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54 Cards in this Set

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Can the SEC or AICPA revoke a CPA license?
No - only the state boards of accountancy can revoke licenses.
Is the "without recourse endorser" liable to pay on notes that suffer from material alterations or forgery prior to the qualified endorser's signature? How about infancy of the maker?
In all cases, even the "without recourse" endorer is liable, because all endorsers make a warranty that there is nothing wrong with the instrument at the time of their endorsement.
Does a security agreement require a general description of the collateral goods?
No. The only requirements for a security agreement is that it be written, and that it be signed by the debtor. A financing statement requires a general description of the goods, in addition to, at minimum, the signature of the debtor and the correct spelling of the creditor and debtor parties.
What is another word for a trade draft? In the trade draft, the buyer is ....
... the drawee. A trade acceptance.
If a corporation's shareholders receives a tender offer, must the corporation report the offer to the SEC?
No. Only the offering corporation should report the offer to the SEC.
What is the sale period under Rule 506?
Unlimited time allowed to sell securities under Rule 506.
What are the requirements for attachment?
Value, Rights, Agreement.

1. Creditor gives value to debtor.
2. Debtor has rights in the collateral (is presumed unless shown otherwise) (usually, as indicated by receiving the collateral goods).
3. Agreement in writing, unless creditor has possession of the collateral.
A check is...
a type of draft, drawn on a bank, payable on demand.
What are the conditions of the "fraud by impersonation" phoney payee scam?
If the crook pretends to be someone else, a person who "doesn't have intent of right to paper", and subsequently obtains paper in their name, the title will be legally transferred to a any GFP the impersonator transfers the paper to. This holds the bank liable because the bank is in the best position to prevent the loss.
Can an agent sign a negotiable instrument?
Yes, if they indicate "acting for". If no discolure, agent becomes personally liable.
What are the liability details with regard to a material alteration of a otherwise HIDC-kosher instrument?
The HIDC can only collect the original amount; the issuer is only liable for the original amount. HIDC can go after anyone who endorsed the item after it was materially altered, unless they qualified their endorsement.
The phrase "commercial paper" is used interchangeably with...
... is used interchangeably with the phrase "negotiable instruments".
Will the infancy of a debtor excuse the liability of the surety?
No.
Is consideration required to modify a sale of goods contract?
No. Unlike general contract law, no consideration is required to modify a sale of goods contract.
How many years does the depositor have to inform the bank of a forgery of the depositor's signature? Of the endorser's signature? To avoid liability for the second forgery by the same person?
Depositor has 1 year to inform the bank of the forgery of a depositor's signature. Depositor has 3 years to inform of a forgery of a endorser's signature. Depositor must notify bank within 30 days of the discovery of the first forgery to protect against the second forgery.
If I give you a written promise to wash your car and give you $5, is this a negotiable instrument?

If I offer to give you $5 OR wash your car, is this negotiable?
In both cases, the instrument will be non-negotiable.
Are all municipal bonds exempt from the SEC Act of '33 requiring registration?
No - only bonds / securities issued by municipalities that are for governmental purposes.
What does "unconditional promise" as an element of negotiability entail?
The instrument CANNOT say "subject to" - this makes it nonnegotiable.

The instrument CAN be postdated / antedated; can say "aries out of the sale of goods"; can specify consideration or not; can say "the instrument is secured by collateral"; "for value received"; "as per contract"; etc.
Which two SEC Reg D rules require all securities to be sold within a fixed time period? What is that time period?
Both Reg D rules 504 and 505 require all securities to be sold within 12 months.
Are documents of title and investment securities commercial paper?
No, but follow the same rules.
To be a holder in due course, a person must:
1. Be a holder of a negotiable instrument.
2. V - Take it for value.
3. F - Take it in good faith.
4. W - Take it without notice that it is overdue, has been dishonored, or that there is any defense or claim to it.
What are the elements of negotiability?
SUMBOD:

