Q&A Hero

Q: A buyer in the ordinary course of business has priority over any security interest created by the seller.

Q: Gigi, a twenty-year-old, wants to execute a will before she undertakes a moun­tain-climbing trip on a peak in the Himalaya Mountains. In most states, the legal age for executing a will is a. sixteen years of age. b. eighteen years of age. c. twenty-one years of age. d. twenty-five years of age.

Q: The Federal Reserve System acts as a clearinghouse where banks exchange checks.

Q: The first security interest to be perfected is the last in priority over any other perfected security interests.

Q: The assets in Dong's estate, including the value of his home on Elm Street and its contents, are insufficient to pay in full all of the gifts provided for in his will. His heirs will receive a. full payment in order of seniority until the assets are exhausted. b. nothingthe assets will descend to the state. c. reduced benefits. d. the option of distributing the assets according to their wishes.

Q: Each bank in a collection chain must pass a check on before noon of the day of its receipt.

Q: When two conflicting security interests are unperfected, the first to attach has priority.

Q: According to the terms of Carmen's will, specific gifts are made, and taxes and other es­tate expenses and debts are paid. The assets of Carmen's estate that remain are a. a bequest. b. a legacy. c. an abatement. d. the residuum.

Q: The last security interest to be perfected is the first in priority over any other perfected security interests.

Q: Under the Check Clearing in the 21st Century Act, a bank has to credit a customer's account as soon as the bank receives the funds.

Q: In his will, Vigor makes a gift of $10,000 to Wylie. This is a. a general bequest. b. an abatement. c. a residuary. d. a specific devise.

Q: Keri's will states, "I give to my sister Liz my condominium in Malibu, California." This is a. a general bequest. b. an abatement. c. a residuary. d. a specific devise.

Q: The first bank to receive a check for payment is the depositary bank.

Q: A forged indorsement does not transfer title.

Q: Clayton dies without a will. The distribution of Clayton's property, including his farm near Lincoln, Nebraska, is prescribed by a. a court-appointed executor. b. federal probate statutes. c. state intestacy laws. d. the degree of consanguinity between Clayton and his next of kin.

Q: A customer must examine a bank statement and report any discovered forged signa­ture to recover from the bank for the forgery.

Q: Speedy Shipping Corporation applies to TransInsurance Company for a fire insurance pol­icy on Speedy's warehouse. On the application, Speedy misrepresents the age of the property to obtain a lower premium. When a fire soon destroys the ware­house, TransInsurance can a. deny payment, because a fire destroyed Speedy's warehouse. b. deny payment, because of Speedy's fraud in the application. c. not deny payment, because a fire destroyed Speedy's warehouse. d. not deny payment, because the application is not part of the policy.

Q: A bank cannot recover from a party who cashes a check bearing a forged drawer's signature once the bank has accepted and paid the item.

Q: The concept of a floating lien does not apply to a shifting stock of goods.

Q: A bank that pays a customer's check with a forged drawer's signature can generally pass the loss onto the customer.

Q: Kelsy obtains a business liability insurance policy from Luminous Insurance Company for Kelsy's Framing & Art Supplies store. When an event occurs that gives rise to a claim, Luminous has a duty to a. investigate to determine the facts. b. file a suit against Kelsy so that a court can settle the claim. c. find a third party on whom to impose liability. d. refund any unearned amount of the premium.

Q: A security interest that provides for a security interest in proceeds is a floating lien.

Q: Edy obtains a homeowners' insurance policy with First Source Insurance Company. First Source can cancel the policy a. if Edy appears as a witness in a case against First Source. b. if Edy fails to pay the premiums. c. if Edy makes changes that add to the home's value. d. under no circumstances.

Q: A forged signature is effective as the signature of a drawer to the extent that is resembles the drawer's actual signature.

Q: Kerin obtains a property insurance policy for her art collection from Lawton Insurance Company. Kerin can cancel the policy a. at any time. b. only at the end of a period for which a premium has been paid. c. only if Kerin no longer has an insurable interest in the property. d. only on advance written notice.

Q: A bank is not responsible for determining whether a signature on a customer's check is genuine.

Q: Intermittent advances against a line of credit can be subject to the same collateral.

Q: Holly obtains an insurance policy from Inviolable Insurance Corporation (IIC). IIC may cancel, or refuse to renew, the policy because of a. Holly's appearance as a witness against IIC. b. Holly's national origin. c. Holly's race. d. none of the choices.

Q: The incompetence of a customer revokes a bank's authority to pay an item.

Q: A future advance against a line of credit must be of the same type as the original advance to be subject to the same collateral.

Q: Proceeds consist of whatever is received when collateral is sold.

Q: A bank may not pay any checks on a customer's account after the date of the customer's death.

Q: Trustworthy Insurance, Inc., has a valid reason to cancel a policy issued to USA Sales Company. In most states, Trustworthy could cancel the policy with a. oral notice. b. oral or written notice. c. no notice. d. written notice.

Q: A continuation statement is effective only if it is filed within six months before the expiration of a financing statement.

Q: A bank may contractually shift to the customer the risk of forged checks created by the use of facsimile or other nonmanual signatures.

Q: Isabel obtains a fire insurance policy on her home from Justice Insurance Company. The home is lost in a fire, but the parties dispute the amount of Justice's liability under an ambiguous clause in the policy. A court would most likely a. interpret the clause against Isabel. b. interpret the clause against Justice. c. rewrite the clause and apply it as rewritten. d. strike the clause from the policy.

