ACCT 340 Exam 2 Review

universal defense

a defense that is valid against all holders of a negotiable instrument, including holders in due course (HDC's) and holders with the rights of HDC's

acceptor

a drawee who has accepted or agreed to pay an instrument when it is presented later for payments

dishonors

a drawer or an indorser will be liable only if the party that is primarily responsible for paying the instrument refuses to do so

substitute check

a negotiable instrument that is paper reproduction of the front and back of an original check and contains all of the same information required on checks for automated processing

federal reserve system

a network of 12 district banks, which are located around the country and headed by the federal reserve board of governors

principal

a person who agrees to have another person act on his or her behalf

agent

a person who agrees to represent or act for another

shelter principal

a person who does not qualify as an HDC but who derives his or her title through an HDC can acquire the rights and privileges of an HDC

indorser

a person who transfers a note or a draft by signing it and delivering it to another person

clearing house

a place where banks exchange checks and drafts drawn on each other and settle daily balances

regulation e

a set of rules issued by the federal reserve systems board of the governors under the authority of the electronic fund transfer act to protect users of electronic fund transfer systems

indorsement

a signature with or without additional words or statements

check

a special type of draft that is drawn on a bank, ordering the back to pay a fixed amount of money on demand

electronic fund transfer (EFT)

a transfer of funds made by the use of an electronic terminal, a telephone, a computer, or magnetic tape

certificate of deposit (CD)

a type of note issued when a party deposits funds with a bank and the bank promises to repay the funds, with interest, on a certain date

promissory note

a written promise made by one (the maker of the promise) to pay another (usually a payee) a specified sum

blank indorsement

does not specify a particular indorsee and can consist of a mere signature

digital cash

funds contained on computer software, in the form of secure programs stored on microchips and other computer devices

presentment warranties

implied warranties made by any person who presents an instrument or acceptance

transfer warranties

implied warranties, made by any person who transfers an instrument for consideration to subsequent transferees and holders who take the instrument in good faith

trust indorsement

indorsements to person's who are to hold or use the funds for the benefit of the indorser or a third party

payee

money is getting paid to them and is usually a third party

check

most commonly used type of draft (although fewer checks are written today and most transactions are electronic, checks are still more common than promissory notes or other types of negotiable instruments)

signature

nearly any symbol executed or adopted by a person with the intent to authenticate a written or electronic document

bearer

refers to a person in possession of an instrument that is payable to bearer or indorsed in blank

restrictive indorsement

requires the indorsee to comply with certain instructions regarding the funds involved but does not prohibited further negotiation of the instrument

antecedent claim

taken the instrument in payment of or as security for, a preexisting obligation

holder in due course (HDC)

takes an instrument free of most of the defenses and claims that could be asserted against the transferor

acceptance

the drawee's written promise to pay the draft when it comes due

depository bank

the first bank to receive a check for payment

issue

the first delivery of an instrument by the maker or drawer for the purpose of giving rights on the instrument to any person

trade acceptance

the seller of the goods is both the drawer and the payee

drawee

to pay money

Lexy obtains a check payable to her order from Maven. To negotiate this order instrument to Nicole requires A) Lexy's indorsement and delivery B) Maven's indorsement and delivery C) Nicole's indorsement and delivery D) delivery without anyone's indorsement

A) Lexy's indorsement and delivery

Tyrone draws a check payable to "cash" and presents it to Urban Bank for payment. This instrument is A) a bearer instrument B) an order instrument C) valid but nonnegotiable D) void

A) a bearer instrument

Reel CGI Anime Company issues a promissory note as a demand instrument with a due date of October 5. Syncopated Loan Company accepts the note. Syncopated has notice that the note is overdue if the firm takes the note A) after October 5 B) before October 5 C) on October 5 D) at any time

A) after October 5

Tyrone transfers a note by signing it and delivering it to Uri. Tyrone is A) an indorser B) a notary C) a note passer D) a promiser

