Shared Flashcard Set

Details

test 2
b law
129
Accounting
Undergraduate 3
10/12/2015
Click here to study/print these flashcards.

Create your own flash cards! Sign up here.

Additional Accounting Flashcards

 

 

Cards

Term
Negotiability
 Definition
This is a legal concept that makes written instruments freely transferable and therefore a readily accepted form of payment in substitution for money.
Term
There are four types of negotiable instruments. Drafts and checks are orders or directions to pay money. Notes and certificates of deposit are promises to pay money.
 Definition
Types of Negotiable Instruments
Term
drafts
 Definition
A draft involves three parties. The drawer orders the drawee to pay a fixed amount in money to the payee. The same party may appear in more than one capacity; for instance, the drawer may also be the payee. A time draft is one payable at a specified future date. A sight draft is payable on presentation to the drawee.
Term
checks
 Definition
A check is a specialized form of draft, namely an order to pay money drawn on a bank and payable on demand. There are three parties also involved in a check: the drawer, who or¬ders the drawee, a bank, to pay the payee on demand. Checks are by far the most widely used form of negotiable instrument. A cashier’s check is a check drawn by a bank on itself to the order of a named payee.
Term
note (promissory note)
 Definition
involves two parties. One party, the maker, promises to pay to the order of a second party, the payee, a stated sum of money, either on demand or at a stated future date.
Term
(1) be in writing, (2) be signed, (3) contain a promise or order to pay, (4) be unconditional, (5) be for a fixed amount (“sum certain” under prior Article 3) in money, (6) contain no other promise or order, (7) be payable on demand or at a definite time, and (8) be payable to order or to bearer.
 Definition
to be negotiable an instrument must be
Term
true
 Definition
A signed promissory note stating “I promise to pay to Bonnie Ramcell $600 on December 15, 2010” is not covered by Article 3 of the UCC.
Term
true
 Definition
A draft involves three parties: a drawer, a drawee, and a payee.
Term
true
 Definition
A check is a draft payable on demand.
Term
false
 Definition
Paper payable "on demand" fails the test of negotiability in that it does not contain a specific time.
Term
true
 Definition
Handwritten words supersede typewritten words contained in negotiable instruments.
Term
true
 Definition
Only a bank may serve as the maker of a certificate of a deposit.
Term
false
 Definition
Jake signed and delivered a promissory note payable to Nancy. Nancy negotiated the note to Fred. Fred now has the same legal status as an assignee of a contract.
Term
true
 Definition
A reference in a negotiable instrument to the existence of a separate agreement to which it is subject destroys the negotiability of the instrument.
Term
true
 Definition
An assignee of contractual rights acquires only the same rights as the assignor.
Term
true
 Definition
The Revised Article 3 of the UCC provides that a check which meets all requirements of being a negotiable instrument, except that it is not payable to bearer or order, is nevertheless a negotiable instrument.
Term
true
 Definition
Negotiability is wholly a matter of form.
Term
true
 Definition
An instrument payable at a definite time is time paper.
Term
false
 Definition
An "I.O.U." is a negotiable instrument.
Term
true
 Definition
The person who signs a note and promises to pay it is the maker.
Term
false
 Definition
An authorization to confess judgment on the instrument destroys its negotiability.
Term
the maker is always the bank
 Definition
A certificate of deposit differs from a promissory note in that:
Term
it must be payable on demand
 Definition
To be negotiable, the instrument must satisfy all except which one of the following requirements?
Term
first bank
 Definition
Carol buys some items at the drugstore and writes a check to the store on her account at First Bank. Who is the drawee?
Term
certificate of deposit
 Definition
A __________ is a specialized form of promise to pay money given by a maker in which the bank is the maker.
Term
banks are permitted to truncate original checks and process check information electronically.
 Definition
Under the Check 21 Act:
Term
maker
 Definition
Bill goes to First Bank to get a loan. He signs a note and agrees to repay the bank. What is the legal term for Bill's status regarding the note?
