Exam 16: The Nature of Negotiable Instruments

To be negotiable, an instrument must be in writing.

A cashier's check is drawn by a bank upon itself.

Kentle Bank decides to not honor a United Manufacturing check issued to Joe, an employee, which he cashed at the bank. Kentle Bank must notify Joe by midnight of the next banking day.

If a bank refuses to certify a check, the bank has dishonored it.

Ownership of a check is transferred by indorsement by its payee.

The party to a note who promises to pay money is called the payee.

Donna is the holder of a note that has been indorsed so many times that there is no space left on the back of the note for indorsements. Donna wants to transfer the note for $200 to Acme Finance, but wants to indorse on the face of the note "without recourse, Donna ". Acme wants to staple a sheet of blank paper to the note and have Donna simply sign "Donna" there. Discuss whether Donna or Acme is correct concerning the location of Donna's signature and if Donna is legally entitled to indorse "without recourse."

A check that a drawee bank guarantees will be paid to the holder is a:

Mark gives a $3,000 check drawn on Access Bank to Acme Industries who mislays the check for three weeks. When Acme finds the check, they request that Access Bank certify the check. Access declines to do so, and Acme tells Mark that the check has been dishonored. Mark contacts Access who agrees to certify the check. Access subsequently wants to withdraw their certification, since Mark has insufficient funds in his account. Discuss the legal issues contained in their situation.

An indorser who receives consideration for an instrument is required to provide a warranty that she has no knowledge of the bankruptcy of the maker, acceptor, or drawer.

The most common type of draft in use today is the check.

A ____________ check is a check drawn by one bank on another bank in which it has funds on deposit in favor of a third person, the payee.

If Daphne gave value for and cashes Lisa's check, what legal rights, if any, does Daphne have?

Big Bank pays a check made by Franklin, payable to Ellen to a forger who signed Ellen's name. Big Bank is not liable to Franklin.

Writing the words, "pay to the order of" or "pay to", followed by name of the indorsee and the signature of the indorser on an instrument makes it a ____________ indorsement.

The first set of numbers on a printed check is the bank's Federal Reserve number.

Elke has a contract with Acme Gravel Co. If she transfers her rights under the contract, this is called an assignment.

Jake dies while he is the holder of an instrument. Upon his death, title to the instrument automatically vests in Jake's heirs.

Shawn was an indorser on a check. A subsequent holder presented the check to the bank named on the instrument and was informed that there was not enough money in the account to honor the check. The next day, the subsequent holder demanded the money from Shawn. Must Shawn pay the subsequent holder of the instrument? Why or why not?

When Hanson received her paycheck, she indorsed it in blank, placed it on her desk, and went to get a cup of coffee. The check accidentally blew out of an open window. Matson, a stranger to Hanson, found the check on the sidewalk below, took it to a bank, and cashed it. Was the transfer of the check to the bank a negotiation? Why or Why not?