Business Law Ch. 13

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A promise to give value in the future is sufficient to confer the rights of an HDC on one in possession of a negotiable instrument.

F

A maker of an instrument that is payable at a definite time does not have the option of paying before the stated date.

False

A person who acquires an instrument knowing that the instrument contains an unauthorized signature can still be afforded HDC protection.

False

A special indorsement names the indorsee.

False

A time draft is payable on sight.

False

An instrument that states simply "I.O.U." is not negotiable.

False

Discharge in bankruptcy is no defense on any instrument regardless of the status of the holder.

False

The drawee who signs a draft or check is not primarily liable to any subsequent holders.

False

Universal defenses are good against all holders except HDCs and holders through HDCs.

False

When an instrument has a forged indorsement, the loss usually falls on the party whose indorsement was forged.

False

When an instrument is dishonored, only written notice is sufficient to hold secondary parties liable.

False

tating on an instrument the underlying terms of an agreement renders the instrument nonnegotiable.

False

A bearer instrument is an instrument that does not designate a specific payee.

True

A check "payable to the order of bearer" is neither an order instrument nor a bearer instrument.

True

A fictitious payee is a payee on a negotiable instrument whom the maker or drawer does not intend to have an interest in the instrument.

True

A holder takes an instrument for value if he or she gives a check as payment for it.

True

A person cannot become an HDC if a defense against payment is apparent on the face of the instrument.

True

A personal check cannot be a negotiable instrument.

True

A promissory note can be a negotiable instrument.

True

A signature must be the full name of a party.

True

An instrument payable "with ten hours of services" is negotiable.

True

An ordinary holder can recover nothing on an instrument that has been materially altered.

True

Instruments that say nothing about when payment is due are payable on demand.

True

On a trade acceptance, the drawer is also the payee.

True

Personal defenses are used to avoid payment to an ordinary holder of a negotiable instrument, but not to an HDC or a holder through an HDC.

True

Primary liability is unconditional.

True

Rubber stamp signatures can be legally binding signatures.

True

To be negotiable, an instrument must be payable in a fixed amount.

True

When there is a breach of an underlying contract for which an instrument was issued, the maker of a note can refuse to pay it.

True

Alpha Company issues a trade acceptance with itself and Beta Company as parties. A trade acceptance is

a draft.

InterComp normally sells $50,000 worth of software to Power Source, a retail electronics store, each summer on terms requiring payment in sixty days. One year, InterComp wants cash, but Power Source wants the usual sixty days. To meet both needs, the parties can arrange

a trade acceptance.

Beth, an accountant for Credits & Debits, acquires a negotiable instrument from Ellen by promising to pay its face value in thirty days. Beth acquires the status of an HDC when she

acquires possession of the negotiable instrument.

Jeff's grandmother is the payee of a promissory note for $7,500. Jeff's grandmother gives Jeff the note for his sixteenth birthday. Jeff is

an HDC.

Jill, in good faith and for value, gets from Kiley a negotiable bearer instrument. Jill does not know that Kiley stole the instrument. Jill is

an HDC.

To obtain office supplies for All-Care Medical Clinic, Britney executes a draft in favor of Chris. A draft is

an unconditional written order to pay money.

To borrow money to finance the start-up of his business, Bob executes an instrument in favor of City Bank. For the instrument to be negotiable, the signature must be

anywhere on the instrument.

If a bank is both the drawer and the drawee with regard to a draft, then the draft is a

cashier's check.

Willy deposits $5,000 with Home State Bank on July 1, 2012. Home State Bank promises to repay Willy the $5,000 plus 3 percent annual interest on July 1, 2017. Home State Bank has issued Willy a

certificate of deposit.

At 1 a.m., on the sidewalk in front of Ace Credit Corporation, which is closed, Ben buys a $500 promissory note for $50 from Curt. When presented with Ben's demand for payment, Diann, the maker of the note, could successfully claim that Ben

did not acquire the instrument in good faith.

Sarah has a checking account at Secure Bank. Sarah buys her roommate Sophie's two tickets to a Broadway musical for $200. Sarah writes Sophie a check for the tickets. In this situation, Secure Bank is the

drawee.

Kris wants one of Jasmine's purebred Persian kittens. Kris signs an instrument in which she promises to pay Jasmine for a kitten. The instrument will be negotiable if it is payable in

money.

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

negotiable.

Maria signs an instrument payable to the order of National Loans, Inc., "on or before" June 15. This instrument is

negotiable.

Ron signs an instrument using an "R" with a circle around it. With this mark for a signature, the instrument is

negotiable.

To buy a stuffed cow, Ken executes a check "pay to Laura or bearer" and gives it to Laura, who does not own a stuffed cow. This check is

negotiable.

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

nonnegotiable, because it does not include an express promise to pay.

Kelly signs an instrument in favor of Leo that states it is "subject to a certain agreement between Kelly and Mona." This instrument is

nonnegotiable, because it is made subject to a separate agreement.

Wilson buys a promissory note from Oli. The note is due on December 5. December 5 is a Sunday. The note is

payable December 6.

To obtain a business license, Bess writes a check to a certain state agency. Bess is

the drawer.

Efron transfers an instrument to First Citizens Bank. This is not a negotiation unless

the instrument is a negotiable instrument.

On April 1 Richard arranges to buy a sixteen-speed bike from his neighbor Phil for $500. Phil agrees to deliver the bike on May 1. Richard writes a draft for $500 payable to Phil on May 1. In this situation, the draft is a

time draft.

Stature Loan Company has notice that a promissory note is overdue if the note is a demand instrument and Stature takes it

without noticing its due date.


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