Term
drawee
 Definition
X signs a negotiable instrument ordering Y to pay Z the sum of $500. Y is the:
Term
3
 Definition
Which article of the UCC governs "negotiable instruments"?
Term
do not destroy negotiability unless the recital makes the instrument subject to or governed by the terms of another agreement.
 Definition
References to other agreements in negotiable instruments:
Term
Whether Elmore’s defense is available against McDaniel will depend on whether McDaniel acquired the note in good faith and for value, had no knowledge of the defense, and took the note without reason to question its authenticity.
 Definition
Elmore purchases goods from Grady, and Elmore executes and delivers a negotiable note to Grady for $1,200, payable to Grady’s order in 30 days. Two weeks later, Grady negotiates the note to McDaniel. Which of the following is true?
Term
Payable one year from the completion of the building
 Definition
A definite time required for negotiability would NOT be satisfied in which instance?
Term
A check involves three parties. The drawer of a check is the person who issues it. The drawee is the party who is ordered to pay a fixed amount of money to the payee. In the case of a check, the drawee is a bank. A note involves two parties: the maker, who promises to pay, and the payee, the person to whose order the instrument is made payable.
 Definition
Who are the parties to checks and notes?
Term
false
 Definition
Silas deposits his paycheck in First American Bank without indorsing it. First American cannot become a holder until Silas completes the indorsement.
Term
true
 Definition
A holder must actually have the instrument in his possession.
Term
false
 Definition
"Order paper" is negotiated by delivery only.
Term
true
 Definition
The transfer of a nonnegotiable promise or order operates as an assignment.
Term
true
 Definition
An indorsement "for deposit" is a collection indorsement.
Term
false
 Definition
The principal advantage of negotiable instruments is their legitimacy.
Term
false
 Definition
The courts will never presume a negotiation of order paper was intended; the parties must clearly indicate a negotiation or else the courts will presume an assignment was intended.
Term
false
 Definition
A qualified indorsement destroys negotiability
Term
true
 Definition
"Pay to the order of Jose Dejesus" is a special indorsement.
Term
true
 Definition
If the issuer and the person paying an instrument subject to the impostor rule are both negligent, comparative negligence would apply.
Term
false
 Definition
Any transfer for value of an instrument is a negotiation.
Term
false
 Definition
The shelter rule did not exist at common law.
Term
false
 Definition
An indorsement "Pay Alice Adams" is an assignment rather than a negotiation since it lacks words of negotiability.
Term
false
 Definition
A negotiation is void if the transaction in which it occurs is void.
Term
false
 Definition
An indorsement that says, "Pay to the Order of John Jones, signed Michael Johnson" is a blank indorsement that turns a check into bearer paper.
Term
true
 Definition
An allonge is a piece of paper affixed to the instrument.
Term
false
 Definition
An indorsement must be written on the instrument itself.
Term
true
 Definition
A negotiation can be effective to transfer an instrument even if made by a person without capacity.
Term
assignment
 Definition
A(n) ___________ is the voluntary transfer to a third party of the rights arising from a contract.
Term
negotiation
 Definition
The transfer of a negotiable instrument in such a manner that the transferee becomes a holder is known as:
Term
indorsemnt for collection
 Definition
An indorsement which limits further negotiation is a(n):
Term
an indorsement made by a person that is not the holder of the instrument.
c.
one that makes the signer liable on the instrument as an indorser
 Definition
An anomalous indorsement is:
Term
assignment without negotiation
 Definition
Matt writes on the back of a check, "I assign all of my rights in this instrument to Ronald Stevens." This is a(n):
Term
blank, qualified, and restrictive.
 Definition
Laura is in possession of a check which contains the following indorsement, "Sam Smith, without recourse, for collection only." The indorsement would be classified as:
Term
the phrase "for deposit only" effectively limits the depositary bank to handle the instrument in a manner consistent with the transaction.
