Deck 29: Transfers of Negotiable Instruments and Warranties of Parties

Question 1

When a negotiable instrument is assigned, the transferee has the rights of the transferor.

Answer 1

True

Question 2

A qualified endorsement qualifies the effect of a blank or special endorsement by disclaiming or destroying the liability of the indorser to answer for the default of the maker or drawee.

Answer 2

True

Question 3

The order or bearer character of a paper is determined as of the time when the negotiation is about to take place.

Answer 3

True

Question 4

If an instrument bears a restrictive endorsement, any further transfer or negotiation is effectively barred.

Question 5

A payee or endorsee whose name is misspelled may endorse the wrong name, the correct name, or both.

Question 6

If an instrument is payable to bearer, it may be negotiated by transfer of possession alone.

Question 7

An instrument that originally was bearer paper always remains bearer paper.

Question 8

A thief or an embezzling officer cannot legally transfer title to a bearer instrument.

Question 9

Order paper is negotiated by the indorsement of the holder and delivery.

Question 10

Endorsements may be classified in terms of whether the indorser has added any words to the endorsement and what those words are.

Question 11

An instrument may be transferred by negotiation or by assignment.

Question 12

A blank endorsement indicates the person to whom the instrument is to be paid-that is, the transferee.

Question 13

An endorsement "Pay to Donald Hames, Cathy Dukes" is not valid as an endorsement because it does not contain the words "order" or "bearer."

Question 14

A restrictive endorsement specifies the purpose of the endorsement or the use to be made of the paper.

Question 15

When a special endorsement is made, the instrument becomes order paper and may be negotiated only by an endorsement and delivery.

Question 16

When the holder fails to endorse order paper but does physically transfer the paper to a third party, the transferee is considered an assignee not a holder.

Question 17

A person who acquires the instrument on which the last endorsement is blank becomes the holder.

Question 18

When a negotiable instrument is transferred by negotiation, the transferee is recognized as the holder of the instrument.

Question 19

A special endorsement consists of the signature of the indorser and the words identifying the person to whom the indorser makes the instrument payable.

Question 20

Order paper can be converted into bearer paper by the holder's blank endorsement.

Question 21

If an instrument is drawn in favor of an officer of a named corporation, the instrument is payable to the corporation, the officer, or any successor to such officer.

Question 22

When the indorser merely signs a negotiable instrument, the indorsement is called a __________ indorsement.

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

Question 23

The transferee has only those rights that were possessed by the transferor of the note when a transfer of an instrument is made by:

A)an assignment.
B)a negotiation.
C)a sale.
D)a will.

Question 24

An endorsement "for deposit only" is:

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

Question 25

If an instrument is payable to alternative payees or if it has been negotiated to alternative indorsees, it may be indorsed and delivered by either of them.

Question 26

The warranties made by an unqualified indorser guarantee that payment of the instrument will be made.

Question 27

Negotiation of order paper requires:

A)delivery only.
B)endorsement only.
C)both endorsement and delivery.
D)neither endorsement nor delivery.

Question 28

When a negotiable instrument is negotiated by delivery without indorsement, the warranty liability of the transferor runs only to the immediate transferee.

Question 29

If a lost negotiable instrument is in bearer form at the time of the loss, the finder is entitled to enforce payment.

Question 30

If an assignment of an instrument takes place, the assignee:

A)has greater rights than the assignor.
B)has the same rights as the assignor.
C)is in possession of a negotiable instrument.
D)is in possession of a nonnegotiable instrument.

Question 31

Thomas, the holder of a check, presents it to the drawee bank for payment. If Thomas endorses the check, Thomas warrants that the account of the drawer in the drawee bank contains funds sufficient to cover the check.

Question 32

A qualified indorsement is given by using the phrase __________.

A)"as is"
B)"without recourse"
C)"with all faults"
D)"buyer beware"

Question 33

The transferring of an instrument in such a way as to make the transferee the holder of the paper is termed:

A)an assignment.
B)a conversion.
C)a sale.
D)a negotiation.

Question 34

A __________ indorsement consists of the signature of the indorser and words specifying the person to whom the indorser makes the instrument payable.

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

Question 35

A restrictive indorsement reduces the risk of theft or unauthorized transfer by eliminating the bearer quality of a blank indorsement.

Question 36

An endorsement is restrictive when:

A)the paper is "for deposit only."
B)the paper is being negotiated for collection.
C)the paper is being conditionally negotiated.
D)all of the above.

Question 37

Under the UCC, a negotiation is not effective when it is made by a minor or any other person lacking capacity.

Question 38

A blank indorsement turns a(n) __________instrument into a(n) __________ instrument.

A)negotiable; non-negotiable
B)non-negotiable; negotiable
C)bearer; order
D)order; bearer

Question 39

It is worse for the holder to lose order paper than to lose bearer paper.

