Deck 25: Transfer

Question 1

The requirements for negotiation are the same for both order paper and bearer paper.

Answer 1

False

Question 2

Every indorsement is either blank or special.

Answer 2

True

Question 3

The principal advantage of negotiable instruments is their legitimacy.

Answer 3

False

Question 4

A qualified indorsement destroys negotiability.

Question 5

The transfer of a nonnegotiable promise or order operates as an assignment.

Question 6

A holder must actually have the instrument in his possession.

Question 7

Clara, a customer of Community Bank, deposits in Community Bank a check for collection without properly indorsing it.Community Bank becomes a holder when it accepts the check for deposit if Clara is a holder.

Question 8

"Pay to the order of Jose Dejesus" is a special indorsement.

Question 9

"Order paper" is negotiated by delivery only.

Question 10

Maxine indorsed her paycheck by signing her name on the back, but she lost it on the way to the bank.The check is now comparable to cash because it is a bearer instrument.

Question 11

Jennifer, who stole a check "payable to cash," cannot be a holder since she did not receive possession by voluntary transfer.

Question 12

Whether a transfer is by assignment or by negotiation, the transferee acquires the rights the transferor had.

Question 13

An indorsement "for deposit" is a collection indorsement.

Question 14

Under the shelter rule, the transferee gets the rights of the transferor even if the transfer is not for value.

Question 15

If a person paying an instrument subject to the impostor rule fails to exercise ordinary care, the issuer may recover from the payor to the extent the payor's negligence contributed to the loss.

Question 16

If the issuer and the person paying an instrument subject to the impostor rule are both negligent, comparative negligence would apply.

Question 17

The impostor rule is an exception to the general rule that negotiation of any order instrument requires a valid indorsement by the person to whose order the instrument is payable.

Question 18

An indorsement may be simple or complex.

Question 19

An unrestrictive indorsement attempts to restrict the rights of the indorsee.

Question 20

Marie is the bookkeeper for the Buildco Construction Company.She makes out the payroll; prepares all of the payroll checks and reconciles the bank statements for the firm.She decides to increase her income by padding the payroll; accordingly, she makes out a check in the name of someone who does not exist.She then indorses the check with the payee's name and her name and cashes the check herself at First Bank where the company has its account.Under the fictitious payee rule, Buildco and not the bank will be liable for this check.

Question 21

An allonge is a piece of paper affixed to the instrument.

Question 22

A "without recourse" indorsement eliminates all of an indorser's liability.

Question 23

The shelter rule did not exist at common law.

Question 24

A person can be a holder if:

A)the instrument has been issued to that person.
B)the instrument has been transferred to that person by negotiation.
C)the instrument is ambiguous.
D)Both (a) and (b) are correct.

Question 25

A qualified indorsement plus delivery would transfer title to the indorsee.

Question 26

Any transfer for value of an instrument is a negotiation.

Question 27

Revised Article 3 provides that the impostor rule does not include an impostor who impersonates an agent of a principal and who induces someone to create a negotiable instrument payable to the principal.

Question 28

A conditional indorsement is one by which the indorser makes the rights of the indorsee subject to the happening or nonhappening of a specified event, but such an indorsement is ineffective under Revised Article 3.

Question 29

A holder of an instrument with a blank indorsement may protect herself by writing over the signature of the indorser words identifying herself as the person to whom the instrument is payable.

Question 30

An indorsement that says, "Pay to the Order of John Jones, signed Michael Johnson" is a blank indorsement that turns a check into bearer paper.

Question 31

An indorsement in trust creates a trust for the benefit of himself or others.

Question 32

A qualified indorsement does not destroy negotiability or prevent further negotiation of the instrument.

Question 33

A negotiation can be effective to transfer an instrument even if made by a person without capacity.

Question 34

A negotiation is void if the transaction in which it occurs is void.

Question 35

The Code specifies that the signer is to be treated as an indorser if it is impossible to tell the nature of the signer's liability with certainty from the appearance of the signature on an instrument.