 Definition
The case, State of Qatar v. First American Bank of Virginia, held that:
Term
true
 Definition
Under the Code, a reasonable time for a check to be outstanding, for the purpose of preventing a person from being a holder in due course because of the instrument’s being overdue, is 90 day
Term
true
 Definition
The rules pertaining to "holder in due course" were instituted in order to encourage easy negotiability of negotiable instruments.
Term
true
 Definition
It is not necessary that one own the instrument to be a "holder."
Term
true
 Definition
To become a holder in due course the transferee must first be a holder.
Term
false
 Definition
Under general contract law, an antecedent debt (a preexisting obligation) is consideration.
Term
false
 Definition
The "value" requirement of a holder in due course is the same as "consideration" for a contract.
Term
false
 Definition
Constructive notice through public filing or recording is sufficient notice to prevent a person from being a holder in due course.
Term
false
 Definition
Bill issues a negotiable promissory note to Paula, who indorses it in blank and delivers it to Allen. If Allen knows that the promissory note was given to Paula in exchange for worthless securities, Allen may still be a holder in due course.
Term
true
 Definition
To acquire the preferential rights of a holder in due course, a person must either meet the requirements of the Code or must "inherit" these rights under the shelter rule.
Term
false
 Definition
A person who takes a check stamped "NSF" may still be a holder in due course.
Term
false
 Definition
Otis, a holder in due course, buys a note made out by Joe to General Motors. Even though Joe's debt was discharged through bankruptcy, Otis can collect on the note.
Term
true
 Definition
A holder in due course would have the right to collect from the original maker of an instrument even if the maker had a valid personal defense.
Term
true
 Definition
D has owed C a debt of $500 for two years. If D now signs a promissory note payable to C, the antecedent debt meets the requirement of "value" in determining C's status as a holder in due course.
Term
true
 Definition
The case of Turman v. Ward's Home Improvement, Inc. held that an assignment is not an indorsement and, thus, the transaction between Ward and Pomerantz was an assignment rather than a negotiation.
Term
false
 Definition
A payee cannot be a holder in due course under the Code.
Term
true
 Definition
Under the shelter rule, a person who is not a holder in due course can obtain the rights of a holder in due course.
Term
false
 Definition
An executory promise is the giving of value to support holder in due course status.
Term
false
 Definition
Fraud in the inducement is a real defense.
Term
a.
An executory promise as value.
b.
Knowledge that the instrument is overdue.
 Definition
Which of the following would prevent the holder of an instrument from asserting holder in due course status?
Term
no one will have to pay harry
 Definition
Scott buys a television set from Joe's TV Store, giving Joe a check for $550. Joe uses a special indorsement and negotiates the check to Tom. Tom carefully changes the amount to read $1550 and loses the check on the way to the bank. Harry picks it up and tries to cash it. What will he get?
Term
Clint does not succeed to Erin's rights as a holder in due course and remains subject to the defense of fraud.
 Definition
Clint induces David, by fraud in the inducement, to make an instrument payable to the order of Clint. Clint then negotiates the instrument to Erin, a holder in due course, and later reacquires it from Erin.
Term
fraud in execution
 Definition
Personal defenses include all but which of the following?
Term
theft of a bearer instrument
 Definition
Real defenses include all but which of the following?
Term
permitting claims and defenses to payment to be asserted by a consumer, even against holders in due course.
 Definition
The notice requirement of the Federal Trade Commission's rule for consumer credit contracts has the effect of:
Term
A holder takes an instrument in payment of an antecedent debt.
 Definition
Which of the following would meet the requirement of a holder in due course's having given value?
Term
ruled on a case involving the shelter provision of the UCC.
 Definition
In the Triffin v. Cigna Insurance Co. case, the court:
Term
a.
The giving of a negotiable instrument.
b.
The making of an irrevocable obligation to a third party.
