1. "PAY TO MARIA IN TRUST FOR JESUS" (Sgd.) Jose, is an example of:
a. Conditional endorsement b. Qualified endorsement c. Facultative endorsement d. Restricted endorsement ANSWER: D 2. The following, except one, are the requisites for honor on a bill:
a. The bill must be previously protested for dishonor by non-acceptance or protested for better security. b. The bill is overdue. c. The holder must give his consent. d. The acceptor for honor must be a stranger to the bill. ANSWER: B 3. Which of the following is not a secondary party?
a. Acceptance for honor b. Drawer c. Payor for honor d. Endorser ANSWER: C
4. When an endorser waives presentment and notice of dishonor, he increases his liability. His endorsement is:
a. Alternative endorsement b. Qualified endorsement c. Facultative endorsement d. Restrictive endorsement ANSWER: C 5. A holder not in due course has the following rights, except:
a. He may receive payment and if the payment is in due course, the instrument is discharged. b. He may sue on the instrument in his own name. c. He cannot recover on the instrument. d. He is entitled to the instrument but holds it subject to the same defense as if it were non-negotiable. ANSWER: C 6. Which of the following is a negotiable bill of exchange?
a. Pay to the order of Y the sum of P30,000. (Sgd. X) To A or in his absence, to B. b. Pay to the order of X the sum of P20,000. (Sgd. X) To A or B.
c. Pay to the order of X or Y the sum of P40,000. (Sgd. C) To A or B. d. Pay to the order of Y the sum of P50,000. (Sgd. X) To A and B. ANSWER: D 7. A feature or characteristic of a bill of exchange not found in a promissory note:
a. Promise to pay b. Order to pay c. Promise in writing to pay d. Unconditional promise in writing ANSWER: B 8. A bill of exchange to which no document is attached when presentment for payment or acceptance is made:
a. Trade acceptance b. Bank acceptance c. Clean bill of exchange d. Documentary bill of exchange ANSWER: C 9. A check drawn by the bank upon itself and payable to third person:
a. Certified check b. Manager's check c. Traveler's check d. Crossed check ANSWER: B 10. Which of the following is not a personal defense?
a. Absence of consideration b. Forgery of a signature c. Non-delivery of a complete instrument d. Failure of consideration ANSWER: B 11. Which of the following instruments is negotiable?
a. Treasury warrant b. Postal money order c. Letter of credit d. Trade acceptance ANSWER: D 12. Which of the following may be raised as defense against any holder?
a. Want of consideration b. Want of delivery of complete instrument c. Insertion of wrong date
d. Want of delivery of an incomplete instrument ANSWER: D 13. Which of the following is not a promise to pay, and thus will make an instrument non-negotiable?
a. "I agree to pay P" b. "I bind myself to pay P" c. "I acknowledge my debt to P" d. "I oblige myself to pay P" ANSWER: C 14. A check differs from a bill of exchange because a check:
a. Does not require the drawer to have funds with the drawee b. May be drawn against a person other than a bank c. Is always payable on demand d. Is required to presented for acceptance in certain cases ANSWER: C 15. The signification by the drawee of his assent to the order of the drawer.
a. Acceptance b. Approval c. Recommendation
d. Indorsement ANSWER: A 16. The time within which the drawee is allowed to give his acceptance is
a. 12 hours b. 24 hours c. 48 hours d. 72 hours ANSWER: B 17. A formal written statement made by a notary public at the request of a holder of a bill of exchange stating that he has demanded acceptance or payment of the bill, and that it has been refused, with the reasons, if any, given by the drawee or acceptor for the dishonor.
a. Certification b. Demand Letter c. Protest d. Affidavit ANSWER: C 18. An instrument payable to bearer may be negotiated through any of the following means, except by:
a. Special indorsement plus delivery b. Mere delivery c. Blank indorsement plus delivery d. No delivery is required as long as there is an indorsement, whether blank or special ANSWER: D 19. One of the following indorsement. Which is it?
is
not
a
restrictive
a. An indorsement that prohibits the further negotiation of the instrument. b. An indorsement that constitutes the indorser a mere assignor of the title to the instrument. c. An indorsement that constitutes the indorsee an agent of the indorser. d. An indorsement that vests title in the indorsee in trust for some other person. ANSWER: B 20. Which of the following does not discharge the instrument?
