96 terms

Business Law Final

STUDY
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Flik draws a check payable to "GrocMart" to buy groceries. Flik's check is most likely

a. a certificate of deposit.
b. a negotiable instrument.
c. a promise to pay.
d. a promissory note.
B
Flik draws a check payable to "GrocMart" to buy groceries. With respect to Flik's check, GrocMart is

a. the drawee.
b. the drawer.
c. the maker.
d. the payee.
D
Quantity Sales Corporation and Resources Purchasing Company enter a contract for a sale of processed silver. Quantity Sales draws a draft unconditionally ordering Resources Purchasing to pay $50,000 to Quantity Sales's order in sixty days. Resources Purchasing signs and dates the draft. This instrument is

a. a banker's acceptance.
b. a nonnegotiable instrument.
c. a promissory note.
d. a trade acceptance.
D
Quantity Sales Corporation and Resources Purchasing Company enter a contract for a sale of processed silver. Quantity Sales draws a draft unconditionally ordering Resources Purchasing to pay $50,000 to Quantity Sales's order in sixty days. Resources Purchasing signs and dates the draft. On this instrument, Quantity Sales is

a. the banker.
b. the drawer.
c. the maker.
d. the trader.
B
Beck draws a check payable to "County Farm Supply" to buy a quantity of fertilizer to deposit in Beck's field. This check is

a. a certificate of deposit.
b. a draft.
c. a promise to pay.
d. a promissory note.
B
Eva signs an instrument unconditionally promising to pay to "First State Bank" $5,000 with interest in installments with the final payment due June 1, 2012. The instrument that Eva signed is most likely

a. a certificate of deposit.
b. a draft.
c. an order to pay.
d. a promissory note.
D
Eva signs an instrument unconditionally promising to pay to "First State Bank" $5,000 with interest in installments with the final payment due June 1, 2012. With respect to this instrument, First States Bank is

a. the drawee.
b. the drawer.
c. the maker.
d. the payee.
D
To obtain office supplies for Doctors Medical Clinic, Elmo executes a draft in favor of Flynn. A draft is

a. a conditional promise to pay money.
b. an unconditional written order to pay money.
c. a qualified promise to set aside a sum of money.
d. a restricted promise to deliver goods at a future date.
B
Diners Restaurant issues an instrument in favor of Eatery Supplies, Inc. For the instrument to be negotiable, it 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 Diner's Restaurant.
d. recite the consideration given in exchange for a promise to pay.
D
Gail owes $5,000 in unpaid taxes. Using the back of an old t-shirt, she exe- cutes an instrument for $5,000 that otherwise meets the requirements for negotiability. This instrument is most likely

