Unit 6

Question 1

_____________ encompasses substitutes in common usage today such as checks, promissory notes, and certificates of deposit

Answer 1

commercial paper 860

Question 2

__________ is also basically a contract

Answer 2

commercial paper 860

Question 3

The law of commercial paper is covered in _________ (Negotiable instruments) and ________ (Bank deposits and collections)

Answer 3

Article 3, Article 4 861

Question 4

________ and certificate of deposits are promises to pay money where as ________ are checks and drafts that a person issues instructing a bank to pay money out of the issuers account to a third party.

Answer 4

promissory notes, orders to pay money 861

Question 5

A ________ is a two-party instrument in which one person known as the ______, makes and unconditional promise in writing to pay another person known as the ______, a person specified by the person, or the bearer of the instrument, a fixed amount of money.

Answer 5

promissory note, maker, payee 862

Examples: car note

Question 6

The most common example of a _______ is a check; however someone who is owed money by another may also use this instrument to request money from the other’s bank account. Commonly used by companies who ship products, car sales man, and purchasers of livestock.

Answer 6

draft 864

Question 7

A note that provides, “I promise to pay to the order of Carl Adams $2500 if he replaces the roof on my garage,” is _________ because it is payable on a condition.

Answer 7

not negotiable 867

Question 8

An instrument is not negotiable unless the promise or order is ___________

Answer 8

unconditional 867

Question 9

A check that reference a specific account account __________ due to a revision in Article 3.

Answer 9

is negotiable 868

Question 10

Except for checks, to be negotiable instrument must be “_______” or “_______.” This is the essence of negotiable.

Answer 10

Payable to order, to bearer 870

Question 11

Typewritten terms prevail over ______

Answer 11

printed terms 874

Question 12

__________ prevail over typewritten or printed terms.

Answer 12

handwritten terms 874

Question 13

where words and number conflict, the ______ control the ______

Answer 13

written words, numbers 874

Question 14

If an instrument is payable to the order of a specific payee, it is called ________ and it can be negotiated by transfer of possession of the instrument after ________ by the person specified

Answer 14

order paper, indorsement 877

Question 15

A check made payable to a specific person is _______ not because the word “order” appears on it, but rather because it ……….

Answer 15

order paper, named a specific payee 877

Question 16

If an instrument is made payable “to bearer” or “to cash,” it is called _________ and negotiating it is even simpler.

Answer 16

bearer paper 877

Question 17

In instrument payable to bearer may be negotiated by _________ alone. No ______ in necessary; however, by indorsing the check, you agree to be ______ for its payment if it is not paid by the drawee bank.

Answer 17

transfer of possession, indorsement, liable 877

Question 18

A promise or order is “payable on demand” if __________ or __________.

Answer 18

it states that it is payable on “demand”, does not state any time for payment 869

Question 19

A ______ is a form of commercial paper that involves an order to pay money rather than a _______ to pay money

Answer 19

draft, promise 864

Question 20

A promissory note must be signed by the _______.

Answer 20

maker

Question 21

what are the 4 kinds of indorsements?

Answer 21

1. special
2. blank
3. restrictive
4. qualified 880

Question 22

A _______ indorsement contains the signature of the indorser along with the words indicating to whom, or to who’s order, the instrument is payable.

Answer 22

special 880

Question 23

If in indorser merrily signs his name and does not specify to whom the instrument is payable, he has indorsed the instrument in _______.

Answer 23

blank 880

Question 24

When Natalie signs her name on the back of a check made “payable to the order of Natalie ,” she has made a _______ indorsement and the check is payable to the ______. The bearer negotiates it by ______ alone, and no further indorsements are necessary.

Answer 24

blank, bearer, transfer 880

Question 25

A ______ indorsement is one that specifies the purpose of the indorsement or specifies the use to be made of the instrument.

Answer 25

restrictive 880

Question 26

A ______ indorsement is one where the indorser disclaims her liability to make the instrument good if the maker or drawer defaults on it. Typically the indorser will write “_________” which is intended to eliminate __________.

Answer 26

qualified, without recourse, Contractual liability 882

Question 27

If a person who takes a negotiable instrument does not meet these requirements (pg. 884), they are not a holder in due course. The person is in the same position as an ________.

Answer 27

assignee of a contract 884

Question 28

To be a ______ of a negotiable instrument, a person must have possession of an instrument that is either payable to “_____” or that is payable to them.