 Definition
The Code provides an exception to the executory promise rule in which of the following situations?
Term
real defenses
 Definition
Defenses that may be asserted against a holder in due course are called:
Term
the partners’ defense of economic duress was not valid against the FDIC.
 Definition
In the Federal Deposit Insurance Corporation v. Meyer case, the court held:
Term
a consumer credit contract.
 Definition
A Federal Trade Commission rule limits the rights of a holder in due course of an instrument that evidences a debt arising out of:
Term
demand paper
 Definition
__________ is overdue for purposes of preventing a purchaser from becoming a holder in due course if the purchaser has notice that she is taking the instrument on a day after demand has been made or after it has been outstanding for an unreasonably long time.
Term
dishonor
 Definition
The refusal to pay or accept an instrument when it becomes due is known as:
Term
Yes, he has possession of an instrument with the necessary indorsements.
 Definition
On January 30, Karen writes out a check for her groceries and dates it February 2, the day she gets paid. That same day, the grocer negotiates the check to the Tip Top Bakery delivery man for hot dog buns. If he notices the date, is he a "holder"?
Term
no because of the shelter rule
 Definition
Carmen needs quick cash, so she hits upon a scheme. She tells Frank she's collecting for Laotian refugees. Frank writes a check for $100 payable to the order of Carmen. Carmen indorses the check and delivers it to Joanne, who doesn’t know of Carmen’s scam, for $90 cash. Joanne gives it to Margaret as a present. Frank discovers Carmen's deception and refuses to pay Margaret. Will he win?
Term
Yes, since he would succeed to Skip's rights.
 Definition
Zeke gives Jill a negotiable promissory note for $1300 for her car, not knowing Jill lied about the car's condition. Jill indorsed and delivered the note to Skip's Ski Shop for $1000 in goods. Skip decides to sell all inventory and receivables in a bulk sale. Alan buys the note. Can Alan collect from Zeke?
Term
a.
free from all claims on the part of any person.
b.
free from all defenses of any party with whom he has not dealt, except for a limited number of defenses that are available against anyone, including a holder in due course.
 Definition
In a nonconsumer transaction, a holder in due course takes the instrument:
Term
july 3
 Definition
Time paper that states it is due on July 1, a Sunday, is overdue on:
Term
false
 Definition
Elder, an authorized agent for Mullins, signs a negotiable instrument, “Mullins, principal, by Elder, agent.” Mullins has primary liability and Elder has secondary liability on the instrument.
Term
true
 Definition
A drawee bank is primarily liable after it accepts the check.
Term
true
 Definition
Discharge applies to the individual, not to the instrument, and a person’s liability may be discharged with regard to one party but not to another.
Term
false
 Definition
A drawee bank’s refusal to certify a check constitutes dishonor of the instrument.
Term
false
 Definition
"Presentment" is necessary within 10 days of the date of issuance of a check.
Term
false
 Definition
Authorized agents cannot execute negotiable instruments on behalf of their principals.
Term
true
 Definition
Presentment for payment is one step necessary to charge an indorser with the obligation to pay.
Term
false
 Definition
Return for lack of proper indorsement constitutes a dishonor of the check.
Term
false
 Definition
Under Revised Article 3 of the UCC, failure to give notice of dishonor will discharge the drawer from having to pay on the instrument.
Term
false
 Definition
Transferor’s warranties and presenter’s warranties are implied warranties imposed only on those who sign an instrument.
Term
true
 Definition
An accommodation party is a direct beneficiary of the value received from lending her credit on an instrument.
Term
true
 Definition
Presentment is excused where the acceptor is undergoing bankruptcy.
Term
true
 Definition
A waiver of presentment will waive the requirement of notice of dishonor as well.
Term
false
 Definition
An unauthorized signature cannot be ratified by the person whose name appears on the instrument.
