Quizzes BLW (26,27,28) Article 3 of the UCC

A written document signed by the creator that makes an unconditional promise or order to pay a certain amount of money at a specific time or when demanded is known as _______.

a) a contract

b) a negotiable instrument

c)an allonge

b)an endorsement

b) a negotiable instrument

The primary purpose of negotiable instruments is to do which of the following?

a) Lay the terms of negotiation between employers and employees.

b) Act as a currency or cash substitute and facilitate commercial transactions.

c) Allow parties to enter into a contract without a consideration.

d) Establish uniform contract laws to facilitate international trade

b) Act as a currency or cash substitute and facilitate commercial transactions.

Using these documents as payments can greatly facilitate commercial transactions, especially when cash is in short supply or it is dangerous to transfer large amounts of currency.

Which of the following statements best describes a draft as defined by the UCC?

a) A promise by the endorsee to pay the endorser if the drawee does not pay

b) An order by a drawer to a drawee to pay a payee

c) A promise by a drafter to pay the draftee

d) An order by the payor to pay the payee

b) An order by a drawer to a drawee to pay a payee

A _______ is best described as a promise by a bank to pay a payee a certain amount of money at a future time.

certificate of deposit

Which of the following types of negotiable instruments is always a demand instrument?

a) A certificate of deposit.

b) A draft.

c) A certificate of origin.

d) A check.

d) A check.

Which of the following statements is true of a cashier's check?

a) It is a nonnegotiable instrument.

b) It is a draft with respect to which the drawer and drawee are the same bank.

c) It is a time instrument.

d) It is considered as a note of the bank by the Uniform Commercial Code.

b) It is a draft with respect to which the drawer and drawee are the same bank.

Which of the following is a difference between a negotiable instrument and a simple contract?

a) Negotiable instruments give greater rights to the transferor than the holder, whereas a contract gives equal rights to the assignor and the assignee.

b) Negotiable instruments lack the requirements of contracts, which are consideration and both offer and acceptance.

c) Negotiable instruments are always time instruments, whereas contracts are always demand instruments.

d) Negotiable instruments include a conditional promise to pay, and contracts include an unconditional promise to perform or pay.

b) Negotiable instruments lack the requirements of contracts, which are consideration and both offer and acceptance.

Which of the following is a requirement of a negotiable instrument?

a) Negotiable instruments must be signed by the creator.

b) Negotiable instruments must be oral.

c) Negotiable instruments must be payable in cash or commercial paper.

d) Negotiable instruments may contain a promise in addition to the promise to pay.

a) Negotiable instruments must be signed by the creator.

Which of the following conditions is required to turn an IOU into a negotiable instrument?

a) It must include a conditional promise to pay.

b) It must include a promise to pay the bearer in gold or stock.

c) It must include an affirmative agreement to pay.

d) It must provide greater rights to the transferor than the holder.

c) It must include an affirmative agreement to pay.

Justin borrowed $1000 from Cates. Cates presented Justin with a handwritten document stating, "I, Justin, promise to pay to the order of Cates McLean $1000 on her demand." Justin voluntarily signed the document. After Justin signed the document, Cates signed the document as well. Which of the following statements is accurate?

a) The document is negotiable because it was signed by both Cates and Justin.

b) The document is nonnegotiable because it does not include words of negotiability.

c) The document nonnegotiable because it does not promise payment at a specific time.

d) The document is negotiable because the language in the document indicates that it was created for the purpose of being transferred.

d) The document is negotiable because the language in the document indicates that it was created for the purpose of being transferred.

A negotiable instrument is considered as _______. It is a written document containing the signature of the creator that makes an unconditional promise or order to pay a certain sum of money, either at a specified time or on-demand.

a) a substitute for cash

b) an IOU promise

c) an example of an EFT

d) promise to confirm to the terms of a contract

a) a substitute for cash

A draft is an order by a _______ to a _______ to pay a _______.

drawer; drawee; payee

A demand instrument is one that meets all but which of the following requirements?

a) A demand instrument states that it is payable on demand.

b) A demand instrument states that it is payable at sight.

c) A demand instrument does not state any time of payment.

d) A demand instrument is payable at the will of the maker or drawer.

d) A demand instrument is payable at the will of the maker or drawer.

A demand instrument states that:

1. it is payable on demand.

2. it is payable at sight.

3. it does not state any time of payment.

