Law 331

Dag signs a check "pay to the order of Eton" drawn on Dag's account at First Bank and dates the check "May 1." Eton presents the check to the bank for payment on December 15. This is

A stale check

For a negotiable instrument to operate practically as a substitute for cash, it must be easily transferable and uncollectible.

False

Franco buys a sofa from Grey at a garage sale. Franco writes Grey a check for $50 to pay for the couch. Grey is

The payee

Gary writes a check drawn on Hill Bank for $400 "payable to Ian" on May 1. Gary dies on May 3. Ian presents the check to the bank on May 5. Unaware of Gary's death, the bank

may pay the check

If only a bank's drive-through facility is open, a check deposited on Saturday will not trigger the bank's midnight deadline until the following Monday.

True

If the numerical and written amounts on a check differ, the check is payable in the written amount.

True

Elmer pays Fidelity Bank $1,000 plus a service fee to draw a check on itself made payable to Go Delivery Service. This is

a cashiers check

Edna is the payee of a bearer instrument—a promissory note in the amount of $10,000. Flem offers to irrigate Edna's ranch next week in exchange for the note. She agrees and delivers the note to Flem. Flem is

Not an HDC because he did not yet give value for the instrument

Noah signs Ola's name to a check without Ola's authorization. Noah can be held personally liable for payment on the check by

Only an HDC

Faye forges Greta's signature on a check "payable to the order of Faye" drawn on Greta's account at Home Bank. Most likely, if the bank pays the check

The bank will have to reaccredit Gretas account

Because negotiable instruments were originally paper documents, they are sometimes referred to as a commercial paper.

True

Ciera presents an instrument that states "pay to the order of Duff" to East Bank for payment. As the most common type of negotiable instrument regulated by the Uniform Commercial Code, this is

a check

Leno makes a gift of a check to Millie who takes it in good faith and without notice of any claim, defense, or defect. With respect to this check, Millie is

an ordinary holder

Quint signs a check "pay to the order of Rona" drawn on Quint's account at Suburban Bank. Quint has $400 in his account but the amount of the check is $500, which the bank pays. This is

an overdraft

Gillis writes a check to Harley as payment for a game player but soon discovers it is broken. Gillis goes to the drawee bank and orally authorizes Ilene, a bank officer, to stop payment on the check. This order is valid for

fourteen days

Jaime signs an instrument using a "J" with a swirl around it. With this mark for a signature, the instrument is

negotiable

If a bank's payment over a stop-payment order causes subsequent checks written on the drawer's account to be returned for insufficient funds, the bank will be liable for the drawer's resulting costs.

true

If an instrument is acquired as part of a corporate purchase of assets, the holder will have only the rights of an ordinary holder.

true

It is not a material alteration to change the figures on a check so that they agree with the written amount, and thus, any holder is entitled to enforce the check.

true

The destruction or mutilation of an instrument is considered cancellation, and thus discharges the liability of all parties, only if it is done with the intention of eliminating obligation on the instrument.

true

To be negotiable, if an instrument is not payable on demand, it must be payable at a definite time

true

Usually, an indorsement is unqualified, which means that the indorser is guaranteeing payment on an instrument, in addition to transferring title to it.

true

When a bank certifies a check, the bank is agreeing in advance to accept the check when it is presented for payment and to make payment with funds reserved for the purpose.

true

When a bank is both the drawer and drawee, a check functions the same as cash because the bank has committed itself to paying the item on demand.

true

When a bank wrongfully dishonors a check, it is liable to the customer for any resulting damages

true

to avoid the risk of loss from theft, a holder can convert a blank indorsement to a special indorsement by writing, above the signature of the indorser, the name of the indorsee.

true

Colin signs a note "payable to the order of Debit Bank." The bank indorses the note in blank and negotiates it to Equity Funds, which sells it to Financial Investments. The transfer of the note from Equity to Financial gives rise to

warranty liability

The shelter principle permits a holder with notice of a claim or defense to attain HDC status by reacquiring the instrument from a later HDC.

False

Special requirements for the form and content of negotiable instruments are imposed by

UCC

Because he or she was in the best position to prevent wrongdoing with respect to an instrument, transfer and presentment warranties attempt to shift liability to

the person who dealt face to face with the wrongdoer

Motor Sales Inc. signs an instrument that promises to pay National Parts Company a certain price, with interest, for a shipment of auto parts. It is necessary to know when the instrument is due in order to

1.calculate when a statute of limitations may apply 2.determine the value of the instrument. 3.know when the interest will accrue

A certificate of deposit (CD) is issued when Lo-Risk Invest LLC deposits funds with Money Bank on the bank's promise to repay the funds, with interest, on a certain date. Lo-Risk cannot withdraw the funds before the date of maturity because

A CD is a time deposit

Resources Inc. receives a check from Steel Products Company and indorses it with a stamped imprint of its name on the back. This converts the check to

An order instrument

A holder who takes a negotiable instrument from a thief cannot become an HDC even if the item was acquired in good faith and there was no reason to be suspicious of the transaction.

False

A person who takes a demand instrument knowing that demand has been made has notice that the instrument is overdue.

True

Baer writes a check for $500 "payable to Cary" drawn on Baer's account at Debit Bank. Cary indorses and sells the check to Esau, who deposits the check in his account at Fidelity Bank. Fidelity dishonors the check. Baer or Cary may be liable for payment of the check if

Timely notice of dishonor is given

A bank is not obligated to pay an uncertified check presented for payment more than six months from its date.

True

To avoid liability for negligence, a customer must examine monthly bank statements and canceled checks promptly and with reasonable care, and report any forged signatures to the bank.

