ACCT 340 Exam 2
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
