Deck 20: Issue, Transfer, Indorsement, and Discharge of Negotiable Instruments

Question 1

One who takes possession of an instrument after proper negotiation is a(n)

A) indorser.
B) holder.
C) accommodator.
D) negotiator.

Answer 1

B

Question 2

The first transfer of a negotiable instrument to the payee (a holder) by the maker or drawer is called an issue.

Answer 2

True

Question 3

A negotiable instrument may be negotiated by

A) indorsement and delivery.
B) delivery alone.
C) either indorsement and delivery or delivery alone.
D) none of these.

Answer 3

C

Question 4

A check made out to "cash" is considered to be an order instrument.

Question 5

Johnson makes out a promissory note payable to Edwards. This first transfer of the note to Edwards is called

A) an issue.
B) an indorsement.
C) an illegal transfer.
D) either an issue or an indorsement.

Question 6

An indorsee is the person who receives an indorsed instrument.

Question 7

An order instrument is negotiated by

A) delivery alone.
B) indorsement alone.
C) indorsement and delivery.
D) delivery or indorsement.

Question 8

Once a restrictive indorsement is used, the instrument is not negotiable.

Question 9

The person to whom a negotiable instrument is transferred is the indorser.

Question 10

Blank indorsements turn order instruments into bearer instruments.

Question 11

A bearer instrument is negotiated by delivery alone.

Question 12

Any significant alteration of a negotiable instrument discharges the liability of the party whose liability is changed by the alteration.

Question 13

Delivering a negotiable instrument to the maker discharges it by cancellation.

Question 14

The Uniform Commercial Code (UCC) is very strict on what will constitute a signature that appears on a negotiable instrument.

Question 15

It is legal for a person to turn a blank indorsement into a special endorsement.

Question 16

When the transfer of a negotiable instrument is made either by assignment or by negotiation, the third party becomes a holder.

Question 17

The signature "David Hopper" on the back of a check is a blank indorsement.

Question 18

A payee of a negotiable instrument can transfer that instrument to another person by negotiation.

Question 19

An indorsement transfers ownership of a negotiable instrument.

Question 20

A check is made payable to "Mark Spitz." If Spitz wishes to negotiate the instrument, he must

A) indorse the instrument.
B) deliver the instrument.
C) indorse and deliver the instrument.
D) indorse or deliver the instrument at the discretion of Mark Spitz.

Question 21

A negotiation is defined as

A) an assignment of rights.
B) any assignment of an instrument to the indorsee.
C) a signature other than that of the indorsee.
D) any transfer of an instrument to a holder.

Question 22

No ____________________ is required to transfer ownership of a bearer instrument.

Question 23

A(n) ____________________ is the signature of the indorser, which usually appears on the back of the instrument.

Question 24

Which of the following statements best describes the effect of a person indorsing a check "without recourse?"

A) The person coverts the check to bearer paper
B) Directs payment to a specific person
C) The person makes no promise or guarantee of payment on dishonor of the instrument
D) The person has no liability to prior indorsers

Question 25

"For deposit only, Robert Marin" is a

A) qualified indorsement.
B) restrictive indorsement.
C) blank indorsement.
D) special indorsement.

Question 26

Which of the following requirements must be met for a transferee of order paper to become a holder?

A) Possession only
B) Indorsement and transfer only
C) Possession and indorsement of transferor
D) All of these.

Question 27

A blank indorsement

A) consists only of the signature of the indorser.
B) makes the instrument payable to the bearer.
C) allows an instrument to be transferred by delivery alone.
D) all of these.

Question 28

An indorsement

A) usually appears on the back of an instrument.
B) must be handwritten.
C) transfers only possession of negotiable instruments.
D) none of these.

Question 29

A(n) ____________________ instrument is negotiated by indorsement and delivery.

Question 30

A blank indorsement can be converted into a

A) restrictive indorsement.
B) special indorsement.
C) qualified indorsement.
D) negotiable instrument.

Question 31

Tandom endorsed a check "Jane Tandom." This is a

A) qualified indorsement.
B) special indorsement.
C) restrictive indorsement.
D) blank indorsement.

Question 32

The party who becomes the first indorser of a note is generally the

A) payee.
B) maker.
C) drawer.
D) drawee.

Question 33

The circulation of a negotiable instrument begins when the maker or the drawer issues an instrument to the ____________________.

Question 34

Receiving an instrument by negotiation

A) is the same as receiving the instrument by assignment.
B) makes the third party who takes possession of the instrument a holder.
C) converts the instrument into bearer paper.
D) prevents the instrument from being further transferred.

Question 35

The most common method of discharging a negotiable instrument is by

A) bankruptcy.
B) payment.
C) alteration.
D) cancellation.

Question 36

Gambito wants to deposit his entire paycheck in his checking account by mailing it to the bank. To provide the best safeguard, he should use a

A) blank indorsement.
B) special indorsement.
C) restrictive indorsement.
D) qualified indorsement.

Question 37

"Pay to the order of Renee DiMarco (signed) J. Marx" is a(n)

A) special indorsement.
B) blank indorsement.
C) accommodation indorsement.
D) qualified indorsement.

Question 38

Riggins indorsed her paycheck with her signature and the words "without recourse." This is

A) a special indorsement.
B) a blank indorsement.
C) a restrictive indorsement.
D) none of these.

Question 39

Farnsworth has an instrument which was made "Payable to bearer." She loses the instrument, but it is found by Mellon. Mellon may

A) collect payment on the instrument.
B) not collect payment because he gave no value for it.
C) not collect payment on the instrument because he only found it.
D) none of these.

Question 40

____________________ is the transfer of an instrument in such a way that the transferee becomes a holder.

Question 41

A(n) ____________________ indorsement should be used if you mail a check to the bank for deposit.

Question 42

A qualified indorsement limits the ____________________ of the indorser.

Question 43

Explain the difference between a transfer of a person's rights by assignment under the law of contracts, and a transfer of a negotiable instrument by negotiation under the UCC.

Question 44

____________________ of a promissory note back to the maker will cancel it.

Question 45

How are negotiable instruments negotiated?

Question 46

You did some electrical work for a new neighbor who recently moved in next door. However, you are concerned about the check you received from the neighbor for your services. Frankly, you wonder if the neighbor has money to cover the amount of the check simply because you owe Marlin, a friend money and wish to pass your neighbor's check along to her. When indorsing the check, what can you do to protect yourself if Marlin has trouble collecting from your neighbor?

Question 47

If the holder of a negotiable instrument alters it in any significant way, the obligation of any affected parties is ____________________.

Question 48

Betsy Carter issued a promissory note payable to the order of Lynn Baylor. What must Baylor do if she wishes to transfer the note to John Victor?

Question 49

If a negotiable instrument is not paid on time and a lawsuit to collect the amount of the instrument is not brought within the time set by a state's statute of limitations, the instrument is ____________________.

Question 50

What is the significance of becoming the holder of a bearer instrument acquired illegally (e.g. stolen) and then legally having the power to pass the instrument on to an innocent third party?