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BADM 7140 Test 2 (Complete)
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BADM 7140 Test 2 (Complete)Four Quadrants UCC-4 - ANS-1. Trading private currency (negotiable law) 2. Security Devices
(creditor/debtor relationship) 3. Agency Law 4. Business Entities (securities)
5 Criteria for Negotiable Instruments (UPSIS) - ANS-1. Unconditional promise to pay to order or
bearer 2. Pay on demand or specific time 3. Sum certain 4. In writing (SOF) 5. Signed
Personal Defenses - ANS-1. Breach of Contract 2. Failed Consideration 3. Wrongful completion
4. Fraud in the inducement 5. Duplicate payment 6. Non-delivery of the instrument 7. Illegal,
incapacity, or duress (if contract is voidable)
Constructive Notice - ANS-The legal fiction that signifies that a person or entity should have
known, as a reasonable person would have, even if they have no actual knowledge of it.
Holder in due course - ANS-A holder who meets certain requirements and takes an instrument
free of all claims to it and most defense against payment that could be successfully asserted
against the transferor.
HIDC Requirements (HVGN) - ANS-Must be a holder, take for value, take in good faith, and take
without notice
Shelter Principle - ANS-The holder of a negotiable instrument who cannot qualify as a HIDC but
who derives his or her title through an HIDC; the result of being a HIDC is that you eliminate
personal defenses (cannot get rid of real defenses, unless you are holding cash)
CASH - ANS-Highest liquidity; subject to NO defenses.
Real defenses (BFFMC) - ANS-1. Bankruptcy 2. Court ordered insanity 3. Forgery (signatures
and endorsements) 4. Material alterations (change value of the check) 5. Fraud in the execution
6. Minority 7. Criminal Activity 8. Bankruptcy
30 Day Rule - ANS-Even if forgery, when you get bank statement you have 30 days to notify the
bank of forgeries from constructive notice
Two party types of Negotiable Instruments - ANS-Notes and certificate of deposit (Maker,
Payee)
Three party types of Negotiable Instruments - ANS-Drafts and checks (Drawer, Payee, Drawee)
Drafts - ANS-An order by a drawer directing the drawee to pay the payee
, Checks - ANS-A draft drawn on a bank; demand instruments
Note - ANS-A promise by one party to pay money to another party or bearer
Certificate of Deposit - ANS-A note made by bank, where the bank is the maker of the note
Maker - ANS-Person who promises to pay and signs the negotiable instrument.
Payee - ANS-Person to whom payment is ordered; receives negotiable instrument.
Drawer - ANS-Person who signs negotiable instrument or makes an order to pay.
Drawee - ANS-Person to whom the order is made; bank.
5 Types of Endorsements (BRSQC) - ANS-1. Blank 2. Restrictive 3. Special 4. Qualified 5.
Combo
Order of Liquidity - ANS-Cash > NI & HIDC > NI > NON-NI > VERBAL
Blank Endorsement - ANS-A signature by the creator of an instrument, such as a check, which
enables any holder of the instrument to assert a claim for payment--becomes bearer security
Restrictive Endorsement - ANS-An endorsement signature on the back of a check that specifies
the conditions under which the check can be transferred or paid out; 'For deposit only' on the
back (in the US) of a check block its cashing over the counter and (generally) endorsement to
another party
Special Endorsement - ANS-An endorsement on negotiable paper that limits the transfer to a
particular person; An endorsement of a check authorizing payment to an entity other than the
entity to which the check was originally written.
Qualified Endorsement - ANS-An endorsement on a financial instrument, such as a check, that
limits the endorser's liability; "without recourse" which indicates that the endorser is not
responsible in the event that the bank refuses to make payment on the instrument
Combo Endorsement - ANS-Restrictive and special endorsement; write for deposit only and
then to a specific person
5 Transfer Warranties (no... IMFCT) - ANS-1. No insolvency 2. No material alterations 3. No
Forgeries (authentic signatures) 4. No claims/defenses 5. Transferor is entitled to payment
Endorsement - ANS-Making the transfer of warranty; secondary liability
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