Deck 19: Negotiable Instruments

Question 1

With respect to negotiability, a mere reference to another writing or record makes a promise conditional.

Answer 1

False

Question 2

To be negotiable, an instrument must be payable on demand.

Answer 2

False

Question 3

A demand instrument is payable immediately after it is issued.

Answer 3

True

Question 4

A promissory note must name a specific payee to be negotiable.

Question 5

A check is a time instrument because it is payable in due time.

Question 6

A negotiable instrument can only be transferred by negotiation.

Question 7

Any irregularity on the face of an instrument that calls into question its validity will bar HDC status.

Question 8

A holder takes an instrument for value by promising to perform in the future.

Question 9

For an instrument to be negotiable, it must be in writing.

Question 10

A transfer by assignment can make it possible for a transferee to receive more rights in the instrument than the prior possessor had.

Question 11

A holder does not take an instrument for value if he or she gives a negotiable instrument as payment.

Question 12

An indorser who does not wish to be liable on an instrument can use a qualified indorsement.

Question 13

An order instrument must identify the payee with certainty.

Question 14

A time draft is payable at a definite future time.

Question 15

A symbol can serve as a valid signature.

Question 16

To be negotiable, an instrument must be payable in money.

Question 17

A person who in good faith acquires a negotiable instrument from a thief cannot become an HDC under any circumstances.

Question 18

A holder cannot become an HDC if he or she has notice of any claim to the instrument or defense against it.

Question 19

With respect to negotiability, the location of a signature on a document is important.

Question 20

Negotiating order instruments requires either delivery or indorsement but not both.

Question 21

Warranty liability arises only from a transferor's signature.

Question 22

Fact Pattern 19-1
​Erin draws a check payable to "Foodland" to buy groceries.
Refer to Fact Pattern 19-1. With respect to Erin’s check, Foodland is

A)the drawee.
B)the indorser.
C)the maker.
D)the payee.

Question 23

Fact Pattern 19-1
​Erin draws a check payable to "Foodland" to buy groceries.
Refer to Fact Pattern 19-1. Erin’s check is most likely

A)a certificate of deposit.
B)an order to pay.
C)a promise to pay.
D)a promissory note.

Question 24

A person whose name is forged on an instrument normally has no liability to pay any holder the value of the instrument.

Question 25

Failure to present an instrument on time is not improper presentment.

Question 26

One of the transfer warranties is that the instrument has not been altered.

Question 27

Discharge in bankruptcy is no defense on any instrument regardless of the status of the holder.

Question 28

Fact Pattern 19-2
​LNG Corporation and Midstates Utility Company enter a contract for a sale of liquefied natural gas. LNG draws a draft unconditionally ordering Midstates Utility to pay $50,000 to LNG's order in sixty days. Midstates Utility signs and dates the draft.
Refer to Fact Pattern 19-2. This instrument is

A)a banker’s acceptance.
B)a nonnegotiable instrument.
C)a promissory note.
D)a trade acceptance.

Question 29

Fact Pattern 19-2
​LNG Corporation and Midstates Utility Company enter a contract for a sale of liquefied natural gas. LNG draws a draft unconditionally ordering Midstates Utility to pay $50,000 to LNG's order in sixty days. Midstates Utility signs and dates the draft.
Refer to Fact Pattern 19-2. On this instrument, LNG is

A)the banker.
B)the drawer.
C)the maker.
D)the trader.

Question 30

An unauthorized signature binds the person whose name is signed.

Question 31

An imposter's indorsement on an instrument is never effective against its drawer or maker.

Question 32

A maker is secondarily liable on an instrument.

Question 33

A purchaser can become an HDC of an instrument even if it is so incomplete that an element of negotiability is lacking.

Question 34

Fact Pattern 19-2
​LNG Corporation and Midstates Utility Company enter a contract for a sale of liquefied natural gas. LNG draws a draft unconditionally ordering Midstates Utility to pay $50,000 to LNG's order in sixty days. Midstates Utility signs and dates the draft.
Builders Exchange, Inc., issues an instrument in favor of Custom Construction Company. For the instrument to be negotiable, it must​

A) ​be a conditional promise or order to pay.
B) ​be payable on demand or at a specific time.
C) ​be signed by the payee.
D) ​recite the consideration given in exchange for it.

