ACCT 340 Exam 2

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Certificates of deposit of​ _____ or more are usually called​ _____ CDs.

$100,000; jumbo

Carmen receives her paycheck from her employer. She indorses the back of the check "For deposit only" and signs her name under these words. Carmen deposits the check at an ATM of her bank. Carmen's indorsement is which of the following?

An indorsement for deposit or collection

________ is called an ordinary check.

An order by a drawer to a drawee bank to pay a specified sum of money from the drawer's checking account to the named payee

Jay Delta receives a weekly payroll check from his employer, First Corporation, made "payable to the order of Jay Delta." Jay takes the check to a local store, signs his name on the back of the check, gives the check to the cashier, and receives cash for the check. Jay has negotiated the check to the store. Jay's check is an example of which of the following?

An order instrument

Which of the following is true regarding presentment​ warranties?

Any person who presents a draft or check for payment or acceptance warrants that the presenter has good title to the instrument or is authorized to obtain payment or acceptance of the person who has good title.

​_______________ (Commercial​ Paper) establishes the requirements for​ ________________.

Article​ 3; negotiable instruments

Which of the following is an INCORRECT statement regarding the functions of negotiable​ instruments?

As​ securities, negotiable instruments represent ownership in a corporation.

Which is NOT a permissible way to indorse a negotiable instrument where the name of the payee or indorsee is misspelled?

Indorse the instrument using the bank's name

President Snow draws a $1,000 check on City Bank "payable to the order of Katrina." Katrina cleverly raises the check amount to $10,000 and cashes it. This instrument would not be enforced under which of the following universal defenses?

Material alteration

​_____ is the transfer of a negotiable instrument by a person other than the issuer.

Negotiation

​_____ is a demand for acceptance or payment of an instrument made on the​ maker, acceptor,​ drawee, or other payer by or on behalf of the holder.

Presentment

An accommodation party who signs an instrument guaranteeing payment is​ _____ liable on the instrument.

Primarily

​_____ liability is the absolute liability to pay a negotiable​ instrument, subject to certain universal​ (real) defenses.

Primary

​A(n) _____ is a person who authorizes an agent to sign a negotiable instrument on his or her behalf.

Principal

You're getting ready to pay your taxes, and you need to check on some payments you made. You log onto your bank's website and check the electronic check records there. This is an example of which of the following functions of negotiable instruments?

Record-keeping devices

An accommodation indorser is​ _____ liable on an instrument.

Secondarily

An unqualified indorser has​ _____ liability on negotiable instruments.

Secondary

​_____ liability is also known as contract liability.

Signature

Which of the following is an INCORRECT statement regarding the​ Dodd-Frank Wall Street Reform and Consumer Protection​ Act?

The Act created the Consumer Product Safety Commission.

Which of the following requires financial institutions and other entities to report to the Internal Revenue Service the receipt of a transaction or series of transactions in an amount greater than $10,000 in cash and suspected criminal activity involving a financial transaction of $1,000 or more in funds?

The Bank Secrecy Act

________ is a rule adopted by the Federal Trade Commission that eliminates HDC status with regard to negotiable instruments that arise out of certain consumer credit transactions.

The FTC HDC rule

Which of the following is an INCORRECT statement regarding the Electronic Fund Transfer​ Act?

The United States Congress enacted the Act to regulate​ non-consumer electronic funds transfers.

Which of the following is an INCORRECT statement regarding​ cashier's checks?

Usually, a specific payee is not named.

Which of the following is NOT a function negotiable instruments serve?

Warranties of merchantability

Which of the following is an INCORRECT statement regarding defenses to payment of negotiable​ instruments?

Wrong somehow - A holder in due course​ (HDC) takes an instrument free from universal​ defenses, but not personal defenses.

A transferee who qualifies as _____ takes a negotiable instrument for value, in good faith, and without notice that it is defective

a holder in due course

Which of the following is NOT a nonnegotiable​ instrument?

a promise or an order that conspicuously states that it is not negotiable

With reference to secondary liability for negotiable instruments, ________ is called an unauthorized signature.

a signature made by a purported agent without authority from the purported principal

A defense against payment of an instrument that can be raised against both holders and holders in due course (HDCs) is called ________.

a universal defense

The​ Dodd-Frank Wall Street Reform and Consumer Protection Act created the​ _____.

CFPB

________ are called implied warranties.

Certain warranties that the law suggests on transferors of negotiable instruments, including transfer and presentment warranties,

You are the president of a large corporation. Your bank agrees in advance to accept your company's checks when they are presented for payment and to pay the check from funds set aside from your company's account and placed in a special certified check account. Your company's checks are which of the following?

Certified checks

Richard, who owes Bob​ $500, draws a check payable to Bob on his checking account at City Bank. Richard signs the check but leaves the amount blank. Bob fraudulently fills in​ $1,000 and presents the check to City Bank. Which of the following is​ true?

City Bank can charge​ Richard's account​ $1,000.

_____ wire transfers are also known as wholesale wire transfers.

Commercial

​A(n) _____ is a holder who takes a negotiable instrument for​ value, in good​ faith, and without notice that it is defective or overdue.

HDC

Hector has a checking account at Country Bank. Juanita steals one of​ Hector's checks, and completes it by writing in​ $10,000 as the amount of the​ check, adding her name as the​ payee, and forges​ Hector's signature. Juanita indorses the check to​ Sam, who knows that​ Hector's signature has been forged. Who can the bank NOT recover from if it pays on the​ check?

Hector

Which of the following is an INCORRECT statement regarding​ overdrafts?

If a bank dishonors a​ check, the bank notifies the drawer of the dishonor and returns the check to the​ holder, marked voidable.

Which of the following is a correct statement regarding an instrument payable jointly using the word and​?

If an instrument is payable jointly using the word​ and, both​ persons' indorsements are necessary to negotiate the instrument.

Which of the following is a correct statement regarding an instrument payable in the alternative using the word or​?

If the instrument is payable in the alternative using the word or​, either​ person's indorsement signature alone is sufficient to negotiate the instrument.

