Deck 23: Transfer and Discharge of Commercial Paper

Question 1

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

Answer 1

False

Question 2

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

Answer 2

True

Question 3

An endorsee of an instrument is the person who signs his or her name on it. .

Answer 3

False

Question 4

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

Question 5

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 6

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 7

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

Question 8

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 9

An endorser of an instrument cannot be released from liability.

Question 10

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

Question 11

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 12

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

Question 13

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

Question 14

The UCC requires presentment of commercial paper to be made in person.

Question 15

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 16

When an endorsement is made on 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 17

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

Question 18

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

Question 19

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

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

Question 20

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

Question 21

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 22

In order for a person to be a holder in due course of a negotiable instrument, the paper must have been acquired:

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

Question 23

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 24

If a 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 25

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) voidable

Question 26

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 a jail term to the 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 27

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 28

Any change made to an instrument that affects the rights of the parties is called a _______________.

A) declarative alteration
B) respective alteration
C) material alteration.
D) special alteration

Question 29

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

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

Question 30

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

A) counterclaim
B) setoff
C) personal defense. D restrictive covenant.

Question 31

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 32

According to the UCC, if the ____________ of overdue negotiable paper did not have notice or knowledge that the commercial paper was overdue, he or she could be a holder in due course

A) seller
B) acceptor.
C) buyer
D) proprietor

Question 33

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 34

All the following conditions release an endorser from liability EXCEPT:

A) any act that completes the negotiation of the instrument, such as payment.
B) the release of a prior party's obligation or the release of the debtor
C) the intentional cancellation of the endorser's signature by the holder
D) an invalid tender of payment by a prior party.

Question 35

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 36

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 37

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 38

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 39

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

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

Question 40

The Uniform Commercial Code assumes there are warranties in every endorsement to ensure the:

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

Question 41

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

Question 42

When is commercial paper deemed dishonored?

Question 43

Describe the effect of commercial paper on which the signature of the maker or drawer has been forged.