Term
true
 Definition
In Cohen v. Disner the court found that Disner was not liable on the check because he had no enforceable obligation to pay, the check was drawn by him in a representative capacity, and the holder had notice that Disner's signature was in the capacity of an agent.
Term
true
 Definition
The maker is the primary party on every note.
Term
true
 Definition
An acceptance must be written on the draft.
Term
true
 Definition
The drawer is obligated to pay the draft only if the drawee fails to pay the instrument.
Term
false
 Definition
In Davis v. Watson Brothers Plumbing, Inc., the court found that Davis was not a "holder" of the check.
Term
false
 Definition
By indorsing a check, “Without recourse,” Pat effectively disclaims both contractual and warranty liability.
Term
As long as Ace Motors remains holder of the note, Zoron Company is liable for payment.
 Definition
Zoron Company purchased a truck from Ace Motors. The sales personnel at Ace know that Anton Green is an executive at Zoron. To pay for the truck, Anton delivered a $26,000 note to Ace and signed it "Anton Green, Agent."
Term
the maker
 Definition
Who is primarily liable on a note?
Term
bob can only accept demand from the bank
 Definition
Bob took a check written by Jack to Jack's bank to be certified. The bank stamped "Certified" on it and gave it back to Bob. What consequence?
Term
can collect only from Jan Arthur or Bruce Nole.
 Definition
Jan Arthur writes a $200 check to Bruce Nole who endorses it "Bruce Nole." Bruce gives the check to Anne Tate who indorses it "Without Recourse. Anne Tate." Anne sends the check to Joe Black, MD to pay her medical bill. If the bank refuses to honor the check, Black:
Term
and Franz both have primary liability on the note.
 Definition
Franz signs a $1,000 note payable to ABC Bank. To help Franz get the loan approved, Amy also signs the note as an accommodation maker. Amy:
Term
secondary liability
 Definition
An obligation to pay a negotiable instrument subject to conditions precedent is known as:
Term
accommodation party
 Definition
A(n) ___________ signs an instrument to lend his credit to an instrument, and his liability is determined by the capacity in which he signs.
Term
a.
Zelda is primarily liable on the note.
b.
Ann is primarily liable on the note.
 Definition
Zelda signs a promissory note for $2,500 to First Bank. At the request of both Zelda and the bank, Ann also signs the note as an accommodation maker. In this situation:
Term
a bank cashes a check with a forged indorsement.
 Definition
Conversion of an instrument will occur if:
Term
Hold Joe liable for breach of warranty.
 Definition
Mark gives a bearer note for $50 to Joe in exchange for an excellent dinner at Joe's restaurant. Joe delivers the note to Sue for $50 and Sue takes it to Mark to be paid. If Mark says the note was originally written for only $5, what can Sue do?
Term
must pay G.M. $120 and cannot sue them for breach of warranty.
 Definition
Kelly wrote a check to Trish, which Trish immediately changed from $20 to $120. She negotiated the check to Carl for value, who in turn took it to Kelly's bank for certification. Kelly's bank checked his account and certified the check since there were sufficient funds to cover the check. Thereafter, Carl gave the check to General Motors as part of the down payment for his car. G.M. presents the check to Kelly's bank for payment and they discover the alteration. The bank:
Term
First Bank is primarily liable on the check, because it has already accepted it.
 Definition
Brad wrote a check to Clara for $1,000 on his account at First Bank. He then took it to his bank for certification. The bank wrote "certified" on the face of the check. Brad then gave the check to Clara. When Clara took the check to First Bank, they refused to pay, claiming that there was not enough money in Brad's account to cover the check. Which of the following is correct?
Term
a.
the warrantor is a person entitled to enforce the draft.
b.
the warrantor has no knowledge that the drawer's signature is unauthorized.
c.
the draft has not been altered
 Definition
Warranties of person obtaining payment or acceptance of an unaccepted draft include:
Term
indorsers and drawers.
 Definition
Parties that are usually secondarily liable for an instrument are:
Supporting users have an ad free experience!