Question 1

When commercial paper on which the signature of the maker or drawer has been forged,the person liable is the:
A) acceptor.
B) holder in due course.
C) drawer.
D) endorser.

Accepted Answer

The answer of When commercial paper on which the signature...

Question 2

A person cannot be held liable,even by a holder in due course,if he or she signs an instrument that is apparently not negotiable and the paper is later fraudulently converted into a(n):
A) statutory contract.
B) specialty contract.
C) arbitration agreement.
D) negotiable instrument.

Accepted Answer

If a person signs an instrument that appears to not be negotiable, such as a contract or invoice, and it is later fraudulently altered to become a negotiable instrument, such as a promissory note, the person cannot be held liable on the newly converted instrument, even if it is held by a holder in due course. This is because their original signature was only intended for the non-negotiable instrument, and the later fraudulent conversion changes the nature of the original transaction.

Question 3

The party who has taken commercial paper in good faith and for value,before maturity,and without actual or constructive notice of any defects in the instrument is a(n):
A) holder in due course.
B) endorser of the instrument.
C) payee.
D) drawer.

Accepted Answer

A holder in due course is someone who has taken a negotiable instrument (such as commercial paper) in good faith, for value, and without notice of any defects or claims to the instrument. They have special legal protections and can enforce the instrument against all parties involved in the transaction. The other choices (endorser, payee, drawer) do not necessarily have the same protections or legal standing as a holder in due course.

Question 4

Often state statutes expressly declare that commercial paper given for gambling transactions or at usurious rates of interest are:
A) void.
B) valid.
C) legal.
D) dire.

Accepted Answer

State statutes often declare that commercial paper given for gambling transactions or at usurious rates of interest are void, meaning they are not legally enforceable. This is done to discourage and prevent illegal and unethical behavior.

Question 5

The Uniform Commercial Code provides that the loss falls upon the party whose conduct in signing a blank instrument made the fraud possible,that is,whose negligence or recklessness invited alterations by:
A) declarative holders.
B) respective holders.
C) subsequent holders.
D) special holders.

Accepted Answer

The Uniform Commercial Code provides that the loss falls upon subsequent holders whose conduct in signing a blank instrument made the fraud possible, that is, whose negligence or recklessness invited alterations. Declarative, respective, and special holders are not mentioned in this context.

Question 6

An endorsement to which words have been added that limit the further endorsement of the instrument,such as "for deposit only," is a:
A) blank endorsement.
B) special endorsement.
C) restrictive endorsement.
D) qualified endorsement.

Accepted Answer

A restrictive endorsement is an endorsement that limits the further negotiation or transfer of the instrument. The addition of words like "for deposit only" restricts the endorsement to only depositing the check into the account of the specified payee, preventing further transfer or negotiation.

Question 7

A qualified endorsement can be used together with a blank endorsement or special endorsement using phrases such as:
A) "With recourse."
B) "With blank endorsement."
C) "With special endorsement."
D) "Without recourse."

Accepted Answer

A qualified endorsement uses the phrase "without recourse" to limit the endorser's liability.

Question 8

A demand instrument such as a note or check must be presented for payment:
A) within the date mentioned in the instrument.
B) within a reasonable time after the date of issue.
C) at any time after the instrument is issued.
D) immediately after the date of issue.

Accepted Answer

A demand instrument such as a note or check must be presented for payment within a reasonable time after the date of issue. The exact length of "reasonable time" can vary depending on the circumstances, but generally, it is understood to mean that the instrument must be presented in a timely manner in order to facilitate payment.

Question 9

If negotiable instrument is not accepted when presented,if it is not paid when presented for payment at maturity,or if presentment is excused or waived and the instrument is past due and unpaid,then it is considered:
A) ineligible.
B) defunct.
C) dishonored.
D) abandoned.

Accepted Answer

When a negotiable instrument is not accepted, not paid at maturity, or presentment is excused or waived and the instrument is past due and unpaid, it is considered dishonored.