A) an indorser

Daria signs an instrument payable to the order of Employees Credit Union on or before June 15th. This instrument is A) negotiable B) nonnegotiable because the maker can move up the payment date C) nonnegotiable because moving up the payment date is optional D) nonnegotiable because the exact payment date cannot be determined from the face of the instrument

A) negotiable

Glady's, the chief executive officer of Home Electrical, Inc., signs an instrument by using a rubber stamp with her thumbprint on it. This instrument is A) negotiable B) nonnegotiable because a rubber stamp does not identify the signer C) nonnegotiable because a thumbprint implies a lack of serious intent D) nonnegotiable because a thumbprint is not a signature

A) negotiable

International Properties, Inc. (IPI), signs an instrument in favor of Financial Investments Corporation that includes the statement "IPI plans to pay this debt from the proceeds of the sale of the IPI Office Building in Montreal." The instrument is A) negotiable B) nonnegotiable because banks cannot easily process office buildings C) nonnegotiable because it refers to a separate sale D) nonnegotiable because Montreal is in Canada not the United States

A) negotiable

Julie signs a check payable to the order of Kwik Mart Stores, Inc., that does not include a date. This check is A) negotiable B) nonnegotiable because it does not include a date C) nonnegotiable because it is payable to a corporation D) nonnegotiable because it is signed by the drawer

A) negotiable

Kevin, the owner of Livestock Ranch Corporation, signs an instrument that includes the phrase "payment for this note will be made from the proceeds of next year's stock sale." The instrument is A) negotiable B) nonnegotiable because payment can be made only out of a particular source C) nonnegotiable because it states an express condition to payment D) nonnegotiable because the reasons for the note are not clear on its face

A) negotiable

USA Oil Corporation signs an instrument that states it is being executed "as per contract for a purchase of 4,000 barrels of oil dated May 1. This instrument is A) negotiable B) nonnegotiable because information about the sale must be obtained from another source C) nonnegotiable because it states an express condition to payment D) nonnegotiable because the terms of the contract are not clear on the face of the instrument

A) negotiable

Will signs a check payable to "cash" and gives it to Yves. The check is A) negotiable B) nonnegotiable because it does not indicate a specific payee C) nonnegotiable because it is not signed by the payee D) nonnegotiable because Yves is not cash

A) negotiable

Beck draws a check payable to "County Farm Supply" to buy a quantity of fertilizers to deposit in Beck's field. This check is A) a certificate of deposit B) a draft C) a promise to pay D) a promissory note

B) a draft

Wilbur signs a note that includes a clause under which the note's holder can delay the date of payment indefinitely. This is A) an acceleration clause B) an extension clause C) an immaturity clause D) a stop-payment clause

B) an extension clause

Kris transfers a note, on which Liu is the maker, to Mia, who takes it for value and in good faith. Mia knows that Kris breached the contract underlying the note, giving Liu a defense against payment. With respect to this note, Mia is A) a knowledgeable holder in due course B) an ordinary holder C) an ordinary holder in due course D) an ordinary note taker

B) an ordinary holder

Vladimir negotiates a bearer instrument to Wendy by A) assignment B) delivery C) presenting it in response to a demand by Wendy D) promising to pay

B) delivery

On behalf of Equity Capital Inc., Flip signs an instrument promising to pay $5,000 in gold to Growth Investments Inc on May 15. This instrument is A) negotiable B) nonnegotiable because gold is not a medium of exchange authorized or adopted by a government as currency C) nonnegotiable because it does not recite any consideration D) nonnegotiable because it is for an amount of $500 or more

B) nonnegotiable because gold is not a medium of exchange authorized or adopted by a government as currency

Todd indorses a check, "Pay to Interstate Trucking if they deliver the lumber by May 1, 2012." This is A) a blank indorsement B) a qualified indorsement C) a restrictive indorsement D) a special indorsement

C) a restrictive indorsement

Rayette transfers a draft by signing it and delivering it to Suki. Suki is A) a delivery person B) a draftee C) an indorsee D) a promisee

