Q&A Hero

Q: A representative is personally liable to a holder in due course that took the instrument without notice that the representative was not intended to be liable if: A. the instrument identifies the represented person. B. the form of the signature does not show unambiguously that the signature was made in a representative capacity. C. the instrument categorically states that the representative would be liable even if the signature has been authorized. D. it is proved that the original parties did not intend her to be liable on the instrument.

Q: Maya Efrat, Chief Financial Officer for BAZ Inc., is authorized to sign checks for BAZ Inc. She signs a check "BAZ Inc. by Efrat, Chief Financial Officer." Which of the following statements is most accurate? A. Maya and not BAZ Inc. is liable on the check. B. BAZ Inc. and not Maya is liable on the check. C. Both BAZ Inc. and Maya are liable on the check. D. Neither BAZ Inc. nor Maya are liable on the check.

Q: National bank is reluctant to lend money to James and takes a note from him because of his shaky financial condition. However, the bank is willing to lend money to James if he signs the note and a friend also signs the note. Here the friend serves as the: A. deponent. B. accommodation party. C. fiduciary. D. non-joinder.

Q: If a person signs a check as an accommodation indorser: A. his contractual liability is that of an indorser. B. his contractual liability is limited to the payment of the principal. C. his contractual liability is more than that of an indorser. D. his contractual liability is limited to the payment of the interest.

Q: Mike authorizes his agent, Ben to borrow a sum of $10,000 on his behalf from the National Bank. Ben signs his name to a note without disclosing that the signature was on behalf of Mike. Who is liable on the note? A. Only Mike is liable. B. National Bank is liable. C. Both of them are liable. D. Only Ben is liable.

Q: The drawee does not have liability on the instrument until it _____ the instrument. A. transfers B. signs C. negotiates D. makes

Q: Which of the following is true regarding an indorser's liability on a note? A. A holder can proceed directly against the indorser without first presenting the note to the maker. B. A qualified indorsement by the indorser will not disclaim liability against a holder who takes it in good faith and for value. C. For the indorser to be liable, there must be presentment to the maker, dishonor by the maker, and notice to the indorser. D. For the indorser to be liable, there need only be presentment to the maker and dishonor by the maker.

Q: Jack received a check as payment for the work he did. He indorsed the check "without recourse." What legal effect does this have? A. The drawer of the check is discharged from primary liability on the check. B. Jack is discharged from secondary liability on the check. C. The drawer of the check is discharged from secondary liability on the check. D. Jack is discharged from primary liability on the check.

Q: Salmond signs a note for the purpose of lending credit to John. Salmond also makes his father Richard sign the note because of his shaky financial condition. This indicates that Richard has signed the note in the capacity of a(n): A. drawer. B. accommodation party. C. drawee. D. indorser.

Q: Menzes is the Treasurer of ABC Corp. As such, he is authorized to sign checks for the corporation. A supplier bills ABC for a legitimate obligation. Menzes makes out a check to the supplier and signs it "ABC Corp., by Menzes, Treasurer." Who is liable on this check? A. ABC only. B. Menzes only. C. ABC and Menzes. D. Neither ABC nor Menzes.

Q: What form of liability exists when a party is only responsible to pay on a negotiable instrument in case of default of the party who shoulders the obligation of liability for the instrument? A. Primary Liability B. Secondary Liability C. Accidental Liability D. International Liability

Q: Which of the following is true regarding a drawee's liability on a check or a draft? A. The drawee is primarily liable in all cases. B. The drawee is secondarily liable because the holder must first proceed against the drawer. C. The drawee is primarily liable if it accepts (certifies) a check. D. The drawee is secondarily liable only in doubtful cases.

Q: Chin wants to buy a small parcel of land. The seller requires a certified check as payment. Chin has a checking account with ABC bank; he prepares a check for the seller and then has the bank certify it. He then presents the check to the seller. Who may now be liable for payment of the amount of the check? A. Chin only. B. ABC bank only. C. Both Chin and ABC bank. D. Neither Chin nor the ABC bank.

Q: The obligation of an acceptor is: A. to make an unconditional promise to pay a fixed amount of money and is responsible for making good on that promise. B. to pay the check according to its terms at the time he issued it. C. to pay the draft according to the terms at the time of its acceptance. D. to pay the amount due on the instrument according to its terms at the time he indorsed it.

