Negotiable Instruments Law Chapter 1

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Questions and Answers

What is the primary liability regarding a promissory note?

The drawer is primarily liable.

The holder is primarily liable.

The endorser is primarily liable.

The maker is primarily liable. (correct)

How many parties are involved in a bill of exchange?

One party.

Three parties. (correct)

Four parties.

Two parties.

What is NOT a condition under which the date on an instrument is important?

To establish its age. (correct)

To check when interest starts to accrue.

To determine if it was presented in a reasonable time.

To determine maturity.

What happens if a wrong date is inserted into a negotiable instrument?

It does not affect the instrument in hands of a subsequent holder in due course. Signup and view all the answers

Who has the authority to fill in blanks in an incomplete instrument?

The holder. Signup and view all the answers

How many presentments are generally needed for a bill of exchange?

Two presentments. Signup and view all the answers

Is the date essential for making an instrument negotiable?

No, it is not essential. Signup and view all the answers

Which of the following is true regarding the liability of parties in a bill of exchange?

The drawer is secondarily liable. Signup and view all the answers

What is the status of an instrument that is incomplete and undelivered?

Invalid against the party whose signature was placed before delivery Signup and view all the answers

What must a holder in due course prove regarding an incomplete and undelivered instrument?

The instrument was delivered Signup and view all the answers

What is the implication if a party's signature is placed after the delivery of an instrument?

The signature validates the instrument against that party Signup and view all the answers

Under what condition can a holder in due course hold a maker for an instrument that was incomplete and undelivered?

If the instrument was properly completed and delivered Signup and view all the answers

What is the definition of delivery concerning an instrument?

The transfer of possession with intent to transfer title Signup and view all the answers

What is the effect if an instrument is in the possession of a holder in due course?

Valid delivery is conclusively presumed Signup and view all the answers

What happens if the instrument is possessed by a party other than a holder in due course?

It constitutes prima facie presumption of delivery subject to rebuttal Signup and view all the answers

Under which circumstances is an instrument considered revocable?

When it is incomplete and undelivered Signup and view all the answers

Which of the following is NOT a necessary element of a negotiable instrument?

Written in a specific legal language Signup and view all the answers

What is the primary difference between a promissory note and a bill of exchange?

A bill of exchange is an order to pay, while a promissory note is a promise to pay. Signup and view all the answers

What element ensures the negotiability of an instrument when addressed to a drawee?

The drawee must be named or indicated with reasonable certainty. Signup and view all the answers

Which type of negotiable instrument does NOT require a drawee?

Promissory Note Signup and view all the answers

What is a crucial factor in determining the negotiability of an instrument?

The intention of the parties involved. Signup and view all the answers

Which of the following statements about checks is true?

Checks are a special form of a bill of exchange. Signup and view all the answers

Which of these is a requirement for an instrument to contain an unconditional promise to pay?

The sum must be certain and not subject to future changes. Signup and view all the answers

How is an indorsement by a minor treated under the law?

It allows the minor to void the agreement at any time. Signup and view all the answers

What is the main consequence if an instrument is delivered to a holder in due course?

The instrument is treated as if there are no conditions. Signup and view all the answers

Who qualifies as immediate parties concerning an instrument?

Persons with knowledge of conditions on the delivery. Signup and view all the answers

What happens in the case of a forged signature on an order instrument?

The forged signature has no legal effect unless estoppel applies. Signup and view all the answers

What is the appropriate rule regarding how to interpret ambiguities in negotiable instruments?

Words prevail over figures. Signup and view all the answers

What liability does the drawee bank have regarding a bearer bill of exchange?

The drawee bank bears all losses. Signup and view all the answers

Under what circumstance can the drawer recover from the collecting bank?

When the drawee accepts the bill. Signup and view all the answers

What happens if an instrument is undated?

It is deemed dated on the date of issue. Signup and view all the answers

In what situation can subsequent parties be held liable in case of a forged indorsement?

They are bound unless they are holders in due course. Signup and view all the answers

What does it mean when a person signs in a trade or assumed name?

They are liable as if they signed their own name. Signup and view all the answers

What is a requirement for an agent to be exempt from personal liability when signing a negotiable instrument?

The agent must be duly authorized and disclose the principal's name. Signup and view all the answers

In what situation does a principal remain liable for a negotiable instrument?

When the agent acts beyond the limits of their authority. Signup and view all the answers

What is procuration in the context of negotiable instruments?

The authority granted by a principal to an agent. Signup and view all the answers

What happens when there is doubt whether an instrument is a bill or a note?

The holder may treat it as either at his election. Signup and view all the answers

Who is liable on a negotiable instrument under general rules?

Only the persons whose signatures appear on the instrument. Signup and view all the answers

What must an agent do to indicate they are signing on behalf of a principal?

Add specific words to their signature indicating their representative capacity. Signup and view all the answers

In the case of forgery, what happens to the liability of the instrument?

The instrument is automatically void. Signup and view all the answers

Study Notes

Forms and Interpretation of Negotiable Instruments

A negotiable instrument must be in writing, signed by the maker or drawer, and contain an unconditional promise or order to pay a certain sum in money.
It should be payable on demand or at a specific future time and can be made payable to order or bearer.
If addressed to a drawee, their name must be clearly indicated; specific language of the law isn’t mandatory as long as the intent is evident.

Requisites of Negotiability

Determining negotiability involves examining the wording on the instrument, legal requirements, and the parties' intentions.

Kinds of Negotiable Instruments

Promissory Notes (PN): An unconditional written promise to pay a sum on demand or at a specified future date.
Bills of Exchange (BOE): An unconditional order directing one person to pay a sum on demand or at a specified time to order or bearer; checks are a specific form of BOE.

Distinction between Promissory Notes and Bills of Exchange

Promissory notes involve a promise to pay (2 parties) while bills of exchange involve an order to pay (3 parties).
Primarily liable parties differ; the maker of a PN is primarily liable, while the drawer of a BOE is secondarily liable.
Presentments required: PN needs only one, whereas BOE generally requires two.

Completion and Delivery

The instrument’s date is not essential for negotiability but is critical for determining maturity and interest commencement.
Dates may be inserted by a holder if undated, without invalidating the instrument for subsequent holders.

Incomplete and Undelivered Instruments

An incomplete and undelivered instrument is not valid against the party who signed before delivery.
Delivery is crucial for validity and is defined as the transfer of possession with intent to transfer title.

Effects of Undelivery

An undelivered instrument remains incomplete and revocable until delivery occurs.
Valid delivery presumes possession by a holder in due course, while possession by others suggests delivery with the possibility of rebuttal.

Conditional Delivery

Delivery conditions affect liability; holders in due course may treat instruments as valid despite the conditions, while holders not in due course are bound by them if aware.

Rules on Interpretation

Ambiguities are resolved by prioritizing words over figures, determining interest based on the date, and favoring written over printed provisions.
Instruments are treated as signed in the capacity intended; if signed by multiple persons, liability is joint and several.

Signature Liabilities

Generally, only signatories are liable on an instrument.
Signing in a trade name holds the signer liable as if using their own name assuming the intent to bind.

Agent's Signature

An agent’s signature can bind the principal if the agent is authorized, indicates signing as an agent, and discloses the principal’s identity.

Procuration

Procuration grants an agent limited authority to sign, which binds the principal only if the agent operates within their limits of authority.

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Description

This quiz focuses on the forms and interpretation of negotiable instruments as outlined in Chapter 1 of the relevant legal module. It covers various types, completion, delivery, agent signatures, and indorsements by minors or corporations. Test your understanding of these essential concepts!