Q&A Hero

Q: Rita is a surety for Sue's loan from Total Finance Company. Rita's right to "step into the shoes" of Total Finance, after paying Sue's debt, and exercise any of the Total Finance's rights against Sue is the right of a. contribution. b. redemption. c. reimbursement. d. subrogation.

Q: Ross and Sally agree to guarantee Tim's debt. Ross's maximum liability is $30,000, and Sally's is $20,000. Tim owes $20,000 and is in default. Ross pays the creditor the entire amount. In the absence of an agreement to the contrary, Ross can recover from Sally a. $8,000. b. $10,000. c. $20,000. d. nothing.

Q: Fact Pattern 28-3 Dina asks Edie to co-sign a credit application so that she can borrow money and buy a truck from Finest Quality Motors. Refer to Fact Pattern 28-3. 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.

Q: Fact Pattern 28-3 Dina asks Edie to co-sign a credit application so that she can borrow money and buy a truck from Finest Quality Motors. Refer to Fact Pattern 28-3. 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.

Q: Fact Pattern 28-3 Dina asks Edie to co-sign a credit application so that she can borrow money and buy a truck from Finest Quality Motors. Refer to Fact Pattern 28-3. If Edie signs the application only after language is included that requires Finest to exhaust its legal remedies against Dina before looking to her, then Edie is a. a guarantor and a surety. b. a guarantor only. c. a surety only. d. neither a guarantor nor a surety.

Q: Fact Pattern 28-3 Dina asks Edie to co-sign a credit application so that she can borrow money and buy a truck from Finest Quality Motors. Refer to Fact Pattern 28-3. If Edie signs the application but fails to condition her signature on Finest's agreement to pursue its legal remedies against Dina before looking to her, then Edie is a. a guarantor and a surety. b. a guarantor only. c. a surety only. d. neither a guarantor nor a surety.

Q: AAA Delivery Company buys a truck from Best Vehicles, Inc., under a guaranty signed by Carol, AAA's president, who writes "President" after her signature. When AAA does not pay for the truck, Best sues Carol., who claims that she did not intend to be bound by the guaranty. The court would most likely rule in favor of a. Best, because Carol's guaranty is unambiguous. b. Best, because Carol works for AAA. c. Carol, because she did not intend to be bound by the guaranty. d. Carol, because she signed only as a corporate officer.

Q: 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.

Q: Frank's farm is to be sold at a foreclosure sale. For Frank to keep the farm by paying the full amount of the debt, plus any interest and costs that have accrued, is a. the equity of redemption. b. the exercise of exemption. c. the right of contribution. d. the right of subrogation.

Q: Fact Pattern 28-2 Sal is a waitperson at Tasty Café. More than half of Sal's income consists of her tips. Universal Credit Corporation (UCC) obtains a judgment against Sal for an unpaid debt. UCC obtains a garnishment order against Tasty to recover part of Sal's "wages" in satisfaction of the judgment. Refer to Fact Pattern 28-2. The reason for the result, under the reasoning of the court in Case 28.1, Shanks v. Lowe, would most likely be that a. federal law does not exclude tips from the term "wages." b. federal law expressly includes tips in the term "wages." c. state law does not exclude tips from the term "wages." d. state law expressly includes tips in the term "wages."

Q: Fact Pattern 28-2 Sal is a waitperson at Tasty Café. More than half of Sal's income consists of her tips. Universal Credit Corporation (UCC) obtains a judgment against Sal for an unpaid debt. UCC obtains a garnishment order against Tasty to recover part of Sal's "wages" in satisfaction of the judgment. Refer to Fact Pattern 28-2. Under the decision of the court in Case 1, Shanks v. Lowe, it is most likely that Sal's "wages" will be held to include a. all of Sal's tips. b. as much of Sal's tips as Sal is willing to contribute. c. as much of Sal's tips as Tasty is willing to collect for UCC. d. none of Sal's tips.

Q: Dan owes Sally $10,000. With a writ of attachment or execution, Sally can satisfy the debt from Dan's a. exempt property only. b. nonexempt property only. c. exempt or nonexempt property. d. none of the above.

Q: Larry borrows money from Joan. If Larry defaults, to use a writ of execution as a remedy Joan must first a. commence a suit against Larry. b. succeed in a suit against Larry. c. be unable to collect the amount of a judgment against Larry. d. all of the above.

Q: Friendly Credit Corporation (FCC) believes that Gary might dispose of the assets that FCC expects to receive as payment for Gary's debt before FCC can obtain a judgment. FCC may ask a court to issue a writ of a. attachment. b. contribution. c. execution. d. redemption.