Question 10

A defense against payment of commercial paper that may be used against any party EXCEPT a holder in due course is called:
A) specific defense.
B) personal defense.
C) special defense.
D) commercial defense.

Accepted Answer

A personal defense can be used against any party except a holder in due course. Examples of personal defenses include forgery, fraud, duress, and illegality. Specific defenses are defenses that pertain to the particular instrument at issue, while special defenses are based on the nature of the underlying transaction. Commercial defense is not a recognized term in the context of negotiable instruments.

Question 11

The maker of a note or the drawer of a check or draft may deduct from the amount demanded by an immediate party any amounts owed to him or her by the payee.This type of personal defense is called a:
A) counterclaim.
B) simple claim.
C) commercial claim.
D) declarative claim.

Accepted Answer

A counterclaim allows the maker of a note or drawer of a check to deduct any amounts owed to them by the payee from the amount demanded by an immediate party. This is a personal defense that reduces the amount the maker or drawer owes, and is known as a counterclaim.

Question 12

All of the following are personal defenses against payment of commercial paper,EXCEPT:
A) lack of consideration.
B) fraud, duress, and undue influence.
C) material alteration.
D) non-delivery of an executed instrument.

Accepted Answer

Material alteration is a real defense, not a personal defense, against payment of commercial paper. Real defenses are valid against all holders, including holders in due course, whereas personal defenses are not valid against holders in due course.

Question 13

All the following conditions meet the requirement of the liability for payment of the instrument by the endorser or the drawer,EXCEPT when:
A) it has been properly presented for payment to the maker.
B) payment has been refused by the maker or drawee.
C) notice of the refusal has been given to the drawer or endorser.
D) the bank has assured that the payment will be made later.

Accepted Answer

The liability for payment of the instrument by the endorser or the drawer arises when the instrument has been presented for payment and payment has been refused, and notice of the refusal has been given to the drawer or endorser. If the bank has assured that the payment will be made later, the liability for payment does not arise.

Question 14

According to the Uniform Commercial Code,if the buyer of overdue negotiable paper did not have notice or knowledge that it was overdue,he or she could be a:
A) drawer for acceptance.
B) bona fide acceptor.
C) holder in due course.
D) proprietor in due course.

Accepted Answer

According to the Uniform Commercial Code, a holder in due course is a buyer of negotiable paper who takes it for value, in good faith, and without notice of any claims or defects, including being overdue. Therefore, if a buyer of overdue negotiable paper did not have notice or knowledge that it was overdue and meets the requirements of a holder in due course, they are protected and can still enforce the payment.

Question 15

If a completed negotiable instrument comes into the possession of an immediate party (the payee indicated on the instrument)before the maker or drawer has delivered it,then the:
A) payee cannot collect on the instrument.
B) payee can collect on the instrument.
C) payer only can collect on the instrument.
D) drawer only can collect on the instrument.

Accepted Answer

The answer of If a completed negotiable instrument comes into...

Question 16

The Uniform Commercial Code assumes the instrument is for a valid and existing obligation as warranty in order to ensure the:
A) endorsement of commercial paper.
B) negotiability of commercial paper.
C) transparency of commercial paper.
D) clarity of commercial paper.

Accepted Answer

The negotiability of commercial paper is ensured by assuming the instrument is for a valid and existing obligation. This means it can be transferred from one party to another without affecting the underlying obligation, as long as certain requirements are met according to the Uniform Commercial Code. Endorsement, transparency, and clarity are also important aspects of commercial paper, but they are not directly related to the assumption of a valid and existing obligation.

Question 17

If any one signs an instrument that is apparently not negotiable and the paper is later fraudulently converted into a negotiable instrument,the person who signed the instrument is:
A) responsible to holder in due course.
B) responsible to all the endorsers.
C) not liable even for holder in due course.
D) responsible for payee.

Accepted Answer

The person who signed an instrument that was not originally negotiable is not liable even to a holder in due course if it was fraudulently altered to become negotiable.

