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Q:
How is "failure of consideration" and "lack of consideration" related?
A. They are real defenses which can be used against holders in due course.
B. Failure of consideration is a real defense and lack of consideration is a personal defense.
C. Failure of consideration is a personal defense and lack of consideration is a real defense.
D. They are personal defenses which cannot be used against holders in due course.
Q:
Thomas signed a blank promissory note and placed it on his office desk. Kelly, also present there, took the note. The note ended up in the possession of Big Bank. What defense to payment does Thomas have?
A. Contributory negligence
B. Lack of delivery
C. Failure of consideration
D. Lack of possession
Q:
Which of the following states that holders of consumer credit contracts who are holders in due course are subject to all claims and defenses that the buyer could use against the seller, including personal defenses?
A. Shelter provision
B. Holder in due course rule
C. Lack of consideration
D. Universal defenses
Q:
Which of the following is true of real defense?
A. Real defenses can be used against holders, but not holders in due course.
B. Anyone who has a real defense is required to pay an instrument.
C. Real defenses can be used against everyone, including holders in due course.
D. Real defenses include breach of contract, failure or lack of consideration, fraud in the inducement, and payment.
Q:
Tom gave celebrity Lynnetta Landau a blank sheet of paper and asked her to sign her autograph on it. Then, without Lynetta's knowledge, Tom wrote a promissory note made payable to him for $3,000 above her signature. This kind of fraud is known as fraud:
A. as to the essential nature of the transaction, which may not be used as a defense against a holder in due course.
B. as to the essential nature of the transaction, which may be used as a defense against a holder in due course.
C. in the inducement, which may not be used as a defense against a holder in due course.
D. in the inducement, which may be used as a defense against a holder in due course.
Q:
Which of the following is true of using the defense of failure of consideration by a maker or drawer of an instrument?
A. It can be used when the instrument is negotiated to a holder in due course.
B. It can be used when no consideration exists in the underlying contract for which the instrument was issued.
C. It can be used when one of the parties breach the contract by not furnishing the agreed consideration.
D. It can be used if a party, induced by a fraudulent statement to enter a contract, is the holder of a negotiable instrument issued as part of the transaction.
Q:
Personal defenses are defenses that can be used against:
A. natural persons but not corporations.
B. a holder in due course of a negotiable instrument but not a holder.
C. a holder but not a holder in due course of a negotiable instrument.
D. any party with whom the holder in due course has dealt with.
Q:
When one of the parties to a contract has failed to do what he or she has previously agreed to do, it is a:
A. fraud in the inducement.
B. failure of consideration.
C. breach of contract.
D. lack of delivery.
Q:
A defense that may not be used against a holder in due course of a negotiable instrument is a:
A. limited defense.
B. personal defense.
C. real defense.
D. secondary defense.
Q:
Which of the following can be used as a personal defense?
A. Infancy
B. Illegality and duress
C. Bankruptcy
D. Payment
Q:
Notice of dishonor of a check may only be given through a Federal Reserve Bank.
Q:
A holder in due course of a negotiable instrument:
A. can receive more rights than the previous holders.
B. cannot transfer greater rights than they have themselves.
C. can take an instrument even when it is not indorsed to him/her.
D. is a person to whom the instrument is transferred as a gift.
Q:
Tom and Cindy received a $2,000 income tax return check from the IRS payable to "Tom and Cindy." Cindy indorsed the check to Friendly Motors as a down payment on a car. Which of the following is true of this situation?
