Accounting
Anthropology
Archaeology
Art History
Banking
Biology & Life Science
Business
Business Communication
Business Development
Business Ethics
Business Law
Chemistry
Communication
Computer Science
Counseling
Criminal Law
Curriculum & Instruction
Design
Earth Science
Economic
Education
Engineering
Finance
History & Theory
Humanities
Human Resource
International Business
Investments & Securities
Journalism
Law
Management
Marketing
Medicine
Medicine & Health Science
Nursing
Philosophy
Physic
Psychology
Real Estate
Science
Social Science
Sociology
Special Education
Speech
Visual Arts
Business Law
Q:
A nonindorsing transferor makes all five transfer warranties to his/her immediate transferee.
Q:
If a drawee bank mistakenly paid a check over a stop-payment order, the bank cannot recover if it paid the check to a presenter who had taken the instrument in good faith and for value.
Q:
If someone signs a person's name to a negotiable instrument without that person's authorization, the signature binds the person whose name appears.
Q:
A signature not "authorized" when it is put on an instrument initially cannot be ratified later by the person represented.
Q:
Notice of dishonor must be made only by written means.
Q:
Warranties do not depend on presentment, dishonor, and notice, but may be utilized before presentment has been made.
Q:
An indorsing transferor makes all five transfer warranties to his/her immediate transferee.
Q:
An art dealer sells a painting to Cheryl, telling her that it is an original Van Gogh and takes Cheryl's check for $500 in payment. Before making the sale, the art dealer was aware that the painting is not a genuine one but a forgery. Can Cheryl claim any defenses against the payment made to the art dealer?
Q:
The terms of the contract of the parties to a negotiable instrument must be set out in the text of the instrument.
Q:
(p. 821; 822) A person who is primarily liable has agreed to pay the negotiable instrument.
Q:
A drawee has no liability on a check or other draft unless it certifies or accepts the check or draft.
Q:
No person is contractually liable on a negotiable instrument unless she or her authorized agent has signed it and the signature is binding on the represented person.
Q:
Explain the nature and meaning of an indorsement.
Q:
How does one become a "holder in due course"?
Q:
List the claims and defenses available to a holder in due course under the Revised Article 3.
Q:
Explain personal defenses against the payment of negotiable instruments. Give suitable examples.
Q:
This is a partial defense against a holder in due course (or a person having the rights of a holder in due course), and a complete defense against a non-holder in due course.
A. Illegality that makes a contract voidable.
B. Fraud in the inducement.
C. Alteration of the completed instrument.
D. Lack or failure of consideration.
Q:
The Federal Trade Commission (FTC) regulation:
A. cannot fine a seller who fails to include the FTC notice in the note or contract.
B. doesn't apply to persons who sell to consumers on credit.
C. is designed to protect consumers against operation of the holder in due course rule.
D. is designed to make the consumer subject to all claims and defenses of a potential holder.
Q:
When the holder of an instrument has presented it for payment or acceptance and it has then been refused, the negotiable instrument:
A. is considered overdue.
B. has been dishonored.
C. is considered unauthorized.
D. is held to be irregular.
Q:
Carol signs a 30-day note payable to Chrome Appliances for $500 and gives it to Chrome as payment for a stereo set. When Chrome asks Carol for payment, she refuses to pay because the stereo does not work properly. Chrome then negotiates the note to a bank informing it of Carol's refusal to pay. Under this scenario, which of the following statements is true?
A. The bank is not a holder in due course of the note.
B. The bank is a holder in due course of the note.
C. Dishonoured instruments always make the indorser the holder.
D. Chrome is the holder in due course.
Q:
A "claim in recoupment":
A. is a claim of the original payee against the obligor of the instrument.
B. must arise from the transaction that gave rise to the instrument.
C. is actually a defense to an instrument, but not an offset to liability.
D. can make a person a holder in due course even if he knows about it before the negotiation.
Q:
Any person who can trace his title to an instrument back to a holder in due course receives rights similar to a holder in due course even if he cannot meet the requirements himself. This is known as the _______.
A. shelter rule
B. blue law
C. FTC rule
D. irregular paper law
Q:
The claims and defenses to payment of an instrument that go to the validity of the instrument are called:
A. real defenses.
B. personal defenses.
C. claims in recoupment.
D. claims to an instrument.
Q:
Which of the following is a real defense that can be used to avoid or reduce liability on a negotiable instrument?