A person borrows money from a bank to purchase a house. The loan is a​ 30-year loan, with interest and principal to be paid in equal monthly installments. If the entire amount of the​ loan, plus accrued​ interest, is due and payable in the event of a​ default, the loan agreement contains​ a(n) _______.

acceleration clause

A trade​ _____ is a sight draft that arises when credit is extended by the seller to the buyer with the sale of goods.

acceptance

A(n) _____ party signs an instrument and lends his or her name​ (and credit) to another party to the instrument.

accommodation

An accommodation party may sign an instrument guaranteeing collection rather than guaranteeing payment of an instrument. This party is called a(n) ________.

accommodation indorser

Jackie, a college student, wants to purchase an automobile on credit from Budget Motors. She does not have a sufficient income or credit history to justify the extension of credit to her alone, so Jackie asks her mother to cosign the note to Budget Motors. Jackie's mother agrees and does so. Jackie's mother is a(n) ________ and is primarily liable on the note.

accommodation maker

An accommodation indorser is a(n) ________.

accommodation party who signs an instrument guaranteeing collection of the instrument

An accommodation maker is a(n) ________.

accommodation party who signs an instrument guaranteeing payment of the instrument and who is primarily liable on the instrument

An indorsement in trust is also known as​ a(n) _____ indorsement.

agency

A(n) _____ is a person who has been authorized to sign a negotiable instrument on behalf of another person.

agent

Unless an instrument clearly indicates that such a signature is made in some other capacity​ (e.g., ________who properly sign the​ instrument), it is presumed to be that of the​ ____________.

agents; indorser

A(n) _____ is a separate piece of paper attached to an instrument on which an indorsement is written.

allonge

If there is no room on the​ instrument, the indorsement may be written on a separate piece of paper called​ a(n) ___________​ , which must be​ ____________ the instrument​ [UCC 3-204(a)].

allonge; affixed to

A clause in an instrument that ____ is called an acceleration clause

allows the payee or holder to speed up payment of the principal amount of the instrument, plus accrued interest, on the occurrence of an event

A check presented for payment by a payee or holder where the depository bank and the payer bank are not the same bank is called ________.

an "on them" item

A separate piece of paper attached to an instrument on which an indorsement is written is called ________.

an allonge

An unqualified indorser is ________.

an indorser who signs an unqualified indorsement to an instrument

Which of the following is NOT a time​ instrument?

an instrument payable on demand

A bearer instrument is ________.

an instrument that is not payable to a specific payee or indorsee

A signature made by a purported agent without authority from the purported principal is called ________.

an unauthorized signature

The transfer of rights under a nonnegotiable contract is called ________.

assignment

​A(n) _____ is the transfer of rights under a contract.

assignment

Notes can be payable​ _____.

at a specific time or on demand

The drawee of a check is the ________.

bank where a check drawer has his or her account

Which of the following is NOT a requirement for creating a negotiable​ instrument?

be a conditional promise or order to pay

Which of the following is NOT a requirement for creating a negotiable​ instrument?

be certified by the issuing financial institution

The permanency requirement is a requirement of negotiable instruments that says they must _____

be in a lasting state, such as written on ordinary paper

Which of the following is NOT a requirement for creating a negotiable​ instrument?

be part of a commercial transaction

Which of the following is NOT a requirement for creating a negotiable​ instrument?

be prepared by an attorney

An instrument that is not payable to a specific payee or indorsee is​ _____ paper.

bearer

​A(n) _____ instrument is payable to anyone in physical possession of the instrument who presents it for payment when it is due.

bearer

A​ _____ indorsement does not specify a particular​ indorsee; it may consist of just a signature.

blank

Suppose that Harold Green draws a check​ "pay to the order of Victoria​ Rudd" and delivers the check to Victoria. Victoria indorses the check in blank by writing her signature​ "Victoria Rudd" on the back of the check.​ Victoria's signature is a​ _____ indorsement.

blank

If an instrument is payable to​ "Shou-Yi Kang and​ Min-Wer Chen," who may indorse and negotiate the​ instrument?

both​ Shou-Yi Kang and​ Min-Wer Chen

Which of the following is not a universal​ (real) defense?

breach of contract

Extreme duress is a universal defense that ________.

can be raised against holders and holders in due course to the enforcement of a negotiable instrument if force or violence was used to have a negotiable instrument issued

A​ _____ is a special form of​ _____ that is created when a depositor deposits money at a financial institution in exchange for the​ institution's promise to pay back the amount of the deposit plus an​ agreed-on rate of interest on the expiration of a set time period agreed on by the parties.

certificate of​ deposit; note

A(n) _____ check is a type of check for which a bank agrees in advance to accept the check when it is presented for payment.

certified

A​ _____ check is a type of check for which a bank agrees in advance to accept the check when it is presented for payment.

certified

A bank check is​ a(n) _____ or​ a(n) _____, the payment for which a bank is solely or primarily liable.

certified​ check; cashier's check

A cashier's check is a(n) ________.

check issued by a bank for which the customer has paid the bank the amount of the check and a fee

Lenders sometimes require the maker of a note to post security for the repayment of the note. This security may be in the form of automobiles, houses, securities, or other property. If a maker fails to repay a note when it is due, the lender can foreclose and take the property as payment for the note. This property is called _____

collateral

A negotiable instrument is also known as​ _____.

commercial paper

A universal defense against enforcement of a negotiable instrument by a holder in due course, material alteration ________.

consists of adding to any part of a signed instrument, removing any part of a signed instrument, or making changes to the dollar amount of the instrument

Liability for which a person cannot be held contractually liable on a negotiable instrument unless his or her signature appears on the instrument is called ________ liability.

contract

A _____ is called a nonnegotiable contract

contract that fails to meet the requirements of a negotiable instrument and, therefore, is not subject to the provisions of UCC Article 3,

A relationship that is created when a customer deposits money into the bank is called a(n) ________ relationship.

creditor-debtor

A holder in due course is a holder who takes a negotiable instrument for​ value, in good​ faith, and without notice that it is​ _________.

defective or overdue

Bearer paper is negotiated by​ _____.

delivery

A sight draft is also called a​ _____ draft.

demand

An instrument is​ ________ when it is presented for payment and payment is refused.

dishonored

An instrument that is presented for payment and payment is refused is called a(n) ________.

