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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:
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:
A bearer instrument can be validly negotiated and transferred without indorsement.
Q:
An indorsement cannot incur the indorser's liability on the instrument.
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:
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:
(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:
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 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:
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:
If an instrument is nonnegotiable:
A. the Code controls the rights, and the general rules of property law control liabilities of the parties involved.
B. the general rules of contract law control the rights and liabilities of the parties involved.
C. the Code controls the rights, and the general rules of comparative law control the liabilities of the parties involved.
D. the general rules of tort law control the rights and liabilities of the parties involved.
Q:
Which of the following statements will satisfy the basic requirement of a negotiable instrument to be in writing?
A. Only instruments that are handwritten are considered to be in writing.
B. An instrument written on a piece of wrapping paper will be considered a poor business practice and will not be negotiable.
C. Writing does not have to be on any particular material, all that is required is that the instrument be in writing to be negotiable.
D. An instrument written in pencil does not qualify as a negotiable 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."
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:
(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 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:
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:
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:
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:
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:
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:
A check is a draft payable upon demand and drawn on the bank.
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.