Q: Potter owes George $500. Potter writes a check payable to George for that amount. Later, George loses the check. Potter is now discharged from his liability on the check.

Q: UCC section 3-604 allows for the liability associated with a negotiable instrument to be canceled by the person entitled to enforce the instrument.

Q: Mike signs a note payable to a bank. The bank indorses and negotiates the note to Fay, who then indorses and negotiates it to Sam. Sam presents the note to Mike, who dishonors it. Then Sam decides to pursue Fay and the bank on their secondary indorsers' liability. Against whom can Sam proceed? A. Fay. B. The bank. C. Both Fay and the bank. D. Neither Fay nor the bank.

Q: Presentment warranties are made by any prior transferor of the instrument at the time the person transfers the instrument.

Q: Jason has knowledge of the fact that the check given to him bears Julie's forged signature. Despite the said fact, he presents the check to ABC Bank. ABC Bank pays Jason, under a mistaken belief that the signature on the check is authentic. Bank cannot recover that payment from Jason.

Q: Dick steals a computer belonging to Tom from his house. Then Dick represents himself as Tom and sells the computer to Lawrence. Here, Lawrence draws a check payable to Tom and delivers the check to Tom. Here, Tom is called the impostor.

Q: Any authorized ownership and exercise over an instrument is referred to as conversion.

Q: An indorsing transferor of a negotiable instrument makes six transfer warranties to all subsequent transferees.

Q: Warranties do not apply without the indorsement of the transferor.

Q: The UCC provides for a transfer warranty on unauthorized or repetitive remotely created checks.

Q: A transferor of a negotiable instrument for consideration warrants to his transferee that the negotiable instrument has not been altered.

Q: Bob authorizes Steward to borrow money on his behalf. Steward signs his name on a note in his individual capacity i.e. without disclosing that the signature is on behalf of Bob. Then Steward becomes liable for the note.

Q: Susie Q. signs a promissory note with her typical signature, a X. Susie's mark will be sufficient to be considered a signature and establish liability in the instrument.

Q: A holder of a check or draft who wants to get payment on it should first present the check or draft to the drawer.

Q: The notice required of a dishonored check from the drawer to an indorser to hold the indorsers' to their contractual obligation can be either written or oral.

Q: Revised Article 3 of the UCC provides that the drawer of a cashier's check has the same obligation as the issuer of a note.

Q: A drawee has no liability on a draft unless it certifies or accepts the draft.

Q: An indorser to a negotiable instrument is generally primarily liable.

Q: The negotiable instruments of a corporation have to be signed by an agent of the corporation who is authorized to sign the instrument.

Q: What are the four categories of claims listed in Revised Article 3?

Q: Indorsers are not contractually liable on negotiable instruments they indorse.

Q: Signing a promissory note is an example of establishing primary liability in a negotiable instrument.

Q: The maker of a promissory note is the person who is secondarily liable on the note.

Q: Pete Payee specially indorses a note payable to his order and also uses the words "without recourse." What is the effect of the words "without recourse" here?

Q: What are the general requirements to become a holder in due course?

Q: What is the shelter rule in Article 3?

Q: _____ are legal reasons for avoiding or reducing liability of an individual who is liable on a negotiable instrument. A. Personal defenses B. Procedural defenses C. Real defenses D. Excuse defenses

Q: Which of the following is a personal defense against a holder in due course? A. Fraud in the essence B. Forgery C. Breach of contract D. Minority or infancy

Q: What is the term for when law renders an obligation to pay an instrument void. A. Forgery B. Comity C. Illegality D. Duress

Q: Which of the following is generally true about the Federal Trade Commission's (FTC) regulations of the holder in due course rule? A. Some states have eliminated the holder in due course rule by repealing the previous version of Article 3 and refusing to adopt the new version. B. The FTC has seriously limited the rule's impact in consumer credit situations in which the consumer signs a note or an installment sales contract, or gets financing from a third party. C. These changes in the holder in due course rule reflect the economic power and political influence of business interests, especially banks. D. Overall, the FTC's changes in the holder in due course rule are insignificant, especially in consumer cases.

Q: What are the three significant effects resulting from the indorsement of a negotiable instrument?

Q: In the context of overdue instruments, if a due date for the principal has been accelerated: A. the instrument is overdue when the court passes a judgment to that effect. B. the instrument is overdue on the day after the grace period of seven days from the accelerated due date. C. the instrument is overdue on the day after the accelerated due date. D. the instrument is overdue on the day of the due date.

