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29TRANSFERS Chapter OF NEGOTIABLE INSTRUMENTS AND WAR RANTIES OF PARTIES TRUE/FALSE 1. An instrument may be transferred by negotiation or by assignment. Register to View Answer TOP: AICPA BB-Legal MSC: AACSB Analytic 2. When a negotiable instrument is assigned, the transferee has the rights of the transferor. Register to View Answer TOP: AICPA BB-Legal MSC: AACSB Analytic 3. When a negotiable instrument is transferred by negotiation, the transferee is recognized as the holder of the instrument. Register to View Answer TOP: AICPA BB-Legal MSC: AACSB Analytic 4. An instrument that originally was bearer paper always remains bearer paper. Register to View Answer TOP: AICPA BB-Legal MSC: AACSB Analytic 5. The order or bearer character of a paper is determined as of the time when the negotiation is about to take place. Register to View Answer TOP: AICPA BB-Legal MSC: AACSB Analytic 6. An order paper is negotiated by the endorsement of the holder and delivery. Register to View Answer TOP: AICPA BB-Legal MSC: AACSB Analytic 7. If an instrument is drawn in favor of an agent, it may be negotiated by either the agent or the agent's principal. Register to View Answer TOP: AICPA BB-Legal MSC: AACSB Analytic 8. Order paper cannot be negotiated or assigned to another without endorsement. Register to View Answer TOP: AICPA BB-Legal MSC: AACSB Analytic 9. Endorsements may be classified in terms of whether the indorser has added any words to the endorse ment and what those words are. Register to View Answer TOP: AICPA BB-Legal MSC: AACSB Analytic 10. A blank endorsement indicates the person to whom the instrument is to be paid-that is, the transferee. Register to View Answer TOP: AICPA BB-Legal MSC: AACSB Analytic 11. A person who acquires the instrument on which the last endorsement is blank becomes the holder. Register to View Answer TOP: AICPA BB-Legal MSC: AACSB Analytic 12. Order paper can be turned into bearer paper by the holder's blank endorsement. Register to View Answer TOP: AICPA BB-Legal MSC: AACSB Analytic 13. When a special endorsement is made, the instrument becomes order paper and may be negotiated only by an endorsement and delivery. Register to View Answer TOP: AICPA BB-Legal MSC: AACSB Analytic 14. A special endorsement consists of the signature of the indorser and the words identifying the person to whom the indorser makes the instrument payable. Register to View Answer TOP: AICPA BB-Legal MSC: AACSB Analytic 15. An endorsement "Pay to Donald Hames, Cathy Dukes" is not valid as an endorsement because it does not contain the words "order" or "bearer." Register to View Answer TOP: AICPA BB-Legal MSC: AACSB Analytic 16. A qualified endorsement qualifies the effect of a blank or special endorsement by disclaiming or des troying the liability of the indorser to answer for the default of the maker or drawee. Register to View Answer TOP: AICPA BB-Legal MSC: AACSB Analytic 17. A restrictive endorsement specifies the purpose of the endorsement or the use to be made of the paper. Register to View Answer TOP: AICPA BB-Legal MSC: AACSB Analytic 18. If an instrument bears a restrictive endorsement, any further transfer or negotiation is effectively barred. Register to View Answer TOP: AICPA BB-Legal MSC: AACSB Analytic 19. A payee or endorsee whose name is misspelled may endorse the wrong name, the correct name, or both. Register to View Answer TOP: AICPA BB-Legal MSC: AACSB Analytic 20. When the holder fails to endorse order paper but does physically transfer the paper to a third party, the transferee is considered an assignee not a holder. Register to View Answer TOP: AICPA BB-Legal MSC: AACSB Analytic 21. Bearer paper can be negotiated by a simple transfer of possession, and no endorsement is required. Register to View Answer TOP: AICPA BB-Legal MSC: AACSB Analytic 22. A forged endorsement is not effective to negotiate commercial paper unless the impostor rule applies. Register to View Answer TOP: AICPA BB-Legal MSC: AACSB Analytic 23. The impostor rule applies without regard to whether the drawee acted with reasonable care. Register to View Answer TOP: AICPA BB-Legal MSC: AACSB Analytic 24. Under the UCC, a negotiation is not effective when it is made by a minor or any other person lacking capacity. Register to View Answer TOP: AICPA BB-Legal MSC: AACSB Analytic 25. It is worse for the holder to lose order paper than to lose bearer paper. Register to View Answer TOP: AICPA BB-Legal MSC: AACSB Analytic 26. If a lost negotiable instrument is in bearer form at the time of the loss, the finder is entitled to enforce payment. Register to View Answer TOP: AICPA BB-Legal MSC: AACSB Analytic 27. The warranties made by an unqualified indorser pass to the transferee, but they do not pass to any sub sequent holder. Register to View Answer TOP: AICPA BB-Legal MSC: AACSB Analytic 28. Thomas, the holder of a check, presents it to the drawee bank for payment. If Thomas endorses the check, Thomas warrants that the account of the drawer in the drawee bank contains funds sufficient to cover the check. Register to View Answer TOP: AICPA BB-Legal MSC: AACSB Analytic 29. The warranty liability of a qualified indorser is the same as that of an unqualified indorser. (1990 ver sion) Register to View Answer TOP: AICPA BB-Legal MSC: AACSB Analytic 30. Warranties can be made only be one who transfers by delivery. Register to View Answer