements to be a Holder in due course

Answer 14

To be a holder in due course the following elements are required: the holder must take the instrument for value (payment of an anteceded debt is value), take the instrument in good faith (usually, honesty in fact and thus, unless unusual circumstances, assumed), take the instrument without notice the instrument is overdue, or has been previously dishonored, or of any claim or defense

Question 15

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 defenses?
A. Minority of the maker where it is a defense to enforcement of a contract.
B. Forgery of the maker’s signature.
C. Discharge of the maker in bankruptcy.
D. Nonperformance of a condition precedent.

Answer 15

D - A holder in due course takes a promissory note free from any personal defenses of the maker but not free from any universal defenses. Universal defenses may be asserted by the maker against any holder and include minority (voidable to a simple contract),forgery of the maker’s signature, and bankruptcy discharge of the maker. Nonperformance of a condition precedent is a personal defense, and may be asserted only against the person to whom the maker originally gave the note.

Question 16

Domestic vs international letters of credit

Answer 16

Domestic letters of credit are revocable and international letters of credit are irrevocable unless otherwise stated or agreed

Question 17

Requirements for a warehouse receipt to be effective

Answer 17

the warehouse receipt must contain:

1. the location of the warehouse where the goods are stored, and
2. an indication to the warehouse company whether the goods are to be delivered to any holder (a bearer document), a specified person (consignee) or his/her order (an order document), or a specified person (a nonnegotiable document).
   - Generally also required are date and issue number, signature of the warehouse manager and if owner, rates, and description of the goods.

Question 18

Under the Secured Transactions Article of the UCC, what secured transaction document must be signed by the debtor?
	A.  	Statement of Assignment.
	B.  	Security agreement.
	C.  	Release of collateral.
	D.  	Termination statement.

Answer 18

B - Unless the collateral is in the possession of the secured party, there must be a written authenticated security agreement signed or authenticated by the debtor. A secured party can release, assign, or terminate a security interest on their own without the signature of the debtor.

Question 19

Under secured transactions article of UCC, what is required for a security to attach?

Answer 19

1. the creditor must give value,
2. the debtor must have rights in the collateral, and
3. the creditor must take possession of the collateral or obtain the agreement in a signed or authenticated writing by the debtor.

Question 20

Creditor A agreed to loan Debtor D the money for the purchase of inventory. Debtor D signed a security agreement on October 1. Creditor A filed a financing statement on the goods on October 2. The inventory was shipped FOB place of shipment on October 5. When did the security interest attach?
A. October 1.
B. October 2.
C. October 5.
D. The interest has not attached until tender of the goods to D.

Answer 20

C - The debtor must have an interest in the collateral in order for the security interest to attach, even when the paperwork is done in advance. The debtor here has an interest when the goods are shipped because in FOB place of shipment contracts title passes when the goods are placed in the hands of the carrier.

Question 21

When is a PMSI perfected?

Answer 21

automatically upon creation of the security interest. (i.e. filing not required to perfect)

Question 22

Time frame to file perfected interest in new state

Answer 22

4 months