C) an indorsee

Parkdale Roofing Company receives a check from Quik Mart for fixing its roof, and indorses the check to Repair Supplies inc. (RSI). Stef, RSI's owner, gives the check to Tiny as a gift. In this situation, the party who is not an HDC of the check but who acquires HDC rights under the shelter principle is A) no one B) Parkdale Roofing C) Stef D) Tiny

D) Tiny

Rye signs a $1,000 note payable, at 6 percent interest, on May 1 to Suburban Bank and writes on its face that it is "nonnegotiable". This note is A) negotiable B) nonnegotiable because it is dated C) nonnegotiable because it is payable with interest D) nonnegotiable because it includes the notation "nonnegotiable"

D) nonnegotiable because it includes the notation "nonnegotiable"

T/F A loss that results from a well crafted forgery usually falls on the party whose signature was forged

False

T/F If an instrument is acquired as part of a corporate purchase of assets, the holder will have the rights of an HDC

False

T/F To be negotiable, an instrument cannot be portable

False

T/F To be negotiable, an instrument must be signed in the lower right hand corner

False

T/F A holder takes an instrument for value by performing the promise for which the instrument was issued

True

T/F A mere acknowledgement of a debt is not sufficient to create a negotiable instrument

True

T/F A person who does not qualify as an HDC but who derives his or her title through an HDC can acquire the rights and privileges of an HDC

True

T/F A sight draft is payable on sight

True

T/F An extension clause allows the date of maturity of an instrument to be extended into the future

True

T/F An instrument that is "payable on presentment" is payable on demand

True

T/F An order instrument must identify the payee with certainty

True

T/F Any irregularity on the face of an instrument that creates an ambiguity as to the party to pay will bar HDC status

True

T/F To be negotiable, an instrument must be payable on demand or at a definite time

True

T/F On a cashier's check, the drawer is also the drawee

True

cashier's check

a check drawn by a bank on itself

certified check

a check that has been accepted by the bank on which it is drawn

overdraft

a check written on a checking account in which there are insufficient funds to cover the amount of the check

stale check

a check, other than a certified check, that is presented for payment more than six months after its date

acceleration clause

allows a payee or other holder of a time instrument to demand payment of the entire amount due, with interest, if a certain event occurs such as a default in payment of an installment when due

extension clause

allows the date of maturity to be extended into the future

qualified indorsement

an indorser who does not wish to be liable on an instrument to disclaim this liability

bearer instrument

an instrument that does not designate a specific payee

order instrument

an instrument that is payable 1) to the order of an identified person or 2) to be an identified person or order

traveler's check

an instrument that is payable on demand, drawn on or payable at a financial institution and designated as a traveler's check

stop payment order

an order by a customer to her or his bank not to pay a certain check

draft

an unconditional written order that involves three parties

intermediary bank

any bank except the payor bank or the depositary bank to which an item is transferred in the course of this collection process

collecting bank

any bank except the payor bank that handles a check during some phase of the collection process

holder

any person in possession of a negotiable instrument that is payable either to the bearer or to an identified person that is the person in possession

payor bank

bank on which a check is drawn (the drawee bank)

special indorsement

contains the signature of the indorser and identifies the person to whom the indoser intends to make the instrument payable ; names the indorsee

personal defenses

defense that can be used to avoid payment to an ordinary holder of a negotiable instrument but not a holder in due course (HDC) or a holder with the rights of an HDC

presentment

occurs when a demand to either pay or accept an instrument is made by or on behalf of a person entitled to enforce the instrument

accommodation party

one who signs an instrument for the purpose of lending his or her name as credit to another party on the instrument

imposter

one who, through deception, induces a maker or drawer to issue an instrument in the name of an impersonated payee

drawer

party creating the draft

indorsee

person to whom the check is indorsed and delivered

smart cards

plastic cards containing computer microchips that can hold much more information than magnetic strips can

emoney

prepaid funds recorded on a computer or a card

banker's acceptance

when a draft orders the buyer's bank to pay

fictitious payee

when a person causes an instrument to be issued to a payee who will have no interest in the instrument