Business law self test Unit 3

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,

Lamont cannot acquire HDC rights in the note.

Klaus forges Lot's name as the maker of a note "payable to Klaus." Klaus indorses the note in blank, sells it to Mort, and disappears. Without indorsement, Mort sells the note to Nora, who, also without indorsement, sells the note to Obie. On discovery of the forgery, most likely liable to Obie is

Nora

Corky pays Delta Bank $500 plus a service fee to draw a check on itself payable to Electric Company. The party responsible for paying the check is

Delta Bank only

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

An irregularity on the face of an instrument that calls into question its validity or ownership, thereby barring HDC status, occurs when

a forged maker's or drawer's signature is visibly evident.

Anya issues a check payable to Bo, who indorses the back, gives it to Credit Union, and receives cash. The transfer of the check from Bo to Credit Union is

a negotiation

Ridge Bank creates a paper reproduction of customer Sophie's check with the statement "This is a legal copy of your check. You can use it in the same way you would use the original check." This is

a substitute check

Family Farm signs and delivers a check payable to Gold Digger PC, leaving the amount blank but authorizing the payee to fill in the check for $10,000. Gold fills in $15,000 and gives the check to Hill Bank as payment on Gold's debt to the bank of that amount. As an HDC, the bank can enforce the check for

$15,000

Steel Mill Inc. signs an instrument that states with certainty a fixed amount to be paid at the time the instrument is payable. This ensures that

the value of the instrument can be determined with clarity.

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.

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

transferable without the danger of being uncollectable.

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

Erin uses e-money consisting of funds stored on microchips in her laptop, phone, and tablet to pay bills. This effectively replaces physical cash with virtual cash in the form of

electronic impulses.

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

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

indorse the check "for deposit only."

Fresh Fruit Company accepts a check from Grocers Mart in payment on a shipment of apples, but Harvest Meat LLC will not accept a check for a beef order. Fewer checks are written today because

most transactions are electronic.

Donut Shop signs a promissory note for $50,000 in favor of Enterprise Lending Inc. The note includes an acceleration clause. This note is

negotiable

Dill issues a check drawn on Eagle Bank to Farm Supply Store to pay for a rototiller. Later, Dill discovers a defect in the device and orders the bank to stop payment on the check. Dill does not renew the order, and the bank clears the check eight months later. The bank

none of the choices

Veggie Bowl Café signs an instrument in favor of Whole Wheat Company that states it is "subject to a certain agreement between buyer and seller." This instrument is

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

Yun writes an instrument that states it is "payable to Zho Ltd." In fact, "Zho Ltd." does not exist. The instrument is

nonnegotiable, because it is payable to a nonexistent organization.

Luc signs a promissory note for $2,500 in favor of Metro College. The note is undated but specifies that it is "payable one month after date." This note is

nonnegotiable, because the maturity date cannot be determined from the face of the instrument.

In a domestic sale of goods, Boxes LLC, the seller, and Containers Inc., the buyer, use a trade acceptance. Essentially, this instrument

orders the buyer to pay a specified amount to the seller.

Leda deceives Merchant Company into signing a note by telling the firm's staff accountant Nano that it is not a note but a receipt for a delivery of goods. In light of Nano's experience and other circumstances, a reasonable review of the instrument would have revealed its nature. Merchant is most likely liable on the note to

ordinary holders, HDCs, and holders through HDCs.

Eton executes a preprinted promissory note to First Bank without filling in the due date. The bank does not complete the form by adding the date. The note is

payable on demand

Liam, who is authorized to draw checks on Manufacturing Company's account, signs a check preprinted with the company's name with a signature that reads simply, "Liam." On this check, Liam 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

An instrument payable to two or more persons in the alternative, such as a check "payable to the order of Elena or Ferrar,"

requires the indorsement of only of the parties to be negotiated.

Fertile Farm Corporation and Grain Commodities Inc. enter a contract for a sale of soybeans. Fertile draws a draft unconditionally ordering Grain to pay $75,000 to Fertile's order in ninety days. Grain signs and dates the draft. Before payment is due, Fertile needs cash. The drawer can

sell the draft in the commercial money market.

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

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 indorsement.

Wang obtains a loan from Xi and signs a note for the amount payable to the lender, who indorses the note and negotiates it to Yuri. Zhang acquires the note from Yuri, and subsequently agrees not to sue Wang on the note. This discharges

Xi and Yuri.

On Friday morning, Geoff deposits into his account at Heartland Bank a $500 check from Imelda, who also has an account at Heartland. On that same day, this check is considered

a provisional credit

Emil writes and signs a check payable to "Film Arts Cinema." George, Film Arts' manager, indorses the check "For deposit only." This is

a restrictive indorsement.

Dallas presents an uncertified check for payment more than six months after its date. The check was drawn by Emma on her account in First Bank. If the bank follows the usual banking practice in such a case, it will

consult Emma

Rafe signs a check payable to Shop Mart, which transfers the note by negotiation to Trans-State Bank. With respect to any defenses to payment on the note that Rafe could have raised against Shop Mart, most likely Rafe can

not assert those defenses against the bank.

Brady forges Cal's signature on a check "payable to the order of Brady" drawn on Cal's account in Downtown Bank. Cal's forged signature is

not effective

It is assumed that a drawer or maker will recognize his or her own signature and that a maker or an acceptor will recognize whether an instrument has been materially altered. Therefore, with respect to any of these parties who in good faith accepts an instrument, in terms of presentment warranties,

only the warranty that the person obtaining acceptance is entitled to enforce the instrument applies.

Sport Souvenir LLC orders a gross of printed shirts from T-Shirt Company. To finance the purchase, the buyer signs a note to pay the seller from the funds paid to the buyer on the sale of the shirts at a certain event. This note is nonnegotiable because

payment is to be made from a fund that does not yet exist.

Rehab LLC owes $20,000 to Stonemason Inc. Rehab executes a note to Stonemason as security for the debt. This security

satisfies the value requirement for HDC status.