UCC Negotiable Instruments

Question 1

To be negotiable under the UCC, an instrument must be…

Answer 1

(1) In writing;
(2) Signed by the maker/drawer;
(3) Contain an unconditional promise or order;
(4) To pay a fixed about of money;
(5) To an order or bearer;
(6) Payable on demand or at a definite time;
(7) without any additional conditions.

Question 2

A check is an order instrument which, to be negotiable, requires for there to be…

Answer 2

(1) endorsement by the holder; and
(2) transfer to the subsequent party

Question 3

A holder in due course is a party who…

Answer 3

took possession of an instrument for value, in good faith, and without notice that the instrument had any defect or dishonor.

Question 4

In absense of value, good faith, or ignorance as to a defect or dishonor, a holder in due course would be…

Answer 4

simply a holder.

Question 5

A holder can enforce payment on…

Answer 5

the original obligation.

Question 6

HDC status will be protected in a subsequent transferee, unless….

Answer 6

there is fraud.

Question 7

A holder enforcing payment of the original obligation is subject to…

Answer 7

contractual defenses by the maker/drawer.

Question 8

A drawer has a defense if a negotiable instrument was issued without….

Answer 8

consideration.

Question 9

If a transferee for value fails to become a holder because there was no endorsement, the transferee would have an….

Answer 9

enforceable right to achieve an unqualified endorsement from the transferor to become negotiable.

Question 10

If the holder refuses to endorse a check that they transferred for value, the transferee can file….

Answer 10

an action at law seeking specific performance.

there will not be negotation until the check is endorsed

Question 11

A drawer assumes the obligation to…

Answer 11

pay according to the terms of payment when the instrument was issued.

Question 12

One should argue that an attempt to enforce an instrument with knowledge of its defect is….

Answer 12

fraudulent.

Question 13

Stopping payment on a check does not….

Answer 13

avoid an obligation, it merely delays payment.

Question 14

As a holder in due course, one can endorse a check notwithstanding a stop payment order unless….

Answer 14

a real defense is invoked.

Question 15

The real defenses are….

Answer 15

1. Infancy;
2. Void contracts;
3. Bankruptcy;
4. Forgery;
5. Deception;
6. Discharge known to holder.

Will stop an HDC from endorsing a check with an SPO.

Question 16

A holder in due course’s status is not changed by subsequent notice, because….

Answer 16

their status is defined when they accept the instrument in consideration for value.

Question 17

When an HDC has the rights to collect an instrument, notwithstanding a stop payment order, they may collect the instrument from….

Answer 17

the drawer/maker or directly from the bank.

Question 18

The shelter doctrine states that a person who does not qualify as an HDC can assert the rights of the transferor HDC as long as the party….

Answer 18

is not personally engaged in wrongdoing affecting the instrument.

Question 19

A holder can enforce a dishonored instrument under a contract theory against….

Answer 19

the maker, the payee (bank), and the first holder.

Question 20

When one transfers an instrument for consideration (i.e., selling a note) they make warranties to the transfereee that…

Answer 20

(1) They are entitled to enforce it;

(2) The signatures are authentic and authorized;

(3) The instrument has not been altered;

(4) It is not subject to a defense that could be asserted against him/her; and

(5) That they have no knowledge of insolvency proceedings against the maker.

Question 21

A breach of the transferor’s warranties entitle the transferee to….

Answer 21

recover damages from the transferor as well as from the maker.

Question 22

Is the fixed amount of money requirement defeated if a note includes reference to interest?

Answer 22

NO. Interest is authorized as described in the instrument in any manner.

Question 23

A promissory note implicitly recognizing to “Pay John Doe” (is/is not) a negotiable instrument.

Answer 23

IS NOT.

It would be, however, if it was a check (exception).

Question 24

An instrument may allow for payment upon the elapse of a definite period of time following another event, but only when….

Answer 24

the starting date is readily ascertainable when the promise is issued.

Question 25

Under a purported partnership theory, a person who represents herself as being a partner or consents to such representation will be liable to….

Answer 25

third parties who extend credit to the apparent partnership in reliance on the representation.

Question 26

An accomodation party is one who…

Answer 26

signs a note for the purpose of incurring liability, without being a direct beneficiary of the value given.

Question 27

An accomodation party is obligated to pay the instrument in the capacity….

Answer 27

in which he signs, even if he receives no consideration.

Question 28

An accomodation party is obligated to pay for the capacity in which they signed, even if….

Answer 28

the person enforcing the obligation knows of the accomodation.

Question 29

As an exception, an accomodation party is discharged from the obligation when the party entitled to enforce the obligation….

Answer 29

impairs the collateral securing the obligation.

Question 30

If a party fails to perfect its security interest, they will be considered to have….

for purposes of the accomodation statute.

Answer 30

impaired the collateral.

for purposes of the accomodation statute.

Question 31

An accomodating party may waive being discharged from an impaired collateral either by…

Answer 31

consent or express agreement.

Question 32

A bank may charge is customers accounts only for…

Answer 32

properly payable items.

Question 33

If an accountholder recognizes an unathorized signature to its bank, they must…

Answer 33

notify the bank promptly.

Question 34

If a bank charged a customer’s account for a item that was not properly payable, to remedy this, the bank should…

Answer 34

recredit the customer’s account.

Question 35

If a payor has paid and later discovers the payor shouldn’t have paid because, for example, the check was forged, the payor will attempt to sue the indorser for….

Answer 35

breach of warranty.

Question 36

A warranty as to the drawer’s signature is breached only if the warrantor has…

Answer 36

knowledge that the purported drawer is unauthorized.

Question 37

Payment of a negotiable instrument is final, except that…

Answer 37

(1) the payor can pursue those who beach transfer warranties; and

(2) the rule of finality operates in favor of HDCs and those who rely in good faith on payment [if not, payor can pursue recovery of payment].

Question 38

If an instrument contains contradictory amounts in words and numbers, which will prevail?

Answer 38

Words prevail over numbers.

Question 39

If an instrument provides for interest, but the amount of the interest payable cannot be ascertained from the description, interest is payable at the rate….

Answer 39

effective at the place of payment and at the time interest first accrues.

Question 40

If a promissory note lacks negotiability, it should be treated as…

Answer 40

a contract, for purposes of defenses that can be raised.