Deck 23: Transfer and Discharge of Commercial Paper

Question 1

The Uniform Commercial Code (UCC)specifically provides that the holder of an instrument may convert a blank endorsement into a full endorsement.

Answer 1

True

Question 2

One of the characteristics of commercial paper is the ease with which it can be transferred from one person to another.

Answer 2

True

Question 3

Under the Uniform Commercial Code,distinction is made between lack of delivery of a completed and an incomplete instrument.

Answer 3

False

Question 4

The holder of dishonored commercial paper must give notice of the dishonor immediately to the drawer and to all endorsers in order to hold them liable on the instrument.

Question 5

An endorser of an instrument is not released from liability by any act that completes the negotiation of the instrument,such as payment.

Question 6

It is wise for a person concerned about a check being lost or stolen to use a blank endorsement.

Question 7

Commercial paper must be presented for payment during business hours on the due date given on the instrument.

Question 8

An endorsement where the name of the payee is written by the payee on the back of a negotiable instrument is a:

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

Question 9

An endorsement in which the payee specifies the person to whom,or to whose order,the instrument is to be paid is a:

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

Question 10

An incompetent person who makes,signs,and delivers a negotiable instrument cannot be held liable for its payment.

Question 11

Presentment of commercial paper must always be made in person.

Question 12

Fraud in executing an instrument is a real or absolute defense,but fraud related to the circumstances surrounding the issuing of a paper and not to the paper itself is a personal defense.

Question 13

When the holder of commercial paper signs his or her name,with or without other words,on the back of the instrument,this writing is referred to as a(n):

A) acknowledgment.
B) endorsement.
C) receipt.
D) acceptance.

Question 14

When an endorsement is made to the instrument,it can be further negotiated only when it has been indorsed by the specified person.Such an endorsement is a:

A) specific endorsement.
B) definite endorsement.
C) declarative endorsement.
D) special endorsement.

Question 15

In order to ensure the negotiability of commercial paper,the UCC assumes as warranties in every endorsement that all prior parties were qualified to enter into a legally binding contract.

Question 16

An endorsee is the person who writes his or her name on the reverse side of a check.

Question 17

If fraud was used to induce a person to sign a negotiable instrument,the injured person may use this as a personal defense against any person including a holder in due course.

Question 18

A signature to which words have been added restricting the further endorsement of the instrument is a:

A) restrictive endorsement.
B) special endorsement.
C) endorsement.
D) detailed endorsement.

Question 19

The use of a qualified endorsement affects the negotiability of an instrument.

Question 20

A defense against payment of commercial paper that claims the instrument was void from the beginning is known as real defense,or absolute defense.

Question 21

When commercial paper on which the signature of the maker or drawer has been forged,the person liable is the:

A) acceptor.
B) holder in due course.
C) drawer.
D) endorser.

Question 22

A person cannot be held liable,even by a holder in due course,if he or she signs an instrument that is apparently not negotiable and the paper is later fraudulently converted into a(n):

A) statutory contract.
B) specialty contract.
C) arbitration agreement.
D) negotiable instrument.

Question 23

The party who has taken commercial paper in good faith and for value,before maturity,and without actual or constructive notice of any defects in the instrument is a(n):

A) holder in due course.
B) endorser of the instrument.
C) payee.
D) drawer.

Question 24

Often state statutes expressly declare that commercial paper given for gambling transactions or at usurious rates of interest are:

A) void.
B) valid.
C) legal.
D) dire.

Question 25

The Uniform Commercial Code provides that the loss falls upon the party whose conduct in signing a blank instrument made the fraud possible,that is,whose negligence or recklessness invited alterations by:

A) declarative holders.
B) respective holders.
C) subsequent holders.
D) special holders.

Question 26

An endorsement to which words have been added that limit the further endorsement of the instrument,such as "for deposit only," is a:

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

Question 27

A qualified endorsement can be used together with a blank endorsement or special endorsement using phrases such as:

A) "With recourse."
B) "With blank endorsement."
C) "With special endorsement."
D) "Without recourse."

Question 28

A demand instrument such as a note or check must be presented for payment:

A) within the date mentioned in the instrument.
B) within a reasonable time after the date of issue.
C) at any time after the instrument is issued.
D) immediately after the date of issue.

Question 29

If negotiable instrument is not accepted when presented,if it is not paid when presented for payment at maturity,or if presentment is excused or waived and the instrument is past due and unpaid,then it is considered:

A) ineligible.
B) defunct.
C) dishonored.
D) abandoned.

Question 30

A defense against payment of commercial paper that may be used against any party EXCEPT a holder in due course is called:

A) specific defense.
B) personal defense.
C) special defense.
D) commercial defense.

Question 31

The maker of a note or the drawer of a check or draft may deduct from the amount demanded by an immediate party any amounts owed to him or her by the payee.This type of personal defense is called a:

A) counterclaim.
B) simple claim.
C) commercial claim.
D) declarative claim.

Question 32

All of the following are personal defenses against payment of commercial paper,EXCEPT:

A) lack of consideration.
B) fraud, duress, and undue influence.
C) material alteration.
D) non-delivery of an executed instrument.

Question 33

All the following conditions meet the requirement of the liability for payment of the instrument by the endorser or the drawer,EXCEPT when:

A) it has been properly presented for payment to the maker.
B) payment has been refused by the maker or drawee.
C) notice of the refusal has been given to the drawer or endorser.
D) the bank has assured that the payment will be made later.

Question 34

According to the Uniform Commercial Code,if the buyer of overdue negotiable paper did not have notice or knowledge that it was overdue,he or she could be a:

A) drawer for acceptance.
B) bona fide acceptor.
C) holder in due course.
D) proprietor in due course.

Question 35

If a completed negotiable instrument comes into the possession of an immediate party (the payee indicated on the instrument)before the maker or drawer has delivered it,then the:

A) payee cannot collect on the instrument.
B) payee can collect on the instrument.
C) payer only can collect on the instrument.
D) drawer only can collect on the instrument.

Question 36

The Uniform Commercial Code assumes the instrument is for a valid and existing obligation as warranty in order to ensure the:

A) endorsement of commercial paper.
B) negotiability of commercial paper.
C) transparency of commercial paper.
D) clarity of commercial paper.

Question 37

If any one signs an instrument that is apparently not negotiable and the paper is later fraudulently converted into a negotiable instrument,the person who signed the instrument is:

A) responsible to holder in due course.
B) responsible to all the endorsers.
C) not liable even for holder in due course.
D) responsible for payee.

Question 38

In order for a person to be a holder in due course of a negotiable instrument,it must be true that the paper must have been acquired for a(n):

A) mala fide consideration.
B) unlawfully contingent consideration.
C) premeditated consideration.
D) valuable consideration.

Question 39

In order to ensure negotiability,the Uniform Commercial Code assumes that the endorser is the true owner of the paper.If he or she found or stole the paper and transferred it to another by endorsement,the:

A) law provides jail term to endorser, but not compensation to endorsee.
B) endorser is liable for any loss suffered by the endorsee.
C) endorser is liable up to $500 for the loss suffered by the endorsee.
D) endorsee cannot seek any remedy from the endorser.

Question 40

A holder in due course is sometimes called a:

A) "bona fide holder for value without notice."
B) "bona fide holder in due course."
C) "bona fide drawer in due course."
D) "bona fide endorser for value with notice."

Question 41

Explain dishonor of commercial paper.

Question 42

Describe any one defense against payment of commercial paper.

Question 43

Briefly explain personal defenses against payment of commercial paper,and list at least four defenses.