Business Law Exam I

Are incomplete instruments negotiable?

Not until completed.

T/F: An executory promise may constitute the giving of a value to support holder in due course status.

False

T/F: Notes and certificates of deposit are order to pay money.

False

T/F: Order paper is negotiated by delivery only.

False

T/F: the requirements for negotiation are the same for both order paper and bearer paper.

False

T/F: 1. handwritten words control typewritten words and printed words. 2. and the typewritten words control the printed words.

True, True

secondary liability?

a party legally obligated to pay after another party fails to do so

what is a primary liability?

a party that is legally obligated to pay

An association of banks whose members settle accounts with each other on a daily basis

clearhouse

what is a note payable at a definite time 6 months from the date?

time note

collecting banks duties: 1. care: act within areas after time receipts 2. act timely: midnight deadline following the day received with a cuttoff that goes to the next business day 3. indorsement 4. warranties 5. final payment: pays in cash or sttles. to revoke, makes a provisional settlement and does not revoke within the time allowed by statute or agreement

true

electronic funds transfer act: 1. automated teller machines 2. point of sale 3. direct deposits 4. pay of phone 5. wholesale electronic fund transfers

true

if funds are insufficient, bank may disnhonor or pay ad charge its customer's account for the overdraft

true

oral stop pay orders last 14 days. if received within 14 days, they last for six months, and are renewable in six month periods

true

payment order: senders instructions to a receiving bank to pay a fixed amount of money to a beneficiary

true

t/f: for a drawer to have liability, it is contingent upon notice and dishonor.

true

wholesale funds involves sophisticated parties and large sums of monies

true

T/F: an agent wh executues a negotiable instrument properly is not liable.

true, as long as it was done correctly

what concept means you must disclose to depositors in a clear and conspicuous manner, APY, rate changes, bal calculations, when and hot interest is calc, and limitation on umber of withdrawals/fees etc.

truth in savings act

All indorsements disclose 3 things: 1. method employed in making subsequent negotiations 2. kind of interest 3. liability of indorser

truuuu

all individuals who obtain payment of acceptance give warranties that: 1. warrant that he is entitled to enforce the instrument 2. no alteration 3. drawer's signature is genuine. what is all this because of?

warranties on presentment

when is an acceptor liable?

when he accepts the instrument, then he is primarily liable

when the amount of the check has been collected from the payor bank (drawee) what occurs?

final credit

how is order paper negotiated by ?

possession and indorsement

An instrument involving 2 parties. te maker promises to pay the payee a stated sum of money either on demand or at a stated future date.

promissory note

6 types of indorsements: blank, special, restrictive, nonrestrictive, qualified, and unqualified.

1. Blank: indorses name and may be negotiated by delivery. 2. Special: specifically identifies the person to whom the instrument is payable. 3. restrictive: for deposit only 4. nonrestrictive: does not attempt to restrict the rights of the indorsee 5. qualified: the indorser disclaims liability. this eliminates contract liability but does not necessarily remove all warranty liability. 6. unqualified: indorsers promise to pay according to its terms at the time of their indorsement to the holder or to any subsequent indorser who paid it.

any person who transfers an instrument for consideration makes certain warranties: what are they?

1. transferor is entitled to enforce instrument 2. all signatures are authentic 3. no alteration 4. no defenses 5. no knowledge of insolvency

primary vs secondary liability

1. Primary: a party legally obligated to pay 2. Secondary: a party legally obligated to pay after another party fails to.

which is the contractual definition and which is warranty liability def? 1. any person who signs unless they disclaim 2.. any person who transfers an instrument and receives consideration.

1. contractual liability 2. warranty liability

what are the two types of negotiability associated with negotiable instruments?

1. contractual: all persons who sign unless they disclaim 2. warranty: any person who transfers an instrument and receives consideration.

what are the two ways to become a holder?

1. issued to the person 2. transferred to the person by negotiation.

3 parties inolved in a 1.depository bank and 2. payor bank

1. seller payee bank 2. buyer drawer bank

how many parties does a note involve?

2

Bearers to instruments

A check that says payable to cash and a check that says "pay to the order of bearer"

A certificate of deposit differs from a promissory note in that: A. the maker is always the bank B. there are 3 parties to the transaction C. the payee of a CD must be paid on demand D. Both a and b

A. the maker is always the bank

the particular doctrine is: A. merely an instruction to pay the instrument B. an undertaking to pay, which must be more than acknowledgement of an existing debt. C. More important under Revised Article 3 D. an order or promise to pay only out of a particular fund.

An order or promise to pay only out of a particular fund

Assuming a note made by barbara payable to carol, which endorsement will limit negotiability? A. pay carol B. for deposit only, Acct. #602-043. Carol C. pay connie Al. Carol D. Pay Claudia as attorney for John Jones. Carol.

B. Pay depsit only, Act. #602-043. Carol

the customary of disclaiming the indorser's contractual liability is to add which of the following sets of words before or after his signature? A. for collection only B. without recourse C. Pay to the order of

B. without recourse

what happens if a bank pays over a stop pay order?

Bank is liable, but the burden is on the customer to establish loss.

what is a check drawn upon itself to the order of a named payee?

Cashier's check

whatis a specialized form of promise to pay money given by a bank?

Certificate of Deposit

what is a check and what are the 3 parties involved?

Check: specialized form of draft, namely, an order to pay money drawn on a bank and payable on demand. the drawer, who orders the drawee, a bank, to pay the payee on demand.

what are the four types of negotiable instruments?

