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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."
Q:
(p. 779; 780) Richard borrowed $100 from his friend, Leonard Smith. Richard signed a handwritten note stating, "I promise to pay $100 to the order of Leonard Smith." Under these circumstances:
A. the note is negotiable because it is a simple contract.
B. the note is not negotiable because it does not acknowledge the reason for the debt.
C. the note is not negotiable because it does not state the time payment is due.
D. the note is negotiable because it meets the requirements for negotiability.
Q:
(p. 780; 781) A negotiable instrument:
A. must be payable to a specific person.
B. must be payable "to cash."
C. must be payable "to order" or "to bearer."
D. must be payable on fulfillment of a conditional promise.
Q:
If an instrument satisfies the formal requirements of writing, signature, unconditional order to pay, and pay ability on demand:
A. it is negotiable even though it is void or unenforceable for other reasons.
B. it cannot be held by a holder in due course.
C. validity of the instrument is automatically conferred.
D. it is not negotiable if it is uncollectible for other reasons.
Q:
A holder in due course takes the instrument free of all:
A. defenses and claims to the instrument.
B. defenses and claims to the instrument except those which concern its validity.
C. defenses and claims to the instrument except those which concern its negotiability.
D. defenses and claims to the instrument except those it has notice of.
Q:
(p. 779; 780; 781) Ricardo borrowed $1,000 from his friend, John Wilfred. Ricardo signed a handwritten note stating, "I promise to pay $1,000 to John Wilfred on or before August 1, 2001." Under these circumstances:
A. the note is negotiable because it was handwritten.
B. the note is not negotiable because it does not acknowledge the reason for the debt.
C. the note is not negotiable because it is not payable to order or to bearer.
D. the note is negotiable because it is a simple contract.
Q:
A certificate of deposit:
A. is an instrument in which the maker makes an unconditional promise to pay a fixed amount of money with interest to the payee on demand.
B. is the most widely used form of commercial paper that is a draft payable on demand and drawn on a bank.
C. is an instrument in which the maker makes an unconditional promise to pay a fixed amount of money without interest to the payee at the specified future time.
D. is an instrument containing an acknowledgment by a bank that it has received a deposit of money and a promise to repay the sum of money.
Q:
A draft is a:
A. two-party instrument.
B. three-party instrument.
C. single party instrument.
D. debit instrument.
Q:
Which of the following would qualify as a "check" under the terms of the Code?
A. A money order
B. A treasury bill
C. A promissory note
D. A certificate of deposit
Q:
A teller's check:
A. is a draft drawn by a bank on any other financial institutions other than a bank.
B. is a check drawn by a bank on an individual's funds.
C. is a draft on which the drawer or drawee are the same bank.
D. is a draft drawn by a bank on another bank or payable at or through a bank.
Q:
The FTC has adopted a regulation that:
A. follows the traditional rights of a holder in due course in consumer purchase transactions.
B. alters the rights of a holder in due course in consumer purchase transactions.
C. allows a consumer who gives a negotiable instrument to use only the defense of fraudulent inducement.
D. denies all rights of a holder in due course in consumer purchase transactions.
Q:
An instrument can qualify as a negotiable instrument if includes a clause concerning an authorization to confess judgment or to realize on or dispose of collateral.
Q:
When the terms of a check are ambiguous, handwritten terms prevail over printed terms.
Q:
A contract for the payment of money which also serves as a substitute for money payable immediately is a:
A. sovereign bond.
B. corporate bond.
C. commercial paper.
D. commodity paper.
Q:
Commercial paper is:
A. the basic selling document of a 1933 Act registered offering.
B. a public offer by a bidder to purchase a target company's equity securities.
C. a way to either issue immediate payment or to extend credit.
D. any unit of goods that is treated by commercial usage as a single whole.
Q:
Which of the following is true of the articles of the UCC that deal with the law of commercial paper?
A. The law of commercial paper is covered in Article 3 and Article 4 of the Uniform Commercial Code.
B. Revised Article 3 of the UCC developed in 1990 has now been adopted by almost all the states.
C. The law of commercial paper is covered only in Article 3 of the UCC that deals with negotiable instruments.
D. Negotiable documents, such as investment securities and documents of title, are also treated in Article 3 of the UCC.
Q:
A two-party instrument in which one person makes an unconditional promise in writing to pay another person, with or without interest, either on demand or at a specified, future time is a:
A. promissory note.
B. certificate of deposit.
C. draft.
D. check.
Q:
The negotiability of an instrument is affected by a statement of the consideration for which the instrument was given.