Question 35

Dishonor occurs if payment of an instrument cannot be obtained within the prescribed time.

Question 36

All parties to a negotiable instrument will be discharged when the party primarily liable on it pays to a holder the full amount due.

Question 37

Under the fictitious payee rule, the payee's indorsement is not treated as a forgery.

Question 38

An instrument is not defective simply because it is overdue.

Question 39

An instrument is dishonored when the party to whom the instrument is presented refuses to pay it.

Question 40

To properly present a draft for payment, the holder must present it to the drawer.

Question 41

Bart, the owner of Clear Cut Corporation, signs an instrument that includes the phrase "payment for this note will be made from the proceeds of next year's timber sale." This instrument is​

A) ​negotiable.
B) ​not negotiable, because payment can be made only out of a particular source.
C) ​not negotiable, because it states an express condition to payment.
D) ​not negotiable, because the reasons for the note are not clear on its face.

Question 42

Mortimer negotiates an instrument to Nelson. Negotiation is the transfer of an instrument

A) ​for valuable consideration under a contract.
B) ​in such form that the transferee becomes a holder.
C) ​pursuant to preliminary contract discussions.
D) ​without the payment of a recognized medium of exchange.

Question 43

Fact Pattern 19-3
​Thalia signs an instrument unconditionally promising to pay to "Union Bank" $7500 with interest in installments with the final payment due June 1, 2017.
Refer to Fact Pattern 19-3. The instrument that Thalia signed is most likely

A) ​a certificate of deposit.
B) ​a draft.
C) ​an order to pay.
D) ​a promissory note.

Question 44

Lindsey, an accountant for Madison & Monroe, acquires a negotiable instrument from Norma by promising to pay its face value in thirty days. Lindsey acquires the status of an HDC when she

A) ​acquires possession of the negotiable instrument.
B) ​promises to pay the face value due on the instrument.
C) ​pays the face value due on the instrument.
D) ​transfers the instrument to another party.

Question 45

Petra signs a check payable to Quentin, who indorses the back, gives it to Regional Credit Union (RCU), and receives cash. The transfer of the check from Quentin to RCU is​

A) ​an assignment.
B) ​a negotiation.
C) ​a payment.
D) ​a sale.

Question 46

Vicenzo, in good faith and for value, gets from Wren a check "payable to the order of bearer." Vicenzo does not know that Wren stole the check. Vicenzo is​

A) ​an HDC.
B) ​not an HDC, because Wren did not acquire the check for value.
C) ​not an HDC, because Wren did not acquire the check in good faith.
D) ​not an HDC, because the check is a bearer instrument.

Question 47

Fact Pattern 19-3
​Thalia signs an instrument unconditionally promising to pay to "Union Bank" $7500 with interest in installments with the final payment due June 1, 2017.
Refer to Fact Pattern 19-3. With respect to this instrument, Union Bank is​

A) ​the drawee.
B) ​theindorser.
C) ​themaker.
D) ​the payee.

Question 48

Avril receives a payroll check from Business Solutions, Inc., and indorses it by signing her name on the back of the check. This is​

A) ​a blank indorsement.
B) ​a qualified indorsement.
C) ​a restrictive indorsement.
D) ​a special indorsement.

Question 49

To finance the purchase of a house from Tuna, Uri signs an instrument promising to pay to "Verity Mortgage Service" $160,000 with interest in installments with the final payment due July 10, 2045. To be negotiable, this instrument must include the signature of​

A) ​a non-party witness.
B) ​Tuna or Tuna's realtor.
C) ​Uri.
D) ​Verity's chief financial officer.

Question 50

Talia, who is not a Urban Bank customer, attempts to cash a check drawn on the bank. The check is considered dishonored if Urban Bank​

A) ​refuses to pay it.
B) ​charges a fee to cash it.
C) ​asks Talia for reasonable identification.
D) ​asks Talia to sign a receipt for the payment on the check.

Question 51

On the back of a check payable to Nero, he writes "Pay to Odell, without recourse" and signs it. This

A) ​does not effect the check's negotiability or any party's liability.
B) ​relieves Nero of liability on the check.
C) ​relieves Odell of liability on the check.
D) ​renders the check nonnegotiable.