TOP: AICPA BB-Legal MSC: AACSB Analytic MULTIPLE CHOICE 1. The transferee has only those rights that were possessed by the transferor of the note when a transfer of an instrument is made by: a. assignment. b. negotiation. c. sale. d. a will. Register to View Answer TOP: AICPA BB-Legal MSC: AACSB Analytic 2. The transferring of an instrument in such a way as to make the transferee the holder of the paper is termed: a. assignment. b. conversion. c. sale. d. negotiation. Register to View Answer TOP: AICPA BB-Legal MSC: AACSB Analytic 3. If an assignment of an instrument takes place, the assignee: a. has greater rights than the assignor. b. has the same rights as the assignor. c. is in possession of a negotiable instrument. d. is in possession of a nonnegotiable instrument. Register to View Answer TOP: AICPA BB-Legal MSC: AACSB Analytic 4. Negotiation of order paper requires: a. delivery only. b. endorsement only. c. both endorsement and delivery. d. neither endorsement nor delivery. Register to View Answer TOP: AICPA BB-Legal MSC: AACSB Analytic 5. When bearer paper is transferred by a mere transfer of possession, the one to whom it is delivered may: a. insist on an endorsement. b. not insist on an endorsement. c. strive to impose indorser liability on the transferor. d. both a and c. Register to View Answer TOP: AICPA BB-Legal MSC: AACSB Analytic 6. Negotiation by a blank endorsement has all of the following effects except: a. changing the paper to bearer paper. b. passing ownership of the instrument. c. imposing primary liability for payment of the paper on the indorser. d. giving rise to certain implied warranties. Register to View Answer TOP: AICPA BB-Legal MSC: AACSB Analytic 7. The qualification of an endorsement: a. affects the passage of title of the instrument. b. affects the negotiable character of the instrument. c. disclaims the indorser's secondary liability. d. disclaims primary liability on the instrument. Register to View Answer TOP: AICPA BB-Legal MSC: AACSB Analytic 8. A qualified endorsement: a. includes the words "for deposit only." b. does not remove all warranty liability of the indorser. c. does not remove all secondary liability of the indorser. d. requires the indorser to "make good" on the instrument if the issuer dies before paying it. Register to View Answer TOP: AICPA BB-Legal 9. An endorsement is restrictive when: a. the paper is "for deposit only." b. the paper is being negotiated for collection. MSC: AACSB Analytic c. the paper is being conditionally negotiated. d. all of the above. Register to View Answer TOP: AICPA BB-Legal MSC: AACSB Analytic 10. An endorsement "for deposit only" is: a. restrictive. b. qualified. c. special. d. illegal. Register to View Answer TOP: AICPA BB-Legal MSC: AACSB Analytic 11. A forged or unauthorized endorsement is by definition: a. an endorsement of the person by whom it appears to been have made. b. no endorsement of the person by whom it appears to have been made. c. binding on the party who refuses to ratify the instrument. d. incapable of being ratified. Register to View Answer TOP: AICPA BB-Legal MSC: AACSB Analytic 12. Clark is the senior payroll clerk for the Gonzalez Corporation. In preparing the weekly payroll checks for the corporation, Clark added the name of Simmons to the payroll list. Clark knew that Simmons was not an employee of the corporation. Lewis, the treasurer of the corporation, signed the payroll checks and delivered them to Clark. Clark distributed all of the checks to the correct employees with the exception of the one made payable to the order of Simmons. Clark endorsed the name of Simmons to the check, cashed it with Diamond Check Cashing, and vanished. In this situation: a. an endorsement by Clark was not necessary to negotiate the instrument. b. the Gonzalez Corporation can seek recovery against Diamond Check Cashing. c. the forged signature is given the same effect as though it had been authorized by the named payee. d. Clark is not subject to civil or criminal liability. Register to View Answer TOP: AICPA BB-Legal MSC: AACSB Analytic 13. The situation in which an individual impersonates the holder of a savings account and, by presenting a forged withdrawal slip to the savings bank, receives from the bank a check payable to the bank's cus tomer, is covered by the: a. impostor rule. b. negotiation rule. c. assignment rule. d. bank rule. Register to View Answer TOP: AICPA BB-Legal MSC: AACSB Analytic 14. In the case of a check, when the impostor rule applies: a. the drawer of the check can successfully raise the defense of the forged endorsement. b. the forged endorsement is effective to negotiate the instrument. c. the forged endorsement is ineffective to negotiate the instrument. d. the instrument becomes nonnegotiable. Register to View Answer TOP: AICPA BB-Legal MSC: AACSB Analytic 15. A transferor may be able to set aside a negotiation obtained by fraud or duress unless: a. a minor is involved. b. the negotiation was part of an illegal transaction. c. the negotiation was beyond the powers of the corporation. d. the instrument has been acquired in the meantime by a holder in due course who did not know of the misconduct. Register to View Answer TOP: AICPA BB-Legal MSC: AACSB Analytic 16. Which of the following is not a warranty made by an indorser who has received consideration for the endorsement? a. All necessary endorsements are genuine. b. The instrument has not