Negotiable instruments must promise or order that payment be made in

a) goods of the type specified in the subject contract.

b) bearer bonds.

c) national currency.

d) U.S. dollars only.

c) national currency.

The Uniform Commercial Code (UCC) Section 3-108(a) defines an instrument "payable on demand" as one that

"(i) states that it is payable on demand or at sight, or otherwise indicates that it is payable at the will of the holder; or (ii) does not state any time of payment."

A negotiable instrument is a written document signed by the ____________ or _____________ with an ___________________ promise to pay

maker; drawer; unconditional

If there is ____________________ from a party to a third party, then we have negotiation

transferability

Holder

a party in possession of a negotiable instrument payable to that party or to a bearer

Blank checks turns order papers into a ___________ that can be negotiable by delivery only

bearer paper

Special checks keep an ________________ that continues to require endorsement and delivery for further negotiation.

order paper

No type of endorsement can prohibit further transfer, once negotiable, an instrument remains negotiable. TRUE or FALSE

TRUE

Restrictive endorsement can __________what is done with the check.

limit

If you take note after is due you take it with notice that is overdue not, and therefore you are not an HDC. TRUE or FALSE

TRUE

Which of the following requirements applies to order paper?

a) It must be negotiated via delivery only with no endorsement needed.

b) It is negotiated by whoever has possession of the instrument with no further requirements necessary.

c) It may be negotiated only by one who provided a restrictive endorsement and then deposits the instrument into the endorser's account.

d) It is negotiated via transfer and endorsement.

d) It is negotiated via transfer and endorsement.

If a check is drawn to the order of Cates McLean, the payee. Cates then endorse the check with her name. She has created which of the following endorsements?

a) Blank unqualified

b) Black qualified

c) Special unqualified

d) Special; qualified

a) Blank unqualified

The endorsement for deposit or collection only is an example of a(n)

a) restrictive endorsement.

b) unqualified special endorsement.

c) qualified endorsement.

d) unqualified blank endorsement.

a) restrictive endorsement.

A special qualified endorsement is an endorsement that is

a)the endorser's signature followed by a named endorsee and the words "without recourse."

b)either the payee's or the last endorsee's signature; payable to whoever has possession of the instrument.

c)either the payee's or the last endorsee's signature followed by "without recourse."

d)the endorser's signature followed by a named endorsee, who then becomes the holder of the instrument.

a)the endorser's signature followed by a named endorsee and the words "without recourse."

A holder in due course of a negotiated instrument has _______ rights compared to an ordinary holder.

a) lower

b) the same

c) higher

d) no rights

c) higher

For someone to have the rights of a holder in due course, that person must do all but which of the following?

a) The person must take the instrument in good faith.

b) The person must give value for the instrument.

c) The person must receive the instrument as a gift.

d) The person must not have notice of any defects in the instrument.

c) The person must receive the instrument as a gift.

As a general rule, checks are overdue

a) 20 days after their due date.

b) 30 days after their due date.

c) 60 days after their due date.

d) 90 days after their due date.

d) 90 days after their due date.

Which of the following is true of a time instrument?

a) If a party misses payment of an installment, it is overdue until the principal is paid.

b) It becomes overdue at any point after the expressed due date on it.

c) It becomes overdue only after 90 days of the due date.

d) If a party misses payment of interest on the instrument, it becomes overdue.

b) It becomes overdue at any point after the expressed due date on it.

The rules of _______ are slightly different depending on whether the instrument is bearer or order paper.

a) endorsement

b) negotiation

c) qualified special endorsements

d) payment

b) negotiation

An instrument that is payable to cash or to whomever may have possession of the instrument is known as _______ paper.

a) endorsed

b) order

c) bearer

d) drawee

c) bearer

_______ paper requires only delivery of the instrument to the holder by the payee, while _______ paper requires delivery and an endorsement.

a) Noncommercial; commercial

b) Order; bearer

c) Bearer; order

d) commercial; noncommercial

c) Bearer; order

The person creating an endorsement is the _______, and the person receiving the endorsement is the _______.

a) payee; payor

b) endorsee; endorser

c) payor; payee

d) endorser; endorsee

d) endorser; endorsee

A _______ instrument becomes overdue if it has been outstanding for an unreasonably long period of time after its date.

a) demand

b) time

c) dishonored

d) delayed

a) demand

A holder in due course may be free from someone claiming a _______ defense; however, a holder in due course is generally subject to _______ defenses.

a) personal; real

b) real; personal

c) restrictive; unrestrictive

d) defective; unqualified

a) personal; real

In order to further the UCC's objective of facilitating commerce, one with:

a) holder-in-due-course status has higher rights than a mere holder.

b) holder status has higher rights than a mere holder-in-due course.

c) holder-in-due-course status has higher rights than a mere payor.

d) holder status has higher rights than a mere payor.

a) holder-in-due-course status has higher rights than a mere holder.