dishonored instrument

A _____ is called a check

distinct form of draft drawn on a financial institution and payable on demand

A blank indorsement is an indorsement that ________.

does not specify a particular indorsee

A three-party instrument that is an unconditional written order by one party ordering a second party to pay money to a third party is called a(n) _____

draft

The​ _____ of a check is a bank on which a check is drawn.

drawee

The​ _____ of a check is the customer who maintains the checking account and writes checks against the account.

drawer

Regarding negotiable instruments, a(n) _____ is called an order to pay

drawer's unconditional order to a drawee to pay a payee

Justin has a checking account at Country Bank. When Justin purchases a car from​ Mary's Motors, a car​ dealership, Justin pays for the car by writing a check on the bank made payable to​ Mary's Motors. In this​ case, Justin is the​ _____, Country Bank is the​ _____, and​ Mary's Motors is the​ _____.

drawer; drawee; payee

Quiet, Inc. has a checking account at Loud Bank. Mike​ Martin, the president of​ Quiet, Inc. writes a check for​ $1,000 from this​ account, payable to Noisy​ Coffee, to pay for food supplies.​ Quiet, Inc. is the​ _________, Loud Bank is the​ __________, and Noisy Coffee is the​ __________.

drawer; drawee; payee

Suppose Mary owes Hector​ $1,000. Hector wants Mary to pay the money to Cindy instead of to him. Hector writes out a draft that orders Mary to pay the​ $1,000 to Cindy. Mary agrees to this change of obligation and writes the word​ "accepted" on the draft and signs the draft. Hector is the​ _____, Mary is the​ _____ and acceptor of the​ draft, and Cindy is the​ _____.

drawer; drawee; payee

If an instrument is payable to​ "Shou-Yi Kang or​ Min-Wer Chen," who may indorse and negotiate the​ instrument?

either​ Shou-Yi Kang or​ Min-Wer Chen

If an instrument is payable to​ "Shou-Yi Kang/Min-Wer​ Chen," who may indorse and negotiate the​ instrument?

either​ Shou-Yi Kang or​ Min-Wer Chen

A trade acceptance is also known as a bill of​ _____.

exchange

A college student borrows money from her mother for college expenses. The loan agreement provides that the student will repay the loan five years after graduation from college. The loan agreement contains​ a(n) ______________ that permits the graduate to add on another two years to the loan​ if, at the end of five​ years, she wants extra time to pay the loan.

extension clause

A person borrows money from a bank to purchase a house. The loan is a​ 30-year loan, with interest and principal to be paid in equal monthly installments. If the at the end of 5 years the borrow can add another 2 years onto the​ loan, the loan agreement contains​ a(n) _______.

extension clause

A(n) ______ is a clause in an instrument that allows the date of maturity of an instrument to be lengthened to sometime in the future

extension clause

The​ _____ rule states that a drawer or maker is liable on a forged or unauthorized indorsement if the person signing as or on behalf of a drawer or maker intends the named payee to have no interest in the instrument or when the person identified as the payee is a fictitious person.

fictitious payee

The drawee of a check is the _____

financial institution where the drawer of a check has his or her account

Liability ________ is called contract liability.

for which a person cannot be held contractually liable on a negotiable instrument unless his or her signature appears on the instrument

Kim works as an investment consultant. In her promotional materials, she represents to potential investors that if they give her money, she will invest it for them and pay them interest on their investment. Kim, however, plans to use the money for her personal means. Sunisa is one of Kim's clients. Sunisa draws a $50,000 check payable to Kim. However, Sunisa then learns of Kim's plan and stops payment on the check. Here, Kim is only a holder, so Sunisa can raise the defense of ________ and not pay the check.

fraud in the inducement

Which of the following is NOT a universal​ (real) defense?

fraud in the inducement

Which of the following is not a universal​ (real) defense?

fraud in the inducement

An incomplete check is a check ________.

from which certain information has been omitted, such as the amount of the check or the payee's name, either on purpose or by mistake

Suppose that a thief steals a negotiable instrument and transfers it to Harry. Harry does not know that the instrument is stolen. Harry meets the​ _____ test and can therefore qualify as a holder in due course​ (HDC).

good faith

An indorsement that ________ is called a nonrestrictive indorsement.

has no instructions or conditions attached to the payment of the funds

A person who is in possession of a negotiable instrument that is drawn, issued, or indorsed to him or to his order, or to bearer, or in blank is called a(n) ________.

holder

​A(n) _____ is a person who is in possession of a negotiable instrument that is​ drawn, issued, or indorsed to him or to his​ order, or to​ bearer, or in blank.

holder

To qualify as a(n) ________, the person must be the holder of a negotiable instrument that was taken (1) for value; (2) in good faith; (3) without notice that it is overdue, dishonored, or encumbered in any way; and (4) bearing no apparent evidence of forgery, alterations, or irregularity.

holder in due course

When you open a checking account at a bank, you impliedly agree to keep sufficient funds in the account to pay any checks written against it. Thus, when your bank receives a properly drawn and payable check, the bank is under a duty to pay the check and charge (debit) the drawer's account the amount of the check if there are sufficient funds in the customer's checking account at the bank. This duty is called ________.

honor

When the drawee bank receives a properly drawn and payable​ check, the bank is under a duty to​ ____________ the check and​ ___________ the​ drawer's account the amount of the check if there are sufficient funds in the​ customer's checking account at the bank​ [UCC 4-401(a)].

honor; debit

A principal-agent relationship is created ________.

if a bank customer writes a check against his or her account or deposits a check that the bank must collect

​A(n) _____ is the signature​ (and other​ directions) written by or on behalf of the holder somewhere on an instrument.

indorsement

A(n) _____ makes the indorsee the​ indorser's collecting agent.

indorsement for deposit or collection

​A(n) _____ states that it is for the benefit or use of the indorser or another person.

indorsement in trust

An accommodation party may sign an instrument guaranteeing collection rather than guaranteeing payment of an instrument. This party is called an accommodation​ _____.

indorser

An "on us" item ________.

is a check that is presented for payment where the depository bank is also the payer bank

The Dodd-Frank Wall Street Reform and Consumer Protection Act ________.