a. negotiable.
b. nonnegotiable, because an instrument must be on paper.
c. nonnegotiable, because a t-shirt is not sufficiently permanent.
d. nonnegotiable, because the government does not appreciate it.
A
Rita owes $6,000 in unpaid taxes. In the sand of Seaside Beach, she exe- cutes an instrument for that amount that otherwise meets the require- ments for negotiability. This instrument is likely
a. negotiable.
b. nonnegotiable, because an instrument must be on paper.
c. nonnegotiable, because sand is not sufficiently permanent.
d. nonnegotiable, because the government does not appreciate it.
C
Dino, the chief executive officer of Electrician Services, Inc., signs an instrument by placing his thumbprint on it. This instrument is
a. negotiable.
b. nonnegotiable, because a thumbprint does not state the signer's name.
c. nonnegotiable, because a thumbprint implies a lack of binding intent.
d. nonnegotiable, because a thumbprint is not a signature.
A
To finance the purchase of a car from Giant Auto Sales, Hoppy signs an instrument promising to pay to "Ideal Credit Union" $18,000 with interest in installments with the final payment due May 15, 2014. To be negotiable, this instrument must include on its face
a. any conditions on the sale of the car.
b. any conditions to the disbursement of the funds.
c. any conditions to the repayment of the loan.
d. no conditions.
D
To borrow money to finance the start-up of his business, Buck executes an instrument in favor of City Bank. For the instrument to be negotiable, the signature must be
a. anywhere on the instrument.
b. anywhere on the lower half of the instrument only.
c. in the lower left-hand corner of the instrument only.
d. in the lower right-hand corner of the instrument only.
A
To finance the purchase of a house from Tuna, Uri signs an instrument promising to pay to "Verity Mortgage Service" $160,000 with interest in installments with the final payment due July 10, 2040. To be negotiable, this instrument must include the signature of
a. a non-party witness.
b. Tuna or Tuna's realtor.
c. Uri.
d. Verity's chief financial officer.
C
USA Oil Corporation signs an instrument that states it is being executed "in accord with a contract for the purchase of 4,000 barrels of oil dated May 1." This instrument is
a. negotiable.
b. nonnegotiable, because information about the sale must be obtained
from another source.
c. nonnegotiable, because it states an express condition to payment.
d. nonnegotiable, because the terms of the sale are not clear.
A
Ross signs an instrument using an "R" with a circle around it. With this mark for a signature, the instrument is
a. negotiable.
b. nonnegotiable, because an initial does not state the signer's name.
c. nonnegotiable, because an initial is not a signature.
d. nonnegotiable, because a simple initial implies a lack of binding
intent.
A
Karen writes on a piece of paper, "I owe you $600," signs it, and gives it to Lou. This instrument is
a. negotiable.
b. nonnegotiable, because it does not include an express promise to pay.
c. nonnegotiable, because it does not recite any consideration.
d. nonnegotiable, because it does not state any conditions to payment.
B
International Properties, Inc. (IPI), signs an instrument in favor of Financial Investments Corporation that includes the statement "IPI plans to pay this debt from the proceeds of the sale of the IPI Office Building in Montreal." This instrument is
a. negotiable.
b. nonnegotiable, because banks cannot easily process office buildings.
c. nonnegotiable, because it refers to a separate sale.
d. nonnegotiable, because Montreal is in Canada, not the United States.
A
On behalf of First-Rate Capital, Inc., Greg signs an instrument promising to pay $5,000 in gold to Hot Funds, Inc., on May 15. This instrument is
a. negotiable.
b. nonnegotiable, because gold is not a medium of exchange authorized
or adopted by a government as currency.
c. nonnegotiable, because it does not recite any consideration.
d. nonnegotiable, because it is for an amount of $500 or more.
B
Kelly signs an instrument in favor of Leo that states it is "subject to a certain agreement between Kelly and Mona." This instrument is
a. negotiable.
b. nonnegotiable, because it is made subject to a separate agreement.
c. nonnegotiable, because it refers to a separate agreement.
d. nonnegotiable, because Kelly and Mona are not the same persons.
B
Opal signs a promissory note payable to the order of Payday Loan Company. The note states that it is payable "with interest at the legal rate." This note is
a. negotiable.
b. nonnegotiable, because it does not specify a rate of interest.
c. nonnegotiable, because it is a promissory note.
d. nonnegotiable, because it is payable only with interest.
A
Ray signs a promissory note for $10,000 in favor of State University (SU). The note does not specify the date of its payment. Ray defaults. In SU's suit to collect on the note, the court will most likely rule in favor of
a. Ray, because SU assumed the risk that the note would not be paid.
b. Ray, because the note is not payable at a definite time or on demand.
c. SU, because the note is an unconditional promise to pay the holder.
d. SU, because there is a uniform "default time" for repayment when a
date is not specified.
B
Maria signs an instrument payable to the order of National Loans, Inc., "on or before" June 15. This instrument is
a. negotiable.
b. nonnegotiable, because the maker can move up the payment date.
c. nonnegotiable, because moving up the payment date is optional.
d. nonnegotiable, because the exact payment date cannot be determined
from the face of the instrument.
A
On behalf of Digital Cable Company, Ed signs an instrument in which he promises to deliver 1,000 feet of optic fiber cable to First Internet Bank on March 1. This instrument is
a. negotiable.
b. nonnegotiable, because cable is not a medium of exchange authorized
or adopted by a government as currency.
c. nonnegotiable, because it does not indicate a specific type of cable.
d. nonnegotiable, because it does not recite any consideration.
B
Tyrone draws a check payable to "Cash" and presents it to United Bank for payment. This instrument is
a. a bearer instrument.
b. an order instrument.
c. valid but nonnegotiable.
d. void.
A
Pam signs an instrument payable to the order of Quick Credit, Inc., that allows a holder to demand payment of the entire amount due, with interest, if Pam fails to make a payment. This instrument is
a. negotiable.
b. nonnegotiable, because a holder can move up the payment date.
c. nonnegotiable, because moving up the payment date is conditional.
d. nonnegotiable, because the exact payment date cannot be determined
from the face of the instrument.
A
Quincy draws a check payable to "Replay Stadium" to buy two season tickets to the next year's State College football games. This instrument is
a. a bearer instrument.
b. an order instrument.
c. valid but nonnegotiable.
d. void.
B
EZ Credit Company signs an instrument payable to the order of Flem that states, "The maker of this note at the date of maturity, May 1, 2011, can extend the time of payment, but for no more than a reasonable time." This instrument is
a. negotiable.
b. nonnegotiable, because it includes an extension clause.
c. nonnegotiable, because it is not payable within a definite time.
d. nonnegotiable, because it is payable to a specific payee.
C
Sid signs a promissory note payable to Tony on which Sid conspicuously notes that it is "not negotiable" and gives the note to Toney. This instru- ment is
a. negotiable.
b. nonnegotiable, because it includes the notation "not negotiable."
c. nonnegotiable, because it is a promissory note.
d. nonnegotiable, because it was given to Bob.
B
Will signs a check payable to "X" and gives it to Yves. This check is
a. negotiable.
b. nonnegotiable, because it does not indicate a specific payee.
c. nonnegotiable, because obviously it was executed as a joke.
d. nonnegotiable, because "Yves" is not "X."
A
Bill signs a check payable to the order of City Bank, filling in the blanks for the amount with the figures "$100" and "One thousand and 00/100 dollars." This check is payable in the amount of
a. $0.
b. $100.
c. $1,000.
d. $1,100.
C
Lucy signs a $1,000 note payable, at 6 percent interest, on May 1 to Metro Bank and writes on its face that it is "nonnegotiable." This note is
a. negotiable.
b. nonnegotiable, because it does not include an acceleration clause.
c. nonnegotiable, because it is payable with interest.
d. nonnegotiable, because its maker conspicuously wrote this on its face.
D
On May 1, Doug signs a check that is payable to the order of Excel Credit Corporation and that is dated July 1. This check is
a. negotiable immediately.
b. negotiable, but only after July 1.
c. nonnegotiable, because it is postdated.
d. nonnegotiable, because it is signed by Doug.
A
Julie signs a check payable to the order of Kwik Mart Stores, Inc., that does not include a date. This check is
a. negotiable.
b. nonnegotiable, because it does not include a date.
c. nonnegotiable, because it is payable to Kwik-Mart.
d. nonnegotiable, because it is signed by Julie.
A
Ollie negotiates an order instrument to Phil by

