Business Law Ch. 13 – Flashcards
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A time draft is payable on sight.
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False
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A personal check cannot be a negotiable instrument.
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True
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On a trade acceptance, the drawer is also the payee.
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True
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A promissory note can be a negotiable instrument.
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True
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A signature must be the full name of a party.
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True
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Rubber stamp signatures can be legally binding signatures.
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True
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An instrument that states simply "I.O.U." is not negotiable.
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False
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tating on an instrument the underlying terms of an agreement renders the instrument nonnegotiable.
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False
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To be negotiable, an instrument must be payable in a fixed amount.
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True
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An instrument payable "with ten hours of services" is negotiable.
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True
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Instruments that say nothing about when payment is due are payable on demand.
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True
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A maker of an instrument that is payable at a definite time does not have the option of paying before the stated date.
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False
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A bearer instrument is an instrument that does not designate a specific payee.
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True
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A check "payable to the order of bearer" is neither an order instrument nor a bearer instrument.
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True
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A special indorsement names the indorsee.
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False
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A holder takes an instrument for value if he or she gives a check as payment for it.
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True
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A promise to give value in the future is sufficient to confer the rights of an HDC on one in possession of a negotiable instrument.
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F
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A person who acquires an instrument knowing that the instrument contains an unauthorized signature can still be afforded HDC protection.
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False
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A person cannot become an HDC if a defense against payment is apparent on the face of the instrument.
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True
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Primary liability is unconditional.
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True
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The drawee who signs a draft or check is not primarily liable to any subsequent holders.
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False
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When an instrument is dishonored, only written notice is sufficient to hold secondary parties liable.
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False
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When an instrument has a forged indorsement, the loss usually falls on the party whose indorsement was forged.
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False
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A fictitious payee is a payee on a negotiable instrument whom the maker or drawer does not intend to have an interest in the instrument.
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True
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Universal defenses are good against all holders except HDCs and holders through HDCs.
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False
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An ordinary holder can recover nothing on an instrument that has been materially altered.
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True
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Discharge in bankruptcy is no defense on any instrument regardless of the status of the holder.
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False
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Personal defenses are used to avoid payment to an ordinary holder of a negotiable instrument, but not to an HDC or a holder through an HDC.
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True
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When there is a breach of an underlying contract for which an instrument was issued, the maker of a note can refuse to pay it.
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True
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To obtain office supplies for All-Care Medical Clinic, Britney executes a draft in favor of Chris. A draft is
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an unconditional written order to pay money.
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On April 1 Richard arranges to buy a sixteen-speed bike from his neighbor Phil for $500. Phil agrees to deliver the bike on May 1. Richard writes a draft for $500 payable to Phil on May 1. In this situation, the draft is a
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time draft.
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InterComp normally sells $50,000 worth of software to Power Source, a retail electronics store, each summer on terms requiring payment in sixty days. One year, InterComp wants cash, but Power Source wants the usual sixty days. To meet both needs, the parties can arrange
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a trade acceptance.
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To obtain a business license, Bess writes a check to a certain state agency. Bess is
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the drawer.
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Sarah has a checking account at Secure Bank. Sarah buys her roommate Sophie's two tickets to a Broadway musical for $200. Sarah writes Sophie a check for the tickets. In this situation, Secure Bank is the
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drawee.
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Alpha Company issues a trade acceptance with itself and Beta Company as parties. A trade acceptance is
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a draft.
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If a bank is both the drawer and the drawee with regard to a draft, then the draft is a
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cashier's check.
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Willy deposits $5,000 with Home State Bank on July 1, 2012. Home State Bank promises to repay Willy the $5,000 plus 3 percent annual interest on July 1, 2017. Home State Bank has issued Willy a
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certificate of deposit.
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Ron signs an instrument using an "R" with a circle around it. With this mark for a signature, the instrument is
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negotiable.
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To borrow money to finance the start-up of his business, Bob executes an instrument in favor of City Bank. For the instrument to be negotiable, the signature must be
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anywhere on the instrument.
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Karen writes on a piece of paper, "I owe you $600," signs it, and gives it to Lou. This instrument is
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nonnegotiable, because it does not include an express promise to pay.
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Kelly signs an instrument in favor of Leo that states it is "subject to a certain agreement between Kelly and Mona." This instrument is
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nonnegotiable, because it is made subject to a separate agreement.
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Kris wants one of Jasmine's purebred Persian kittens. Kris signs an instrument in which she promises to pay Jasmine for a kitten. The instrument will be negotiable if it is payable in
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money.
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Maria signs an instrument payable to the order of National Loans, Inc., "on or before" June 15. This instrument is
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negotiable.
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Fred has six nieces, ages five to sixteen. He writes an order instrument for $50 that states, "Pay to the order of my niece." The order instrument is
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negotiable.
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Efron transfers an instrument to First Citizens Bank. This is not a negotiation unless
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the instrument is a negotiable instrument.
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To buy a stuffed cow, Ken executes a check "pay to Laura or bearer" and gives it to Laura, who does not own a stuffed cow. This check is
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negotiable.
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At 1 a.m., on the sidewalk in front of Ace Credit Corporation, which is closed, Ben buys a $500 promissory note for $50 from Curt. When presented with Ben's demand for payment, Diann, the maker of the note, could successfully claim that Ben
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did not acquire the instrument in good faith.
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Jeff's grandmother is the payee of a promissory note for $7,500. Jeff's grandmother gives Jeff the note for his sixteenth birthday. Jeff is
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an HDC.
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Beth, an accountant for Credits & Debits, acquires a negotiable instrument from Ellen by promising to pay its face value in thirty days. Beth acquires the status of an HDC when she
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acquires possession of the negotiable instrument.
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Jill, in good faith and for value, gets from Kiley a negotiable bearer instrument. Jill does not know that Kiley stole the instrument. Jill is
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an HDC.
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Wilson buys a promissory note from Oli. The note is due on December 5. December 5 is a Sunday. The note is
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payable December 6.
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Stature Loan Company has notice that a promissory note is overdue if the note is a demand instrument and Stature takes it
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without noticing its due date.