Q: Which of the following is NOT a defense specified in Revised Article 3? A. By way of damages B. Real defenses C. Claims to an instrument D. Claims in recoupment

Q: Which of the following is a "real" defense that is good against a holder in due course of a note? A. The maker of the note is 15 years old. B. The note was procured by the payee's threat to prosecute the maker for drug dealing. C. No consideration was given for the note. D. The maker was in a seriously delusional state when he completed the note (but had not been declared insane or institutionalized).

Q: In general, the material alteration of a completed negotiable instrument: A. is a complete defense against a holder in due course. B. is no defense whatsoever against a holder in due course. C. means that a holder in due course can enforce the instrument against the maker, but only according to its original tenor. D. means that a holder in due course can enforce the instrument as modified.

Q: In which of the following situations is an instrument termed as overdue? A. Where a check was made out 60 days ago. B. Where there is a default in payment of interest on a note, but not in the payment of the principle. C. Where the principal on a note is due in installments and an installment has not been paid. D. Where a note dated January 1 is payable "30 days after date" and is paid on January 31.

Q: In which of the following situations has the holder of a negotiable instrument not given value for it? A. Where the holder takes the instrument as security for an antecedent claim. B. Where the holder gives a negotiable instrument in return for the one received. C. Where the holder receives the instrument as a gift. D. Where the holder acquires a security interest in the instrument.

Q: A check becomes overdue: A. 30 days after its date. B. 60 days after its date. C. 90 days after its date. D. after a "reasonable" period of time, in the light of trade practice.

Q: If a negotiable instrument is payable on demand, it is overdue: A. the day before the demand for payment has been made. B. 30 days after the demand for payment has been made. C. the day after demand for the payment has been made in a proper manner. D. the week after payment has been demanded.

Q: A _____ is a claim of the person obligated on the instrument against the original payee of the instrument. A. real defense B. personal defense C. claim in recoupment D. claim to an instrument

Q: A _____ indorsement can be used with either a blank indorsement or a special indorsement. A. rebuttal B. conditional C. qualified D. restrictive

Q: The negotiation of an instrument made in breach of duty is subject to _____ before the instrument has been negotiated to a transferee who can qualify as a holder in due course. A. rescission B. remission C. restitution D. reformation

Q: A holder in due course does not take free of the _____, which go to the validity of the instrument or of claims that develop after he becomes a holder. A. personal defenses B. relative defenses C. procedural defenses D. real defenses

Q: UCC section 2-302(a)(1) states that in order for an individual to become a holder in due course the instrument must not on its face do what? A. appear to be a forgery B. written in a language other than English C. have the signature of a foreigner D. be on any other color paper than white

Q: Ordinary nonphysical and nonviolent duress that causes the transfer of a negotiable instrument: A. prevents its negotiation. B. is a good defense against a holder in due course of the instrument. C. is subject to rescission before the instrument is transferred to a holder in due course. D. is a good defense against the maker of a note.

Q: A _____ indorsement is one where the indorser disclaims her liability to make the instrument good if the maker or drawer defaults on it. A. special B. conditional C. qualified D. blank

Q: _____ indorsements indicate that they are effective only if the payee satisfies a certain state. A. Special B. Conditional C. Qualified D. Blank

Q: Which of the following indorsements is a blank indorsement? A. "For Deposit Only" B. "Mel Gibbs" C. "Pay to Jack Black in Trust for Mel Gibbs" D. "Pay to the Order of Jack Black, Mel Gibbs"

Q: Which of the following indorsements is a restrictive indorsement? A. "Pay to Jack Black, Mel Gibbs" B. "Mel Gibbs" C. "Pay to Jack Black in Trust for Mel Gibbs" D. "Pay to the Order of Jack Black, Mel Gibbs"

Q: A person who takes an instrument containing a restrictive indorsement, "Pay to Jack Black in Trust for Mel Gibbs,": A. may not pay the proceeds to the indorsee without the due approval of the indorser. B. may pay the proceeds to the indorsee paying due regard to whether the indorsee violates a fiduciary duty to the indorser. C. may pay the proceeds to the indorsee without regard to whether the indorsee violates a fiduciary duty to the indorser. D. may pay the proceeds to the indorser only with the approval and concurrence of the indorsee.