a. assignment of its rights under a contract.
b. delivery with any necessary indorsement.
c. making an unconditional promise to pay.
d. presenting it in response to a demand by B.
B
Vladimir negotiates a bearer instrument to Wendy by

a. assignment.
b. delivery.
c. presenting it in response to a demand by Wendy.
d. promising to pay
B
Lauren transfers an instrument to Miguel in a form and by a means that makes Miguel a "holder." This is

a. a holding.
b. an assignment.
c. negotiation.
d. presentment
C
Yves negotiates an instrument to Zack. Negotiation is the transfer of an instrument

a. for valuable consideration under a contract.
b. in a form and by a means that makes the transferee a holder.
c. pursuant to preliminary contract discussions.
d. without the payment of a recognized medium of exchange.
B
Petra signs a check payable to Quincy, who indorses the back, gives it to Regional Credit Union, and receives cash. The transfer of the check from Quincy to the credit union is

a. an assignment.
b. a negotiation.
c. a payment.
d. a sale.
B
Eve possesses an instrument that is "payable to bearer." She loses it. Flik finds it. On this instrument, Flik may

a. collect payment.
b. not collect payment, because he did not give value for it.
c. not collect payment, because he found it.
d. not collect payment, because he is not the "bearer."
A
Ina signs a check payable to Jan and gives it to her. Jan indorses the back, and transfers the check to Ked. To negotiate the check to Lois, Ked must

a. write "Ked" on the back and deliver the check to Lois.
b. write "pay to the order of Lois [signed] Ked" on the back and deliver the check to Lois.
c. only deliver the check to Lois.
d. transfer the check through the drawee bank.
C
Ralph wants to transfer an instrument to Sigrid that requires Ralph's indorsement, but there is no room on the instrument. Ralph

a. can attest in writing that he would sign the instrument if possible.
b. cannot transfer the instrument to Sigrid.
c. can sign an allonge and affix it to the instrument.
d. can sign a separate piece of paper and file it for later reference.
C
Troy transfers a draft by signing it and delivering it to Uma. Troy is