A. Fraud in the inducement
B. Discharge in bankruptcy
C. Breach of contract
D. Conditional issuance
Q:
A holder in due course takes a negotiable instrument free of all:
A. negotiable defenses.
B. real defenses.
C. claims to the instrument.
D. claims to the bearer.
Q:
In order to become a holder in due course, a person who takes a negotiable instrument must be a holder, and take the instrument:
A. without notice that the instrument contains an authorized signature.
B. with notice that it is overdue or has been dishonoured.
C. with notice of any claim of a property or possessory interest in it.
D. without notice that any party has any defense against it or claim in recoupment to it.
Q:
With instruments payable at a definite time, Revised Article 3 requires that if:
A. the principal is not payable in installments and the due date has not been accelerated, the instrument is overdue on the day after the due date.
B. the principal is due in installments and a due date has not been accelerated, the instrument is overdue on the day after the due date.
C. a due date for the principal has been accelerated, the instrument is overdue upon default.
D. there is a default in payment of the interest but no default in the payment of principal, the instrument becomes overdue.
Q:
If a negotiable instrument is payable on demand, it is overdue:
A. the day after demand for payment has been made in a proper manner and form.
B. 30 days after its date if it is a check.
C. three days after demand for payment has been made in a proper manner and form.
D. 60 days after its date if it is a check.
Q:
Big Oil indorses a check "Pay St. Joseph Coal Co. only if it delivers 1000 tons of coal by 30th September." Under Revised Article 3, what type of indorsement is this?
A. Blank
B. Qualified
C. Conditional
D. Restrictive
Q:
(p. 797; 798) Mike indorsed a check from his employer by signing his name and the words "without recourse." This indorsement is an example of a:
A. qualified indorsement.
B. blank indorsement.
C. special indorsement.
D. restrictive indorsement.
Q:
(p. 797; 798) A qualified indorsement:
A. changes the negotiable nature of the instrument.
B. can only be used with a blank indorsement.
C. can only be used with a special indorsement.
D. eliminates the contractual liability of the indorser.
Q:
Monica contracted with Joe's Furnishing's to complete the work on her house by 1st November. She gave Joe's a negotiable promissory note in the amount of $20,000, payable to the order of Joe's on November 1. Joe's then negotiated the note to the bank. He however, could not complete the work by 1st of November. If the bank is able to qualify as a holder in due course, which of the following statements is true?
A. Monica is not liable to the bank because Joe's breached the contract, not her.
B. The bank can collect the amount from Joe's because he negotiated the note to the bank.
C. Monica can assert personal defense against the bank and avoid payment as Joe's did not complete the work on time.
D. Monica cannot assert personal defense against the bank and avoid payment as it was a negotiation, and not a simple contract.
Q:
An instrument which reads, "For deposit only" is an example of a:
A. qualified indorsement.
B. special indorsement.
C. restrictive indorsement.
D. blank indorsement.
Q:
(p. 795; 796) Which of the following statements is true for a restrictive indorsement?
A. A person who purchases a check indorsed "for collection", automatically converts it even if the indorser received the amount paid for it.
B. If an indorser merely signs his name and does not specify to whom the instrument is payable, he has indorsed the instrument in restriction.
C. The person who takes an instrument with a restrictive indorsement need not pay for the instrument consistently with the indorsement.
D. Indorsements for collection or deposit are restrictive indorsements.
Q:
Which of the following statements is true of an indorsement?
A. It is a necessary component of the negotiation of an instrument and applies only to payments made to a depository bank.
B. It does not affect future attempts to negotiate the instrument.
C. It generally does not make a person liable on the instrument even if he/she is engaged in any illegality affecting the instrument.
D. It makes a person liable on an instrument indorsed by him/her only if the person primarily liable on it does not pay it.
Q:
If a check drawn "Pay to the Order of Wayne Joshua" is indorsed "Wayne Joshua" by Wayne, the type of indorsement is:
A. special.
B. restrictive.
C. blank.
D. qualified.
Q:
An indorsement that contains the signature of the indorser along with the words indicating to whom, or to whose order, the instrument is payable is a __.