Question 36

An indorsement "Pay to Jones Construction Company upon completion of the job at No.10 Park Place" is nonnegotiable.

Question 37

An indorsement must be written on the instrument itself.

Question 38

The fictitious payee rule is based on the idea that employers should bear the risk of their own unscrupulous employees.

Question 39

A negotiation may be valid to transfer the instrument even under which of the following condition(s)?

A)The negotiation is made by an infant.
B)The negotiation is made by a person without capacity.
C)The negotiation is part of an illegal transaction.
D)All of the above.
E)None of the above.

Question 40

An indorsement "Pay Alice Adams" is an assignment rather than a negotiation since it lacks words of negotiability.

Question 41

An anomalous indorsement is:

A)one that specifically identifies the person to whose order the instrument is payable.
B)an indorsement made by a person who is not the holder of the instrument.
C)one that makes the signer liable on the instrument as an indorser.
D)Both (a) and (b).
E)Both (b) and (c).

Question 42

Delivery alone is insufficient to negotiate an instrument when it is payable to:

A)order and the last indorsement is in blank.
B)cash and signed by the drawer.
C)bearer and is not indorsed.
D)the order of John Jones and is not indorsed.

Question 43

An indorsement which prohibits further transfer is a(n):

A)qualified indorsement.
B)special indorsement.
C)indorsement for collection.
D)allonge.

Question 44

In the Shearson Lehman Brothers, Inc.v.Wasatch Bank case, the applicable defense was:

A)a forged indorsement was ineffective to pass title.
B)the instrument was assigned rather than negotiated.
C)the fictitious payee defense.
D)the impostor rule.

Question 45

Federal Reserve Board guidelines for checks:

A)require indorsements to be in blue or black ink.
B)must be followed or the check will not go through the banking system.
C)require bank indorsements to be made within 2 inches of the left edge of the back of the check.
D)Both (a) and (c).

Question 46

Matt writes on the back of a check, "I assign all of my rights in this instrument to Ronald Stevens." This is a(n):

A)qualified indorsement.
B)assignment without negotiation.
C)special indorsement.
D)restrictive indorsement.

Question 47

A restrictive indorsement:

A)disclaims contract liability.
B)removes warranty liability.
C)attempts to restrict the rights of the indorsee in some fashion.
D)always destroys negotiability.

Question 48

One who is in possession of a piece of commercial paper that is drawn, issued, or indorsed to him or to his order or that is indorsed in blank is a(n):

A)bearer.
B)holder.
C)transferor.
D)assignee.

Question 49

Which of the following is required regarding indorsements?

A)An indorsement must be written on the back side of the instrument.
B)Indorsements must comply with Federal Reserve Board guidelines in order for the instrument to be negotiable.
C)Indorsements must be made on a separate sheet of paper stapled to the instrument.
D)None of the above.

Question 50

The customary manner of disclaiming the indorser's contractual liability is to add which of the following sets of words before or after his signature?

A)For collection only.
B)Without recourse.
C)Pay to the order of.
D)For deposit only.

Question 51

A transferee acquires the rights the transferor had in a(n):

A)assignment.
B)negotiation.
C)Both (a) and (b).
D)Neither (a) nor (b) unless expressly stated when the transfer was made.

Question 52

A(n) ___________ is the voluntary transfer to a third party of the rights arising from a contract.

A)negotiation of bearer paper
B)negotiation of order paper
C)assignment
D)negotiation

Question 53

Assuming a note made by Barbara payable to Carol, which indorsement will limit negotiability?

A)"Pay Al.Carol."
B)"For deposit only, Acct.#602-043.Carol."
C)"Pay Connie for Al.Carol."
D)"Pay Claudia as attorney for John Jones.Carol."

Question 54

Ricardo is the holder of a check that contains the indorsement "Without Recourse, (signed) Mary Roberts." This indorsement:

A)makes further indorsement impossible.
B)requires a special indorsement by the transferee.
C)limits the liability of Mary Roberts.
D)limits the liability of all subsequent holders, including Ricardo.

Question 55

Which of the following is not an effective restrictive indorsement?

