Quiz 2 - Commercial Paper

For an instrument to be negotiable, it must be in writing.

True

On a certificate of deposit, the bank is the maker and the depositor is the payee.

True

Only unconditional promises or orders can be negotiable.

True

The Federal Reserve System acts as a clearinghouse where banks exchange checks.

True

The Uniform Commercial Code regulates checks.

True

The most common type of draft is a check.

True

To be negotiable, an instrument must have portability.

True

Rona issues a check for $4,000, dated May 1, to Stavros. The check is drawn on United Bank. Stavros indorses the check and transfers it to Tony. Stavros will be liable on the check if

United Bank dishonors the check

Barry draws a check payable to "Cash" and presents it to Dollars & Sense store for payment. This instrument is

a bearer instrument.

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

an unreasonable time after its due date.

Rod negotiates a bearer instrument to Shauna by

delivery alone

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

not effective.

On the back of a check payable to Nero, he writes "Pay to Odell, without recourse" and signs it. This

relieves Nero of liability on the check.

Fact Pattern 16-1 Nina obtains a check payable to her order from Oran. Nina signs the back and gives the check to Patricia. Patricia writes "Pay to Patricia" above Nina's signature. Refer to Fact Pattern 16-1. After Patricia writes "Pay to Patricia" above Nina's signature, further negotiation of the check

requires Patricia's indorsement and delivery.

Fact Pattern 15-3 To borrow the funds to pay tuition at Alpha College, Bea signs an instrument unconditionally promising to pay to "Country Loan Corporation" $7,500 with interest in installments with the final payment due June 1, 2030. Refer to Fact Pattern 15-3. The instrument that Bea signed is most likely

​a promissory note

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

​an ordinary holder.

Fact Pattern 17-2 Lisa writes a check on her account at Metro Bank to Niklas to pay a debt. Niklas negotiates the check by indorsement to O'Leary, who presents it for payment to Prime Bank. Refer to Fact Pattern 17-2. I f Prime Bank dishonors the check, O'Leary can obtain payment from Niklas

​if O'Leary timely notifies Niklas.

Fact Pattern 15-3 To borrow the funds to pay tuition at Alpha College, Bea signs an instrument unconditionally promising to pay to "Country Loan Corporation" $7,500 with interest in installments with the final payment due June 1, 2030. Refer to Fact Pattern 15-3. With respect to this instrument, Country Bank is

​the payee.

Usually, indorsements are qualified indorsements.

False

Warranty liability arises only from a transferor's signature.

False

When a bank draws a check on itself, the check is called a certified check.

False

When a bank pays a check on which the drawer's signature is forged, generally the customer suffers the loss.

False

When a customer deposits cash into a checking account, he or she becomes a debtor for the amount deposited.

False

Dulcey agrees to cosign a promissory note for Excavation Equipment Inc. to buy a backhoe. The note is payable to Premier Bank. Dulcey is an accommodation

Maker

Logan is Mining Corporation's agent and is authorized to write checks on Mining's account in Northwest Bank. Logan writes a check "pay to the order of Oceanside Resort." Logan signs the check "Mining Corporation, by Logan, agent." Northwest Bank dishonors the check. Liability extends to

Mining Corporation

A bank's duty to honor its customer's check is subject to the stipulation that the account has sufficient funds to pay the check.

True

A holder takes an instrument for value if he or she accepts the instrument in payment of a preexisting obligation.

True

A restrictive indorsement does not destroy negotiability.

True

A time draft is payable at a definite future time.

True

All parties to a negotiable instrument will be discharged when the party primarily liable on it pays to a holder the full amount due.

True

An agency relationship arises between the customer and the bank when the customer writes a check on his or her account.

True

An imposter's indorsement on an instrument can be effective as if the real payee had signed.

True

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

a cashier's check.

A person whose name is forged on an instrument normally has no liability to pay any holder the value of the instrument.

False

An instrument payable "with interest" must specify a particular rate to be negotiable.

False

An instrument payable to two or more persons in the alternative requires the indorsement of both payees for negotiation.

False

For an instrument to be negotiable, the word "negotiable" must appear on it.

False

The first bank to receive a check for payment is the intermediary bank.

False

Idina wants to buy a promissory note from Jo. The note is due on April 1. To become an HDC, Idina must buy the note

before midnight on April 1.

Curt writes a check on his account at North Bank to Mandy, a famous singer. The person claiming to be Mandy is an imposter, however, named Debra. Debra indorses the check to Portions, a casino, for which North Bank cashes it. Ultimately, the loss will most likely fall on

Curt

Nan, an accountant for Outdoor Outfitters, Inc., issues company checks payable to nonexistent persons drawn on Outdoor's account at Peerless Bank. Nan indorses the checks and deposits them in her account. Outdoor discovers the theft and demands that Peerless recredit its account. Peerless's best defense is that

Outdoor was in a better position than Peerless to prevent the theft.

Berton transfers a draft by signing it and delivering it to Cormac. Berton is

an indorser.

Len 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.

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

nonnegotiable, because there is no specific person identified.

On Monday, Ellery deposits in her account at Fiscal Bank a local check for $500. After 5:00 p.m. on Friday, from these funds, Ellery can withdraw no more than

​$500

Daisy signs a check "pay to the order of Ewan" drawn on Daisy's account in Finance Bank. Graham forges Ewan's indorsement. Finance Bank pays the check. Most likely

​Finance Bank will have to recredit Daisy's account.