Q:
If an instrument is undated, its "date" is the date it is issued by the maker or drawer.
Q:
An instrument can be made payable to two or more payees.
Q:
An instrument that meets all of the formal requirements is not a negotiable instrument if it is unenforceable or uncollectible for other reasons.
Q:
Negotiability is the same thing as validity with regard to commercial paper.
Q:
A check is a draft payable upon demand and drawn on the bank.
Q:
A cashier's check is a draft drawn by a bank on another bank or payable through a bank.
Q:
The object of a negotiable instrument is to have it accepted readily as a substitute for money.
Q:
Any instrument that does not meet the formal requirements for negotiability will be treated as a simple contract rather than a negotiable instrument.
Q:
(p. 779; 780) To be negotiable, the only requirement is that the instrument be in writing.
Q:
(p. 765, 766) Briefly explain the right of subrogation.
Q:
The attribute of negotiability means that an item can be readily transferred and accepted as a substitute for money.
Q:
Commercial paper may serve as a substitute for money payable immediately, but cannot be used as a means of extending credit.
Q:
A draft is a form of commercial paper that involves a promise to pay money.
Q:
Identify the true statement about cancellation of an insurance policy.
A. Insurance contracts cannot be cancelled by the insured by surrendering the policy to the insurer.
B. Insurance contracts contain a reinstatement clause that allows an insured to reinstate a cancelled policy.
C. Insureds who terminate are entitled to a return of the premium on a short-rate basis.
D. Insurers that cancel need not return the unearned portion of any premiums paid by the insured.
Q:
(p. 755; 756) What are an insurer's obligations in a liability insurance contract?
Q:
Define portable health insurance.
Q:
Why are property insurance policies generally nonassignable?
Q:
(p. 764, 765) Describe the insurable interests required in life and property insurance.
Q:
As a general rule, contracts are assignable:
A. even if the policy's terms limit assignability.
B. if they are not life insurance policies.
C. even without an irrevocably designated beneficiary's consent.
D. if they are not property insurance policies.
Q:
The required insurable interest in life insurance contracts must exist:
A. before the loss occurs.
B. at the time the loss occurs.
C. at the time the policy was issued.
D. throughout the term of the policy.
Q:
Those who have an insurable interest in property must have that interest:
A. before the loss occurs.
B. at the time the loss occurs.
C. within 30 days after the loss occurs.
D. throughout the term of the policy.
Q:
A person who seeks to recover benefits under a life insurance policy:
A. must notify the insured that a loss covered by the policy has occurred.
B. needs to furnish only proof of loss.
C. needs to furnish a sworn statement of loss.
D. must notify the insurer of the loss and furnish proof of loss.
Q:
(p. 765; 766) Under the right of subrogation:
A. the insurer is obliged to pay only the face amount of the policy if the insured dies within a specified period of time; which is the term of the policy.
B. the insurer obtains all of the insured's rights to pursue legal remedies against anyone who may have negligently or intentionally damaged the insured property.
C. the insurer obtains all of the insured's rights to pursue legal remedies only against those persons who have intentionally damaged the insured property.
D. the insurer is obliged to pay the face value of the policy on the death of the insured and the specified premium for the duration of his/her life.
Q:
As a general rule, if an applicant suffers a loss after applying but before the insurer formally accepts the application:
A. the insurer must cover the loss.
B. the applicant and the insured must share the loss.
C. the applicant must bear the loss.
D. the insurer must cover the loss only if there is no binder.
Q:
(p. 760; 761) If Geoff makes a fraudulent statement about his medical history on his application for insurance:
A. the insurance company has a right to cancel Geoff's policy.
B. the insurance company cannot consider the contract voidable.
C. the insurance company can adjust the benefits payable at its discretion.
D. the insurance company cannot cancel the policy unless Geoff misrepresented his age.
Q:
In cases in which the insured has misstated his or her age:
A. the insurer cannot contest its liability at any point of time.
B. the insured can take advantage of a misstatement of age clause.
C. the insurer can use a misstatement of age clause to cancel the policy.
D. the insured can object on the basis of absence of insurable interest.
Q:
This clause bars the insurer from contesting its liability on the policy on the basis of the insured's misrepresentations if the policy has been in force for a specified period of time.