Question 18

In order for a person to be a holder in due course of a negotiable instrument,it must be true that the paper must have been acquired for a(n):
A) mala fide consideration.
B) unlawfully contingent consideration.
C) premeditated consideration.
D) valuable consideration.

Accepted Answer

For a person to be a holder in due course of a negotiable instrument, the paper must have been acquired for valuable consideration, which is a legal term that refers to any payment made in exchange for a negotiable instrument that is not illegal or fraudulent. This means that the consideration must be real and have some value, such as cash, goods, or services rendered. Mala fide or bad faith consideration, unlawfully contingent consideration, or premeditated consideration would not qualify as valuable consideration under the law.

Question 19

In order to ensure negotiability,the Uniform Commercial Code assumes that the endorser is the true owner of the paper.If he or she found or stole the paper and transferred it to another by endorsement,the:
A) law provides jail term to endorser, but not compensation to endorsee.
B) endorser is liable for any loss suffered by the endorsee.
C) endorser is liable up to $500 for the loss suffered by the endorsee.
D) endorsee cannot seek any remedy from the endorser.

Accepted Answer

The Uniform Commercial Code imposes liability on the endorser who is not the true owner of the paper and transfers it by endorsement. The endorser is liable for any loss suffered by the endorsee who relies on the endorsement. Thus, choice B is the correct answer. Choices A, C and D are incorrect as they do not reflect the provisions of the Uniform Commercial Code.

Question 20

A holder in due course is sometimes called a:
A) "bona fide holder for value without notice."
B) "bona fide holder in due course."
C) "bona fide drawer in due course."
D) "bona fide endorser for value with notice."

Accepted Answer

A holder in due course is often referred to as a "bona fide holder for value without notice," which means they have taken the instrument in good faith, for value, and without notice of any defect.

Quiz 23: Transfer and Discharge of Commercial Paper

When commercial paper on which the signature of the maker or drawer has been forged,the person liable is the:

A person cannot be held liable,even by a holder in due course,if he or she signs an instrument that is apparently not negotiable and the paper is later fraudulently converted into a(n) :

The party who has taken commercial paper in good faith and for value,before maturity,and without actual or constructive notice of any defects in the instrument is a(n) :

Often state statutes expressly declare that commercial paper given for gambling transactions or at usurious rates of interest are:

The Uniform Commercial Code provides that the loss falls upon the party whose conduct in signing a blank instrument made the fraud possible,that is,whose negligence or recklessness invited alterations by:

An endorsement to which words have been added that limit the further endorsement of the instrument,such as "for deposit only," is a:

A qualified endorsement can be used together with a blank endorsement or special endorsement using phrases such as:

A demand instrument such as a note or check must be presented for payment:

If negotiable instrument is not accepted when presented,if it is not paid when presented for payment at maturity,or if presentment is excused or waived and the instrument is past due and unpaid,then it is considered:

A defense against payment of commercial paper that may be used against any party EXCEPT a holder in due course is called:

The maker of a note or the drawer of a check or draft may deduct from the amount demanded by an immediate party any amounts owed to him or her by the payee.This type of personal defense is called a:

All of the following are personal defenses against payment of commercial paper,EXCEPT:

All the following conditions meet the requirement of the liability for payment of the instrument by the endorser or the drawer,EXCEPT when:

According to the Uniform Commercial Code,if the buyer of overdue negotiable paper did not have notice or knowledge that it was overdue,he or she could be a:

If a completed negotiable instrument comes into the possession of an immediate party (the payee indicated on the instrument) before the maker or drawer has delivered it,then the:

The Uniform Commercial Code assumes the instrument is for a valid and existing obligation as warranty in order to ensure the:

If any one signs an instrument that is apparently not negotiable and the paper is later fraudulently converted into a negotiable instrument,the person who signed the instrument is:

In order for a person to be a holder in due course of a negotiable instrument,it must be true that the paper must have been acquired for a(n) :

In order to ensure negotiability,the Uniform Commercial Code assumes that the endorser is the true owner of the paper.If he or she found or stole the paper and transferred it to another by endorsement,the:

A holder in due course is sometimes called a: