Deck 29

Question 1

A qualified endorsement must contain the words:

Answer 1

“without recourse”

Question 2

Types of commercial paper

Answer 2

Note, CD, Draft, or check

Question 3

Promise to pay

Answer 3

Two-party commercial paper (promise by the maker to pay money to the payee) ex: note and CD

Question 4

Order to pay

Answer 4

Three-party commercial paper; Drawer orders the drawee to pay the payee; Ex: check and draft

Question 5

Time instrument

Answer 5

Instrument payable at a future date

Question 6

When are the words “To order” or “to bearer” not needed?

Answer 6

For a check

Question 7

What never creates nor destroys negotiability?

Answer 7

Endorsements (On the back of the note)

Question 8

Pay to John smith

Answer 8

Not negotiable

Question 9

To become a holder, bearer paper/order paper requires:

Answer 9

Bearer paper: Delivery only; order paper: delivery and endorsement

Question 10

Special endorsement

Answer 10

Considered order paper; names a specific party above where the person signed

Question 11

Blank endorsement

Answer 11

Considered bearer paper; Blank box above where the person signed

Question 12

What happens, to the individual in possession of a check, when there is a break in the chain of command?

Answer 12

The individual cannot qualify as a holder in due course

Question 13

Qualified endorsement

Answer 13

Not a guarantor of payment; without recourse (no contract liability, but still have warranty liability)

Question 14

Requirements to be a Holder in Due Course

Answer 14

1) give value, 2) in good faith, 3) without notice of any defenses to or claims of ownership, and 4) negotiable

Question 15

An HDC is subject to only what kind of defenses?

Answer 15

Real defenses (HDC takes free of any personal defenses)

Question 16

Real defenses “FAIDS”

Answer 16

F: fraud in the execution, forgery; A: alteration, adjudicated insanity; I: infancy, illegality; D: duress, discharge; S: suretyship, statute of limitations

Question 17

Liability of Parties (Note/CD vs. Check/Draft)

Answer 17

Note/CD: primary liable - maker, secondary liable - endorsers……..check/draft: primary liable - drawee, secondary liable - drawer

Question 18

Who is liable if forger is missing?

Answer 18

Forgery of drawer’s name or payee’s name - then drawee liable (bank); impostor rule and fictitious payee rule - maker/drawer liable

Question 19

For a security interest to attach, three elements must coexist:

Answer 19

1) written security agreement or creditor has possession of the collateral; 2) creditor must give value to debtor; and 3) debtor has rights in the collateral

Question 20

When does automatic perfection occur:

Answer 20

PMSI in consumer goods