Negotiable Instruments

Question 1

What is a “special” endorsement?

Answer 1

identifies the person to whose order the instrument is further payable

Question 2

What is a “restrictive” endorsement?

Answer 2

it in some way limits the rights of the next holder

Question 3

What does the endorsement “without recourse” do?

Answer 3

it makes the endorsement a “qualified endorsement”. In effect, the phrase means if the primary party does not pay on an instrument, tough luck. The new holder cannot seek payment from the person who endorsed it “without recourse”

Question 4

A holder in due course (HDC) will take free of which of the following defenses?

1. Infancy, to the extent that it is a defense to a simple contract
2. Discharge of the maker in bankruptcy
3. A wrongful filling in of the amount payable that was omitted from the instrument
4. Duress of a nature that renders the obligation of the party a nullity

Answer 4

3. A wrongful filling in of the amount payable that was omitted from the instrument

An unauthorized completion of an incomplete instrument is a personal defense, and, as such, will not be valid against an HDC

Question 5

Which of the following actions does not discharge a prior party to a commercial instrument?

1. Good faith payment of satisfaction of the instrument
2. Cancellation of that party’s endorsement
3. The holder’s oral renunciation of that prior party’s liability
4. The holder’s intentional destruction of the instrument

Answer 5

3. The holder’s oral renunciation of that prior party’s liability

when there are multiple endorsers on a negotiable instrument, each is liable to subsequent endorsers or holders. Renunciation must be in writing to discharge liability

Question 6

Under the Revised Article 3, postdating a check does what to the instrument?

Answer 6

Make the check properly payable on or after the date written on the check

Question 7

In order for attachment of a security interest to occur, 3 elements must take place. What are they?

Answer 7

1. the secured party must give value
2. the debtor must have rights in the collateral
3. there must be a security agreement

Question 8

Automatic perfection (perfection by attachment) takes place in the case of a purchase money security interest (PMSI) in which of the following?

1. Equipment
2. Inventory
3. Consumer Goods

Answer 8

3. Consumer Goods

Question 9

What is the priority of claims in bankruptcy?

Be sure to know this!!!!

Answer 9

1. Secured creditors
2. unsecured creditors
   a. domestic support obligations (child support, alimony)
   b. Admin costs
   c. claims in the normal course of debtor’s business
   d. wages, salaries and commissions
   e. contributions to EE benefits plans
   f. claims on storage of grain or fish up to $6,150
   g. consumer deposits for undelivered goods/services
   h. Taxes (federal, state, local)
   I. Obligation to an insured bank
   j. debts arising from motor vehicle accidents under the influence of drugs or alchol
   k. general unsecured creditors that file timely
   1. secured creditors in excess of amt of security sold
   2. general creditors
   3. unsecured claims filed late