-) Signed by maker or drawer
-) Unconditional
-) Money - payable only in money
**either**
-) Bearer Paper (payable to GF bearer)
-) Order Paper (payable to order) unless a check
-) Demand - payable on demand, or at a definite time
Can a forgery transfer title? Any situations where it could?
Normally, no. However, in the two phoney payee situations, forgery CAN transfer title. They are the "fraud by impersonation" and the "dishonest employee."
What are the four types of endorsements?
Blank, Special, Restrictive, Without Recourse (Qualified Endorser).
If a seller acquires a blank-endorsed nonnegotiable instrument, can the seller obtain payment from the original maker if the maker alleges misrepresentation on the part of the original payee?
No. Remember, the seller won't be a HIDC unless the instrument was negotiable (among other qualifications). Thus, the seller may not be able to obtain payment from the original maker, who can use the same legal defenses against the seller as against the original payee.
The draft equivalent of a promissory note's maker is...
... a drawer.
Will the value requirement in determining whether a person is a HIDC with respect to a check be satisfied by the taking of the check in exchange for another negotiable instrument? How about as security for an obligation to the extent of the obligation?
Both are OK, as both represent a valid giving of current value.
Are there any situations in which a creditor can obtain a perfected security interest without filing an FS?
Yes, two situations. The interest will be perfected if 1) the creditor obtains posession of the collateral, and 2) the debtor bought the collateral from the seller / creditor for use as a consumer good, and a security interest has been attached (the automatic perfection clause).
When will a new purchaser have no liability on the mortgage debt?
Only when the new purchaser "took subject to the mortgage" rather than outright assuming the mortgage.
Is a security interest an integral part of the attachment clause? Does attachment require a signed security agreement?
Yes. No - a creditor in possession of the goods has a security interest without requiring a security agreement.
Does the original mortgagor guarantee the mortgage payment performance of the new mortgagor?
Yes. Unless a novation has occured, the original mortgagor acts as a surety for the one who assumes the mortage.
Does a dissolution of a corporation require the approval of the stockholders?
Yes.
What are the creditor's three remedies against a defaulting debtor?
They can, in any order: sue the debtor; sue the surety; go after collateral.

However, before you can sue a guarantor of collection, you must exhaust all remedies against principal debtors.
Can the limited liability of a stockholder in a closely held corporation be challenged successfully if the stockholder formed the corporation solely to have limited personal liability?
No.
Four factors that frequently cause the courts to pierce the corporate veil are listed below:
Fraudulently inducing someone into dealing with the corporation rather than the individual. "Thinly capitalized corporations." Failure to act as a corporation. Commingling personal and corporate assets to the extent that the corporation has no identity of its own.
If the creditor perpetrates a fraud on the surety, is the surety still liable?
No.
Can management purchase more than 55% of the stock of another corporation without the shareholder's approval?
No.
What are the guarantor of collection's special protections against a suing creditor?
The creditor must exhaust all remedies against principal debtors before you can sue the G-C. This includes virtually throwing debtor into bankruptcy. The chance the G-C will become liable is slim.
For the purposes of attachment, does a debtor obtain rights in the collateral when the collateral is identified in a contract, but before the debtor actually receives the collateral?
Yes.
Can the original mortagor go after the person who assumed the mortgage after the original mortgagor is made to pay?
Yes.
If a purchaser / debtor orally agrees to give the seller / creditor a security interest in a purchased consumer good, will the creditor's interest in the good be perfected due to the special third cause of perfection?
No. The special third cause of perfection is automatic attachment, or attachment equals perfection. That is, perfection occurs automatically for consumer goods when the creditor's interest attaches. For attachment to occur, a written security agreement must exist. No written agreement exists in this example.
What is the effect of "taking subject to a mortgage"?
The new purchaser has no personal liability on the mortage debt; all you stand to lose is the property.
Is a genuine secured party necessarily attached to the collateral?
Yes. A secured party must have an enforceable security interest in the collateral, and the interest must be attached to be enforceable.
What is a novation?
A substition of debtors with the creditor's consent.
What defenses are good against even the HIDC?
Universal / Real defenses. IFMIF. Infancy, Forgery (don't forget phoney payees), Material Alteration, Insanity / Illegality / Insolvency, Fraud in the Execution (NOT Fraud in the inducement).
What are the surety's rights when the debtor defaults?
ICES. Indemnity (reimbursement), Contribution, Exoneration (rare), Subrogation.
Do endorsers that provides a qualified endorsement exclude themselves from any warranty on the instrument?
No. All endorsers make warranties that there's nothing wrong with the instrument at the time of endorsement.
When can the surety go after the defaulting debtor's collateral?
Only when the surety has paid the creditor in full for the defaulting debtor; only then can the surety "step into the creditor's shoes" to go after collateral.
What is the right of contribution?
The right of one surety who paid in full on a defaulting debtor to go after other co-surities for the pro-rata portion of their legal guarantees.
If a drawer gives a blank check to someone else and tells them to complete the check for the amount the drawer owes them, is the drawer liable for any amount on the check?
Not to the original payee - only liable for the amount actually owed.

But IS liable for any amount to a HIDC - issuer is liable due to issuer's negligence.
The phrase "surety" is used interchangeably with ...
.... is used interchangeably with "guarantor."
Does a change in contract release the surety from liability?
Only if the change in contract is material. A material change, whether unfavorable or favorable to the surety, releases the surety from liability.
What is the definition of subrogation?
The right of surety to step into the creditor's shoes and go after any collateral held by the creditor.
If the creditor perpetrates a fraud on the debtor, is the surety still liable?
Yes.
Are general partnership interests considered securities?
No. Limited partnership interests are, however.