Q: Aaron, a jeweler, repairs Beth's necklace and returns it to her even though she does not pay for the repairs. To recover payment, Aaron can claim a. a mechanic's lien. b. an artisan's lien. c. an innkeeper's lien. d. none of the above.

Q: Ann owes Ben $500 on their contract, but refuses to pay. To collect, Ben files a mechanic's lien, under which security for the debt is represented by a. Ann's personal property. b. Ann's real estate. c. the $500 owed under the contract. d. the contract.

Q: Fact Pattern 28-1 Ruth hires Standard Carpenters, Inc., to build a fence around her property. When the fence is finished, Ruth does not pay Standard Carpenters for the work. Refer to Fact Pattern 28-1. Standard Carpenters is a. a guarantor. b. a lien creditor. c. a mortgagor. d. a surety.

Q: Fact Pattern 28-1 Ruth hires Standard Carpenters, Inc., to build a fence around her property. When the fence is finished, Ruth does not pay Standard Carpenters for the work. Refer to Fact Pattern 28-1. To collect the debt, Standard Carpenters may place on Ruth's property a. a judicial lien. b. a mechanic's lien. c. an artisan's lien. d. an innkeeper's lien.

Q: Personal possessions are not usually included in state exemption statutes.

Q: Homestead exemptions are designed to permit debtors to retain some part or all of the value of their homes, free from the claims of some creditors.

Q: Certain types of property are exempt from levy of execution or attachment.

Q: If the debtor offers to pay the debt owed to a creditor but the creditor refuses the tender, the surety remains obligated on the debt.

Q: A release by the creditor of the principal debtor, without the consent of the surety, will, without more, release the surety.

Q: Before the guarantor of a debt can be required to answer for the debt of a debtor, the debtor must have defaulted on the underlying obligation.

Q: Under a guaranty contract, the guarantor is permitted to be responsible for only a single transaction.

Q: A contract of suretyship must be in writing to be enforceable.

Q: A surety becomes primarily liable only when a debtor cannot pay a debt.

Q: A surety is secondarily liable on an obligation.

Q: To foreclose on real property securing a mortgage, the mortgagee must ask a court for a deficiency judgment.

Q: A mortgagee has the right to seek a judicial sale of the mortgaged property on the mortgagor's default.

Q: The law limits the amount of money that can be garnished from a debtor's weekly take-home pay.

Q: A court may not order an employer, as a result of a garnishment proceeding, to turn over a debtor-employee's property to pay a debt.

Q: If a debtor will not pay a judgment, a creditor can only resort to "self-help" to collect.

Q: An attachment is a court-ordered seizure and taking into custody of property prior to the securing of a judgment for a past-due debt.

Q: An artisan's lien is effective only if a creditor has possession of the property.

Q: A debt does not have to be past due before a creditor can begin legal action against a debtor.

Q: A creditor with a mechanic's lien on property can sell the property to satisfy the debt.

Q: A mechanic's lien can be enforced to obtain payment for work that adds value to personal property.

Q: Tom authorizes United Bank to make transfers from his account to make payments on his debt to Vic's Auto Dealership, which sold Tom the car that serves as collateral for the debt. After three payments, Vic's repossesses the car and refuses to return it. Tom phones the bank to stop the payments and follows up with a confirming letter. The bank fails to stop the next two payments, and Vic's refuses to refund anything. Can Tom get his money from the bank?

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: Liquid Cash Company is a brick-and-mortar money service business. Money Online, Inc., is an Internet-based money service. In those states that have adopted the Uniform Money Services Act, a state license is required to be obtained by a. Liquid Cash only. b. Liquid Cash and Money Online. c. Money Online only. d. neither Liquid Cash nor Money Online.

Q: AAA Financial Service is a money service business. Unlike a bank, AAA does not a. accept deposits. b. cash checks. c. exchange foreign currency. d. issue money orders, traveler's checks, and stored-value cards.

Q: Pete knowingly divulges to Media Exposure magazine information about Randy's e-money payments to City Bank. The payments were in transmission to City Bank when Pete, without the consent of Randy or City Bank, discovered and revealed them. This may be a violation of a. the Electronic Communications Privacy Act. b. the Federal Reserve Board's Regulation E. c. the Right to Financial Privacy Act. d. the Uniform Electronic Transactions Act.

Q: Dina's debit card, issued by Eagle Bank, is stolen and used without Dina's permission. Dina tells Eagle Bank within thirty days. Dina may be required to pay no more than a. $5. b. $50. c. $500. d. $5,000.

Q: Bob's debit card, issued by City Bank, is stolen and used without Bob's permission. Bob tells City Bank within a day and a half. Bob may be required to pay no more than a. $5. b. $50. c. $500. d. $5,000.

