Chapter 37 - Negotiable Instruments and Banking

Question 1

Negotiable Instrument

Answer 1

• Written promise or order to pay a fixed amount of money with or without interest, on demand, or at a definite time.

Question 2

Checks

Answer 2

• Most common negotiable instrument

Question 3

Drawer

Answer 3

• Person who writes the check

Question 4

Drawee

Answer 4

• The bank

Question 5

Payee

Answer 5

• Who the check is written to.

Question 6

Order Instrument

Answer 6

• “Pay to the order of”
• Only the payee can negotiate
• If is endorsed, it becomes a bearer instrument

Question 7

Bearer Instrument

Answer 7

• “Pay to the order of cash”

- Anyone who holds can negotiate

Question 8

Personal Checks

Answer 8

• Personal account

Question 9

Cashiers Checks

Answer 9

• Bank writes a check
• You give the bank money plus a fee
• Guarantees that the check will clear.

Question 10

Certified Checks

Answer 10

• Bank certifies that the drawer has enough money in account.
• If I write the check the bank will honor it.

Question 11

Endorse

Answer 11

• Payee will sign. Creates a negotiable intrument.

Question 12

Presentation

Answer 12

• If I am a payee and endorse, I present it to the bank.

Question 13

Blank Endorsement

Answer 13

• Just the payee’s signature

- Bearer Instrument.

Question 14

For-Deposit-Only Endorsement

Answer 14

• It can only go into a specific bank account.

Question 15

Special Endorsement

Answer 15

• Sign check, “pay to the order of”, another person’s name.

Question 16

Holder

Answer 16

• Person who receives the check and endorses it.

- If the check doesn’t clear, I have a right to sue.

Question 17

Holder in Due Course

Answer 17

1) Has greater rights than a mere holder.
2) If I took instrument in return for value, in good faith, and without notice that it was fraudulent or altered or another party had a claim to it.
- Ex. 3rd party who was paid in exchange for backpack gets $200 no matter what because HDC.

Question 18

State Security v. American General

Answer 18

• An impostor represents himself as someone else and gets a loan from American General.
• The impostor cashes the check from AG at State Security.
• AG finds out it was an impostor because secret service notified the true identity ($18000).
• AG puts a stop payment on the check
• State Security out 18000.00.
• SS sues AG. SS was a HDC so State Security wins.

Question 19

Undated Check

Answer 19

• Still negotiable.

Question 20

Post-dated Check

Answer 20

• Can take to the bank now.

- Drawer has to contact the bank so the check won’t be negotiated until the date.

Question 21

Stale Checks

Answer 21

• More than 6 months old.

- Bank doesn’t have to accept.

Question 22

Stop Payment Order

Answer 22

• Drawer goes to bank and says I don’t want you to pay it.

Question 23

Forged and Altered Checks

Answer 23

• Bank in on the hook and ultimately the criminal is on the hook.

Question 24

Inconsistencies

Answer 24

• If the number is different than the written amount, the bank goes with the written amount.

Question 25

Banking Issues

Answer 25

• Run by Federal Reserve System.
• Depository Bank
• Intermediary Bank

Question 26

Debit Cards, EFT, and ATM’s

Answer 26

• Are regulated

- Stores have to ask if you want a receipt by law.

Question 27

Dodd-Frank Wallstreet Reform and Consumer Protection Act

Answer 27

• Regulates what banks have to disclose.