R6 Flashcards
Vex Corp. executed a negotiable promissory note payable to Tamp, Inc. The note was collateralized by some of Vex’s business assets. Tamp negotiated the note to Miller for value. Miller endorsed the note in blank and negotiated it to Bilco for value. Before the note became due, Bilco agreed to release Vex’s collateral. Vex refused to pay Bilco when the note became due. Bilco promptly notified Miller and Tamp of Vex’s default. Which of the following statements is correct?
a. Bilco will be unable to collect from either Tamp or Miller because of Bilco's release of the collateral. b. Bilco will be able to collect from Tamp because Tamp was the original payee. c. Bilco will be able to collect from either Tamp or Miller because Bilco was a holder in due course. d. Bilco will be unable to collect from Miller because Miller's endorsement was in blank.
Choice “a” is correct. When a person entitled to enforce an instrument impairs the value of collateral securing the instrument, the obligations of the endorsers are discharged to the extent of the impairment. The security was completely released so the endorsers will be released from their obligation (assuming the note was fully collateralized). UCC 3-606
Train issued a note payable to Blake in payment of contracted services that Blake was to perform. Blake endorsed the negotiable note “pay to bearer” and delivered it to Reed in satisfaction of a debt owed Reed. Train refused to pay Reed on the note because Blake had not yet performed the services. Reed was unaware of this failure when he took the note. Under the Negotiable Instruments Article of the UCC, must Train pay Reed?
a. Yes, Train has to pay Reed because Reed was a holder in due course. b. No, Train does not have to pay Reed because the note was issued to Blake. c. No, Train does not have to pay Reed until the services are performed. d. Yes, Train has to pay Reed because the note was converted into bearer paper.
Choice “a” is correct. it’s important to realize that it is negotiable, but when it comes to a HDC, it needs VALUE. This is where the executory promise (future) comes in. therefore, Blake would not be a HDC, but Reed would be.
Reed met all four requirements to be a holder in due course: (i) Reed was the holder of a negotiable instrument (the note); (ii) Reed gave value (receiving from the transferor a note as payment for the transferor’s debt owed to the transferee constitutes value); (iii) nothing in the facts indicates that Reed lacked good faith; and (iv) Reed had no notice of Blake’s nonperformance of services. Nonperformance of services is a personal defense and not a real defense. A holder in due course takes free of personal defenses and is subject only to real defenses. Thus, Train will have to pay Reed.
Under the Negotiable Instruments Article of the UCC, the proper party to whom a check is presented for payment is: a. The maker. b. The drawer. c. The drawee. d. The holder.
Choice “c” is correct. A drawer (the check writer) draws a check payable to the payee; the bank whose routing number is set forth on the bottom left of the check is the drawee.
Choice “b” is incorrect. The drawer is the person who writes the check.
Under the Negotiable Instruments Article of the UCC, when an instrument is endorsed "Pay to John Doe" and signed "Faye Smith," which of the following statements is (are) correct? Payment of the instrument is guaranteed;The instrument can be further negotiated a. No;Yes b. Yes; No c. No;No d. Yes; Yes
D. I chose C. It’s important to realize that by mearly endorsing, payment is guaranteed by someone bc if worse comes to worse the endorser will have to sign.
-The first assertion is true-payment is guaranteed. The instrument here is endorsed. In essence, an endorser makes a contract of guarantee: if the instrument is presented for payment and is dishonored, the endorser agrees to pay on the instrument according to its terms when it was endorsed. The second assertion is also true. When an instrument is endorsed to a specified person, it becomes order paper, but it still may be negotiated further, as long as the special payee endorses.
On February 15, 2009, P.D. Stone obtained the following instrument from Astor Co. for $1,000. Stone was aware that Helco, Inc. disputed liability under the instrument because of an alleged breach by Astor of the referenced computer purchase agreement. On March 1, 2009, Willard Bank obtained the instrument from Stone for $3,900. Willard had no knowledge that Helco disputed liability under the instrument.
Theres an image.
https://online.becker.com/simulations/simimage.htm?hash=aab1f4ab5367bed8d2d7dc72d84854cf
The instrument is:
a. Negotiable, when held by Astor, but nonnegotiable when held by Willard Bank. b. Nonnegotiable, because the numerical amount differs from the written amount. c. Negotiable, even though the maker has the right to extend the time for payment. d. Nonnegotiable, because of the reference to the computer purchase agreement.
C. The fact that the time for payment can be extended does not destroy negotiability (because of lack of a definite time for payment) as long as the instrument can be extended only to another definite time. UCC 3-119
On February 15, 2009, P.D. Stone obtained the following instrument from Astor Co. for $1,000. Stone was aware that Helco, Inc. disputed liability under the instrument because of an alleged breach by Astor of the referenced computer purchase agreement. On March 1, 2009, Willard Bank obtained the instrument from Stone for $3,900. Willard had no knowledge that Helco disputed liability under the instrument.
https://online.becker.com/simulations/simimage.htm?hash=aab1f4ab5367bed8d2d7dc72d84854cf
If Willard Bank demands payment from Helco and Helco refuses to pay the instrument because of Astor’s breach of the computer purchase agreement, which of the following statements would be correct?
a. Willard Bank is not a holder in due course because Stone was not a holder in due course. b. Helco will be liable to Willard Bank because Willard Bank is a holder in due course. c. Stone will be the only party liable to Willard Bank because he was aware of the dispute between Helco and Astor. d. Helco will not be liable to Willard Bank because of Astor's breach.