a. Payment in due course by the accommodated party. b. Intentional cancellation of the instrument by the holder. c. When the principal debtor becomes the holder in his own right before maturity.
d. Payment in due course by or on behalf of the principal debtor. ANSWER: C Q#1: A draws a bill payable to B or order with X, as the drawee. The bill was successively endorsed to C, D, E and F, holder. X does not pay and F has duly protested non-payment. Y pays for the honor of C. Which of the foll owing statement is wrong? a. D is discharged. b. E is discharged. c. C is discharged. d. Y can ask reimbursement from A. Answer: C All parties subsequent to the party whose honor it is paid are discharged but the payor for honor is subrogated for, and succeeds to both the rights and duties of the holder as regards for the party whose honor he pays and all the parties liable to the latter. Q#2: When an endorser waives presentment and notice of dishonor, he increases his l iability. His endorsement is: a. Facultative endorsement b. Qualified endorsement c. Alternative endorsement d. Restrictive endorsement Answer: A A facultative endorsement is one where the i ndorser enlarges his liability by waiving the usual deman and notice of dishonor. Q#3: Ariel issued a note to Brando. There was a total failure of consideration. Brando issued the note for consideration to Cecil who is a holder in due course. Cecil i ndorsed the note to David who knew of the failure of consideration. Can David successfully collect from Ariel? a. No, because David knew the fail ure of consideration. b. No, although David acquired the rights of Cecil, a holder in due course and he was not a party to any illegality. c. Yes, because David acquired the note for consideration. d. No, becuase David is not a holder in due course. Answer: C Sec. 58 of Negotiable Instrument Law provides that in the hands of any holder other than the holder in due course, the negotiable instrument is subject to any defenses as if it were non-negotiable. But a holder who derives through a holder in due course and who i s not a party to any fraud or illegality affecting the instrument, has all the rights of such former holder in respect of all parties prior to the latter.
David, a holder in due course, may go against Ariel beacuse of Sec. 58. David acquired all the rights of Cecil, a holder in due course. It is worth noting the David acquired the rights of Cecil because he was not a party to fraud; otherwise, he would be disqualified.
Payment Systems Topics: Negotiable Instruments (Definitions; Holder in Due Course Doctrine) Negotiable Instruments: Holder in Due Course Doctrine Question: A holder in due course takes an instrument free of which of the following defenses? (A) A defense that making the note was an ultra vires act nullifying the obligation of i ts corporate maker. (B) A defense that the maker was tricked into signing the note in the belief that the note was merely a receipt and not a promissory obligati on. (C) A defense that the obligation of the note was discharged by a bankruptcy court. (D) A defense that the note is voidable at the option of the maker because its making was induced by duress. Answer: Answer (D) is the correct answer. The holder in due course doctrine will strip away a defense of duress unless, under applicable law, the defense makes an obligation entirely null and void. §§ 3-305(a)(1)(ii) & cmt. 1; 3-305(b). The defense described in Answer (D) makes the obligation merely voidable, and not void. The d efense therefore is stripped away. Answer (A) is incorrect. The holder in due course doctrine does not strip away a defense that the making of a note was an ultra vires act of a corporation if the defense renders the obligation completely null. §§ 3-305(a)(1)(ii) & cmt. 1; 3-305(b). Answer (B) is incorrect. A defense that the making of a note was induced by this particular kind of fraud -- often called real fraud or fraud in the factum -- is not stripped away by the holder in due course doctrine. §§ 3-305(a)(1)(iii) & cmt. 1; 3-305(b). Answer (C) is incorrect. A defense based on discharge in bankruptcy is not stripped away. §§ 3-305(a)(1)(iv); 3-305(b).
