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Q:
Even if the drawer is negligent and contributes to the alteration of a check, he cannot be barred from claiming it as the reason that a particular check should not be charged to his account.
Q:
Revised Article 3 recognizes the modern bank practice of retaining checks, and permits the bank to supply only a statement showing the item number, amount, and date of payment.
Q:
A bank does not owe a duty to its customer to pay any checks out of the account that are more than six months old.
Q:
A bank may pay a postdated check unless it has received notice from the customer not to pay until the instrument's date.
Q:
Any person authorized to sign a check may stop payment on it, even if he/she did not sign the check in question.
Q:
When issuing a stop-payment order, banks claim that the "reasonable certainty" with which customers must describe the check in question should have the dollar amount exact to the penny because the computers they program require such precision.
Q:
If the drawer of a check orders the drawee bank not to pay the check, the drawee bank generally owes the drawer a duty not to certify the check.
Q:
The drawee bank does not have the right to charge a payable check to the drawer's account if this will create an overdraft in the account.
Q:
Explain the five transferor's warranties.
Q:
What are the most common ways that an obligor on a negotiable instrument is discharged from his/her liability?
Q:
What are the different electronic funds transfer systems utilized by consumers?
Q:
Describe the provisions of the Electronic Funds Transfer Act.
Q:
When a person deposits money in an account at the bank, the bank no longer considers that person the owner of the money; instead, he is a creditor of the bank.
Q:
A holder in due course may discharge the liability of the parties to the instrument by:
A. publishing notice.
B. canceling it.
C. repudiating it.
D. paying for it even if it is a stolen one.
Q:
Who is entitled to enforce an instrument?
Q:
Ivan is a representative for Mega Industries. Checks are drawn by "Mega Industries, Inc., Payroll Account (signed) D. Ivan" but the checks are not paid. Who is liablethe individual or the corporation?
Q:
Define the situations that lead to dishonoring of a note by the maker.
Q:
Under the Revised Article 3 rules for beneficiaries, in the event of a breach of transfer warranty:
A. the damages recoverable will be less than the amount of the instrument.
B. the damages recoverable may not be more than the amount of the instrument plus expenses and loss of interest incurred as a result of the breach.
C. a beneficiary of the transfer warranties who took the instrument in good faith may not recover form the warrantor an amount equal to the loss suffered as a result of the breach.
D. no damages may be recovered.
Q:
People who presents drafts for warranties:
A. do not make a warranty that they have knowledge of the insolvency proceedings commenced regarding the drawer.
B. make a warranty that the instrument has not been materially altered.
C. make warranties that are similar to those transferors make.
D. make a warranty that they are aware of the unauthorized signature of the maker.
Q:
The imposter rule regarding negotiable instruments:
A. was devised to put the responsibility for determining the true identity of the payee on the drawee of a check.
B. makes the payee's signature valid even though it is a forgery.
C. does not force the maker to find the wrongdoer.
D. lays the responsibility of determining the identity of payee on latter holders of an instrument.
Q:
Conversion of an instrument:
A. is an authorized assumption and exercise of ownership over it.
B. may occur if a person pays an instrument on a forged indorsement.
C. differs from conversion of personal property with respect to the applicable laws.
D. occurs only if it lacks indorsement necessary for negotiation.
Q:
With respect to instruments, "responsibility" means the authority:
A. to access instruments in incoming or outgoing mails.
B. to process instruments for issue in the name of fictitious payees.
C. to prepare or process instruments for issue in the name of the employer.
D. to have access to instruments in storage.
Q:
Tim stole from Wes a check payable to the order of Wes. Tim forged Wes's signature and presented the check for payment at American Bank, which honored the check. If Wes sues American Bank for the amount of the check, under what theory, if any, can Wes recover the funds from the Bank?
