National American University

BUSINESS L 3100

Chapter 29-TRANSFERS OF NEGOTIABLE INSTRUMENTS AND WAR- RANTIES OF PARTIES

TRUE/FALSE

1)An instrument may be transferred by negotiation or by assignment.

 

                                          

 

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

 

                                          

 

2. A holder of the paper has immunity from certain defenses that might have been asserted against the transferor.

 

                                          

 

3. A holder is also known as an assignee of the paper

 

                                          

 

 

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

 

                                          

 

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

 

                                          

 

 

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

 

                                          

 

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

 

                                          

 

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

 

                                          

 

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

 

                                          

 

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

                                          

 

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

 

                                          

 

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

 

                                          

 

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

 

                                          

 

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

 

                                          

 

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

 

                                          

 

16. A qualified indorsement qualifies the effect of a blank or special indorsement by disclaiming certain li- abilities of the indorser to a maker or drawee.

 

                                          

 

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

 

                                          

 

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

 

                                          

 

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

 

                                          

 

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

 

                                          

 

21. 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.

 

                                          

22. 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.

 

                                          

 

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

 

                                          

 

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

 

                                          

 

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

 

                                          

 

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

 

                                          

 

27. 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.

 

                                          

 

28. To enforce an implied warranty of an indorser, the party claiming under the warranty must give the in- dorser 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.

 

                                          

 

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

 

                                          

 

 

 

MULTIPLE CHOICE

 

1. The transferee has only those rights that were possessed by the transferor of the note when a transfer of an instrument is made by:
   1. an assignment.
   2. a negotiation.
   3. a sale.
   4. a will.

                                          

2. The transferring of an instrument in such a way as to make the transferee the holder of the paper is termed:
   1. an assignment.
   2. a conversion.
   3. a sale.
   4. a negotiation.

                                          

 

3. The order or bearer character of the paper determines how it may be:
   1. assigned.
   2. sold.
   3. negotiated.
   4. all of the above.

                                          

 

4. Negotiation of bearer paper requires:
   1. delivery only.
   2. indorsement only.
   3. both indorsement and delivery.
   4. neither indorsement nor delivery.

                                          

 

5. Negotiation of order paper requires:
   1. delivery only.
   2. indorsement only.
   3. both indorsement and delivery.
   4. neither indorsement nor delivery.

                                          

 

6. A blank indorsement turns a(n)                       instrument into a(n)                         instrument.
   1. negotiable; non-negotiable
   2. non-negotiable; negotiable
   3. bearer; order
   4. order; bearer

                                          

 

7. When the indorser merely signs a negotiable instrument, the indorsement is called a                   in- dorsement.
   1. special
   2. qualified
   3. blank
   4. restrictive

                                          

 

8. A                           indorsement consists of the signature of the indorser and words specifying the person to whom the indorser makes the instrument payable.
   1. qualified
   2. restrictive
   3. special
   4. blank

 

9. A qualified indorsement is given by using the phrase                       .
   1. “as is”
   2. “without recourse”
   3. “with all faults”
   4. “buyer beware”

                                          

 

10. An indorsement "for deposit only" is:
    1. restrictive.
    2. qualified.
    3. special.
    4. blank.

                                          

 

11. When the name of the payee is spelled incorrectly, the payee:
    1. must indorse the instrument with the incorrect spelling of the payee’s name.
    2. must indorse the instrument with the correct spelling of the payee’s name .
    3. may indorse the instrument with either the correct or incorrect spelling of the payee’s name.
    4. may not indorse the instrument.

                                          

 

12. When parties intend to negotiate an order instrument but the holder fails to indorse it:
    1. there is no negotiation.
    2. the transfer has the effect of a contract assignment .
    3. the transferee has the right to require the transferor’s indorsement if consideration was given.
    4. all of the above.

                                          

 

13. A forged or unauthorized indorsement is by definition:
    1. an indorsement of the person by whom it appears to have been made.
    2. no indorsement of the person by whom it appears to have been made.
    3. binding on the party who refuses to ratify the instrument.
    4. incapable of being ratifie

                                          

 

14. 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 cor- poration, 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 Sim- mons to the check, cashed it at Diamond Check Cashing. In this situation:
    1. an indorsement was not necessary to negotiate the instrument.
    2. the Gonzalez Corporation can seek recovery against Diamond Check Cashing.
    3. the forged signature is given the same effect as though it had been authorized by the named payee.
    4. Clark is not subject to civil or criminal liability.

 

15. 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 cus- tomer, is covered by the:
    1. impostor rule.
    2. negotiation rule.
    3. assignment rule.
    4. bank rule.

                                          

 

16. In the case of a check, when the impostor rule applies:
    1. the drawer of the check can successfully raise the defense of the forged indorsement.
    2. the forged indorsement is effective to negotiate the instrument.
    3. the forged indorsement is ineffective to negotiate the instrument.
    4. the instrument becomes nonnegotiable.

                                          

 

17. A transferor may be able to set aside a negotiation obtained by fraud or duress unless:
    1. a minor is involved.
    2. the negotiation was part of an illegal transaction.
    3. the negotiation was beyond the powers of the corporation.
    4. the instrument has been acquired in the meantime by a holder in due course who did not know of the misconduct.

                                          

 

18. If a lost instrument is order paper, the finder                     .
    1. becomes the assignee of the instrument.
    2. becomes the owner of the instrument.
    3. becomes the holder of the instrument.
    4. does not become the holder of the instrument.

                                          

 

19. An unqualified indorser who receives consideration for the indorsement impliedly warrants that:
    1. the warrantor is a person entitled to enforce the instrument.
    2. all signatures on the instrument are authentic and authorized.
    3. the instrument has not been altered.
    4. all of the above.

                                          

 

20. The implied warranties of an unqualified indorser do not include a guarantee that:
    1. payment of the instrument will be made.
    2. the account of the drawer in the drawee bank contains funds sufficient to cover the check.
    3. both a. and b.
    4. neither a. nor b.

                                          

21. If a negotiable order instrument is transferred to another party without an indorsement, the instrument has been:
    1. assigned.
    2. negotiated.
    3. obtained by fraud, and is therefore invalid.
    4. obtained by fraud, but may be ratifie

                                          

 

22. When a negotiable instrument is negotiated by delivery without indorsement, the warranty liability of the transferor runs:
    1. only to the immediate transferee.
    2. not to the immediate transferee, but to all subsequent transferees.
    3. to both the immediate transferee and all subsequent transferees.
    4. neither to the immediate transferee, nor to any subsequent transferees.

                                          

 

CASE

 

1. 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?

 

 

 

2. 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 no- ticed the lack of indorsement on the two checks. In addition, three of the checks that Sue was to in- clude 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?