a. an indorser.
b. an assignee.
c. a delegatee
d. a promisor.
A
Velma transfers a note by signing it and delivering it to Woz. Woz is

a. a delivery person.
b. an indorsee.
c. a note passer.
d. a promisee.
B
On the back of a check payable to Nero, he writes "Pay to Odell, without recourse" and signs it. This

a. does not effect the check's negotiability or any party's liability.
b. relieves Nero of liability on the check.
c. relieves Odell of liability on the check.
d. renders the check nonnegotiable.
B
Mona wants to negotiate a bearer instrument in her possession to Nat for an order instrument in Nat's possession. Indorsements are required to negotiate

a. bearer instruments and order instruments.
b. bearer instruments only.
c. neither bearer instruments nor order instruments.
d. order instruments only.
D
Todd indorses a check, "Pay to Interstate Trucking if they deliver the lumber by May 1, 2010." This is

a. a blank indorsement.
b. a qualified indorsement.
c. a restrictive indorsement.
d. a special indorsement.
C
Mike receives a payroll check from National Computer Systems, Inc., and indorses it by signing his name on the back of the check. This is

a. a blank indorsement.
b. a qualified indorsement.
c. a restrictive indorsement.
d. a special indorsement.
A
To pay property taxes, Retail Store Corporation signs a check payable to "Tyra, County Tax Collector." Before Tyra negotiates the check, Vince replaces her in office. The check can be negotiated by

a. no one.
b. Retail Store only.
c. Tyra only.
d. Tyra, Vince, or whoever holds the office of county tax collector.
C
Dora receives a check from Eagle Corporation. Dora indorses the check to First National Bank by writing "pay to First Nat'l Bank only" and signing her name. This is

a. a blank indorsement.
b. a qualified indorsement.
c. a restrictive indorsement.
d. a special indorsement.
C
Gina writes and signs a check payable to "Happy Market." Ira, Happy's manager, indorses the check "For deposit only." This is

a. a blank indorsement.
b. a qualified indorsement.
c. a restrictive indorsement.
d. a special indorsement.
C
Owen is a holder of a promissory note obtained from Purchase Money, Inc. Regarding the defenses against payment of the note to which Purchase Money is subject, Owen, as an ordinary holder, is subject to

a. more defenses.
b. no defenses.
c. some defenses, but not as many.
d. the same defenses.
D
Edie is the payee of a bearer instrument—a promissory note in the amount of $1,000. Frank offers to irrigate Edie's ranch next week in exchange for the note. Edie agrees and delivers the note to Frank. Frank is

a. an HDC, because he promised to perform services at a future date.
b. an HDC, because the transferor was the original payee on the note.
c. not an HDC, because he did not acquire the instrument in good faith.
d. not an HDC, because he did not yet give value for the instrument
D
Quiky Delivery Company contracts to provide services to Regal Bakeries, Inc. At Quiky's request, Regal makes checks for the services payable to "Quiky Delivery Co. and Secure Credit Corp." One check, however, is pay-able to "Quiky Delivery Co. Secure Credit Corp." (the "and" is omitted).
This check is

a. void.
b. payable alternatively or jointly, depending on Regal's bank's policy.
c. payable to Quiky and Secure only.
d. payable to Quiky or Secure.
D
To pay for investment advice from financial consultants Smith and Jones, Tony signs a check payable to "Smith or Jones." A proper indorsement of the check is

a. not possible.
b. "Smith" and "Jones" only.
c. "Smith" only, or "Jones" only, but not "Smith" and "Jones."
d. "Smith" only, or "Jones" only, or "Smith" and "Jones
D
Blythe, an accountant for Credits & Debits, acquires a negotiable instrument from Eton by promising to pay its face value in thirty days. Blythe acquires the status of an HDC when she

a. acquires possession of the negotiable instrument.
b. agrees with Eton to buy the negotiable instrument.
c. pays the face value due on the instrument.
d. transfers the instrument to another party.
C
Pola wants to transfer a check to Quin. The check is defective if it

a. has been previously dishonored.
b. has no irregularities on its face.
c. is not overdue.
d. is so complete that no element of negotiability is lacking.
A
Jen makes a gift of a check to Kilroy who takes it in good faith and without notice of any claim, defense, or defect. With respect to this check, Kilroy is

