question

The person who signs or makes an order to pay is the drawer.

answer

True

question

A negotiable instrument serves as a substitute for money.

answer

True

question

A bearer instrument is payable to whoever possesses it.

answer

True

question

To be negotiable, an instrument must be in writing.

answer

True

question

An instrument can be negotiable even if it is not payable on demand or at a definite time.

answer

False; To be negotiable, an instrument must be payable on demand or at a definite time. Instruments that say nothing about when payment is due are payable on demand.

question

An instrument including a clause that permits the date of maturity to be extended by the maker for "no more than a reasonable time" is negotiable.

answer

False; The length of the extension does not have to be specific if the option to extend is solely that of the holder. After the specified date passes, the note becomes, in effect, a demand instrument. The period of an extension must be specified, however, if the option is given to the maker.

question

An instrument payable to the order of a specific person is not negotiable.

answer

False; This is an order instrument. Order instruments that meet the requirements for negotiability are negotiable. An instrument that contains any indication that does not purport to designate a specific payee (for example, "payable to bearer") is a bearer instrument. A bearer instrument that meets the requirements for negotiability is also negotiable. When an instrument is not negotiable, it may be transferred by assignment.

question

TO be negotiable, the terms of a promise or order must be included on the instrument.

answer

True

question

To be negotiable, an instrument must include an unconditional promise to pay.

answer

True

question

An instrument is not negotiable if reference must be made to foreign exchange rates when payment is due.

answer

False; To be negotiable, an instrument must be payable in a fixed amount of money. Money includes "a medium of exchange authorized or adopted by a domestic or foreign government as a part of its currency." An instrument payable in an amount stated in foreign currency can be paid in that currency or in U.S. dollars.

question

A holder in due course (HDC) takes a negotiable instrument free of most defenses and all claims to it.

answer

True

question

Indorsements are required to negotiate order instruments.

answer

True

question

A promise to give value in the future makes a holder an HDC.

answer

False; This promise would support a contract but would not satisfy the value requiremetn for HDC status. Value Sufficient to make a holder an HDC includestake an instrument in payment of, or as security for, a preexisting debt; giving a check in payment for the instrument; and performing the promise for which the instrument was issued.

question

Indorsements are required to begotiate bearer instruments.

answer

False; Bearer instruments can be negotiated by delivery alone. That is why a bearer instrument is considered payable to whoever is in possession of it.

question

Every person who possesses an instrument is a holder.

answer

False; To be a holder, a person must have possession and good title. The definition of a holder, from UCC 1-201(20), is "the person in possession if the instrument is payable to bearer, or in the case of an instrument payable to an identified person, if the identified person is in possession."

question

For HDC status, good faith means "honesty in fact and the observance of reasonable commercial standards of fair dealing."

answer

True.

question

A holder has only those rights that his or her transferor had in the instrument.

answer

True.

question

All claims to an instrument can be successfully asserted against an HDC.

answer

False; If a holder is an HDC, all other parties' claims to an instrument and most other parties' defenses against payment on the instrument cannot be successfully asserted against the HDC.

question

Taking a check knowing that the drawee dishonored it prevents a holder from becoming an HDC.

answer

True.

question

A holder who has knowledge of a defense against payment on an instrument can become an HDC.

answer

False; A holder who knows or has reason to know if a claim to an instrument or a defense against payment on it cannot become an HDC. Furtermore, sucha holder cannot change his or her status by selling the instrument and repurchasing it from a later HDC in an attempt to take advantage of the shelter principle.

question

Signature liability extends to any person who signs a negotiable instrument.

answer

True.

question

Every party who signs an instrument is primarily liable for payment of it when it comes due.

answer

False; Some parties are secondarily liable.

question

An authorized agent may be personally liable on an instrument on which the agent signs the agent's name but not the principal's name.

answer

True.

question

Warranty liability does not bind parties who only present instruments for payment.

answer

False; All transferors of negotiable instruments, including those who present instruments for payment, make certain implied warranties regarding the instrument. For example, a person who transfers an instrument for payment warrants to any other person who in good faith accepts or pays the instrument, with some exceptions, that the instrument has not been altered.

question

An accommodation party as primary liability if he or she signs on behalf of a maker.

answer

True.

question

Universal defenses can be raised to avoid payment to an HDC.

answer

True.

question

A drawer can stop payment on a check in the possession of an innocent holder if the drawer was induced by an imposter to issue the check in the name of an impersonated payee.

answer

False; The loss in such a case falls on the drawer against whom the check is effective if it has been transferred to an innocent party. However, comparative negligence may been available as a defense against liability to a drawee bank, for example, which may thus be partially liable for the amount paid on the instrument.

question

Personal defenses can be raised to avoid payment to an HDC.

answer

False; Personal defenses can be used to avoid payment to an ordinary holder, but only universal defenses can defeat the claims of all holders, including HDCs.

question

An unauthorized signature usually binds the person whose name is forged.

answer

False; An unauthorized signature can be binding, however, if a person whose name is signed ratifies it. The person's negligence may also prevent him or her from denying liability. Usually, when there is a forged or unauthorized indorsement, the burden of loss falls on the first party to take the instrument with the forged indorsement.

question

A drawer is secondarily liable on an instrument.

answer

True.

question

A check is a draft drawn on a bank.

answer

True.

question

if a bank fails to honor a customer's stop-payment order, it may be liable to the customer for more than the amount of the loss suffered by the drawer because of the wrongful payment.

answer

False; If a bank pays a check over a customer's proper stop-payment order, the bank is obligated to recredit the customer's account, but only for the amount of the actual loss suffered by the drawer because of the wrongful payment.

question

A bank's duty to honor its customer's checks is absolute.

answer

False; A bank's duty to honor its customer's checks is not absolute (although when a bank receives an item payable from a customer's account, but there are insufficient funds in the account to cover the amount, the bank can choose to pay it and charge the customer's account). Failing to pay an overdraft will not subject the bank to criminal prosecution, though a person who writes a bad check may be prosecuted (and sued).

question

Generally, funds must be available on the next business day for cash deposits.

answer

True.

question

A bank that fails to investigate an error and report it's conclusion promptly to the customer is in violation of the Electronic Fun Transfer Act (EFTA).

answer

True.

question

A customer must examine the statements provided by the institution handling his or her account and notify it of any errors within sixty days.

answer

True.

question

The rights and duties of a bank and it's customers are contractual.

answer

True.

question

All funds deposits in all bank accounts must be available for withdrawl no later than the next day.

answer

False; Under the Expedited Funds Availability Act of 1987, there are different availability schedules for different funds, depending on such factors as the location of the bank on which an item is drawn, what type of item it is, the age and activity of an account, and the amount of the item.

question

A bank that pays a customer's check bearing a forged indorsement must recredit the customer's account.

answer

True.

question

A forged drawer's signature on a check is effective as the signature of the person whose name is signed.

answer

False; A forged drawer's signature on a check has no legal effect as the signature of the party whose name is signed. If the bank pays the check, the bank must recredit the customer's account (unless the customer's negligence contributed substantially o the forgery).

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