A. Conversion
B. Fraud
C. Unfair and deceptive practices
D. Fictitious payee rule
Q:
A non-indorsing transferor:
A. makes all five transferor's warranties only to the immediate transferor.
B. makes all five transferor's warranties to all subsequent holders.
C. makes only four transferor's warranties to the immediate transferor.
D. makes all five transferor's warranties, with a change in the fourth warranty, to all subsequent holders.
Q:
Larry signed a note to the Bank, and his friend Moe also signed the note as an accommodation maker. If Larry defaults on the note when it is due, what are Moe's rights and obligations?
A. Moe has the right to recover his payment from the bank.
B. Moe has the same contractual liability as Larry and must pay the bank.
C. Moe cannot recover his money from Larry or the bank since he has primary liability.
D. Moe has secondary liability.
Q:
Mack is Bertha's agent and is authorized to sign checks for her. Mack signs one of Bertha's checks with only his own name. Who is liable on the check?
A. Bertha
B. Mack
C. Both Mack and Bertha
D. Neither Mack nor Bertha
Q:
Ted stole Ron's checkbook and wrote a check for $100, forging Ron's signature. Under these circumstances:
A. Ted but not Ron is liable on the check.
B. Ron but not Ted is liable on the check.
C. both Ted and Ron are liable on the check.
D. the bank will be liable on the check.
Q:
Susan borrows $1,000 from Jack and gives him a promissory note for $1,000 at 9 percent annual interest payable in 90 days. Jack indorses the note "Pay to the order of Robin" and negotiates the note to Robin. At the end of 90 days, Robin takes the note to Susan. Under these circumstances:
A. if Susan dishonors the note Robin can hold Jack secondarily liable without giving him notice of the dishonor.
B. if Susan dishonors the note, Robin cannot sue Susan on the basis of her maker's obligation.
C. if Susan dishonors the note, Robin cannot hold Jack secondarily secondarily liable on his indorsement.
D. if Susan pays Robin the $1,000 and accrued interest, she can have Robin mark it "paid" and give it back to her.
Q:
A person who transfers a negotiable instrument to someone else and for consideration warrants:
A. that all signatures on the instrument are authentic.
B. that some signatures on the instrument are authorized.
C. that the beneficiary cannot recover any amount from the warrantor if the warranty has been breached.
D. that the warrantor is aware of insolvency proceedings commenced with respect to the maker.
Q:
James draws a check on his account at First National Bank payable to the order of Terry. If First National does not pay the check when Terry presents it for payment, then:
A. both James and the bank are liable to Terry.
B. James is liable to Terry on the basis of drawer's obligation.
C. James transfers his duties as a drawer to the drawee bank and the bank is liable.
D. neither James nor the bank is liable to Terry.
Q:
(p. 824; 825) Devon draws a check payable to the order of Jen on his account at Big Bank. Jen properly negotiates the check to Seth, who sells the check to Andy. Seth indorsed without recourse. Andy deposits the check in his bank account at Mega Bank without indorsing the check. Who has liability to Mega Bank?
A. Big Bank
B. Seth
C. Jen
D. Jen, Seth and Andy
Q:
The indorser's liability is discharged if the check is not presented within:
A. 7 days after the date of endorsement.
B. 14 days after the date of endorsement.
C. 30 days after the date of endorsement.
D. 48 hours after the endorsement.
Q:
Mila borrows $1,000 from Pedro to pay for school and gives Pedro a note for that amount. Pedro wants Mila's father to sign as an accommodation party. Mila's father signs below Mila's signature on the fall of the note. Who has liability to Pedro?
A. Mila has primary liability as a maker.
B. Mila's father has primary liability as an accommodation maker.
C. Mila and her father have the same contractual liability.
D. Mila has primary liability and her father has secondary liability.
Q:
Who is primarily liable on a check when it is issued?
A. The payee is primarily liable
B. The drawer is primarily liable
C. The drawee bank is primarily liable
D. No party is primarily liable
Q:
Who is primarily liable on a certified check?
A. The payee
B. The drawer
C. The certifying drawee bank
D. No party is primarily liable
Q:
Which of the following is true of the obligations of an acceptor?
