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.