General Assessments

Question 1

Who is the payee on a draft?

Answer 1

The person to whom the negotiable instrument is payable

Question 2

Payment dates of negotiable instruments

Answer 2

1. The holder of the NI may freely extend the time when payment is due
2. Extensions, conditioned on the option of the maker, do not destroy negotiability when the extension is to a further definite time
3. Events that are undoubtedly to occur, but are uncertain as to when, are not ascertainable

Question 3

Negotiation is __________________ of possession of an instrument by any person other than the issuer to a person who thereby becomes the holder.

Answer 3

any transfer

Question 4

Conversion

Answer 4

1. An instrument is converted if it is taken by transfer, other than a negotiation, from a person not entitle to enforce or receive payment from the instrument.
2. Conversion is generally limited to the amount payable on the instrument.
3. A person who did not receive delivery of the instrument may not bring a conversion action.

Question 5

Taking an instrument in good faith requires both honesty in fact and observance of reasonable commercial standards of fair dealing. Honesty-in-fact is judged by a(n) ______________ standard, and the reasonable commercial standards of fair dealing are judged by a(n) _____________ standard.

Answer 5

subjective ; objective

Question 6

What constitutes value in acquiring an instrument as a HDC?

Answer 6

1. Forgiveness of a previous obligation
2. Completion of the agreed-upon performance
3. Paying less than the note’s full value

Question 7

Incomplete instruments

Answer 7

1. If the completion is unauthorized, the obligor is generally discharged.
2. If the completion is unauthorized, a payor bank can enforce the instrument as completed.
3. If the completion is unauthorized, a holder in due course can enforce the instrument as completed.

Question 8

For notes payable at a definite time, the action must be brought within how many years of the note’s due date?

Answer 8

6 years

Question 9

Real Defenses

Answer 9

Discharge in insolvency proceedings

Statute of limitations

Alteration and forgery

Question 10

Principal’s liability on an agent’s signature

Answer 10

1. The principal is not bound if the agent did not have authority to sign on the principal’s behalf.
2. The principal may ratify the agent’s unauthorized signature if the principal adopts the signature.
3. The principal may ratify the agent’s unauthorized signature if the principal fails to deny the signature’s validity.

Question 11

Presentment warranty

Answer 11

1. The draft has not been altered
2. The warrantor is the person entitled to enforce the instrument
3. There are no unauthorized indorsments

Question 12

Can an indorses disclaim liability?

Answer 12

yes

Question 13

In addition to a maker, who may issue an instrument?

Answer 13

drawer

Question 14

In order for an instrument to be negotiable, the __________________ must be fixed.

Answer 14

principle amount

Question 15

Who is a party to both a note and a draft?

Answer 15

payee

Question 16

A holder in due course is subject to any ___________________.

Answer 16

real defenses

Question 17

Oftentimes, the event that triggers a breach of a transfer warranty is ____________.

Answer 17

A thief steals a check and indorses it

Question 18

The ____________ of an instrument is its delivery by a person other than the maker or drawer for the purpose of giving the person receiving it the right to enforce the instrument.

Answer 18

transfer

Question 19

When can an obligor be discharged on the instrument?

Answer 19

When there has been an unauthorized modification on the instrument

Question 20

When a fraudulent indorsement is effective in favor of a person who, in good faith, pays the instrument or takes it for value or for collection, when may that person be liable to the person who bears the loss?

Answer 20

When that person fails to exercise ordinary care in taking the instrument and that failure substantially contributes to the loss resulting from payment of the instrument

Question 21

Can a non-HDC be subject to a lack of consideration defense?

Answer 21

yes

Question 22

In order to be an accommodation party under Article 3, a person must

Answer 22

sign the instrument

Question 23

Liability between a bank and its customers

Answer 23

1. A bank is subject to the properly payable rule.
2. A customer may sue a bank for damages proximately caused by a bank’s wrongful dishonor of a check.
3. A bank may properly pay a postdated check unless the customer gives the bank timely notice of the postdated check.

Question 24

Examples of presentment

Answer 24

1. A demand made to a maker by a holder in due course for payment of a note.
2. A demand made to a drawee by a holder for payment of a draft.
3. A demand made to a bank by a person entitled to enforce a check drawn on that bank.