is a federal statute that reorganizes the federal government's supervision of the banking system, corrects abuses in the banking system, regulates previous unregulated financial products and institutions, ends abusive practices in the securities industry, establishes new federal consumer-debtor financial protection laws, and adds a new federal consumer protection agency to protect consumers from abusive lending practices

Wrongful dishonor ________.

is a situation in which there are sufficient funds in a drawer's account to pay a properly payable check, but the bank does not do so

A commercial wire transfer ________.

is an electronic transfer of funds from a bank to another party that is often used to transfer funds between businesses and financial institutions

A depository bank ________.

is the bank where a payee or holder has an account

Negotiation is the transfer of a negotiable instrument by a person other than the​ _____.

issuer

If the​ _________________ of a nonnegotiable contract fails to pay​ it, the​ ___________ of the contract can sue the nonperforming party for breach of contract.

maker or​ drawer; holder

Millicent has​ $50,000 that she would like to invest and earn income on. Millicent goes into City Bank and deposits her money with the bank in exchange for a certificate of deposit​ (CD) that bears an annual interest rate of 7 percent.​ Here, City Bank is the​ _____ of the​ CD, and Millicent is the​ _____.

maker; payee

Under the​ UCC, value has been given if the holder does all EXCEPT which of the​ following?

makes an illusory promise

Which of the following is NOT a personal​ defense?

material alteration

The drawee of a draft is the party who _____

must pay the money stated in the draft

An indorsement signature may​ (1) appear​ alone, (2)​ ____________ to whom the instrument is to be​ paid, or​ (3) ________________________​ [UCC 3-204(2)].

name an​ individual; be accompanied by other words

An instrument that is​ "payable in​ $10,000 U.S.​ currency" is a​ _____ instrument.

negotiable

A(n) ______ is a special form of contract that satisfies the requirements established by Article 3 of the UCC

negotiable instrument

The transfer of a negotiable instrument by a person other than the issuer to a person who thereby becomes a holder is called ________.

negotiation

If I give you a piece of paper that​ states, "I owe you​ $100," does this meet the requirements of a negotiable​ instrument?

no - it does not contain a promise to pay

American Airlines buys a​ $50 million airplane from Boeing. If American signs a promissory note that promises to pay Boeing if it is​ "satisfied" with the​ airplane, does this meet the requirement of a negotiable​ instrument?

no - the promise is conditional

Sandra borrows​ $25,000 from Joshua at 5 percent interest and signs a promissory note agreeing to repay the principal and interest in equal monthly installments over 5 years. Because the note contains a reference to another​ document, it becomes​ a(n) _______.

nonnegotiable instrument

A(n) _______ fails to meet the requirements of a negotiable instrument​ and, therefore, is not subject to the provisions of UCC Article​ _______.

nonnegotiable​ contract; 3

A nonnegotiable contract is not rendered either​ ________________. A nonnegotiable contract can be enforced under​ ____________________.

nontransferable or​ unenforceable; normal contract law

With respect to nonnegotiable​ instruments, because​ _______________ apply, the​ ____________ acquires only the rights that the​ ____________ possessed.

normal contract​ principles; assignee; assignor

If​ Harry, the​ drawer, and​ Sally, the​ payee, have accounts at different​ banks, the depository bank is​ _________________ bank. The check is called an​ ______________ when it is presented for payment by the payee or holder.

not the​ payer; "on​ them" item

In the context of negotiable instruments, extensions of credit ____

occur where a lender loans money to a borrower

Personal defenses can be raised against ordinary holders to deny the payment of negotiable instruments. Thus, if a personal defense is proven, the holder cannot recover on the negotiable instrument. However, personal defenses cannot be raised against HDCs to deny the payment of negotiable instruments. The personal defense of breach of contract ________.

occurs if a negotiable instrument arises from a transaction where a contracting party fails to perform an absolute duty owed under a contract

A check has the following indorsement: "Pay to Fred Welby and George Welby." Here, the indorsement signatures of both Fred and George are required to negotiate the instrument. The indorsement signature of only one of the brothers is not sufficient to negotiate the instrument. This instrument is ________.

payable jointly

An instrument that states​ "payable to​ cash" is​ _____.

payable to bearer

The​ _____ of a check is the party to whom a check is written.

payee

​Generally, all parties to a negotiable instrument are discharged from liability if​ (1) the party primarily liable on the instrument​ ______________ of the instrument or​ (2) a drawee in good faith​ _______________________________.

pays it in full to the​ holder; pays an unaccepted draft or check in full to the holder

The​ _____ requirement of negotiable instruments says that they must be able to be easily transported between areas.

portability

You borrow money from a bank to purchase a house. The loan is a 20-year loan, with interest and principal to be paid in equal monthly installments. If the loan agreement contains a(n) ____ clause, you can pay off the loan at any time during the 20-year period

prepayment

A person borrows money from a bank to purchase a house. The loan is a​ 30-year loan, with interest and principal to be paid in equal monthly installments. If the borrower can pay off the loan at any time during the​ 30-year period, the loan agreement contains​ a(n) _______.

prepayment clause

A demand for acceptance or payment of an instrument made on the maker, acceptor, drawee, or other payer by or on behalf of the holder is called ________.

presentment

You just received your paycheck from your job at a small startup. Instead of depositing an "on them" check for collection, you decide to physically present the check for payment at the payer bank. Your decision is called ________.

presentment across the counter

Absolute liability to pay a negotiable instrument, subject to certain universal (real) defenses, is called ________ liability.

primary

Makers of promissory notes and certificates of deposit have​ _____ liability for the instruments.

primary

A(n) ________ relationship is created when a bank customer writes a check against his or her account or deposits a check that the bank must collect.

principal-agent

​A(n) _____________ relationship is created if​ (1) the deposit is a check that the bank must collect for the​ _____________ or​ (2) the​ ____________ writes a check against his or her account.

principal-​agent; ​customer; customer

A​ _____ is an unconditional written promise by one party to pay money to another party.

promissory note

Which of the following is NOT a requirement for HDC status​ (as determined at the taking of the​ instrument)?

proper assignment or delegation

​A(n) _____ indorsement includes the notation​ "without recourse" or similar language that disclaims liability of the indorser.