A. If the certification or acceptance does not state an amount then the acceptor is free of all obligations.
B. If the certification of a check or other acceptance of a draft states the amount accepted, the obligation of the acceptor is the amount of the instrument at the time a holder in due course takes it.
C. If the certification of a check or other acceptance of a draft states the amount certified or accepted, the obligation of the acceptor is that amount.
D. If the certification or acceptance does not state an amount, or if the amount of the instrument is subsequently raised, then the obligation of the acceptor is the raised amount.
Q:
(p. 823; 824) Alice drew a check on her account at the Third National Bank payable to the order of Aaron. When Aaron presented the check for payment, Third National refused to honor the check. Under these circumstances:
A. the bank may be liable to Alice for wrongfully refusing payment if Alice has sufficient funds in her checking account to cover it.
B. the bank may be liable to Aaron for wrongfully refusing payment if Alice has sufficient funds in her checking account to cover it.
C. the bank has breached its transferor's warranties.
D. the bank will be liable to both Aaron and Alice.
Q:
(p. 822; 823) When an incomplete instrument is completed after it has left the drawer's hands, a holder in due course can:
A. enforce it as completed.
B. enforce only the intent of the drawer.
C. do nothinghe/she loses any rights to the instrument.
D. not enforce it as completed.
Q:
Peter draws a check on his account in Third National Bank payable to the order of Stella. When Peter draws the check, he gets Third National Bank to certify the check. Stella presents the check to Third National Bank for payment but the bank refuses to honor the check. What is the result?
A. Third National Bank becomes primarily or absolutely liable on the check.
B. Peter is primarily liable on the check and Third National Bank is secondarily liable on the check.
C. Both Peter and Third National Bank are primarily liable on the check.
D. Third National Bank has no contractual liability on the check whatsoever.
Q:
The acceptor's obligation:
A. extends to a person entitled to enforce the draft.
B. does not extend to the drawer.
C. extends only to an indorser who paid the instrument pursuant to the indorser's liability.
D. extends to the drawer, but not the indorser who paid the instrument.
Q:
The obligation of the maker is owed:
A. to a person entitled to enforce the instrument.
B. only to holders of the instrument.
C. even to indorsers who have not paid the instrument pursuant to their indorser's liability.
D. only to a nonholder in possession of the instrument.
Q:
Which of the following is true of the obligations of a maker?
A. The maker of a promissory note is secondarily liable for payment of it.
B. He makes a conditional promise to pay a fixed amount of money.
C. The obligation of the maker is to pay the negotiable instrument according to its terms at the time he issues it.
D. The obligation of the maker is owed to an indorser, who is a person entitled to enforce the instrument.
Q:
A material change in a negotiable instrument does not discharge any party whose contract is changed.
Q:
Liability on negotiable instruments flows from:
A. proper payment of the instrument.
B. signatures on the instruments.
C. non-presentment of an instrument.
D. writing "without recourse" on the instrument.
Q:
Liability on a negotiable instrument:
A. can arise only by transfer of an instrument.
B. cannot arise from non-presentment.
C. can arise from negligence relating to the issuance.
D. cannot arise from improper payment.
Q:
The terms of the contract of the parties to a negotiable instrument are set out:
A. in the text of the instrument.
B. in Article 3 of the UCC.
C. in the U.S. Constitution.
D. in Article 5 of the UCC.
Q:
A person who is secondarily liable is like a(n):
A. guarantor on a contract.
B. assignor.
C. assignee.
D. drawer.
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 a person has been negligent in signing a negotiable instrument, he/she can use lack of authorization as a reason for not paying the person who in good faith pays for it.
Q:
A bank that cashes a check with a forged indorsement on it cannot be liable for conversion.
Q:
If a holder has indorsed a negotiable instrument restrictively indorsed, the person who pays must comply with the restrictive indorsement to be discharged.
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:
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:
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:
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:
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:
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:
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 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:
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.