A. Friendly Motors is the holder of the check.
B. Friendly Motors is a holder in due course.
C. Friendly Motors is the holder and the indorser.
D. Friendly Motors is not the holder of the check.
Q:
Green Grocer Wholesale Inc. received an $800 check from Bob for a grocery purchase. The check was from Forest Enterprises to Ana and had been indorsed to Bob who in turn indorsed the check to Green. The clerk at Green failed to carefully examine the check, not noticing that the number 5 had been changed to an 8. Green Grocer has:
A. not taken the instrument in good faith.
B. taken the instrument in good faith.
C. not taken the instrument in good faith to $500.
D. taken the instrument in good faith to $300.
Q:
On August 15, 2011, Jason indorsed a check dated January 15, 2011, and payable by him to ALS Check Cashing Service. ALS is:
A. a holder in due course even though the check is antedated.
B. not a holder in due course as it has notice that the instrument is overdue.
C. not a holder in due course only if ALS contacted the drawer who agreed to honor the check.
D. a holder in due course only if ALS contacted the drawee who agreed to honor the check.
Q:
Ted gave Stanly a $300 negotiable note for repairs to his car. Stanly did not do the repairs but indorsed the note to Nami who did not know of Stanley's lack of work and paid Stanly for its note. Nami gave the note to her daughter, Sopan, for Christmas and Sopan attempted to collect the note. What is Sopan's legal status?
A. Sopan is not a holder in due course but has the rights of a holder in due course.
B. Sopan is not a holder in due course and has no rights of a holder in due course.
C. Sopan is not a holder in due course but does qualify as a holder in gift status.
D. Sopan has no rights since she did not give consideration.
Q:
A check given for an illegal gambling contract does not provide a defense to payment against a holder in due course.
FALSE
An instrument that is associated with duress or an illegal act, such as twisting one's arm or drug trafficking, would be void and uncollectible by anyone, even a holder in due course. This provision is true even if the holder in due course is unaware of the illegal acts or conditions.
Q:
The holder in due course of a note discharged in bankruptcy has no hope of collecting any funds.
Q:
If Zena writes a check in pencil that is subsequently altered by Utley, Zena has recourse against her bank that paid the altered check.
Q:
Only the maker of the note is obligated to pay an instrument without reservations of any kind.
Q:
The drawer of a draft that has not been accepted is obligated to pay the draft to anyone who is entitled to enforce it.
Q:
If Spader is found insane by a court, any checks he has written will be considered void.
Q:
Fraud in the inducement is a personal defense.
Q:
If a negotiable instrument is negotiated to a holder in due course after it has been paid, it will have to be paid again.
Q:
The Department of Commerce adopted the holder in due course rule.
Q:
No one who has a real defense is required to pay an instrument.
Q:
When Tina was fifteen years of age, she gave a negotiable note payable five years later to Sam. He negotiated it to Neighborhood Bank, a holder in due course. Tina may assert her age as a defense against Neighborhood Bank to disaffirm the payment.
TRUE
Q:
A "holder in due course" takes an instrument without notice that anything is wrong with the underlying transaction.
Q:
Juanita received a negotiable instrument as a Christmas present and is therefore a holder in due course.
Q:
If the taker is negligent in not discovering that something was wrong with the instrument, it establishes lack of good faith.
Q:
A check is overdue ninety days after its date.
Q:
No person may acquire the rights of a holder in due course if he/she does not qualify as a holder in due course.
Q:
A shelter provision is designed to permit holders in due course to transfer all of the rights they have in the paper to others.
Q:
Jake is the holder of an instrument when he dies. Title to the instrument automatically vests in his heirs.
Q:
When an instrument is indorsed in blank, it becomes payable to the bearer and may be transferred by delivery alone.
Q:
A holder in due course of a negotiable instrument has more rights than previous holders of the instrument.
Q:
To be a holder in due course, the person in possession of the instrument must first be an indorser.
Q:
Elke has a contract with Acme Gravel CO. If she transfers her rights under the contract this is called an assignment.
Q:
A cashier's check is drawn by a bank upon itself.
Q:
Sam gives a check to Tina who indorses it to Amanda. Amanda is the indorsee.
Q:
A negotiable instrument must be in writing.
Q:
A certificate of authority must be filed with a governmental agency in order for an instrument to be signed by an agent.
Q:
A draft is accepted by a signature on the back of the draft.
Q:
When an unaccepted draft is presented for payment, the drawee is required to pay it.
Q:
A sight draft is payable as soon as it is presented to the drawee for payment.
Q:
Ownership of a check is transferred by indorsement by its payee.