a. an extraordinary holder in due course.
b. an ordinary check passer.
c. an ordinary holder.
d. an ordinary holder in due course.
C
Bruce acquires a series of notes with successive maturity dates that Cody issued on May 15 for a loan from Delta Credit, Inc. At the time of Bruce's acquisition, he learns that Cody defaulted on one of the notes. Bruce is

a. an HDC if he reacquires the notes after their negotiation to any un-suspecting third party.
b. an HDC only with respect to the notes on which Cody has not defaulted.
c. an HDC with respect to all of notes.
d. not an HDC.
D
Kris transfers a note, on which Liu is the maker, to Mia, who takes it for value and in good faith. Mia knows that Kris breached the contract underlying the note, giving Liu a defense against payment. With respect to this note, Mia is

a. a knowledgeable holder in due course.
b. an ordinary holder.
c. an ordinary holder in due course.
d. an ordinary note taker.
B
Jill, in good faith and for value, gets from Kit a check "payable to the order of bearer." Jill does not know that Kit stole the check. Jill is

a. an HDC.
b. not an HDC, because Kit did not acquire the check for value.
c. not an HDC, because Kit did not acquire the check in good faith.
d. not an HDC, because the check is a bearer instrument.
A
Finest Office Company employs General Construction, Inc. (GCI), to renovate an office and signs a note for $10,000 payable to GCI. GCI breaches the contract, but sells the note for $5,000 to Happy Collection Agency, which knows that GCI has not performed. Happy is an HDC of the note in the amount of

a. $0.
b. $5,000.
c. $10,000.
d. $15,000.
A
Bob receives a check from Chris. Without Bob's knowledge, Dan indorses it in his own name and deposits it in his account at East Bank. In Bob's subsequent suit against East Bank for the money, the court will most likely rule in favor of

a. Bob, because Dan's signature is not authorized.
b. Bob, because East Bank is not a holder in due course.
c. East Bank, because Dan's signature is not authorized.
d. East Bank, because it is a holder in due course.
A
Dru signs a check payable to Excel Services, Inc., and gives it to Excel, leaving the amount blank but authorizing Excel to fill it in for $1,000. Excel fills in $1,500 and negotiates the check to Friendly Credit Corporation, an HDC. Friendly Credit can enforce the check for

a. $0.
b. $500.
c. $1,000.
d. $1,500.
C
Clem gets a $100 check as a gift from Daria. Clem crudely increases the amount of the check to $1,000 and transfers it to eReady Computers, Inc., in exchange for a computer. eReady deposits the check in its bank account at First City Bank. HDCs of this check include

a. Clem, eReady, and First City.
b. Clem only.
c. eReady and First City only.
d. none of these parties.
D
Parkdale Roofing Company receives a check from Quik Mart for fixing its roof, and indorses the check to Repair Supplies, Inc. (RSI). Stef, RSI's owner, gives the check to Tiny as a gift. In this situation, the party who is not an HDC of the check but who acquires HDC rights under the shelter principle is

a. no one.
b. Parkdale Roofing.
c. Stef.
d. Tiny.
D
Rikki signs a check "pay to the order of Scholar University" drawn on Rikki's account in State Bank to pay her tuition. Rikki is

a. the certifier.
b. the drawee.
c. the drawer.
d. the payee.
C
Brendan signs a check "pay to the order of City College Bookstore" drawn on his account in Delta Bank to pay for his current semester's textbooks. The bookstore deposits the check in its account in Eagle Bank. Like most checks, this check is

a. a one-party instrument.
b. a four-party instrument.
c. a three-party instrument.
d. a two-party instrument.
C
Jen signs a check "pay to the order of Key" drawn on Jen's account in Little Bank to buy Key's car. Jen asks Little Bank to indicate on the face of the check that it will accept it when Key presents it for payment. If the bank agrees, this will be

a. a cashier's check.
b. a certified check.
c. a trade acceptance.
d. a traveler's check.
B
Kip writes a check for $1,000 drawn on Local Bank and presents it to Mira. Mira presents the check for payment to Local Bank, which dishonors it. The party most likely liable to Mira is

a. Kip in a civil suit.
b. Kip in a criminal prosecution.
c. Local Bank in an administrative proceeding.
d. neither Kip nor Local Bank.
A
Pat, the manager of Quik Mart, deposits the store's receipts in its account at Regional Bank. As to the receipts, the relationship between Quik Mart and the bank is