B. i chose C. Willard Bank is an HDC because it took the note for value, in good faith, and without notice of any defense. An HDC is not subject to personal defenses and Helco’s defense is a personal defense. UCC 3-204
West Corp. received a check that was originally made payable to the order of one of its customers, Ted Burns. The following endorsement was written on the back of the check:
https://online.becker.com/simulations/simimage.htm?hash=d45943ae38516efad2ddb756caf91e10
Which of the following describes the endorsement? Special; Restrictive a. No; Yes b. Yes; No c. No; No d. Yes; Yes
A. I chose D. It’s important to realize that he didn’t specify a name on top of his, so it’s not a special endorsement. An endorsement is special if it specifies the person to whom it is payable [UCC 3-204]. No new payee is named here, so the endorsement is in blank. An endorsement is restrictive if it includes the words “for collection” [UCC 3-205(c)], so the endorsement is restrictive. “Without recourse” means that the endorsement is a qualified endorsement.
Under the Negotiable Instruments Article of the UCC, the proper party to whom a check is presented for payment is:
a. The drawer. b. The maker. c. The holder. d. The drawee.
D. A drawer (the check writer) draws a check payable to the payee; the bank whose routing number is set forth on the bottom left of the check is the drawee.
Under the Secured Transactions Article of the UCC, what would be the order of priority for the following security interests in consumer goods?
I.Financing agreement filed on April 1.
II.Possession of the collateral by a creditor on April 10.
III.Financing agreement perfected on April 15.
a. II, I, III.
b. II, III, I.
c. I, II, III.
d. III, II, I.
C. I chose D. It’s important to note that these are all perfected. Just because #1 didn’t specifically note if it was perfected or not, we need to remember the rule sheltering companies who are paranoid and file early. So the rule is with non PMSI perfected securities is the “first to file OR perfect”
Under the Secured Transactions Article of the UCC, which of the following requirements is necessary to have a security interest attach? Debtor has rights in the collateral; Proper filing of a security agreement; Value given by the creditor a. Yes; Yes; Yes b. Yes;Yes; No c. Yes; No; Yes d. No; Yes; Yes
C. I chose A. It’s important to realize that filing has to do with perfection. In attachment, it’s only required that (i) the parties agree to create a security interest—evidenced by either an authenticated security agreement OR creditor’s taking possession or control of the collateral, (ii) the debtor must have rights in the collateral, and (iii) the creditor must give value.
Drew bought a computer for personal use from Hale Corp. for $3,000. Drew paid $2,000 in cash and signed a security agreement for the balance. Hale properly filed the security agreement. Drew defaulted in paying the balance of the purchase price. Hale asked Drew to pay the balance. When Drew refused, Hale peacefully repossessed the computer.
Under the UCC Secured Transactions Article, which of the following remedies will Hale have?
a. Sell the computer and retain any surplus over the amount owed.
b. Obtain a deficiency judgment against Drew for the amount owed.
c. Sell the computer without notifying Drew.
d. Retain the computer over Drew’s objection.
B. It’s important to note that they are not a consumer creditor, so they are allowed to sue for a deficiency. Since this is a CONSUMER GOOD AND Drew has paid more than 60% of the good upfront, so the creditor is required to sell the good within 90 days and collect deficiencies from the sale from Hale.
Drew bought a computer for personal use from Hale Corp. for $3,000. Drew paid $2,000 in cash and signed a security agreement for the balance. Hale properly filed the security agreement. Drew defaulted in paying the balance of the purchase price. Hale asked Drew to pay the balance. When Drew refused, Hale peacefully repossessed the computer.
Under the UCC Secured Transactions Article, which of the following rights will Drew have?
a. Force Hale to sell the computer.
b. Redeem the computer after Hale sells it.
c. Prevent Hale from selling the computer.
d. Recover the sale price from Hale after Hale sells the computer.
A. I chose C. The creditor is forced to sell the collateral anyways because the debtor has paid more than 60% of it and it is a CONSUMER GOOD. The debtor may allow the creditor to keep the collateral in satisfaction of the debt, but has no power to prevent a sale if the creditor does not want to retain the collateral in satisfaction.
Electronic chattel paper is includable, but chattel paper that arose from the sale in the business in which it arose isnt. A chattel means a record or records that evidence both a monetary obligation and a security interest in specific goods, a security interest in specific goods and software used in the goods
Under the Secured Transactions Article of the UCC, what secured transaction document must be signed by the debtor?
a. Security agreement. b. Release of collateral. c. Statement of assignment. d. Termination statement.
A. I chose B. A release of collateral is when a creditor is allowed to release all or part of his rights to collateral described in a security agreement. A release of collateral must be signed by the creditor, not the debtor.
A security agreement is an authenticated record that needs to be signed or approved by the debtor to be attached. A credtior could also hold the goods in their possession for them to be attached, but in this question it asks what document, so that shouldn’t be in my thought process.
Perfection of a security interest permits the secured party to protect its interest by:
a. Avoiding the need to file a financing statement. b. Denying the debtor the right to possess the collateral. c. Preventing another creditor from obtaining a security interest in the same collateral. d. Establishing priority over the claims of most subsequent secured creditors.
D. I chose C. Perfecting doesn’t insure that it will get the item, it just creates a sense of priority. It’s important to remember that buyers in the ordinary course of business can still have priority over perfected interests.
National Bank lends $200,000 to Dave and files a financing statement on January 5. Dave signs the security agreement when he picks up the money on January 14. Dave also borrows money from Local Town Bank on January 7. Local Town Bank gives Dave the money, files a financing statement, and has Dave sign a security agreement on January 8. Dave used the same property as collateral for both loans. If Dave defaults on both loans, which bank will have priority in the collateral?
a. National Bank, because it filed first. b. Local Town Bank, because it perfected first. c. Local Town Bank, because its interest attached first. d. National Bank, because its interest attached first.
A. I chose B. It’s important not to get confused on the rules for when a security interest is perfected and when it has PRIORITY over another. Look at the file date for when it’s asking about priority.