Q:
The first set of numbers on a printed check is the bank's Federal Reserve number.
Q:
If a bank refuses to certify a check, the bank has dishonored it.
Q:
Sarah gives a negotiable note for $5,000 to Roofing Contractors. Roofing cleverly alters the note to $7,000 and negotiates the note to Bigger Bank for consideration. When this alteration is discovered, discuss what recourse Bigger Bank will have against Sarah and Roofing.
Q:
Shawn was an indorser on a check. A subsequent holder presented the check to the bank named on the instrument and was informed that there was not enough money in the account to honor the check. The next day, the subsequent holder demanded the money from Shawn. Must Shawn pay the subsequent holder of the instrument? Why or why not?
Q:
A negotiable instrument is a written document signed by the maker that contains an unconditional promise or order to pay a fixed amount of money on demand or at a definite time to the bearer or to order.
Q:
The party to a note who promises to pay money is called the payee.
Q:
A certificate of deposit is a written promise by one party, called the maker, to pay money to the order of another party, called the payee.
Q:
Notes are promises to pay money, while drafts are orders to pay money.
Q:
Cade, the owner of Cade Body Shop Inc., is in the habit of paying business expenses from his personal checking account. One such check to Parts Warehouse Inc. is dishonored and Parts attempts to collect from Cade personally who asserts that only Cade Body Shop Inc. is liable. Discuss the legal resolution of this problem.
Q:
Donna is the holder of a note that has been indorsed so many times that there is no space left on the back of the note for indorsements. Donna wants to transfer the note for $200 to Acme Finance but wants to indorse on the face of the note "without recourse, Donna". Acme wants to staple a sheet of blank paper to the note and have Donna simply sign "Donna" there. Discuss whether Donna or Acme is correct concerning the location of Donna's signature and if Donna is legally entitled to indorse "without recourse."
Q:
Ashe indorses an order instrument in the following manner: "Pay to Big Bank, for deposit only, Ashe." Discuss the types of indorsements and the legal implications the instrument represents.
Q:
When Hanson received her paycheck, she indorsed it in blank, placed it on her desk, and went to get a cup of coffee. The check accidentally blew out of an open window. Matson, a stranger to Hanson, found the check on the sidewalk below, took it to a bank, and cashed it. Was the transfer of the check to the bank a negotiation? Why or Why not?
Q:
Andrews forged the signature of Baumann on a check and gave it to Callas in payment for merchandise. Callas indorsed the check and delivered it to Davis as down payment on a car. When Davis presented the check to the bank for payment, the forgery was recognized. Callas claimed that he was not liable to Davis because he had no knowledge of the forgery. Discuss.
Q:
If a drawee refuses to pay the instrument, it is said to be ____.
A. delayed
B. dishonored
C. detained
D. defaulted
Q:
Industries Inc., drew a check payable to Gloria Schell and Pippen Tallit in the sum of $20,000. For a proper negotiation, the check:
A. needs to be indorsed only by Gloria Schell, since her name appears first.
B. needs to be indorsed by either payee, since the indorsement of only one of the payees is necessary to negotiate the check.
C. needs to be indorsed by both payees.
D. needs to be indorsed by the maker.
Q:
If a bank pays a forged check, it is liable for _____ the payee's funds.
A. converting
B. detaining
C. withholding
D. diverting
Q:
Brianna repaid a $600 loan to her friend, Sharkey. She made the check payable jointly to Sharkey and Sharkey's daughter, Evie, even though she intended Sharkey to have the entire interest in the repaid debt.
A. Sharkey can legally forge Evie's indorsement as Brianna did not intend Evie to have any interest.
B. Sharkey cannot cash the check unless Evie indorses it herself.
C. If Sharkey forges Evie's indorsement, he can be held liable for the tort of conversion.
D. If Sharkey cashes the check with Evie's indorsement, he is legally obligated to give her half of the payment.
Q:
Mark gives a $3,000 check drawn on Access Bank to Acme Industries who mislays the check for three weeks. When Acme finds the check they request that Access Bank certify the check. Access declines to do so and Acme tells Mark that the check has been dishonored. Mark contacts Access who agrees to certify the check. Access subsequently wants to withdraw their certification since Mark has insufficient funds in his account. Discuss the legal issues contained in their situation.