a. attorney and client.
b. creditor and debtor.
c. guardian and ward.
d. trustee and beneficiary.
B
Thelma signs a check "pay to the order of Uri" drawn on Thelma's account in Verity Bank. Thelma has $400 in her account but the amount of the check is $500, which the bank pays. This is

a. a dishonored check.
b. an overdraft.
c. a postdated check.
d. a stale check.
B
Dan writes a check to Emma on his account at First State Bank. The bank dishonors the check even though Dan has sufficient funds in his account. The bank is

a. liable to Dan only.
b. liable to Dan and Emma.
c. liable to Emma only.
d. not liable to Dan or Emma.
A
Dora writes a check for $100 drawn on Eastern Bank and presents it to Fast Cash, Inc., for payment. If the check is not backed by sufficient funds, Dora may be prosecuted for

a. forgery.
b. fraud.
c. negligence.
d. robbery.
B
Fact Pattern 27-1A (Questions A8 and A9 apply)
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.

Refer to Fact Pattern 27-1A. 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.

Refer to Fact Pattern 27-1A. 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.
D/B
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 dishonored check.
b. an overdraft.
c. a postdated check.
d. a stale check.
D
John writes a check to Kay as payment for a DVD player but soon discovers the player is broken. He goes to the drawee bank and orally authorizes Larry, a bank officer, to stop payment on the check. This order is valid for

a. fourteen days.
b. fourteen months.
c. six days.
d. six months.
A
Steve steals one of Tricia's checks and forges her signature. Tricia's bank, Unity Bank, pays the check. Tricia can recover from

a. Steve, but not Unity Bank.
b. Unity Bank, which cannot recover from Steve.
c. Unity Bank, which can recover from Steve.
d. no one.
C
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.
D
Trudy forges Uma's signature on a check "payable to the order of Trudy" drawn on Una'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.
D
Dru signs a check "pay to the order of Eppie" drawn on Dru's account in First Federal Bank. Greta forges Eppie's indorsement. First Federal pays the check. Most likely

a. Dru will be liable for the amount.
b. Eppie will have to pay Dru for the amount.
c. First Federal will have to recredit Dru's account.
d. the Federal Reserve will reimburse all parties for their costs.
C
Fact Pattern 27-1B (Questions B15-B17 apply)
Tom draws a check, on his account in State Bank in New York, payable to Digital Computers, Inc., in San Francisco. Digital deposits the check in its ac¬count at First National Bank. First National deposits the check in the Federal Reserve Bank of San Francisco, which transfers it to the Federal Reserve Bank of New York. That Federal Reserve bank sends the check to State Bank.

1) Refer to Fact Pattern 27-1B. Digital's bank is

a. the cashing bank.
b. the depositary bank.
c. the intermediary bank.
d. the payor bank.

2) Refer to Fact Pattern 27-1B. Tom's bank is

a. the cashing bank.
b. the depositary bank.
c. the intermediary bank.
d. the payor bank.

3) Refer to Fact Pattern 27-1B. When Digital's bank received the check, it was required to pass it on

a. before midnight of the next banking day.
b. before midnight of the next day, whether or not it was a "banking" day.
c. before noon of the next banking day.
d. within five business days.
1) B
2) D
3) A
Fact Pattern 27-3A (Questions A17 and A18 apply)
Mike loses his National Bank access card. He realizes his loss the next day but waits a week to call National. Meanwhile, Opal finds and uses Mike's card to withdraw $3,000 from Mike's account.

Refer to Fact Pattern 27-3A. When Mike receives his National statement, he demands that the bank investigate the matter and recredit his account. The bank

a. has no duty to investigate.
b. must investigate and, if the dispute is not resolved within ten days, recredit Mike's account (at least until the dispute is resolved).
c. must investigate and immediately recredit Mike's account (at least until the dispute is resolved).
d. must investigate but need not recredit Mike's account.
B
First National Bank receives a check drawn on the account of Get-Rich Industries, Inc., one of the bank's customers, at 3 P.M. Friday. Harry, the pre¬senter of the check, is not one of the bank's customers. The bank uses de¬ferred posting with a 2 P.M. cutoff hour. If it decides to dis¬honor the check, it must do so by midnight

a. Saturday.
b. Sunday.
c. Monday.
d. Tuesday.
D
Jen has a claim against Kevin's property that must be satisfied before the property is available to satisfy the claims of other creditors. This is