Negotiable Instruments: Definitions; Basic Principles Question:
Lucy buys a new car from Dealer on credit. At Dealer's request, Lucy signs a negotiable promissory note in which she promises to make monthly payments to Dealer. Under UCC Article 3, Lucy's signature on the note makes her a(n) (A) drawer. (B) maker. (C) accommodation party. (D) borrower. Answer: Answer (B) is the correct answer. As Lucy is executing a note in which she is promising to make payments, she fits the definition of "maker" at section 3-103(a)(7): "a person who signs or is identified in a note as a person undertaking to pay." Answer (A) is incorrect. Lucy is not a "drawer" under section 3-103(a)(5) because she executed a note, rather than a draft (e.g., a check). Answer (C) is incorrect. Lucy is not an "accommodation party" under section 3-419(a) because she is the direct beneficiary of the value given for the note - the new car. An "accommodation party" cannot be the direct beneficiary of the value given for the n ote. Answer (D) is incorrect. Lucy may be a "borrower" under the common understanding and use of that term, but that term is not defined by UCC Article 3
Your Results: The correct answer for each question is indicated by a
1 CORRECT
.
To be negotiable, an instrument can be for a fixed or flexible amount of money. A)
must bear the signature of the drawee or acceptor. B)
can be oral or written. C)
must be payable on demand or at a definite time. D)
2 INCORRECT
The laws of negotiable instruments are governed by the UCC. A)
FTC. B)
FDIC. C)
CDD. D)
3 INCORRECT
When you receive a check made out to you in your name, you are called the maker. A)
holder. B)
assignee. C)
drawer. D)
4 INCORRECT
When the date is omitted the date when the instrument is negotiated is considered the date of issue. A)
the instrument must be returned and the date inserted. B)
the date when the instrument is received is considered to be the date of issue. C)
the instrument is not negotiable. D)
5 INCORRECT
There are two basic kinds of negotiable instruments: drafts and bonds. A)
drafts and checks. B)
notes and CDs. C)
notes and drafts. D)
6 CORRECT
A blank indorsement requires the words "without recourse" on the back of the check. A)
requires the words "with recourse" on the back of the check. B)
consists of the signature alone on the instrument. C)
requires the words "pay to the order of" on the back of a check. D)
7 INCORRECT
An assignment is
a restrictive indorsement that allows for the transfer of an instrument from one party to A) another. a negotiable instrument payable to the order of the person holding it. B)
the transfer of an agreement in such a way that the transferee becomes a holder. C)
the transfer of your rights under a contract to someone else. D)
8 CORRECT
A holder in due course is a holder who accepts all liability for the paying of the instrument. A)
is found with a fraud in the inducement. B)
takes an instrument for value, in good faith, and without notice. C)
accepts a properly negotiated instrument. D)
9 CORRECT
A bad check is one that the bank deems to old to honor. A)
the bank is liable for any loss that you might suffer. B)
is drawn on an account in which there is insufficient funds. C)
is signed by someone other than the drawer. D)
10 CORRECT
The Check 21 Act requires you reconcile your bank account within 21 days of receiving your statement. A)
allows electronic processing to clear checks quickly and safely. B)
provides for oral stop-payment orders that are binding. C)
authorizes the use of restricted debit cards by minors. D)
NEGOTIABLE INSTRUMENTS & BANKING Q1. Hypo: if I give a promissory note to my friend Jack in return for $50 and say that it will be payable subject to his sister going on a date with me, is the note still
negotiable? A1. Trick question! Yes, the note is negotiable. If payment of a note is conditioned on the happening of a certain event, however, this makes it non-negotiable. But here I said to Jack that I would pay him only if his sister went out with me. This is a verbal statement! Thus, there is no written evidence that my obligation to pay the note is conditional. Thus, my oral statement to Jack did not make the note non-negotiable. Q2. Articulate what is meant by a qualified indorsement. What is the legal effect of such an indorsement on the liability of the indorser? A2. A transferor of a negotiable instrument gives a “qualified indorsement” when she signs her name and then writes “without recourse” below her signature. The effect of writing “without recourse” is that the indorser will not be liable to any future transferee should payment be refused on the negotiable instrument. Example: if a note is signed by five indorsers, and the third indorser signs “without recourse” she will not be liable to indorsers 4 and 5 if the note is later dishonored i.e. if the maker or drawee refuses to pay. Indorsers 4 and 5 would have to seek payment from indorsers 1 and 2, assuming that they did not also sign the instrument “without recourse.”