qualified

​A(n) _____ indorser is not secondarily liable on an instrument because he or she has expressly disclaimed liability.

qualified

A(n) ________ is an indorsement that includes the notation "without recourse" or similar language that disclaims liability of the indorser.

qualified indorsement

Transfer warranties ________.

refer to five implied warranties made by any person who transfers a negotiable instrument for consideration to a transferee who took the instrument in good faith

Presentment warranties ________.

refer to three warranties that a person who presents a draft or check for payment or acceptance makes to a drawee or an acceptor who pays or accepts the instrument in good faith

In reference to liability on negotiable instruments, discharge ________.

refers to payment of the instrument, cancellation, and impairment of the right of recourse; actions or events that relieve certain parties from liability on negotiable instruments

A holder who either​ (1) ______________________ or​ (2) ____________________ without the consent of the parties who would benefit thereby discharges those parties from their obligation on the instrument​ [UCC 3-605(e)]. This discharge is called impairment of the right of recourse.

releases an obligor from​ liability; surrenders the collateral

An indorsement for deposit or collection and an indorsement in trust are examples of​ _____ indorsements.

restrictive

A trade acceptance is a ____

sight draft that arises when credit is extended with the sale of goods and in which the seller is both the drawer and the payee, and the buyer is the drawee

The concept of​ _____ liability means that a person cannot be held contractually liable on a negotiable instrument unless his or her signature appears on an instrument.

signature

In addition to​ _____________, transferors can be held liable for breaching​ ____________ when negotiating instruments.

signature​ liability; implied warranties

A​ _____ indorsement would be created if Betsy McKenny indorsed her check and then wrote​ "pay to Dan​ Jones" above her signature.

special

​A(n) _____ indorsement contains the signature of the indorser and specifies the person​ (or indorsee) to whom the indorser intends the instrument to be payable.

special

A check that has been outstanding for more than six months is called a(n) ________ check.

stale

In​ August, Sue finds a check from last December in her top desk​ drawer, this is known as​ a(n)

stale check

The fictitious payee rule ________.

states that a drawer or maker is liable on a forged or unauthorized indorsement if the person signing as or on behalf of a drawer or maker intends the named payee to have no interest in the instrument or when the person identified as the payee is a fictitious person

The imposter rule ________.

states that if an imposter forges the indorsement of the named payee, the drawer or maker is liable on the instrument to any person who, in good faith, pays the instrument or takes it for value or for collection

An indorsement that ________ is called an indorsement in trust.

states that it is for the benefit or use of the indorser or another person

The Federal Trade Commission​ (FTC), a federal administrative agency in charge of consumer​ protection, adopted the FTC HDC rule pursuant to its federal​ _____ powers.

statutory

Which of the following is NOT one of the categories of​ indorsement?

testamentary

A postdated check is a check ________.

that a drawer does not want cashed until sometime in the future

Universal defenses (also called real defenses) can be raised against both ordinary holders and holders in due course (HDCs) to deny the payment of negotiable instruments. If a universal defense is proven, the holder or HDC cannot recover on the negotiable instrument. Illegality is a universal defense ________.

that applies when an instrument arises out of an illegal transaction and is unenforceable because the law declares the instrument void

An indorsement ________ is called a restrictive indorsement.

that contains some sort of instruction from the indorser

An overdraft is ________.

the amount of money a drawer owes a bank after it has paid a check despite the drawer's account having insufficient funds

A forged indorsement is ________.

the counterfeit signature of a payee or holder on a negotiable instrument

An instrument that is payable ____ is called a bearer instrument

to anyone in physical possession of the instrument who presents it for payment when it is due

Which of the following is NOT a requirement for creating a negotiable​ instrument?

to state a variable amount of money

There are two types of implied​ warranties: ________________ and​ _________________.

transfer​ warranties; presentment warranties

A ____ is called a certificate of deposit

two-party negotiable instrument that is a special form of note created when a depositor deposits money at a financial institution in exchange for the institution's promise to pay back the amount of the deposit plus an agreed-on rate of interest on the expiration of a set time period agreed on by the parties

A promissory note is a _____

two-party negotiable instrument that is an unconditional written promise by one party to pay money to another party

To be​ negotiable, a promise or an order must be​ _____.

unconditional

A holder in due course​ (HDC) (or a holder through an​ HDC) takes an instrument free​ from_______________________.

universal defenses but not real defenses

There are two general types of​ defenses: ________________ and​ _________________.

universal​ defenses; personal defenses

An indorsement whereby the indorser promises to pay the holder or any subsequent indorser the amount of the instrument if the​ maker, drawer, or acceptor defaults on it is​ a(n) __________ indorsement.

unqualified

​A(n) _______ indorsement is a promise by the indorser to pay the holder or any subsequent indorser the amount of the instrument if the​ maker, drawer, or acceptor defaults on it.

unqualified

A(n) ________ is an indorsement whereby the indorser promises to pay the holder or any subsequent indorser the amount of the instrument if the maker, drawer, or acceptor defaults on it.

unqualified indorsement

An instrument that is payable to two or more payees or indorsees ________ is payable in the alternative; either person's indorsement signature alone is sufficient to negotiate the instrument.

using the word "or"

Commercial wire​ transfers, or​ _____ wire​ transfers, are electronic transfers of funds from a bank to another party.

wholesale

Cancellation can be accomplished by​ (1) any manner apparent on the face of the instrument or the indorsement​ (e.g., __________________) or​ (2) _______________ of a negotiable instrument with the intent of eliminating the obligation.

writing canceled on the​ instrument; destruction or mutilation

If a bank does not honor a check when there are sufficient funds in the​ drawer's account to pay a properly payable​ check, it is liable for​ ______________. The​ _________ bank is liable to the​ __________ for damages proximately caused by the wrongful dishonor as well as for consequential​ damages, damages caused by criminal prosecution.

wrongful​ dishonor; payer; drawer

If a drawer and a payee or holder have accounts at different​ banks, the payer bank and depositary bank are not the same bank. In this​ case, the check is called​ a(n )_____ item.

​"on them"

Which of the following is NOT a bearer​ instrument?