a. a lien.
b. a violation of most state laws.
c. a writ of attachment.
d. a writ of execution.
A
Suha performs a contract with Tyler to add a second story addition to Tyler's house, but Tyler does not pay. In most states, Suha can create a lien and place it on Tyler's property by filing

a. an order of garnishment.
b. a writ of attachment.
c. a writ of execution.
d. a written notice of lien.
D
Loni delivers her Mazda to be repaired at Nile's Body Shop. Loni agrees to pay cash. Nile performs, but Loni does not pay. Nile tells Loni that he will keep the car until she pays. This is

a. a judicial lien.
b. a mechanic's lien.
c. an artisan's lien.
d. a violation of most states' laws.
C
Delia refuses to pay Ewing $500 in cash on their contract to repair certain
theater sets, which Ewing still possesses. Ewing's lien on the sets will
terminate

a. if Ewing continues to maintain possession.
b. if Ewing does not file a written notice of lien within thirty days.
c. if Ewing surrenders possession.
d. within thirty days.
C
Pruit performs a contract with Quint to reshingle the roof on Quint's house,
but Quint does not pay. Pruit notifies Quint that Pruit will foreclose on the
house and sell it to satisfy the debt. This is

a. a judicial lien.
b. a mechanic's lien.
c. an artisan's lien.
d. a violation of most state laws.
B
Khali's debt to Lew is past due. Lew obtains a judgment against Khali to collect the debt, but Khali refuses to pay. Lew asks the court to order Khali's employer to pay a portion of Khali's paycheck to Lew. This is a request for

a. an exemption from most federal limits on creditors' actions.
b. an order of garnishment.
c. an order that would violate most state laws.
d. a right of contribution.
B
Ian's mortgage debt to Jeff is past due. Jeff brings a legal action against Ian to collect the debt. Jeff asks the court to order the sale of the mortgaged property and the payment of a portion of the proceeds to Jeff. This is a request for

a. a deficiency judgment.
b. a foreclosure.
c. a right of reimbursement.
d. redemption.
B
Ezra's mortgage debt to Foxy is past due. Foxy brings a legal action against Ezra to collect the debt. Foxy asks the court to order the sale of the mortgaged property and the payment of a portion of the proceeds to Foxy. Before the sale, Ezra seeks to keep the property by paying the full amount
of the debt. This is

a. a deficiency judgment.
b. a right of redemption.
c. a right of subrogation.
d. not possible.
B
Beta Software Corporation is a new company that needs to borrow money to meet its payroll. Cliff, president and owner of Beta, asks First National Bank to loan Beta the funds.

1) Refer to Fact Pattern 28-1B. If First National insists that Cliff sign the loan application, making himself personally liable for payment whether or not Beta defaults, Cliff will be
a. a guarantor and a surety.
b. a guarantor only.
c. a surety only.
d. neither a guarantor nor a surety.

2) Refer to Fact Pattern 28-1B. If First National insists that Cliff sign the loan application, making himself personally liable for payment only if Beta de- faults, Cliff will be
a. a guarantor and a surety.
b. a guarantor only.
c. a surety only.
d. neither a guarantor nor a surety.
1) C
2) B
First State Bank holds a mortgage on Gigi's property. Gigi defaults on the debt. The bank forecloses. If the proceeds of the foreclosure sale are insufficient to pay the costs of the sale and the debt, the bank can
a. obtain a deficiency judgment against Gigi.
b. prorate the costs to its other debtors.
c. reclaim the property as a voidable transfer.
d. use the equity of redemption to redeem the property.
A
Fact Pattern 28-1A (Questions A11-A14 apply)
Dina asks Edie to co-sign a credit application so that she can borrow money and buy a truck from Finest Quality Motors.
1) Refer to Fact Pattern 28-1A. If Edie is a guarantor, then the guaranty is required to be in writing because of
a. the debtor's right of redemption.
b. the co-signer's right of contribution.
c. the creditor's transfer of possession.
d. the Statute of Frauds.
2) Refer to Fact Pattern 28-1A. If, after the loan agreement is signed, Dina agrees to a higher rate of interest without telling Edie, then Edie is
a. discharged from the agreement.
b. liable at the higher rate of interest.
c. liable at the lower rate of interest.
d. liable for the principal only.
1) D
2) A