According to Uniform Commercial Code (UCC) Section 3-401(a), _______ leads to liability on a negotiable instrument.

a) writing "without recourse" on the instrument

b) nonpresentment of the instrument

c) signature on the instrument

d) proper payment of the instrument

c) signature on the instrument

Fraud in the execution is also known as _______.

a) fraud in the factum

b) negligent fraud

c) innocent fraud

d) essential fraud

a) fraud in the factum

________ defenses apply to all parties, while _______ defenses do not apply to holders in due course.

a) Global; real

b) Real; global

c) Real; personal

d) Personal; real

c) Real; personal

An instrument is dishonored when a holder presents an instrument within a timely and proper manner, but

a) payment is never made.

b) payment is made after the contractual deadline.

c) acceptance or payment is refused.

d) acceptance is made after the contractual deadline.

c) acceptance or payment is refused.

A party who is _______ liable for an instrument must pay the stated amount on the instrument when it is presented for payment.

contractually

strictly

conditionally

primarily

primarily

What are the two types of warranties associated with a negotiable instrument?

transfer and presentment

When a person signs a negotiable instrument, he or she is potentially liable for the instrument. This type of liability is called _______ liability.

signature

_______ is defined by the Uniform Commercial Code (UCC) as an unauthorized addition of words or numbers or other change to an incomplete instrument relating to the obligation of a party.

material alteration

When a party signs a negotiable instrument without knowing that it is, in fact, a negotiable instrument, the party can claim _______ as a defense.

fraud in factum

Presentment warranties cover parties who

a) accept instruments for payment.

b) transfer their instruments prior to execution.

c) sign a negotiable instrument without knowing its origin.

d) who file a claim within 45 days of purchase.

a) accept instruments for payment.

Transfer warranties apply to any future holders if the transfer of an instrument occurs through _______.

a) a holder in due course

b) endorsement

c) a bank

d) marketability of the instrument

b) endorsement

According to the _______ rule, if the party fails to exercise ordinary care and observe reasonable commercial standards, then the party substantially contributed to the forged signature and will be held liable.

a) parol evidence

b) imposter

c) negligence

d) fictitious-payee

c) negligence

If an agent signs simply her name to the negotiable instrument, she may be liable under which of the following circumstances?

a) The agent may be liable if the principal fires the agent to avoid liability.

b) The agent may be liable if the holder has holder-in-due-course status.

c) The agent may be liable if she clearly identified that she was signing in a representative capacity.

d) The agent may be liable if she qualifies as a holder in due course

b) The agent may be liable if the holder has holder-in-due-course status.

When someone makes a demand to the drawee for payment on a negotiable instrument, that person has done which of the following?

Created his status as that of a holder in due course

Established the instrument as being a negotiable instrument

Presented the item for payment

Given notice of his or her status as a holder

Presented the item for payment

A person who promises to _______ an instrument is primarily liable for the negotiable instrument.

a) negotiate

b) draft

c) transfer

d) pay

d) pay

Under signature liability, one who endorses a negotiable instrument is considered to be _______ liable.

secondarily

One who signs an instrument to restrict payment of it, negotiate it, or incur liability, is best described as a(n) _______.

a) payor

b) drawer

c) endorser

d) maker

c) endorser

Issuers and acceptors have a certain type of liability, while drawers and endorsers have another type of signature liability. If it is not possible to tell the status of the party, the general rule is that the party is considered a(n)

a) drawer.

b) maker.

c) endorser.

d) acceptor

c) endorser.

Real defenses, also called universal defenses, apply to whom?

Multiple Choice

a) All parties

b) Only holders in due course

c) Only holders

d) Only makers and acceptors

a) All parties

When a party's liability for a negotiable instrument is terminated, this party's liability has been

a) diluted.

b) dissolved.

c) discharged.

d) discounted.

c) discharged.

Personal defenses dont apply to

holders in due course

Promissory notes are timely presented on the date that they are

due

Checks are timely presented

within a reasonable time (30 days)