True

Coki receives a payroll check from Data Solutions Inc. and indorses it by signing her name on the back of the check. This is

a blank endorsement

Lon is Mill Corporation's agent and is authorized to write checks on the firm's account in North Bank. Lon writes a check "pay to the order of Ocean Shipping." Lon signs the check "Mill Corporation by Lon, agent." The bank dishonors the check. Liability extends to

a mill corporation

Rico agrees to buy a bicycle from Salvatore for $250. Salvatore agrees to deliver the bike on September 1. Rico writes a draft for $250 payable to Salvatore on September 1. This is

a time draft

In good faith and for value, Joya gets from Kyle a negotiable bearer instrument. Joya does not know that Kyle stole the instrument. Joya is

an HDC

An instrument, such as a check, drawn payable to an organization

can be negotiated by an authorized representative of the entity

A payee or indorsee whose name is misspelled on an instrument

can indorse with a misspelled name, correct name, or both

Dana draws a check on Equity Bank, and asks the bank to agree in advance to accept the check by setting aside sufficient funds to cover the amount. If Equity agrees, the check will be considered

certified

To buy a truck under warranty from Detour Motors, Eli, a consumer, signs a note payable to the dealer. The note includes the notice required by FTC Rule 433. The dealer sells the note to Finance Company, which takes it in good faith, for value, and unaware of any defenses against payment. Eli discovers that the truck is defective and returns it to Detour Motors. The consumer can assert the breach of warranty to avoid payment on the note against

detour motors and finance company

An instrument that orders the drawee to pay a certain sum of money, usually to a third-party payee, is a draft.

draft

A difference between the handwriting in the body of a check and in the signature affects the validity of the item and will bar a holder from HDC status.

false

A holder can impair the value of collateral given to secure payment of an instrument without affecting the liability of parties who would benefit from the collateral in the event of nonpayment.

false

A promissory note is both a debt and evidence of the debt.

false

If a check is made "payable to the order of Marcus or Nathan," both parties' indorsements are necessary for negotiation.

false

If an instrument does not specify a time for payment and the instrument must be paid on presentment, it is not negotiable.

false

When a customer makes a deposit into a checking account, the customer becomes a debtor, and the bank a creditor, for the amount deposited.

false

the death of a customer automatically revokes a bank's authority to accept, pay, or collect an item drawn by the customer on an account with the bank.

false

Housewares Inc. warrants its goods to be free of defects. Ivy issues an instrument to Housewares for the purchase of an appliance that proves to be defective. With respect to payment on the instrument, Ivy

has a personal defense

Faro is an agent authorized to sign negotiable instruments on behalf of Global Supply Inc. To protect against potential liability on a note signed on the corporation's behalf, Faro should

identify global supply and agency status

On the back of a check "payable to Huan," Huan signs her name and negotiates the item to Ito. To avoid liability on the item if it is later dishonored, Ito should

indorse the check "without recourse"

To make Credit Bank a collecting agent on a check "payable to the order of Duane," Duane should

indorse the check for deposit only

Ruth takes her car to Service Center, which repairs the car and bills her for $500. She writes out a check drawn on Tempo Bank, but later, believing that Service Center did not fix the car properly, issues a stop-payment order. If Tempo pays the check, the bank

is liable for Ruths loss due to wrongful payment

Lamont and Marcel collaborate to defraud Nina, who is induced to give Marcel a note payable to Marcel's order. Marcel indorses the note for value to Orson, an HDC. Later, Orson sells the note to Lamont. Under the shelter principle,

lament cannot acquire idc rights in the note

Bok buys an espresso machine from Coffee Gadgets, which bills him for $100. He writes out a check drawn on Dios Bank, but later, believing that the machine is defective, issues a stop-payment order. Dios

must stop payment if the bank has reasonable time to act

Fern has six nieces, ages five to sixteen. She writes an instrument for $50 that states, "Pay to the order of my niece." The instrument is

nonnegotiable because a specific person is not identified

Marin writes on a piece of paper, "I owe you $600," signs it, and gives it to Nye. This instrument is

nonnegotiable because it does not include an express promise to pay

Bogart presents a sight draft to Commerce Bank for payment. A bank employee writes accepted across the face of the instrument, and adds the date and the bank's signature. The draft is

payable immediately or within a stated time after sight

Bravo co-signs a $15,000 note payable to College Loan Company enabling Dios to obtain a student loan. The terms of the note stated that Bravo signed "on behalf of" Dios. If Dios stops making payments on the debt, Bravo is

primarily liable

Bass signs a note "payable to the order of Credit Bank." Unless Bass has a valid defense against payment, his liability on this note is

primary

Every party who signs a negotiable instrument is potentially liable for payment of that instrument when it comes due.

true

An instrument payable to two or more persons without an "and" or an "or" between the parties' names, such as a check "payable to the order of Gerhard Hans,"

requires the indorsement of only of the parties to be negotiated

Because a party's authenticating intent with respect to a note is shown by the name of the party written on the line that calls for the name of that party,

stamped imprint of the name can be sufficient to transfer the note

Mara has a checking account at North Bank. Mara signs a check "payable to Ovid" drawn on Mara's account. North Bank is

the drawee

Bern signs a check "pay to the order of College Bookstore" drawn on his account at Debit Bank to buy textbooks. Bern is

the drawer

Transfer of a note "payable to the order of Credit Company" by delivery to Debit Associates, with the payee's indorsement, for consideration, extends warranty liability

to any subsequent holder who takes the instrument in good faith

To operate practically as a substitute for cash or a credit device, a negotiable instrument must be

transferable without danger of being uncollectible

A person who transfers an instrument for consideration warrants to all subsequent transferees and holders who take the instrument in good faith that all signatures on the item are authentic and authorized.

true

Because liability for payment on a negotiable instrument is immediate when the instrument is signed or issued, no action by the holder is required.

true