A. Misstatement of age clause
B. Pro rata clause
C. Incontestability clause
D. Coinsurance clause
Q:
The "incontestability clause" found in life insurance policies:
A. bars the insurer from objecting on the basis of the purchase of the policy with the intent to murder the insured.
B. bars the insurer from contesting its liability on the policy on the basis of the insured's misrepresentations if the policy has been in force for a specified period of time.
C. bars an insured from reinstating a lapsed policy that has not been surrendered for its cash surrender value.
D. bars the insurer from objecting on the basis of absence of insurable interest.
Q:
Which of the following insurance contracts is enforceable?
A. An insurance policy taken out by a minor.
B. Life insurance contracts in writing.
C. A contract where either party to a contract has the capacity to contract.
D. Breach of warranty by the insured.
Q:
According to the ____, when the insured has purchased insurance policies from more than one insurer, the loss will be apportioned among the insurance companies.
A. coinsurance clause
B. pro rata clause
C. exculpatory clause
D. valued clause
Q:
Simons purchased a home for $120,000, insuring it for $120,000 with Mutual Life. She later purchased a $60,000 policy from Equitable. The home was totally destroyed by fire while it still had a fair market value of $120,000 and the losses amounted to $30,000. Under these circumstances, which of the following statements is true?
A. Simons can claim the damages only from Mutual Life as its policy amount is greater.
B. She cannot claim insurance from either as policies with pro rata clauses cover only partial losses.
C. Simons can recover $180,000the total of both policies, as part of his insurance contract.
D. Simons cannot claim more than $60,000 from Equitable.
Q:
Malpractice insurance is similar to business liability coverage in that it:
A. requires the insured to insure the property to a specified percentage of its fair market value in order to fully recover the value of partial losses.
B. provides an alternative to prohibitively expensive individual health care insurance policies.
C. provides protection for professionals whose negligent professional conduct causes injuries to third persons.
D. requires the insured to pay up to a certain amount each year before the insurer's payment obligation begins.
Q:
Which of the following statements is true about health insurance contracts?
A. Health insurance contracts do not provide coverage for medical expenses resulting from preexisting conditions.
B. Most people receive their insurance coverage from individual policies that are provided by employers.
C. The Consolidated Omnibus Budget Reconciliation Act (COBRA) was enacted as a legislative response to the increasing popularity of group health policies.
D. Portable health insurance doesn't require insurance companies to provide coverage to people who have left a job.
Q:
____ generally require that the insured pay a deductible each year before the insurer's payment obligation begins.
A. Property insurance policies
B. Life insurance policies
C. Liability insurance policies
D. Health insurance policies
Q:
(p. 750; 751) Homeowners' insurance policies:
A. often provide coverage under their comprehensive and collision sections for car damages resulting from vandalism.
B. insure both the insured's dwelling and the personal property located on the real property.
C. do not cover personal property that was temporarily removed from the dwelling at the time it was damaged.
D. do not allow property owners to purchase specialized policies to make up for gaps in a standard insurance contract.
Q:
If property covered by a valued policy is totally destroyed:
A. the insured can recover the face amount of the policy only if it does not exceed the fair market value of the building.
B. the insured can recover only the fair market value of the building.
C. the insured can recover the face amount of the policy regardless of the fair market value of the building.
D. the insured can recover the fair market value of the property at the time it was destroyed, up to the limits stated in the policy.
Q:
Open policies allow the insured to recover:
A. the fair market value of the property at the time it was destroyed, up to the limits stated in the policy.
B. the difference between the limits stated in the policy and the fair market value of the property.
C. the fair market value of the property, even if that value exceeds the limits stated in the policy.
D. the fair market value of the property only if the loss is partial.
Q:
The coinsurance clause:
A. requires the insured to insure the property to at least 80 percent of its fair market value in order to fully recover the value of partial losses.
B. usually allows the insured to recover the difference between the limits stated in the policy and the fair market value of the property.
