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Exam 16: Sales and Lease Contracts: Performance, Warranties, and Remedies

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Question 21

Multiple Choice

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What is the effect of an unqualified, blank endorsement?

A) It turns previous order paper into bearer paper.
B) It turns previous bearer paper into order paper.
C) It turns a blank endorsement into a special endorsement.
D) It turns an allonge into an endorsement.
E) It turns an endorsement into an allonge.

F) C) and D)
G) A) and B)

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Question 22

True/False

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If an instrument fails to qualify as a negotiable instrument, that means that the instrument fails to be an enforceable contract.

A) True
B) False

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Question 23

Multiple Choice

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Which of the following is false regarding certified checks?

Which of the following governs consumer fund transactions?

Reference - Used Car Commission. William promised to sell Helen's car for her, but he wanted a commission of 10%. Helen signed an instrument promising to pay William a 10% commission if he sold her car. William assigned the agreement to Phil. Helen's car was sold and the buyer paid Helen. A dispute ensued between Helen and William regarding whether William found the buyer or the buyer found Helen. When Phil asked Helen for payment on the instrument, Helen refused. William, Helen, and Phil settled their dispute without going to court, and Helen wrote Phil a check for $3,000. Phil endorsed the check on the back planning to take it to the bank the next day. Unfortunately, Phil lost the check which was found by Barry and cashed by the local bank. Barry then left town. Which of the following is the most likely result if Phil attempts to require that the bank reimburse him for the value of the check cashed by Barry?

Reference - Stolen Purses. Sandra and Mary were having lunch at their favorite restaurant. Unfortunately, a thief stole their purses containing their ATM cards. Mary notified her bank the next day of the theft of the ATM card. Unfortunately, the card had already been used to fraudulently obtain over $1,000. Sandra thought back to her business law class and did not call her bank, however, because she believed that she would not be liable for any charges on the ATM card because of the rules involving forgeries. Nevertheless, a week or so later when Sandra was in the bank, she casually mentioned to the teller that she needed a new card because hers had been lost. She was shocked when a bank representative attempted to hold her responsible for hundreds of dollars of goods bought with the ATM. Sandra told the bank representative that she refused to cover the amounts, that she was moving her account, and that she wanted all preauthorized payments and EFTs stopped immediately. For how much can the bank hold Mary responsible based on the fraudulent use of the card?

A draft is an order by a drawer to a drawee to pay a payee.

Money orders are considered checks under the UCC.

Which of the following may endorse an instrument made payable to a legal entity such as a partnership?

A substitute check is a check that is substituted for a lost check.

Which of the following is the period between the time a check is written and the time it is presented for final payment, during which time a customer can still use his or her funds?

If there is no room on an instrument for an endorsement or if all the room has been taken by previous endorsements, a[n] ______ may be attached.

Which of the following is defined by the UCC as a change, without consent, that modifies the obligation of a party to the instrument?

In which of the following is the payee of a check a specific person, and the bank draws on itself?

Reference - Yard Mowing. Paula agreed to mow John's yard once a week for $50 per week throughout the summer. Paula, however, was having trouble getting her money from John. On one occasion, he in handwriting gave her an IOU stating "I, John Jones, owe Paula Smith $50" which he signed at the end. A couple of weeks later, John did not have the money with which to pay Paula for additional mowing, and he handwrote the following on a piece of paper and gave it to her: "I, John Jones, promise to pay Paula Smith or to bearer, the sum of $100 on Monday, July 22, 2012." Paula quit mowing John's yard, and disgusted with John, Paula assigned both documents to Vince. When Vince presented the documents to John, John refused to pay on the basis that after inspecting the yard, he decided that Paula was doing a poor job. Vince told him the documents constituted negotiable instruments, but John disagreed. Which of the following is true regarding the effect on negotiability of John's determination that Paula did a poor job mowing the yard?

A certificate of deposit is ___________ of the bank.

The words "pay to cash" are sufficient words of negotiability.

Reference - Stolen Purses. Sandra and Mary were having lunch at their favorite restaurant. Unfortunately, a thief stole their purses containing their ATM cards. Mary notified her bank the next day of the theft of the ATM card. Unfortunately, the card had already been used to fraudulently obtain over $1,000. Sandra thought back to her business law class and did not call her bank, however, because she believed that she would not be liable for any charges on the ATM card because of the rules involving forgeries. Nevertheless, a week or so later when Sandra was in the bank, she casually mentioned to the teller that she needed a new card because hers had been lost. She was shocked when a bank representative attempted to hold her responsible for hundreds of dollars of goods bought with the ATM. Sandra told the bank representative that she refused to cover the amounts, that she was moving her account, and that she wanted all preauthorized payments and EFTs stopped immediately. Which of the following is true regarding the bank's obligation to stop EFT transfers?

What is the difference between a cashier's check and a certified check? Can a bank refuse to certify a check? Assuming the payment is valid, can a bank refuse to issue a cashier's check?

Reference - Used Car Commission. William promised to sell Helen's car for her, but he wanted a commission of 10%. Helen signed an instrument promising to pay William a 10% commission if he sold her car. William assigned the agreement to Phil. Helen's car was sold and the buyer paid Helen. A dispute ensued between Helen and William regarding whether William found the buyer or the buyer found Helen. When Phil asked Helen for payment on the instrument, Helen refused. William, Helen, and Phil settled their dispute without going to court, and Helen wrote Phil a check for $3,000. Phil endorsed the check on the back planning to take it to the bank the next day. Unfortunately, Phil lost the check which was found by Barry and cashed by the local bank. Barry then left town. Before Phil endorsed the check it was a[n] ______ instrument; and after he endorsed it, the check was a[n] _____ instrument.