A)"Pay only Jane Doe."
B)"For deposit."
C)"Pay any bank."
D)"For collection."

Question 56

If the instrument is order paper, how can a person become a holder?

A)Transfer of its possession.
B)Its indorsement by the appropriate parties.
C)Both (a) and (b) are necessary.
D)None of the above.

Question 57

Indorsements with ineffective restrictions include which of the following?

A)The indorser makes the rights of the indorsee subject to the happening or non-happening of a specified event.
B)An indorsement "For Collection."
C)An indorsement stating "Pay to Melanie for Sharon."
D)All of the above.

Question 58

The transfer of commercial paper in such a manner that the transferee becomes a holder is known as:

A)assignment.
B)negotiation.
C)indorsement.
D)accommodation.

Question 59

Which of the following are types of restrictive indorsements?

A)Conditional indorsements.
B)Indorsements prohibiting further transfer.
C)Indorsements in trust.
D)All of the above are restrictive.

Question 60

Marty Sandidge wrote a check payable to "Charles Saxon" when the payee's real name was spelled "Charles Saxton." In order to obtain payment, Charles:

A)must have Marty void the check and rewrite another check with Charles's name spelled correctly.
B)may be required by a person taking the instrument for value to sign both "Charles Saxon" and the correct spelling of his name.
C)must sign only his real name with the correct spelling or he will be liable for forgery.
D)must sign only "Charles Saxon" since that was the name on check.

Question 61

Identify the type of indorsement each of the following represents.
a.Pay to Bill, for collection.
b.Pay to the order of The American Bank for deposit only.
c.Pay to Albert, without recourse.
d.John Smith.

Question 62

Lily drew a check on First Bank payable to Shelley.Lily signed the check in the normal place at the bottom, right side of the check.Glenn signed the check at the bottom left of the front of the check.In what capacity will the Code interpret Glenn to have signed? Will Glenn be able to introduce parol evidence to establish his intent?

Question 63

In which of the following situations is the person not a holder?

A)Julie has possession of an instrument "Payable to Martin" that has not been indorsed by Martin.
B)Sean has possession of a check "Payable to the order of Tonya" which is indorsed with only Tonya's name.
C)Olsen stole a check that was indorsed in blank.
D)Wanda found a check "Payable to the order of Cash."
E)None of these situations involve a holder.

Question 64

Miller does the payroll for XYZ Company.In between the last names of Adams and Bates, he inserts the name Appleton and makes out a weekly paycheck in that name.He keeps the check for himself, signing "Appleton" and cashing it at a local bank.Auditors discovered the fake payee many months later.May XYZ require the bank to recredit?

A)No, because of the holder rule.
B)No, because Miller is an XYZ employee, and the fictitious payee rule applies.
C)Yes, because the indorsement is forged.
D)Yes, because the check was, in effect, stolen.

Question 65

Is the negotiation of an instrument ever valid even though the transaction in which it occurs is voidable or even void? Explain.

Question 66

Laura is in possession of a check which contains the following indorsement, "Sam Smith, without recourse, for collection only." The indorsement would be classified as:

A)blank, qualified, and restrictive.
B)blank, unqualified, and nonrestrictive.
C)special, unqualified, and restrictive.
D)special, qualified, and nonrestrictive.

Question 67

Which of the following would be an indorsement in trust?

A)Pay Donna for Alice.
B)Pay Donna for account of Alice.
C)Pay Donna as agent of Alice.
D)All of the above are indorsements in trust.

Question 68

What is the effect of a qualified indorsement and a restrictive indorsement?

Question 69

The case, State of Qatar v.First American Bank of Virginia, held that:

A)the phrase "for deposit only" is not an effective restrictive indorsement.
B)depositary banks are not required to handle checks consistent with the restrictive indorsement.
C)the phrase "for deposit only" effectively limits the depositary bank to handle the instrument in a manner consistent with the transaction.
D)a stolen check which is indorsed in blank cannot be freely negotiated by the bearer.

Question 70

What is negotiation? How does one become a "holder" of an instrument?