UCC Negotiable Instruments

Question 1

Article 2 of the U.C.C.

Answer 1

Deals with Sales Section like:
Bill of ladings
warehouse receipts

Question 2

Article 8 of the U.C.C

Answer 2

deals with Investment Securities

Question 3

The U.C.C. definition of an “instrument”

Answer 3

is negotiable instrument like: 
drafts 
checks 
notes 
and certificate of deposits

Question 4

If an instrument is payable to a specific party (rather than “bearer”) it is known as “order” paper. In order to negotiate order paper two things are necessary

Answer 4

possession of the instrument by the indorsee and indorsement of the instrument by the transferor

Question 5

For an instrument to be negotiable

Answer 5

it must be in writing, signed by the maker or drawer, be an unconditional promise or order to pay a fixed amount of money with or without interest, be payable on demand or on a fixed date, and not have any stated limiting conditions

Question 6

A trade acceptance

Answer 6

is a time draft drawn by the seller of goods on the buyer of the goods and accepted by the buyer of the goods

Question 7

Holder in due course status requires that the person holding the instrument

Answer 7

have no knowledge of any defenses to payment, or that payment has previously been refused

taken a negotiable instrument for value, in good faith, and without notice that it was overdue, had been dishonored, or that the maker had a defense to payment

Question 8

Writing an indorsement with only a name without specifying a further indorsee

Answer 8

is a “blank indorsement.” Since nothing else was added to the indorsement, it is also an unqualified indorsement and a nonrestrictive indorsement. The check then becomes “bearer paper.”

Question 9

A draft and a check

Answer 9

instructs a 2nd party to pay a 3rd party. Therefore it would be an order to pay

Question 10

A holder in due course takes a note free of contractual or “personal” defenses but not against real defense. List personal and real defenses

Answer 10

Real - Minority of the maker, Forgery, Bankruptcy, Material Alteration

Personal - nonperformance of the contract, lack of consideration, and fraud in the inducement

Question 11

One of the essential requirements of a negotiable instrument is that

Answer 11

it must be payable only in money

Question 12

The indorsement “without recourse”

Answer 12

is known as a “qualified” indorsement

is to disclaim secondary liability, meaning that the indorser makes no promise or guarantee of payment upon dishonor

Question 13

A subsequent holder of a negotiable instrument may cause the discharge of a prior holder of the instrument by

Answer 13

unexcused delay in presentment of a time draft

procuring certification of a check

material alteration of a note

Question 14

Certification of a check is acceptance. Where a holder procures certification

Answer 14

the drawer and all prior indorsers are discharged

Question 15

Process of Check Payment

Answer 15

A check is a draft drawn on a bank and payable on demand

The check must be presented to the drawee for payment

the drawee is a bank where the drawer has an account

Question 16

Most banks employ the following check procedures

Answer 16

The checks may be charged to the account in any order provided no charge creates an overdraft.

The checks must be charged to the account in the order of lowest amount to highest amount to minimize the number of dishonored checks.

However, there is no required order for charging checks to an account, so they may be charged in whatever order is convenient to the bank.

Question 17

What actions discharges a prior party to a commercial instrument?

Answer 17

Good faith payment or satisfaction of the instrument does discharge a prior party to the instrument.
Cancellation of that prior party’s indorsement does discharge a prior party to the instrument.
A holder’s intentional destruction of the instrument does end all liability.