Question 40

To enforce an implied warranty of an indorser, the party claiming under the warranty must give the indorser notice of the breach within fourteen (14) days after the claimant learns or has reason to know of the breach and the identity of the indorser.

Question 41

If a negotiable order instrument is transferred to another party without an endorsement, the instrument has been:

A)assigned.
B)negotiated.
C)obtained by fraud, and is therefore invalid.
D)obtained by fraud, but may be ratified.

Question 42

Coppersmith executed and delivered negotiable notes to the payee, Charlene. The payee endorsed the notes to Whitehurst but did not deliver them. Instead, she kept the notes in her possession because she wanted to collect the interest during her life and wanted the endorsee to have the notes on her death. After Charlene's death, her executor, Cartwright, found the notes. Both Cartwright and Whitehurst sought to enforce the notes against Coppersmith. Who was entitled to do so?

Question 43

The situation in which an individual impersonates the holder of a savings account and, by presenting a forged withdrawal slip to the savings bank, receives from the bank a check payable to the bank's customer, is covered by the:

A)impostor rule.
B)negotiation rule.
C)assignment rule.
D)bank rule.

Question 44

A forged or unauthorized endorsement is by definition:

A)an endorsement of the person by whom it appears to have been made.
B)no endorsement of the person by whom it appears to have been made.
C)binding on the party who refuses to ratify the instrument.
D)incapable of being ratified.

Question 45

In the case of a check, when the impostor rule applies:

A)the drawer of the check can successfully raise the defense of the forged endorsement.
B)the forged endorsement is effective to negotiate the instrument.
C)the forged endorsement is ineffective to negotiate the instrument.
D)the instrument becomes nonnegotiable.

Question 46

When a negotiable instrument is negotiated by delivery without indorsement, the warranty liability of the transferor runs:

A)only to the immediate transferee.
B)not to the immediate transferee, but to all subsequent transferees.
C)to both the immediate transferee and all subsequent transferees.
D)neither to the immediate transferee, nor to any subsequent transferees.

Question 47

An unqualified indorser who receives consideration for the indorsement impliedly warrants that:

A)the warrantor is a person entitled to enforce the instrument.
B)all signatures on the instrument are authentic and authorized.
C)the instrument has not been altered.
D)all of the above.

Question 48

Sue is an employee at an ABC store. One of Sue's duties is to prepare the bank deposit at the end of the business day. Sue had a very busy day and made a few mistakes. All of the checks, except two, were endorsed with the stamp "ABC, Inc." that ABC had provided. The bank received the deposit and noticed the lack of endorsement on the two checks. In addition, three of the checks that Sue was to include with the deposit were lost in the parking lot after closing. Phil found the checks and deposited them into his personal account. What is the effect of ABC's endorsement on the lost checks and the lack of endorsement on the two deposited checks?

Question 49

Clark is the senior payroll clerk for the Gonzalez Corporation. In preparing the weekly payroll checks for the corporation, Clark added the name of Simmons to the payroll list. Clark knew that Simmons was not an employee of the corporation. Lewis, the treasurer of the corporation, signed the payroll checks and delivered them to Clark. Clark distributed all of the checks to the correct employees with the exception of the one made payable to the order of Simmons. Clark endorsed the name of Simmons to the check, cashed it with Diamond Check Cashing, and vanished. In this situation:

A)an endorsement was not necessary to negotiate the instrument.
B)the Gonzalez Corporation can seek recovery against Diamond Check Cashing.
C)the forged signature is given the same effect as though it had been authorized by the named payee.
D)Clark is not subject to civil or criminal liability.

Question 50

If a lost instrument is order paper, the finder __________.

A)becomes the assignee of the instrument.
B)becomes the owner of the instrument.
C)becomes the holder of the instrument.
D)does not become the holder of the instrument.

Question 51

A transferor may be able to set aside a negotiation obtained by fraud or duress unless:

A)a minor is involved.
B)the negotiation was part of an illegal transaction.
C)the negotiation was beyond the powers of the corporation.
D)the instrument has been acquired in the meantime by a holder in due course who did not know of the misconduct.

Question 52

Al was an attorney in a small town and was very well-respected. A couple retained Al to represent them on the purchase of a home. Before closing, Al informed the couple of payments that they were required to make by check at the closing. Among the required payments the attorney told the couple to make were a check for $500 to Bob Brown and a check for $610 to Susan Lee. The attorney explained that the check to Brown was for a survey of the property and the check to Lee was for termite control work that the couple had authorized.
The checks were issued and taken by Al who promised to deliver them. Al did not, however, deliver them. Instead, Al forged the endorsements of the respective payees and cashed the checks. When Al was later arrested on a similar matter, the couple learned what had happened.
The couple made a claim against its bank for reimbursement, claiming the bank was not authorized to pay these checks because they had not been effectively negotiated to the bank. When the facts came to light, no person named Bob Brown had done a survey on the property, but the termite work had been done by Lee. Decide both cases.