Answer 28

holder, bearer 884

Question 29

2 requirements to be a holder:

Answer 29

1. must be in possession of the negotiable instrument

2. the instrument must be paid the order of you. 884

Question 30

To qualify as a holder in due course of a negotiable instrument, a person must give _____ for it. Thus, a person who merely receives a check as a gift or makes an executory promise in return for a check _____ a holder.

Answer 30

value, is not 886

Question 31

If; however, an executory promise is partially performed, the holder may……………

Answer 31

…..may assert rights as holder in due course of the instrument only to the fraction of the amount payable under the instrument equal to the partial performance divided by the value of promised performance. 886

Question 32

Howard promises to paint house for a $100 check but only paints 1/4 of the house. Howard will be a holder in due course for the _____.

Answer 32

$25; 886

Question 33

a check is overdue or stale _______.

Answer 33

90 days after its date. 886

Question 34

If you negotiable instrument do on a certain date is not paid by that date, normally then it will be over do at the___________.

Answer 34

Beginning of the next day after the due date 886

Question 35

A ___________ is a claim of the person obligated on the instrument against the original payee of the instrument.

Answer 35

Claim in recoupment 887

Question 36

Under the _______ the transferee of an instrument, whether or not the transfer is a negotiation—-obtains those rights that the transferor has.

Answer 36

shelter rule 889

Question 37

Article 3 establishes 4 categories of claims and defenses for negotiable instruments:

Answer 37

1. Real defense- go to the validity of the check
2. Personal defense- a rise out of the transaction they gave rise to the instrument.
3. claims to an instrument- concerns property or possessory rights in an instrument or it’s proceeds.
4. claims in recoupment- also rises out of the transaction that gave rise to the instrument. 891

Question 38

Generally, a holder in due course takes a negotiable instrument free of any ________ or ______ .

Answer 38

personal defenses, claims to it 894

Question 39

jeff writes a check to Bob’s Motors for a truck. Bob promises that the truck is in good working condition but in fact there is a crack in the engine. Bob’s Motors negotiated the check to First Bank. Can Jeff use his personal defense that the Bob breeched warranty? Does Jeff have to pay First Banke?

Answer 39

No, Yes 894

Question 40

Holders of instruments with the legend “________” are not eligible to be holders in due course. Who does this protect?

Answer 40

consumer paper

it protects consumers who sign a promissory note for a product from a seller who then negotiates the promissory note to a bank. The bank would not be a holder in due course. 896

Question 41

The maker of a promissory note is ________ liable for payment of it.

Answer 41

Primarily 903

Question 42

A person who endorses a negotiable instrument usually is ______ liable ……….

Answer 42

Secondarily, upon dishonor by the maker. 905

Question 43

An indorser’s liability is discharged if no one presents the check to a bank within ______.

Answer 43

30 days; 907

Question 44

an ___________ is a person who signs a negotiable instrument for the purpose of lending their credit to another party to the instrument but is not a direct beneficiary of the value given for the instrument. They are _______ liable.

Answer 44

Accommodation party, primarily 907

Question 45

If John writes a check to Betsy and Betsy attaempts to cash the check at Johns’s bank but the bank refuses. The bank ____ owe an obligation to Betsy. The bank ____ owe an obligation to John to pay checks when his account is in good standing.

Answer 45

doesn’t, does 910

Question 46

If the drawer of a draft dishonors it when the drawee present it for payment, an indorser on a draft could be held liable only after _________.

Answer 46

notice of dishonor 911.

Question 47

A person who transfers a negotiable instrument to someone else and for consideration makes 6 warrantees to his immediate transferee:

Answer 47

1. the warrantor is entitled to enforce the instrument
2. all signatures on the instruments are authentic or authorized
3. the instrument has not been altered
4. the instrument is not subject to a defense or a claim in recoupment that any party can assert against the warrantor
5. the warrantor has no knowledge of any insolvency proceedings commenced with respect to the maker of the check or draft
6. with respect to remotely created consumer items, that the person whose accounts the item is drawn authorized the issuance of the item in the amount for which the item is drawn

913

Question 48

if an employee with authority to sign check for their employer’s business uses their employer checks to fictitiously write checks for the company, cashes them at a banks, but then pockets the money the ______ is liable. If the bank does not exercise ordinary care in inspecting the check ___________ guides the allocation of liability.

Answer 48

employer, comparative negligence 918

Question 49

_______ of an instrument is an unauthorized assumption and exercise of ownership over it.

Answer 49

conversion 920

Question 50

if a an indorser to a note makes a fraudulent alteration to it, the maker and another other previous indorsers are _________.

Answer 50

completely discharged 923