Q: A financing statement is effective for no more than five months from the date of filing.

Q: Ginny obtains a health-insurance policy for her family from Hope Insurance Company. The policy includes an incontestability clause. Under such a clause, after a policy has been in force for a specified period or time, such as two or three years a. Ginny cannot contest Hope's insurable interest. b. Ginny cannot contest Hope's refusal to pay a claim under the policy. c. Hope cannot contest Ginny's eligibility for continued coverage. d. Hope cannot contest Ginny's statements in the application.

Q: A customer has a right to stop payment on a check that has been certified or accepted by a bank.

Q: A written stop payment order is valid for only thirty days.

Q: Filing a financing statement with the appropriate public office is the only way to per­fect a purchase-money security interest in consumer goods.

Q: Donald applies for a life insurance policy with Equity Insurance Company through Fletch, an agent who works for Equity. Donald pays the initial premium. Fletch writes a binder, which a. acknowledges the application and promises to consider it. b. attests to the truth of each statement in the application c. evidences receipt of the payment of the initial premium. d. indicates that a policy is pending and states its essential terms.

Q: Root & Branch Lumber Company obtains a fire insurance policy from Statistical Insurers, Inc., on a $400,000 warehouse. The policy includes an 80-percent coinsurance clause. Root & Branch insures the property for $320,000. In a fire, the warehouse suffers $200,000 in damage. Root & Branch can recover a. $400,000. b. $320,000. c. $200,000. d. $80,000.

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

Q: A purchase-money security interest arises only when a seller pro­vides a buyer with the "purchase money" to buy goods.

Q: A bank is not obligated to pay an uncertified check presented less than six months from its date.

Q: A purchase-money security interest in consumer goods is perfected automatically at the time of a credit sale.

Q: Rolling Transport & Storage Corporation wants to insure its warehouse to obtain the maximum possible recovery for the lowest possible pre­mium. To obtain the maximum recovery under a coinsurance clause, the percentage of the value of the property that should be insured is a. 80 percent. b. 90 percent. c. 100 percent. d. 120 percent.

Q: EZ Rentals Company wants to insure the equipment that it rents to the public. To obtain insurance, EZ must have an insurable inter­est in the equipment a. at any time. b. at the time a loss occurs. c. at the time a policy is obtained. d. continuously from the time a policy is obtained to the time a loss occurs.

Q: A pledge is a promise by a debtor to take reasonable care of the collateral.

Q: Mena applies for a homeowners' insurance policy on her house with Neighbors Insurance Company through Obie, an agent who works for Neighbors. In this transaction, Obie is a. an agent for both parties. b. Mena's agent, and not Neighbors's agent. c. Neighbors's agent, and not Mena's agent. d. not an agent.

Q: An improper filing renders a secured party unperfected.

Q: Reno is the beneficiary of a life insurance policy on Sula's life obtained from Thayer Insurance Company. The underwriter of this policy is a. Reno. b. Sula. c. Thayer. d. the agent or broker through whom the policy was obtained.

Q: The state office in which a financing statement should be filed depends on the creditor's location.

Q: Grace applies for a homeowners' insurance policy on her house with Heroic Insurance Company through Ian, a broker. In this transaction, Ian is a. an agent for both parties. b. Grace's agent, and not Heroic's agent. c. Heroic's agent, and not Grace's agent. d. not an agent.

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

Q: A description of collateral as "all the debtor's assets" is too general to reasonably identify the subject of a security agreement.

Q: To be valid, a security agreement must contain a description of the collateral.

Q: Commercial banking practices consider a check that has been outstanding for three months to be a stale check.

Q: Dhani is the beneficiary of a life insurance policy on Elmo's life obtained from Famed Insurance Company. The insured under this policy is a. Dhani. b. Elmo. c. Famed. d. the agent or broker through whom the policy was obtained.

Q: Bret obtains a fire insurance policy on his rental house with Continental Insurance Company. Like all insurance, this policy is an arrangement for a. avoiding the assumption of responsibility. b. predicting a potential loss based on unknown factors. c. shifting the imposition of liability. d. transferring and allocating risk.

Q: A financing statement is effective only if it is filed electronically.

Q: A customer who writes a bad check may be subject to criminal prosecution.

Q: A security agreement must be filed in person to be valid and enforceable.

Q: If a customer does not have sufficient funds to pay a check available in his or her checking account and the bank dishonors the check, the bank is liable to the customer.

Q: A constructive trust is "constructed" by a property owner to fulfill certain unique functions outside the usual bounds of a trust.

Q: The rights and duties of a bank and its customer are contractual.

Q: A spendthrift trust provides for a beneficiary's transfer of his or her right to future payments of trust funds.

Q: When a customer deposits cash into a checking account, he or she becomes a debtor for the amount deposited.

Q: An express trust is created or declared in explicit terms.

Q: A security interest cannot be perfected without the filing of a financing statement.

Q: A certified check is a check that has been signed by a notary public.

Q: A security interest may attach to intangible collateral but cannot be perfected.

Q: The trustee is the person for whose benefit a trust is held.

Q: To create an enforceable security interest, the secured party must give value.

Q: If no children or grandchildren survive a decedent who dies without a will, a surviving spouse is entitled to the entire estate.

Q: A check is a special type of draft.

Q: For a creditor to have an enforceable security interest, the debtor must have title to the collateral.

Q: A will is probated in part to establish its validity.

Q: A security interest is enforceable only if the collateral is in the secured party's possession.