C. places no restriction on the individual's right to recovery.
D. requires the insured to pay up to a certain amount each year before the insurer's payment obligation begins.
Q:
Douglas obtained a $100,000 insurance policy on his warehouse. The policy contained an 80 percent coinsurance clause. A fire totally damaged the building that had a fair market value of $250,000 at the time of the loss. How much will Douglas recover from his insurance company?
A. $80,000
B. $100,000
C. $125,000
D. $250,000
Q:
The fire insurance policy on Dullard's home contained a 50 percent coinsurance clause. Dullard's home had a fair market value of $100,000. The face amount of the policy covering the home was $30,000. A hostile fire caused $30,000 worth of damage to the home. To what amount is Dullard entitled?
A. $100,000
B. $9,000
C. $30,000
D. $18,000
Q:
In life insurance contracts:
A. the rate of the premiums to be paid decreases if the face value increases.
B. the loan value decreases as the age of the policy increases.
C. the rate of the premiums to be paid depends on the face value of the policy.
D. the loan value enables the insured to borrow money from the insurer, but at high interest rates.
Q:
Whole life insurance contracts:
A. do not bind the insurer to pay the face value of the policy on the death of the insured.
B. have a convertibility feature that allows the insured to convert the policy to a term life policy.
C. has no cash surrender value if the policy is terminated.
D. require the insured to pay the specified premium for the duration of his/her life.
Q:
A term life insurance contract:
A. obligates the insured to pay the specified premium for the duration of his or her life.
B. obligates the insurer to pay the face amount of the policy if the insured dies within a specified period of time.
C. develops a loan value that the insured can recover if the policy is terminated.
D. develops a cash surrender value that the insured can recover if the policy is terminated.
Q:
Flood-related damage to property is an example of a(n) ____.
A. excluded peril
B. covered peril
C. conditional peril
D. open peril
Q:
Which of the following is not covered by property insurance contracts?
A. Overflows from burst pipes.
B. Loss from vandalism.
C. Loss from hostile fire.
D. Nuclear contamination.
Q:
(p. 765; 766) The insurer may not exercise a right of subrogation if it is required to pay for the loss of property under a fire insurance contract.
Q:
Unearned portions of any premiums paid by the insured need not be returned to the insured at the cancellation of the policy by the insurer.
Q:
The insured must pay all past-due premiums and a stated amount of interest along with proof of insurability to secure reinstatement.
Q:
In an insurance contract, the payment of consideration is called a(n):
A. issue.
B. negotiable instrument.
C. premium.
D. valued policy.
Q:
An important distinction between valid insurance contracts and wagering contracts is that:
A. insurance contracts create a new risk that did not previously exist while wagering contracts don't.
B. wagering contracts are not contrary to public policy while insurance contracts are.
C. insurance contracts transfer existing risks while wagering contracts create new ones.
D. unlike insurance contracts, wagering contracts are indemnity contracts.
Q:
A warranty is an implied condition of an insurance contract.
Q:
An insurance policy taken out by a minor is not voidable at the election of the minor.
Q:
Property insurance policies are generally nonassignable.
Q:
In life insurance policies, the person who purchases the policy must have an insurable interest in the life being insured at the time the loss occurs, not at the time the policy was issued.
Q:
Fire insurance contracts generally cover losses only from hostile fires.
Q:
Some fire insurance policies contain a coinsurance clause that can operate to limit the insured's right to recovery.
Q:
Malpractice insurance provides protection for professionals whose negligent professional conduct causes injuries to third persons.
Q:
Insurance companies do not permit the insurer to seek voluntary settlements of liability claims against the insured.
Q:
Health insurance contracts normally do not cover preexisting health conditions.
Q:
Health insurance policies may require the insured to pay up to a certain amount each year before the insurer's payment obligation begins.
Q:
Under the doctrine of cy pres, when property is given in trust to be applied to a particular charitable purpose that becomes impossible, impracticable, or illegal to carry out and the settler has not specifically provided for a substitute beneficiary:
A. the trust will automatically fail.
B. the court will direct the application of the property to some charitable purpose that falls within the settlor's general charitable intention.
C. the court will direct that the property be directed to the state for use in a socially-responsible and "reasonably prudent" manner.
D. the original beneficiaries can use the property for a charitable purpose.