Question 1

The order or bearer character of a paper is determined as of the time the negotiation takes place.

Accepted Answer

A) True 
 B)False

Question 2

The impostor rule is an exception to the rules on liability for forgery that covers certain situations, such as the embezzling payroll clerk.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following is true of warranties of indorsers?

Accepted Answer

A)  The indorser is not entitled to enforce the instrument. 
B)  The indorser warrants that the instrument is subject to a defense of any party that can be asserted against the indorser. 
C)  The indorser warrants that he/she has knowledge of the bankruptcy of the maker, acceptor, or drawer. 
D)  The indorser warrants that there has been no alteration or other irregularity.

Question 4

Clark is the senior payroll clerk for Gonzalez Corporation. When preparing the weekly payroll, Clark added the name of Simmons, a fictitious employee, to the payroll list. Lewis, the treasurer of the corporation, signed the payroll checks and delivered them to Clark. Clark distributed checks to the correct employees and kept the one made payable to the order of Simmons. Clark indorsed the name of Simmons to the check, cashed it at Diamond Check Cashing. In this situation:

Accepted Answer

A)  an indorsement 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 5

A qualified indorsement is given by using the phrase __________.

Accepted Answer

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

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

Negotiation of bearer paper requires:

Accepted Answer

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

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

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

Accepted Answer

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

Question 12

Negotiation of order paper requires:

Accepted Answer

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

Question 13

A forged or unauthorized indorsement is by definition:

Accepted Answer

A)  an indorsement of the person by whom it appears to have been made. 
B)  no indorsement 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 14

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

Accepted Answer

A) True 
 B)False

Question 15

When a special indorsement is made, the instrument continues to be order paper and may be negotiated only by an indorsement and delivery.

Accepted Answer

A) True 
 B)False

Question 16

An instrument may be transferred only by negotiation.

Accepted Answer

A) True 
 B)False

Exam 28: Transfers of Negotiable Instruments and Warranties of Parties

The order or bearer character of a paper is determined as of the time the negotiation takes place.

The impostor rule is an exception to the rules on liability for forgery that covers certain situations, such as the embezzling payroll clerk.

Which of the following is true of warranties of indorsers?

A qualified indorsement is given by using the phrase __________.

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

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

Negotiation of bearer paper requires:

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

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

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

Negotiation of order paper requires:

A forged or unauthorized indorsement is by definition:

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

When a special indorsement is made, the instrument continues to be order paper and may be negotiated only by an indorsement and delivery.

An instrument may be transferred only by negotiation.