been materially altered. c. The issuer's signature is genuine. d. It will be paid on proper presentment. Register to View Answer TOP: AICPA BB-Legal MSC: AACSB Analytic 17. An unqualified indorser who receives consideration for a transfer impliedly warrants that: a. the instrument has not been materially altered. b. the signatures on the instrument are genuine. c. the act of transferring the instrument is rightful. d. all of the above. Register to View Answer TOP: AICPA BB-Legal MSC: AACSB Analytic 18. A transferor by delivery: a. makes the same warranties as a qualified indorser makes, if consideration has been given. b. makes the same warranties to the immediate transferee as an unqualified indorser makes, if consideration has been given. c. makes warranties to all subsequent holders. d. none of the above. Register to View Answer TOP: AICPA BB-Legal MSC: AACSB Analytic 19. If a negotiable order instrument is transferred to another party without an endorsement, the instrument has been: a. assigned. b. negotiated. c. obtained by fraud, and it is therefore invalid. d. obtained by fraud, but it may be ratified. Register to View Answer TOP: AICPA BB-Legal MSC: AACSB Analytic 20. Warranties of an unqualified indorser include that: a. the transferor is entitled to enforce the instrument. b. all signatures are genuine. c. the instrument has not been altered. d. all of the above. Register to View AnswerCASE TOP: AICPA BB-Legal MSC: AACSB Analytic 1. Coppersmith executed and delivered negotiable notes to the payee, Charlene. The payee endorsed the notes to Whitehurst but did not deliver them. Instead, she kept the notes in her possession because she wanted to collect the interest during her life and wanted the endorsee to have the notes on her death. After Charlene's death, her executor, Cartwright, found the notes. Both Cartwright and Whitehurst sought to enforce the notes against Coppersmith. Who was entitled to do so? ANS: Cartwright. As executor of the payee, Cartwright acquired by operation of the law the right to enforce payment by assignment. The endorsement to Whitehurst was not effective to negotiate the instruments because negotiation required both endorsement and delivery by the person to whom they were then payable, and there had been no delivery. TOP: AICPA BB-Legal MSC: AACSB Reflective Thinking | AACSB Analytic 2. Sue is an employee at an ABC store. One of Sue's duties is to prepare the bank deposit at the end of the business day. Sue had a very busy day and made a few mistakes. All of the checks, except two, were endorsed with the stamp "ABC, Inc." that ABC had provided. The bank received the deposit and no ticed the lack of endorsement on the two checks. In addition, three of the checks that Sue was to in clude with the deposit were lost in the parking lot after closing. Phil found the checks and deposited them into his personal account. What is the effect of ABC's endorsement on the lost checks and the lack of endorsement on the two deposited checks? Register to View Answerbank may provide an endorsement for its customer absent any specific prohibition on the instru ment. The checks that Sue failed to stamp will be processed without any difficulty. The stamp that Sue used, with a blank endorsement, created a bearer instrument. The stamp should be changed to create a restrictive endorsement to afford greater protection. When a bearer instrument is lost, the finder (Phil), as the possessor of bearer paper, is the holder and is entitled to enforce payment. Some alternate cause of action based on another area of law would be Sue's only hope for recovery of the lost checks. TOP: AICPA BB-Legal MSC: AACSB Reflective Thinking | AACSB Analytic 3. Al was an attorney in a small town and was very well respected. A couple retained Al to represent them on the purchase of a home. Before closing, Al informed the couple of payments that they were required to make by check at the closing. Among the required payments the attorney told the couple to make were a check for $500 to Bob Brown and a check for $610 to Susan Lee. The attorney explained that the check to Brown was for a survey of the property and the check to Lee was for termite-control work that the couple had authorized. The checks were issued and taken by Al who promised to deliver them. Al did not, however, deliver them. Instead, Al forged the endorsements of the respective payees and cashed the checks. When Al was later arrested on a similar matter, the couple learned what had happened. The couple made a claim against its bank for reimbursement claiming the bank was not authorized to pay these checks because they had not been effectively negotiated to the bank. When the facts came to light, no person named Bob Brown had done a survey on the property, but the termite work had been done by Lee. Decide both cases. ANS: The couple will not recover on the check to Brown because the impostor rule applies when the drawer is fraudulently fooled by an employee into issuing a check to a dummy payee. However, the couple may recover on the check to Lee because this was a valid check to an actual creditor. Accordingly, the forged endorsement is not treated as effective to negotiate the Lee check. The couple had not been fooled by its employer into issuing the Lee check. TOP: AICPA BB-Legal MSC: AACSB Reflective Thinking | AACSB Analytic ... View Full Document

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