A. special indorsement
B. restrictive indorsement
C. blank indorsement
D. qualified indorsement
Q:
If Jamie indorses an instrument in blank and gives it to Clare Hill:
A. Clare must indorse it before it can be negotiated further.
B. Clare may negotiate it without indorsing it.
C. Clare cannot convert the blank indorsement to a special one.
D. Clare is not liable even if she indorses it as it was given to her by Jamie.
Q:
An indorsement that specifies the purpose of the indorsement or specifies the use to be made of the instrument is a:
A. special indorsement.
B. restrictive indorsement.
C. blank indorsement.
D. qualified indorsement.
Q:
An instrument payable to cash:
A. can be negotiated only after indorsement by the person specified.
B. is known as an order paper.
C. may be negotiated by transfer of possession alone.
D. cannot be negotiated by transfer of possession alone.
Q:
Terry has a check indorsed "Pay to the order of Terry." Terry gives the check to Jane without indorsing it. Is Jane a holder?
A. No, because Jane failed to indorse the check.
B. No, because Terry failed to indorse the check.
C. Yes, because only delivery was necessary to negotiate the check.
D. Yes, because Jane may supply the missing indorsement herself.
Q:
Under the Revised Article 3, a check deposited in a depositary bank without indorsement:
A. makes the bank a holder of an item delivered to it only if the customer indorses it.
B. makes the bank a holder of an item delivered to it for collection whether or not the customer indorses it.
C. makes the customer the holder only if the bank indorses it at the time of delivery.
D. makes the customer the holder only if the bank at the time of delivery qualified as a holder.
Q:
If an order instrument is transferred without indorsement:
A. the instrument has not been negotiated.
B. the transferee can qualify as a holder.
C. the transferee has the right to the qualified indorsement of the transferor.
D. the transferee has none of the rights of the transferor to enforce the instrument.
Q:
Claims and defenses to payment of an instrument that go to the validity of an instrument are known as real defenses.
Q:
The FTC rule doesn't apply to persons who sell to consumers on credit.
Q:
The transfer of possession (whether voluntary or involuntary) of a negotiable instrument by a person (other than the issuer) to another person who becomes its holder is known as __.
A. recoupment
B. negotiation
C. indorsement
D. ratification
Q:
To negotiate an instrument:
A. it must not be transferred involuntarily.
B. it must be transferred voluntarily.
C. it must be transferred by a person other than the issuer.
D. it must be transferred by the issuer.
Q:
If an instrument is payable to the order of a specific payee, it is called a(n):
A. order paper.
B. bearer paper.
C. cashier's check.
D. teller's check.
Q:
The use of a qualified indorsement eliminates the contractual liability of the indorser.
Q:
A holder in due course takes the instrument free of the all personal and real defences.
Q:
A forged indorsement will not prevent a person from becoming a holder in due course.
Q:
If a person receives a check that has been signed but the space where the amount of the check is to be written is blank, then he/she cannot be a holder in due course of that check.
Q:
When indorsing an instrument, the holder must spell her name in the same way as it appears on the instrument.
Q:
By indorsing an instrument, a person incurs an obligation to pay it if the person primarily liable on it fails to pay it.
Q:
An order paper can be negotiated by the bearer by transfer alone.
Q:
Indorsing an instrument, "Pay to Sara Garcia," limits payment to Sara Garcia and further negotiation becomes void.
Q:
In case of an indorsement for collection, any person other than a bank who purchases the check is considered to have converted the check unless the indorser received the amount paid for it.
Q:
Tina borrowed $20,000 from ACME Mortgage and signed a promissory note secured by a deed of trust on the land she owned. The note provided for interest at "30% over prime to be adjusted monthly." Is a note providing for a variable amount of interest, not ascertainable from the face of the note, a negotiable instrument?
Q:
Nation-wide Check Corp. sold money orders to drugstores. The money orders contained the words, "Payable to," followed by a blank. Can the money order qualify as a negotiable instrument?
Q:
The involuntary transfer of possession of a bearer instrument doesn't result in a negotiation.
Q:
If an instrument is made payable to cash, it is called bearer paper.
Q:
A bearer instrument can be validly negotiated and transferred without indorsement.
Q:
An indorsement cannot incur the indorser's liability on the instrument.
Q:
(p. 781; 782) An instrument states, "Subject to Approval of Title, Pay to the Order of Holly Rosenberg, $1,999. 00." Is the instrument negotiable?
Q:
The following hierarchy applies when a check contains ambiguous terms.
A. Printed terms prevail over typewritten terms.
B. Handwritten terms prevail over printed and typewritten terms.
C. Where words and number conflict, the numbers control the words.
D. Where words and numbers conflict, only printed words control the numbers.
Q:
(p. 775; 776; 777) What is the difference between a promissory note and a check? Why is the distinction important?
