Deck 28: Transfers of Negotiable Instruments and Warranties of Parties

Question 1

A person who acquires the instrument on which the last indorsement is blank becomes a holder in due course.

Answer 1

False

Question 2

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

Answer 2

True

Question 3

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

Answer 3

True

Question 4

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

Question 5

Order paper is negotiated by the indorsement of the holder only.

Question 6

An instrument can be delivered by constructive delivery, in which the transferee has exclusive access to the instrument.

Question 7

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

Question 8

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

Question 9

A special indorsement consists of the signature of the indorser and words identifying the indorsee.

Question 10

A holder is also known as an assignee of the paper

Question 11

An instrument may be transferred only by negotiation.

Question 12

Order paper is converted into bearer paper by the holder's blank indorsement.

Question 13

Bearer paper may only be negotiated by the actual transfer of possession of the instrument.

Question 14

A qualified indorsement qualifies the effect of a blank or special indorsement by disclaiming certain liabilities of the indorser to a maker or drawee.

Question 15

When a negotiable instrument is transferred by negotiation, the transferee becomes a holder in due course.

Question 16

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

Question 17

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

Question 18

An ordinary holder of an instrument has immunity from certain defenses that might have been asserted against the transferor.

Question 19

A payee whose name is misspelled may indorse with the wrong name, the correct name, or both.

Question 20

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

Question 21

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

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

Question 22

The warranty liability of a qualified indorser is the same as that of an unqualified indorser.

Question 23

Negotiation of order paper requires:

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

Question 24

The transfer and collection of negotiable instruments between banks requires specific indorsements.

Question 25

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

Question 26

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 27

If an instrument is payable to alternative payees, it may be indorsed and delivered by either of them.

Question 28

If an instrument is drawn in favor of a named officer of a corporation, the instrument is payable only to that officer. .

Question 29

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 30

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

Question 31

A qualified indorsement is given by using the phrase __________.

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

Question 32

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 33

The order or bearer character of the paper determines how it may be:

A) assigned.
B) sold.
C) negotiated.
D) accepted.

Question 34

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

Question 35

An indorsement "for deposit only" is:

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

Question 36

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

Question 37

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.

Question 38

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

Question 39

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 40

Negotiation of bearer paper requires:

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

Question 41

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:

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 42

An unqualified indorser who receives consideration for the indorsement impliedly warrants all of the following except:

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) the drawer has sufficient funds to cover the check.

Question 43

When the name of the payee is spelled incorrectly, the payee:

A) must indorse the instrument with the incorrect spelling of the payee's name.
B) must indorse the instrument with the correct spelling of the payee's name.
C) may indorse the instrument with either the correct or incorrect spelling of the payee's name.
D) may not indorse the instrument.

Question 44

If a negotiable order instrument is transferred to another party without an indorsement, 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 45

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 46

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 47

The words "without recourse" on an indorsement means the indorser is:

A) liable personally but not other parties.
B) not liable for any problems associated with the instrument.
C) not liable if the instrument is dishonored.
D) liable for only up to fifty per cent of the loss.

Question 48

Industries Inc., drew a check payable to Gloria Schell and Pippen Tallit in the sum of $20,000. For a proper negotiation, the check:

A) needs to be indorsed only by Gloria Schell, since her name appears first.
B) needs to be indorsed by either payee, since the indorsement of only one of the payees is necessary to negotiate the check.
C) needs to be indorsed by both payees.
D) needs to be indorsed by the maker.

Question 49

Al was a well-respected attorney in a small town. 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 $1,500 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 indorsements 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.

Question 50

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 indorsement.
B) the forged indorsement is effective to negotiate the instrument.
C) the forged indorsement is ineffective to negotiate the instrument.
D) the instrument becomes nonnegotiable.

Question 51

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 52

Which of the following is true of warranties of indorsers?

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 53

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 indorsed with the stamp "ABC, Inc." that ABC had provided. The bank received the deposit and noticed the lack of indorsement 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 indorsement on the lost checks and the lack of indorsement on the two deposited checks?

Question 54

Coppersmith executed and delivered negotiable notes to the payee, Charlene. The payee indorsed 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 indorsee 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 55

A forged or unauthorized indorsement is by definition:

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 56

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.