Exam Review #SU 19

Question 1

If an instrument is drafted and issued in a specified manner

Answer 1

it is negotiable even if it contains additional language or uses wording different from that in the UCC. Otherwise it is negotiable

Question 2

A negotiable instrument is property, sellers and other transferors have

Answer 2

warranty liability. This liability is in addition to any contract liability based on a party’s signature

Question 3

A bank draft uses what type of endorsement

Answer 3

Special endorsement: by a holder identifies the person to whom the instrument is payable to and identified person or to order is payable

Question 4

A conditional endorsement

Answer 4

purports to make the rights of the endorsee subject to the happening or non-happening of a special event

Question 5

To qualify as an HDC

Answer 5

A holder must take the instrument in good faith. The good-faith requirement applies only to the holder.

Question 6

A person who does not qualify as an HDC but who derives his or her title through an HDC

Answer 6

can acquire the rights an privileges of an HDC.

Question 7

The maker of a promissory note and the drawee are

Answer 7

primary liable

Question 8

Real defenses can be asserted against

Answer 8

an HDC, however personal defenses cannot.

Question 9

If a HDC knows a party has been discharged from the liability of paying a note

Answer 9

the HDC cannot collect from the discharged party

Question 10

Reacquisition

Answer 10

is any transfer to a former holder who may then cancel any intervening endorsements

Question 11

Negotiable Instruments

Answer 11

Article 3 of the UCC regulates negotiable instruments.

1. Checks
2. Drafts
3. Promissory notes
4. CD’s Certificate of deposits

Question 12

Under the UCC a person may be discharged by

Answer 12

Agreement or by one of several acts or omissions. Unexcused failure to provide notice of dishonor results in discharge of endorsers or drawer

Question 13

A provision in a negotiable instrument that makes it non-negotiable

Answer 13

It grants to the holder an option to purchase land. Negotiability requires that the instrument contain an unconditional promise or order to pay a fixed amount of money (UCC 3-104). An option is a promise to hold an offer to sell open for a specific period. An option does not meet the requirement of a fixed amount of money.

Question 14

Notice that an instrument has been altered precludes a holder asserting HDC status. However,

Answer 14

A alteration includes an unauthorized completion. However, if the holder had no notice that completion was unauthorized may take for value in good faith and without notice of the alteration may enforce an instrument altered by an unauthorized according to its terms as completed

Question 15

Special endorsement

Answer 15

identifies a person to whom the instrument will be payable

Question 16

The holder

Answer 16

is someone who has legal possession of a check

Question 17

The maker

Answer 17

is a person who identified in a promissory note as a person undertaking to pay

Question 18

The drawee (Bank)

Answer 18

is the person ordered to make payment

Question 19

The drawer

Answer 19

is the person ordering payment (person who writes the check)

Question 20

What will render a negotiable promissory note non-negotiable

Answer 20

The maker is obligated to pay a fixed amount of money to the payee but may instead deliver to the payee goods of equal value

Question 21

A Trade Acceptance

Answer 21

is a special form of time draft. It is used to extend credit to buyers of their goods.

Question 22

The standard of liability that must be established to hold a warehouse liable for loss or damage to stored property is

Answer 22

Ordinary Negligence: with respect to goods, a warehouse must exercise the same care that an ordinary reasonable person would under like circumstances

Question 23

A qualified endorsement disclaims or limits contractual liability on the instrument like this

Answer 23

“without recourse”

Question 24

A negotiable instrument must be payable on demand or at a definite time specified on its face

Answer 24

No definite time can be determined because the time of sale is uncertain (must be payable 10 days after sale) is not a definite time

Question 25

Under the negotiable instruments article of the UCC, an instrument will be precluded from being negotiable if the instrument

Answer 25

Is made subject to another agreement such as a mortgage that violates this requirement

Question 26

What on the face of an instrument will render it non-negotiable

Answer 26

A statement that payment of the instrument is contingent upon a persons sale of his or her property

Question 27

A negotiable instrument must provide for payment a

Answer 27

fixed amount of money.

Question 28

To make an instrument negotiable it requires

Answer 28

payment only in an authorized medium of exchange

Question 29

The requirements for a given instrument to qualify as negotiable under the UCC

Answer 29

The requirements do not preclude an instrument from qualifying as negotiable despite doubt as to whether it is a draft or a note.

Question 30

To qualify as a holder in due course

Answer 30

a person must have taken the instrument by proper negotiation. Because the instrument was payable to the order of Gayle, Gayle’s endorsement was necessary to properly negotiate it. Thus Fitz will qualify as a holder in due course when Gayle endorses the instrument.

Question 31

Holder in due course (HDC) is subject to real defenses.

Answer 31

1. Infancy to the extend that it is a defense to a simple contract
2. Incapacity, duress or illegality makes the obligation void and not merely voidable
3. Fraud in the execution
4. discharge in insolvency proceedings
5. Alteration and unauthorized signature

Question 32

A holder cannot qualify as an HDC if she has notice that the instrument is overdue

Answer 32

It is overdue if:

1. On the day after demand is duly made
2. 90 days after its date
3. When it has been outstanding for a period of time after its date that is unreasonably long in circumstances