Q:
John borrowed money from Alvin to buy school supplies. He drew up and signed the following promissory note, "IOU, Alvin Anderson, the sum of $20 for value received. John Adams." Is the note a negotiable instrument?
Q:
Identify the statement that holds true of Revised Article 3.
A. Under Article 3, an instrument does not qualify as a check if it contains the engraving "money order" on its face.
B. Revised Article 3 prevents an instrument from meeting the "unconditional promise" if it requires a countersignature of a person whose specimen signature appears on the draft.
C. Under Article 3, a payor bank may pay a postdated check before the stated date unless the drawer has notified the bank of postdating pursuant to a procedure set out in the Code.
D. Revised Article 3 states, an instrument that names a fixed time for payment should not contain a clause permitting the time for payment to be accelerated at the option of the maker.
Q:
Under Revised Article 3, an exception to the rule that an instrument payable on demand is not payable before the date of the instrument is made for:
A. checks.
B. promissory notes.
C. a holder in due course.
D. certificates of deposits.
Q:
A "bearer paper" is:
A. a check made payable to the order of cash.
B. a check that can be transferred only by indorsement.
C. a check that can be negotiated only by indorsement.
D. a check that is payable to the order of a specific person.
Q:
Shelly signed a check payable to the order of Jennifer Jones. The check contained an obvious variance between the numbers and the written words. The numbers indicated that the bank should pay $13,000 to the order of Jennifer Jones, but the written words indicated the bank should pay "the sum of thirteen hundred dollars." Under these circumstances what amount, if any, should the bank pay to the order of Jennifer Jones?
A. $1,300
B. $13,000
C. $6,500
D. $650
Q:
A traveler's check that requires, as a condition to payment, the countersignature of a person whose specimen signature appears on the draft:
A. is negotiable.
B. is not negotiable.
C. is negotiable only if it is payable "to cash."
D. is not negotiable only if it is payable "at sight."
Q:
A note in which the maker promises to pay to the order of James Brown $1,000 or a seven-string Martin guitar:
A. is not negotiable because it contains a conditional promise.
B. is negotiable for payment of the guitar only.
C. is negotiable for payment only if James Brown is the holder of the instrument.
D. is not negotiable because it is not payable for money alone.
Q:
The promise or order in an instrument must be to pay:
A. a fixed amount of money.
B. an undefined amount of money.
C. an amount of money subject to a condition subsequent.
D. the equivalent of the amount specified in any medium on demand.
Q:
(p. 783; 784) Emily Henrik residing in the state of North Carolina sent Gustave Franka residing in France a note which read, "Ninety days after date, I promise to pay to the order of Gustave Franka 5,000 euros (signed) Emily Henrik." The note is:
A. payable in an equivalent dollar amount on the date of payment.
B. payable only in the foreign money specified on the date of payment.
C. payable on demand in the foreign money specified.
D. payable at sight in an equivalent dollar amount.
Q:
A promise or order is "payable on demand" if:
A. it states that it is payable only to the bearer.
B. it states a time for payment.
C. it states that it is payable on the fulfillment of a condition.
D. it states that it is payable at the will of the holder of the instrument.
Q:
An instrument must be signed to qualify as a negotiable instrument. Which of the following statements is true of this basic requirement?
A. An instrument in the form of a note must be signed by the payee who accepts the promise of the issuer.
B. An instrument in the form of a draft must be signed by the person giving the instruction to pay.
C. An instrument is considered to be negotiable only when the maker signs by writing his name on it.
D. A person or company cannot authorize an agent to sign instruments for it.
Q:
A note which contains the statement, "I owe you $500":
A. constitutes an order to pay.
B. constitutes a promise to pay.
C. is not a negotiable instrument.
D. is a negotiable instrument.
Q:
Which of the following will destroy the negotiability of an instrument?
A. Postdating it
B. Conditioning payment on the payee's performance
C. Permitting the holder to extend the payment date
D. Antedating it
Q:
Which of the following instruments is negotiable?
A. A note which states, "I promise to pay to the order of Karl Adams $1,000 if he replaces the roof on my garage."
B. An instrument which provides, "Payment is subject to the terms of a mortgage dated November 20, 2009."
C. A note which contains the statement, "This note is secured by a mortgage dated August 30, 2009."
D. An instrument which reads, "I promise to pay to the order of MyHome Appliance Co. $550 sixty days after the delivery of my new refrigerator."