Q:
An envelope containing a $10 rebate check was placed in Hart's mailbox by mistake. It was addressed to Rice, a former tenant, and read, "Pay to the bearer or G. Rice, $10.00." Discuss Hart's role.
Q:
Discuss if the following instrument is negotiable:
Q:
A check indorsed "for deposit only":
A. prevents further negotiation of the instrument.
B. requires the amount of the instrument to be credited to the indorser's account before further negotiation occurs.
C. requires the amount of the instrument to be credited to the indorser's account and prevents further negotiation.
D. requires the amount of the instrument to be credited to the indorser's account before further assignment occurs.
Q:
The words "without recourse" on an indorsement means the indorser is:
A. liable personally but not other parties.
B. not liable for any problems associated with the instrument.
C. not liable if the instrument is dishonored.
D. liable for only up to fifty per cent of the loss.
Q:
Lillian Fey purchases a night table from Aretha Boyner. Aretha wants Lillian to pay her by check before delivering the night table to Lillian's house. Lillian decides to attach an indorsement that reads, "Pay to Aretha Boyner if she delivers her night table to me, Lillian Fey, at 16 Holmes RD." This is an example of ____.
A. an indorsement for deposit
B. a conditional indorsement
C. a qualified indorsement
D. a significant indorsement
Q:
Which of the following is true of warranties of indorsers?
A. The indorser is not entitled to enforce the instrument.
B. The indorser warrants that the instrument is subject to a defense of any party that can be asserted against the indorser.
C. The indorser warrants that he/she has knowledge of the bankruptcy of the maker, acceptor, or drawer.
D. The indorser warrants that there has been no alteration or other irregularity.
Q:
A blank indorsement should be used:
A. only for the purpose of deposit or collection.
B. to impose warranty liability on the maker.
C. to reserve more space for other indorsements.
D. only in limited situations.
Q:
Writing the words, "pay to the order of" or "pay to", followed by name of the indorsee and the signature of the indorser on an instrument, makes it a ____.
A. special indorsement
B. restrictive indorsement
C. qualified indorsement
D. conditional indorsement
Q:
A check that a drawee bank guarantees will be paid to the holder is a:
A. bank draft.
B. traveler's check.
C. certified check.
D. treasurer's check.
Q:
A _____ is a check drawn by one bank on another bank in which it has funds on deposit in favor of a third person, the payee.
A. traveler's check
B. treasurer's check
C. cashier's check
D. certified check
Q:
A check for which the issuing financial institution is both the drawer and the drawee is called a ____.
A. bank draft.
B. cashier's check
C. certified check
D. traveler's check
Q:
If an instrument states, "Pay to the order of Karen Fuji or her assigns," it is ____.
A. payable to order
B. payable to cash
C. payable to bearer
D. payable to holder
Q:
If Daphne cashes Lisa's check what legal rights, if any, does Daphne have?
A. Daphne may insist upon an unqualified indorsement.
B. Daphne may not insist upon any particular type of indorsement.
C. Daphne may insist upon both an unqualified indorsement and a restrictive indorsement.
D. Daphne may insist upon an unqualified, restrictive and special indorsement.
Q:
Through what kind of written instrument would Tim direct Howard to pay $600 to the order of Celeste?
A. A certificate of deposit
B. A note
C. A draft
D. A dishonored draft
Q:
Which of the following is true of a foreign draft?
A. It is drawn in one state and payable in another state.
B. It is drawn in one nation and payable in another nation.
C. It is drawn on one bank and payable to another bank.
D. It is drawn in one city and payable in another city.
Q:
Kentle Bank will not honor the United Manufacturing check issued to Joe, an employee, which he cashed at the bank. Kentle Bank must notify Joe by midnight of the next banking day.