Q: The new revision of Article 3 no longer considers _____ as restrictive indorsements. A. indorsements for deposit B. conditional indorsements C. indorsements directing the indorsee to act for someone else's benefit D. indorsements for collection

Q: Which of the following is an example of restrictive endorsements recognized under Article 3? A. "Pay to Bruce Zucker in Trust for Jay Zucker." B. "Pay to Bruce Zucker Only." C. "Pay to Jay Zucker on the condition that he completes construction on my house by November 1, 2012." D. "Pay to the order of my account."

Q: When a holder makes a blank indorsement of a negotiable instrument that is bearer paper, what legal effect does this have? A. There is no effectbearer paper does not need to be indorsed. B. The bearer negotiates it by transfer alone and no further indorsement is necessary for negotiation. C. The instrument is no longer negotiable, as it has been altered. D. The instrument is converted into order paper.

Q: An instrument that is indorsed with a _____ indorsement remains "order paper." A. special B. blank C. restrictive D. conditional

Q: Which of the following indorsements is a special indorsement? A. "For collection only" B. "Mel Gibbs" C. "Pay to Jack Black in Trust for Mel Gibbs" D. "Pay to the Order of Jack Black, Mel Gibbs"

Q: When a customer deposits a check to her account without an indorsement, then the bank: A. puts the sign of the manager under the typed name of the customer. B. signs the customer's name. C. stamps the name of the bank on the check to cover for the customer's signature. D. stamps on it that it was deposited by the customer.

Q: If an order instrument is transferred without indorsement, then the instrument: A. is deemed to have been negotiated and the bank can qualify as a holder. B. has not been negotiated and the transferee cannot qualify as a holder. C. is deemed to have been negotiated and the transferee can qualify as a holder. D. has been transferred and the bank and the transferee can qualify as a holder.

Q: The transfer of an instrument: A. vests in the transferee any right of the transferor, to enforce the instrument. B. bars the transferee from attaining the rights of the transferor. C. vests in the payor any right of the transferor, to enforce the instrument. D. bars the transferor to pass on his rights to the transferee.

Q: Ahmed Cohen received a check for $5,000 for a used car he sold. The check was marked "pay to the order of Ahmed Cohen." On back of this check he wrote, in his handwriting, "Ahmed Cohen." This has the legal effect of: A. making this instrument nonnegotiable. B. making this instrument void. C. making this instrument order paper. D. making this instrument bearer paper.

Q: If a check is drawn "Pay to the order of Maria" and Maria indorses it "pay to the order of Jay, Maria." This falls under: A. blank indorsement. B. restrictive indorsement. C. special indorsement. D. simple indorsement.

Q: Rachel's father gave her a check drawn on his checking account marked "payable to the order of Rachel Stern." This instrument is order paper, because: A. the instrument uses the word "order." B. the instrument names a specific payee. C. the instrument was properly negotiated to Rachel. D. the instrument was an order to pay cash.

Q: John received a check from his employer marked "pay to the order of John Jones." John used this check to pay for groceries from ABC Foods. He wrote on the back of the check: "pay to ABC Foods, for groceries." Was this check properly negotiated? A. No, because the statement that the check was for payment to ABC Foods defeats this negotiation. B. No, because John did not indorse the check. C. Yes, because John transferred possession of the check and ABC Foods acted in good faith. D. Yes, because a holder's signature is not always needed in order to negotiate a check.

Q: _____ is defined to mean "a signature (other than that of a maker, drawer or acceptor) that alone or accompanied by other words, is made on an instrument for purpose of (i) negotiating the instrument, (ii) restricting payment of the instrument, or (iii) incurring indorser's liability on the instrument." A. Indemnification B. Recoupment C. Indorsement D. Ratification

Q: If the holder's name on an instrument is misspelled or wrong, then the indorsement: A. can be made only in his name. B. can be made only in the name that is on the instrument. C. can be made either in his name or in the name that is on the instrument. D. can be made by putting his name as well as the name that is on the instrument.

Q: Jackie Collins is issued a check payable to the order of Jacky Collens. She takes the check to the bank. In order to cash the check she has to: A. sign either Jackie Collins or Jacky Collens. B. sign only Jackie Collins. C. sign only Jacky Collens. D. sign both Jackie Collins and Jacky Collens.

Q: Which of the following is order paper? A. A check made out "to the order of cash." B. A note payable to the order of X and indorsed in blank by X. C. A note made out to Y's order and indorsed "Pay to Z, Y." D. A receipt for a payment made by Z.