Q: First National Bank receives a check drawn on the account of Rich Industries, Inc., one of the bank's customers, at 3 p.m. Friday. Sherry, 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: Fact Pattern 27-1 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 account 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. Refer to Fact Pattern 27-1. 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.

Q: Fact Pattern 27-1 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 account 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. Refer to Fact Pattern 27-1. Tom's bank is a. the cashing bank. b. the depositary bank. c. the intermediary bank. d. the payor bank.

Q: Fact Pattern 27-1 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 account 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. Refer to Fact Pattern 27-1. Digital's bank is a. the cashing bank. b. the depositary bank. c. the intermediary bank. d. the payor bank.

Q: On Monday, Eve deposits in her account at First State Bank a local check for $500. After 5:00 p.m. on Friday, from these funds, Eve can withdraw no more than a. $100. b. $400. c. $500. d. $600.

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, First State Bank, pays the check. Clyde can recover from a. Elle, but not First State Bank. b. First State Bank, which cannot recover from Elle. c. First State Bank, which can recover from Elle. d. no one.

Q: Steve steals one of Tricia's checks and forges her signature. Tricia's bank, United Bank, pays the check. Tricia can recover from a. Steve, but not United Bank. b. United Bank, which cannot recover from Steve. c. United Bank, which can recover from Steve. d. no one.

Q: First State Bank pays a check over the forged signature of the drawer, Greg, who is a First State customer. First State must recredit Greg's account for the entire amount of the check if a. the amount of the check was less than $1,000. b. the amount of the check was more than $2,500. c. the bank failed to exercise ordinary care in paying the check. d. Greg's negligence substantially contributed to the forgery.

Q: Earl issues a check drawn on First National Bank to Good Office Supply to pay for six filing cabinets. Later, Earl discovers defects in the goods and orders First National to stop payment on the check. Earl does not renew the order, and the bank clears the check eight months later. The bank a. must recredit Earl's account and substitute acceptable goods. b. must recredit Earl's account or substitute acceptable goods. c. must substitute acceptable goods but not recredit Earl's account. d. need not recredit Earl's account or substitute acceptable goods.

Q: On May 1, Ace Personnel, Inc., issues a payroll check to Barb drawn on its account at City Bank. On June 1, Ace receives its bank statement. On June 20, Barb indorses the check and cashes it at Downtown Finance Corporation. On July 1, Downtown transfers the check to EZ Collection Agency. On December 1, EZ presents the check to First National for payment. A stale check is one that is presented for payment a. six months after issue. b. six months after the first indorsement. c. six weeks after issue. d. six weeks after the last statement.

Q: 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.

Q: Dan writes a check to Eve 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 Eve. c. liable to Eve only. d. not liable to Dan or Eve.

Q: 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.

Q: Jay is the holder and payee of a check drawn by Karen on Local Bank. Jay takes the check to the bank to have it certified. After certification a. Karen is discharged on the check. b. Karen is primarily liable on the check. c. Local is discharged on the check. d. Local is secondarily liable on the check.

Q: Standard Wholesalers, Inc., asks United Purchasing Company to pay for goods with a certified check. A certified check a. cannot be forged. b. does not discharge its drawer from liability. c. does not discharge prior indorsers from liability. d. is guaranteed by a bank.

Q: Currently, it is not clear which, if any, laws apply to the security of e-money payment information.

Q: Money-service businesses have not been subject to regulation to the same extent as other financial service businesses.

Q: Deferred posting is the process of dishonoring checks for insufficient funds.

Q: The bank on which a check is drawn is the collecting bank.

Q: Generally, a cash deposit is not available for withdrawal until the next business day.

Q: A customer does not need to examine a bank statement and report his or her forged signature to recover from the bank for the forgery.

Q: When a bank pays a check on which the drawer's signature is forged, generally the bank suffers the loss.

Q: A bank is never obligated to recredit a customer's account when it pays a check with the customer's forged signature.

Q: A bank must always recredit a customer's account when it pays a check with the customer's forged signature.

Q: A forged signature has no legal effect as the signature of a drawer.

Q: When a bank pays a check on which the drawer's signature is forged, generally the customer suffers the loss.

Q: An oral stop payment order is valid for thirty days.

Q: A bank is obligated to pay an uncertified check presented less than six months from its date.

Q: Banks are required to constantly verify the life and competence of their drawers.

Q: A bank has no right to charge a customer's account for the amount of a stale check.

Q: When a check "bounces," its holder can resubmit the check later, hoping that sufficient funds will be available.

Q: Generally, a bank has no obligation to pay a customer's overdrafts.

Q: A bank is subject to a civil suit if its customer writes a bad check.

Q: Certified checks are instruments that have been accepted for payment by the institutions on which they are drawn.

Q: UCC Articles 3 and 4 govern checks.