Exam I Flashcards
If you write a check to pay for your groceries, the check is:
A negotiable instrument
Which article of the UCC deals with negotiable instruments?
Article 3
The law governing negotiable instruments derives from what?
The law merchant
You write a check to pay for your rent. In this transaction, who is the drawee?
Your bank is, because it must pay the check
The parties to a promissory note are the payee and whom?
The maker
Which of the following is NOT required in order for a promissory note to be negotiable?
a) Promise in the note must be made orally
b) Note must be written
c) Note must be payable on demand or at a definite time
d) Note must be unconditional promise to pay
a) Promise in the note must be made orally
In order for an instrument to be negotiable, the UCC requires that it be signed by whom?
By the maker
If you write a check to pay for repairs to your automobile, presentment occurs when?
When the person repairing the car presents the check to your bank
An acceleration clause allows the holder of a time instrument to do what?
Demand payment of the entire amount due, with interest, if a certain event occurs
An extension clause in a negotiable instrument is a what?
The reverse of an acceleration clause
What is one of the differences b/w a transfer by negotiation and an assignment?
A transfer by negotiation can give a holder more rights in the instrument than the prior possessor had
If an instrument is “payable to bearer,” how is it negotiated?
By delivery
If there is no room on an instrument to add an indorsement, what may happen?
An allonge can be firmly attached to provide space for indorsements
Suppose that John indorses a check “Pay to Deb, without recourse, [signed] John.” In legal terms, how does this indorsement affect John?
- It relieves him of liability on the check
Suppose that John indorses a check, “Pay to Sam, as agent for Deborah.” What kind of indorsement is this?
A trust indorsement
Which of the following is not a restrictive indorsement?
a) A trust indorsement
b) A blank indorsement
c) An indorsement prohibiting further indorsement
d) A conditional indorsement
b) A blank indorsement
The UCC requires that to become an HDC, a holder must take an instrument in good faith. This means that:
A holder must have acted honestly in fact and observed all reasonable commercial standards of fair dealing
Which of the following is NOT a way that an instrument may be defective?
a) It is overdue
b) It has previously been dishonored
c) It has previously been honored
d) There is an uncorrected default
c) It has previously been honored
If First Union bank refuses to pay a check written by a person who has an account with First Union, what has happened?
- First Union has dishonored the instrument
Anyone who does not qualify as an HDC, but who derives his or her title through an HDC, can acquire the rights and privileges of an HDC. This principle is known as:
The shelter principle
What are the two kinds of liability associated with negotiable instruments?
- Warranty liability
- Signature liability
If Jeff presents a check for payment at the Lincoln Bank in a timely and proper manner, but Lincoln refuses to pay, legally, what happens?
- Lincoln dishonors the check
If a person is primarily liable on a negotiable instrument, that person is:
Is absolutely required to pay unless he or she has a valid defense to payment
To hold a drawer secondarily liable on a domestic check, the check must be presented for payment when?
w/i 30 days of its date
An agent agrees to represent another person, who is known as:
Principal
Ned, Wilkie’s agent, signs a promissory note, promising to pay Kayla $12,000 in three months in the following manner, “Ned, as agent for Wilkie.” Assuming that Ned has the authority to sign the note, is Wilkie liable for the $12,000? Explain.
- Yes.
- Ned clearly signed as Wilkie’s agent, and therefore Wilkie is liable
Suppose that Leslie, Wilkie’s friend, breaks into Wilkie’s locked desk, steals a blank check, and fills it out for $50,000, payable to CASH. Leslie then signs Wilkie’s name and presents the check to Wilkie’s bank for payment. The bank cashes the check for $50,000 and Leslie leaves for Brazil. Who is liable?
- The bank is liable b/c it should have checked the signature
Which of the following is NOT a transfer warranty?
a) The instrument is not subject to a defense or claim of any party that can be asserted against the transferor
b) All signatures are authentic and authorized
c) The transferor may not enforce the instrument
d) The instrument has not been altered
c) The transferor may not enforce the instrument
One universal defense to liability for payment on a negotiable instrument is:
a) Nondelivery of the instrument
b) Forgery
c) Lack of consideration
d) Breach of Contract
b) Forgery
Which of the following is NOT a universal defense available to a HDC?
a) Material alteration
b) Discharge by payment
c) Discharge in bankruptcy
d) Minority
b) Discharge by payment (this is a personal defense)
The main focus of Article 4 of the UCC is what?
To establish a framework for banking relationhips
What is an overdraft?
A check that is written on a checking account in which there are insufficient funds to cover the check and that is paid by the bank
When a bank draws a check on itself, this is known as what?
A cashier’s check
When a customer writes a check on his or her account, what kind of legal relationship arises between the bank and the customer?
An agency relationship
Lynn loses three checks from her checkbook: #536, #537, and #538. She requests and executes a written stop-payment order with her bank, ordering the bank not to pay these checks. Three months later, her bank pays check #537 in the amount of $1,500 causing Lynn’s account to be overdrawn. In this situation, who is liable?
The bank is liable
A drawer may be liable for a forged check if:
a) the drawer’s exercise of due care contributed to the loss
b) the drawer’s uncle forged the check
c) the drawer’s negligence substantially contributed to the loss
d) the drawer forged his or her own name on the check
c) the drawer’s negligence substantially contributed to the loss
The rule in moving checks from one bank to another is that:
Each bank must pass the check on before midnight of the next banking day after it is received
The Federal Reserve System, which clears many checks in the US, is:
A network of 12 district banks located around the US and headed by the Federal Reserve Board of Governors
The Electronic Fund Transfer Act states that you will only be liable for $50 if someone steals your debit card, as long as what happens?
You report the theft within two days of discovering it (otherwise your liability will increase)
Which of the following would NOT be considered an online banking service?
a) Bill consolidation and payment
b) Applying for loans
c) Transferring funds among accounts
d) Cashing checks
d) Cashing checks