​"payable to​ Google"

The Bank Secrecy Act is a federal law that requires financial institutions and other entities to report to the Internal Revenue Service​ (IRS) the receipt of a transaction or series of transactions in an amount greater than​ _____ in cash and suspected criminal activity involving a financial transaction of​ _____ or more in funds.

​$10,000; $1,000

Jenni signs a promissory note to pay​ $1,000 to Allen. Allen cleverly raises the note to​ $10,000 and negotiates the note to Brent. Brent indorses the note and negotiates it to Matthew. When Matthew presents the note to Jenni for​ payment, Jenni gives him​ $1,000. Matthew can collect​ ________________.

​$9,000 from Brent

A negotiable instrument is a special form of contract that satisfies the requirements established by Article​ _____ of the Uniform​ _____ Code.

​3; Commercial

Article​ _________ of the​ ________ establishes rules for the creation​ of, transfer​ of, enforcement​ of, and liability on negotiable instruments.

​3; Uniform Commercial Code

Article​ _____ of the Uniform​ _____ Code establishes the rules and principles that regulate bank deposit and collection procedures.

​4; Commercial

Elliot draws a check on his checking account at City Bank​ "payable to the order of Phyllis​ Jones." When Phyllis presents the check for​ payment, City Bank refuses to pay it. Phyllis can collect the amount of the check from​ ____________ because the drawer is​ ______________ on the check when it is dishonored.

​Elliot; secondarily liable

The​ _____ HDC rule​ _____ HDC status with regard to negotiable instruments arising out of certain consumer credit transactions.

​FTC; eliminates

Fred purchases goods by telephone from Cynthia. Fred has never met Cynthia. Beverly goes to Fred and pretends to be Cynthia. Fred draws a check payable to the order of Cynthia and gives the check to​ Beverly, believing her to be Cynthia. Beverly forges​ Cynthia's indorsement and cashes the check at a liquor store. Who is​ liable?

​Fred, but not the liquor store

Ted draws a check​ "payable to the order of Mary​ Smith" and delivers the check to Mary. Mary indorses it and gives it as a gift to her daughter. Which of the following is a correct statement regarding whether​ Mary's daughter can qualify as a holder in due course​ (HDC)?

​Mary's daughter cannot qualify as an HDC because she has not given value for it. In order to become a holder in due​ course, the holder must pay something of value for the instrument.

_____ liability on a negotiable instrument is imposed on a party only when the party​ _____ liable on the instrument defaults and fails to pay the instrument when due.

​Secondary; primarily

With respect to nonnegotiable​ instruments, any defenses to the enforcement of the contract that could have been raised against the​ __________ can also be raised against the​ ____________.

​assignor; assignee

​A(n) _____ check is a check issued by a bank for which the customer has paid the bank the amount of the check and a fee. The bank guarantees payment of the check.

​cashier's

Virtual currency is a​ _____________ form of online currency that uses​ _____________ for security. The first major cryptocurrency was​ ______________.

​decentralized; cryptography; bitcoin

A check is a distinct form of​ _____ drawn on a financial institution and payable​ _____.

​draft; on demand

A draft or a check is an order from​ a(n) ____________ to pay the instrument to a​ __________ (or other​ holder) according to its terms.

​drawer; payee

Suppose Elliot draws a check on his checking account at City Bank​ "payable to the order of Phyllis​ Jones." When Phyllis presents the check for​ payment, City Bank refuses to pay it. Phyllis can collect the amount of the check from Elliot because​ Elliot, the​ _____, is​ _____ liable on the check when it is dishonored.

​drawer; secondarily

Andrew borrows​ $10,000 from Wei and signs a promissory note agreeing to pay Wei the principal and 10 percent annual interest over three years in equal monthly installments.​ Here, Andrew is the​ _____ of the​ note, and Wei is the​ _____.

​maker; payee

The signature on a negotiable instrument can be any​ ________________ used in lieu of a​ ________________ [UCC​ 3-401(b)].

​name, word, or​ mark; written signature

An instrument that states​ "payable to​ IBM" is​ _____.

​non-negotiable

If​ Harry, the​ drawer, and​ Sally, the​ payee, have accounts at the same​ bank, the depository bank is also the​ __________ bank. The check is called an​ ______________ when it is presented for payment by the payee or holder.

​payer; "on​ us" item

Notice of dishonor is the formal act of letting the party with​ _____ liability to pay a negotiable instrument know that the instrument has been​ _____.

​secondary; dishonored

A check that has been outstanding for more than​ ______ months is considered​ _______, and the bank is under no obligation to pay it.

​six; stale

A certificate of deposit is a​ _____ instrument.

​two-party

An HDC takes a negotiable instrument free of all claims and most defenses that can be asserted against the transferor of the instrument. Only​ ____________ defenses—and not​ ____________ defenses—may be asserted against an HDC.

​universal; personal

The​ _____ has adopted a rule that eliminates holder in due course status with regard to negotiable instruments that arise out of certain consumer credit transactions.

Federal Trade Commission​ (FTC)

The Federal Reserve System consists of​ _____ regional Federal Reserve banks that assist other banks in the collection of checks.

12

If the same wrongdoer engages in a series of forgeries or alterations on the same​ account, the customer must report that to the payer bank within a reasonable period of​ time, not exceeding​ _____ from the date that the bank statement was made available to the customer.

30 days

Article​ _____ of the Uniform​ _____ Code establishes the requirements for negotiable instruments.

3; Commercial

Article​ _____ of the Uniform​ _____ Code establishes rules regulating the creation and collection of and liability for wire transfers.

4A; Commercial

Which of the following is an INCORRECT statement regarding the check collection​ process?

A bank does not have a duty to accept deposits into a​ customer's account.

Dharamjit lent Jessica $1,500 to help her with moving expenses. In order to pay him back, Jessica draws from her checking account a $1,500 check made out to "pay to cash" and gives it to Dharamjit. Jessica's check is an example of which of the following?

A bearer instrument

Which of the following is an INCORRECT statement regarding certified​ checks?

A check is a certified check when the bank writes or stamps the word cancelled across the face of an ordinary check.