Checks, drafts, notes, and certificates of deposit

A tort, a civil wrong. this is when a drawee refuses to return a draft, when any person refuses to return after dishonor, and when an instrument is paid on a forced indorsement.

Conversion

which of the following is not a negotiable instrument: A. check B. draft C. A certificate of deposit D. stock certificate

D. Stock certificate

Real defenses include all of the following except for what? A. forgery of instrument B. minority of the maker C. fradulent alteration D. theft of a bearer instrument

D. theft of a bearer instrument

what is a note payable upon the request of the payee or holder?

Demand note

Describe the impostor rule

Drawer issues check to innocent thinking Crook is Innocent. Crook indorses innocent drawer on the back of a check. now the drawer is liable and the bank is able to debit his account.

what are the 3 parties involved in a draft?

Drawer, orders a 2nd party, the drawee, to pay a fixed amount of money to a 3rd party, the payee.

True/False: Promissory notes sever an essential business purpose only in areas of high finance.

False

Revised article 3 defines what as "honesty in fact and the observation of reasonable commercial standards of fair dealing.

Good faith

what is a person who is in possession of an instrument drawn, whether indorsed to him or his order to bearer or in blank?

Holder

what is a legal concept that makes written instruments freely transferable and therefore a readily accepted form of payment in substitution for money?

Negotiability

what is the transfer of possession, whether voluntary or involuntary, by a person other than the issuer of a negotiable isntrument in such a manner that the transferee becomes a holder. an instrument is transferred when a person other than its issuer delivers it for the purpose of giving the recipient the right to enforce the instrument?

Negotiation

is something other than money, like a payment of coal negotiable?

No

is negotiability affected by antedated or postdated?

No, if undated, date of issuance. if unissued, date it comes into possession of the holder.

which of the following is not a restrictive indorsement? A. Pay only to jane doe B. for deposit C. pay any bank D. for collection

Pay only to Jane Doe

what is bearer paper negotiated by?

Possession

Sam writes a check drawn on his account at first bank to state university to pay his tuition. who is the drawer?

Sam is the drawer

Drafts may be either time or sight? what is each type?

Sight draft: payable on demand Time draft: payable at a specified future date

T/F: A draft involves three parties: a drawer, a drawee, and a payee.

True

T/F: Maxine indorsed her paycheck by signing her name on the back, but she lost it on the way to the bank. The check is now comparable to cash because it is a bearer instrument.

True

T/F: handwritten words supersede typewritten words contained in commercial paper.

True

T/F: if amounts differ, the words control the figures. if the words are ambiguous, then the figures control.

True

T/F: t acquire the preferential rights of a holder in due course, a person must either meet the requirements of the code or must inherit these rights under the shelter rule.

True

T/F: t be a holder, one must actually have the instrument in his possession.

True

T/F: the fictitious payee rule is based on the idea that employers should bear the risk of their own unscrupulous employees.

True

T/F: the transfer of a nonnegotiable promise or order operates as an assignment.

True

T/F: to be a holder in due course the transferee must first be a holder.

True

Does a negotiable isntrument have to be payable on demand or at a specific time?

Yes

Fictitious payee rule: ruthless works for Naive. Ruthless issues a check to Bagman. Ruthless indorses Bagman's name and goes to Naive's bank and cashes it. Naive is liable.

Yes

Is a substitute check the legal equivalent of a original check?

Yes

T/F: for a instrument to be negotiable, does only the principal have to be a fixed amount?

Yes

do negotiable instruments have to be payable to order or bearer?

Yes

ricardo is the holder of a check that contains the indorsement "without recourse (signed) mary roberts. does this limit the iability of mary roberts?

Yes

how is a liability terminated: A. payment 2. tender 3. cancellation 4. renunciation

all of them

last bank in chain, the bank instructed the order.

beneficiary bank

what is a written acknowledgement of the receipt of money that it promises to repay?

certificate of deposit

any bank other than the payor bank handling an item for payment

collecting bank

what are the two types of liability with negotiable instruments?

contractual and warranty

must examine the bank statements and in an event longer than 30 days for unauthorized signiture or alteration. if neglegence on part of the bank, the max limit is 1 year to report. 3 years for unauthorized indorsement.

customers duties

what rule states that the instrument must contain within the document itself all of the information to be negotiable?

four corner rule

any receiving bank other than the originator's bank

intermediary bank

when a check is in the collection process, it passes through many banks, called what?

intermediary banks

Are IOUs negotiable?

no

are banks under obligation to pay a check older than six months?

no

sender of the payment order

originator

when the check is deposited the intitial crediting to the account is called what?

provisional credit

bank to which the sender's instruction is addressed

receiving bank

what is indorsement?

signature other than that of a signer as maker, drawer, or acceptor, that alone or accompanied by other words is made on an instrument for the purpose of negotiating the instrument, restricting payment of the instrument, or incurring the indorser's liability on the instrument, but regardless of the intent of the signer, a signature and its accompanying words is an indorsement.

T/F: checks must be indorsed in ink, and must be within 1 1/2 inches of the trailing of the trailing (left edge of the back of the check).

true

T/F: when a drafts accepted by a bank, all the drawer and all prior indorsements are discharged from contractual liability?

true

T/F; an indorsement must be written on the instrument or on an allonge affixed to the instrument

true

1. If an instrument is payable to order of john doe or bearer, is it a bearer instrument? 2. is it a bearer instrument if its payable to bearer or order of bearer, but does not state a person?

yes. yes.