________ is called a personal defense.

A defense that can be raised against enforcement of a negotiable instrument by an ordinary holder but not against an holder in due course

You enter into an agreement with your father to buy his old car. Your father writes out a draft that orders you to pay the agreed price of $5,000 on demand. You accept, sign the draft, and hand the cash over to your father. This is an example of which of the following?

A demand draft

It's Friday! You just received your paycheck. You head to your bank, where you deposit the check into your checking account. Your bank would be considered which of the following?

A depository bank

Mark draws a check payable to the order of Anne. Tom steals the check from Anne, fakes Anne's signature, and cashes the check at a tailor for a custom-made silk suit. The tailor is then liable. Mark, the drawer, is not. The tailor is liable because which of the following has occurred?

A forged indorsement

Which of the following is an INCORRECT statement regarding signature liability for a negotiable​ instrument?

A person can be held contractually liable on a negotiable instrument even if his or her signature does not appear on it.

Insure You, an insurance company, is paying a claim. They make out a check payable to the order of the attorney representing the payee. The attorney indorses the check to his client (the payee) with the notation "without recourse." This notation ensures that the attorney is not liable as an indorser if the insurance company fails to pay the check. The attorney in this scenario is which of the following?

A qualified indorser

One who disclaims liability and is not secondarily liable on instruments they endorse is which of the following?

A qualified indorser

Which of the following is an INCORRECT statement regarding signature liability for a negotiable​ instrument?

A qualified indorser is primarily liable on a negotiable instrument.

After Rachel Green receives a check from Monica Geller, Rachel indorses her check and then writes "pay to Phoebe Buffay" above her signature. Rachel's signature and instructions are an example of which of the following?

A special indorsement

Marcia works in the payroll department at a university where she cuts checks for professors. She sends a check out to a newly hired professor but then she realizes that she paid the new professor the incorrect rate. She calls the payer bank and tells them not to pay the check. She plans to cancel it and reissue a new one with the correct amount. Marcia has used which of the following?

A stop-payment order

You enter into an agreement with your father to buy his old car. Your father writes out a draft that orders you to pay the $5,000 you agreed upon, and that payment is due on January 1, 2020, six months from now. You accept and sign the draft. This is an example of which of the following?

A time draft

Suppose a promissory note is due April 15, 2030. To qualify as an HDC, a purchaser must acquire the note by 11:59 p.m. April 15, 2030. A purchaser who acquires the note on April 16, 2030, or thereafter, is only a holder and not an HDC. This promissory note is an example of which of the following?

A time instrument

Which of the following is an INCORRECT statement regarding presentment​ warranties?

According to the Uniform Commercial Code​ (UCC), a presentment equates to a​ transfer; therefore, presentment warranties and transfer warranties are identical.

Which of the following is an INCORRECT statement regarding the transfer of a negotiable instrument by​ negotiation?

According to the Uniform Commercial Code​ (UCC), the holder of a negotiable instrument cannot enjoy the same rights as the transferor.

Which of the following is true about a holder in due course​ (HDC)?

An HDC takes a negotiable instrument free of all claims and most defenses that can be asserted against the transferor of the instrument.

Your father draws a $50 check on Country Bank made payable to your younger brother as a birthday gift. Your brother then decides to modify the check to read "$500" and cashes the check at a video game store. The video game store presents the check for payment to County Bank, and County Bank pays the check. Your father is liable only for the original tenor of the check ($50), and County Bank can charge the father's account this amount. Your father's check is an example of which of the following?

An altered check

Generally, all parties to a negotiable instrument are relieved of liability on payment of the instrument, cancellation of the instrument, and impairment of the right of recourse. These occurrences are called which of the following?

Discharge

After the country suffered a major financial and economic depression in the​ mid-2000s, the United States Congress decided that the bank system needed to be reformed. To accomplish​ this, Congress passed the​ _____ Street Reform and Consumer Protection Act.

Dodd-Frank Wall

Computer and electronic technology make it possible for banks to offer electronic​ deposit, withdrawal,​ payment, and collection services to bank customers. This technology is collectively referred to as the​ _____.

EFTS

Your father is starting up a new small business. In order to start his business, your father wants to acquire a small business loan. A bank lends him the money, and he signs a note promising to repay the money. This is an example of which of the following functions of negotiable instruments?

Extensions of credit

Under the UCC​ "taking without notice of​ defect" requirement, a person cannot qualify as an HDC if he or she has notice that the instrument is defective in all EXCEPT which of the following​ ways?

It is payable on demand.

Hector has a checking account at Country Bank. Juanita steals one of​ Hector's checks, completes it by writing in​ $10,000 as the amount of the​ check, adds her name as the​ payee, and forges​ Hector's signature. Juanita indorses the check to​ Sam, who knows that​ Hector's signature has been forged. Sam then endorses the check to​ Susan, who has no knowledge of the forgery. Who can the bank recover from if it pays on the​ check?

Juanita and Sam

An accommodation party who signs an instrument guaranteeing payment is primarily liable on the instrument. This party is called an accommodation​

Maker

Which of the following is an INCORRECT statement regarding primary liability for negotiable​ instruments?

Makers of promissory notes have secondary liability for the instruments.

________ is called a payer bank.

The bank where the drawer has a checking account and on which a check is drawn

Suppose that Sam Bennett receives a weekly payroll check from his​ employer, Ace​ Corporation, made​ "payable to the order of Sam​ Bennett." Sam takes the check to a local​ store, signs his name on the back of the​ check, gives the check to the​ cashier, and receives cash for the check. Which of the following is correct in terms of negotiation of the​ check?

The check has been properly negotiated.

Your bank has a rule that, after 3 P.M., any checks or deposits will be treated as being received on the next banking day. Your bank is adhering to which of the following?

The deferred posting rule

Which of the following is a correct statement regarding the check collection​ process?

The depository bank must present a check to the payer bank for collection.

Pizza My Heart, a restaurant, has a checking account at Hilltop Bank. Antonio Silva, the president of Pizza My Heart, writes a check for $1,000 from this account, payable to American Foods Company, to pay for food supplies. In this scenario, Pizza My Heart is which of the following?

The drawer of a check

Which of the following is an INCORRECT statement regarding discharge from liability on negotiable​ instruments?

The holder of a negotiable instrument cannot discharge the liability of any party to the instrument by cancellation.

Which of the following is NOT a transfer​ warranty?

The instrument has been materially altered.

Which of the following is an INCORRECT statement regarding a​ payee's misspelled name on an​ instrument?

The instrument is​ non-negotiable.

Which of the following is an INCORRECT statement regarding primary liability for negotiable​ instruments?

The issuer of a​ cashier's check is secondarily liable on the instrument.

Your 16-year-old sister decides on her own to purchase a used car she sees for sale on your street, so she'll be ready to go once she receives her driver's license. She enters into a contract with the seller and is in the process of tracking down the money when your parents discover the contract. Your parents insist that she wait until later to purchase a car. Your sister can legally disaffirm her contract under which of the following?

The minority defense

A promise to pay chiseled in a tree would not qualify as a negotiable instrument under which of the following requirements governing such instruments?

The portability requirement

Which of the following is an INCORRECT statement regarding​ cashier's checks?

The purchaser must have a checking account at the bank from which the​ cashier's check is purchase

A holder who does not qualify as a holder in due course in his or her own right becomes a holder in due course if he or she acquires the instrument through a holder in due course under which of the following?

The shelter principle

________ is called an indorsement.

The signature and other directions written by or on behalf of the holder somewhere on an instrument

Lindsey executes a note payable to Greta for $3,000 for goods she purchased from her. Greta then transfers the note to Amy, who pays $2,500 for the note. Because Amy has paid for the negotiable instrument, she meets which of the following qualifications for holder in due course (HDC) status?

The taking for value requirement

________ is called negotiation.

The transfer of a negotiable instrument by a person other than the issuer to a person who thereby becomes a holder

Marshall signs a promissory note to pay $1,000 to Ted. Ted then cleverly raises the note to $10,000 and negotiates the note to Barney. Barney indorses the note and negotiates it to Sandy. When Sandy presents the note to Marshall for payment, Marshall has to pay only the original amount of the note, $1,000. Sandy can collect the remainder of the note ($9,000) from Barney, based on a breach of which of the following?

The transfer warranty

Which of the following is NOT a presentment​ warranty?

The transferor has good title to the instrument or is authorized to obtain payment or acceptance on behalf of one who does have good title.

If a transfer is by​ indorsement, the transferor makes all but which of the following warranties to any subsequent​ transferee?

The transferor is not a holder or a holder in due course of the instrument.

Which of the following is an INCORRECT statement regarding discharge from liability on negotiable​ instruments?

To be discharged from liability on a negotiable instrument means to become secondarily liable on the instrument.

Which of the following is an INCORRECT statement regarding commercial wire​ transfers?

Uniform Contracts Code Article 2 governs commercial wire transfers.

Personal defenses can be raised against ordinary holders to deny the payment of negotiable instruments. Thus, if a personal defense is proven, the holder cannot recover on the negotiable instrument. However, personal defenses cannot be raised against HDCs to deny the payment of negotiable instruments. A personal defense, fraud in the inducement ________.

occurs when a wrongdoer makes a false statement to another person to lead that person to enter into a contract with the wrongdoer and issue a negotiable instrument

Secondary liability is liability ________.

on a negotiable instrument that is imposed on a party only when the party primarily liable on the instrument defaults and fails to pay the instrument when due

The​ drawer's failure to report a forged or altered check to the bank within​ _____ of receiving the bank statement and canceled checks containing it relieves the bank of any liability for paying the instrument.

one year

Joyce signs a promissory note to pay​ $1,000 to Adam. Adam cleverly raises the note to​ $10,000 and negotiates the note to Nick. Nick indorses the note and negotiates it to Mike. When Mike presents the note to Joyce for​ payment, she is liable for​ __________.

only the original amount of the​ note, $1,000

​A(n) _____ instrument is​ payable: 1) to the order of an identified​ person; or​ 2) to an identified person or order.

order

UCC​ 3-104(f) defines a check as​ a(n) _______________ to the drawee bank to pay a specified sum of money from the​ drawer's checking account to the named​ _____________.

order by the​ drawer; payee​ (or holder)

An instrument that is payable to a specific payee or indorsed to a specific indorsee is​ a(n) ___________.

order instrument

A drawer's unconditional order to a drawee to pay a payee is called a(n) ____

order to pay

In​ March, Sue finds a check from last December in her top desk drawer. This is known as​ a(n) _______.

ordinary check

If a payer bank has paid an altered​ check, it can charge the​ drawer's account for the​ _____ of the check.

original tenor

The original amount for which the drawer wrote a check is called ________.

original tenor

The payee of a note is the _____

party to whom a promise to pay is made

The payee of a certificate of deposit is the ____

party to whom it is made payable

A check has the following indorsement: "Pay to Fred Welby or George Welby." Here, either Fred or George Welby can individually indorse and negotiate the instrument without the other's signature because this indorsement is ________.

payable in the alternative

Pam is the treasurer of Grade A Paper Company. As a treasurer, Pam makes out and signs the payroll checks for the company. Pam draws a payroll check payable to the order of her neighbor Bob Smith, who does not work for the company. Pam does not intend for Bob to receive this money. She indorses Bob's name on the check and names herself as the indorsee. She cashes the check at an art supply store. Under ________, Grade A is liable because it was in a better position than the art supply store to have prevented the fraud.

the fictitious payee rule

Andy draws a check payable to the order of Mallory. Leslie steals the check from​ Mallory, forges​ Mallory's indorsement, and cashes the check at a liquor store. Who is​ liable?

the liquor​ store, but not Andy

Lily draws a $1,000 check on City Bank "payable to the order of Barney." Barney then cleverly raises the check to $10,000 and indorses and negotiates the check to Ted. Ted presents the check for payment to American Bank. American Bank pays the check as altered ($10,000) and debits Lily's account. When Lily discovers the alteration, she demands that the bank recredit her account, which the bank does. American Bank can recover against Ted based on breach of ________; that the instrument was not altered when it was presented.

the presentment warranty

An instrument that is payable to two or more payees or indorsees using ________ is payable jointly.

the word "and"

​A(n) _____ draft is payable at a designated future date.

time


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