Question 52

Emily writes and signs a check payable to "Festival Cinema." Georg, Festival's manager, indorses the check "For deposit only." This is​

A) ​a blank indorsement.
B) ​a qualified indorsement.
C) ​a restrictive indorsement.
D) ​a special indorsement.

Question 53

O'Malley negotiates an order instrument to Phil by​

A) ​anassignment of O'Malley's rights under a contract.
B) ​a delivery to Phil with any necessary indorsement.
C) ​making an unconditional promise to pay.
D) ​presenting it in response to a demand by Phil.

Question 54

Sergio makes a gift of a check to Todd who takes it in good faith and without notice of any claim, defense, or defect. With respect to this check, Todd is​

A) ​none of the choices.
B) ​an assignee.
C) ​an ordinary holder.
D) ​an ordinary holder in due course.

Question 55

Alvin signs a promissory note payable to the order of Borrow & Spend Loan Company. The note states that it is payable "with interest at the legal rate." This note is​

A) ​negotiable.
B) ​not negotiable, because it does not specify a rate of interest.
C) ​not negotiable, because it is a promissory note.
D) ​not negotiable, because it is payable only with interest.

Question 56

To finance the purchase of an electric guitar and amplifier from Leon's Guitars, Milo signs an instrument promising to pay to "National Lenders" $1,800 with interest in installments with the final payment due August 15, 2016. To be negotiable, this instrument must include on its face​

A) ​any conditions on the sale of the goods.
B) ​any conditions to the disbursement of the funds.
C) ​any conditions to the repayment of the loan.
D) ​no conditions.

Question 57

Barry draws a check payable to "Cash" and presents it to Dollars & Sense store for payment. This instrument is​

A) ​a bearer instrument.
B) ​an order instrument.
C) ​valid but nonnegotiable.
D) ​void.

Question 58

Pedro signs an instrument that states it is being executed "as per a contract for the sale of a case of apples dated May 1." This instrument is​

A) ​negotiable.
B) ​not negotiable, because banks cannot easily process commodities.
C) ​not negotiable, because it includes the specific date of a contract.
D) ​not negotiable, because it refers to an express contract.

Question 59

Gwen deposits $5,000 with Home State Bank on July 1, 2016. Home State Bank promises to repay Gwen the $5,000 plus 3 percent annual interest on July 1, 2021. Home State Bank issued to Gwen​

A) ​a certificate of deposit.
B) ​a check.
C) ​a nonnegotiable instrument.
D) ​a trade acceptance.

Question 60

Bernice signs a promissory note for $1,500 in favor of Community College. The note is undated but specifies that it is "payable one month after date." This note is​

A) ​negotiable.
B) ​not negotiable, because one month is not a reasonable time.
C) ​not negotiable, because there is no option to pay early.
D) ​not negotiable, because the maturity date cannot be determined from the face of the instrument.

Question 61

Raul wants to transfer a check to Schmidt. The check is defective if it​

A) ​has been previously dishonored.
B) ​contains handwritten terms.
C) ​is undated, antedated, or postdated.
D) ​all of the choices.

Question 62

Ray pays Slim in good faith for a promissory note. Slim warrants that the note has not been altered. This is​

A) ​a presentment warranty.
B) ​a transfer warranty.
C) ​a signature warranty.
D) ​a breach of warranty.

Question 63

Plumbing & Pipes Supply Company issues a promissory note as a demand instrument with a due date of October 5. QuikPay Loan Company accepts the note. QuikPay has notice that the note is overdue if the firm takes the note​

A) ​after October 5.
B) ​before October 5.
C) ​on October 5.
D) ​at any time.

Question 64

Daria writes a check to Education Loan Management, Inc., that is drawn on Daria's account at First Federal Bank. If the bank does not accept the check, liability for its amount is on

A) ​Daria.
B) ​Education Loan Management.
C) ​First Federal Bank.
D) ​no one.

Question 65

On the back of an envelope, Phoebe writes, "I promise to pay Quint or bearer $600 on demand. [Signed] Phoebe." What type of instrument is this? Is it negotiable? If not, why not?​

Question 66

Idina wants to buy a promissory note from Jill. The note is due on April 1. To become an HDC, Idina must buy the note​
A)m. on April 1

A) ​before midnight on April 1.
B) ​before noon on April 1.
C) ​before 8:00
D) ​within thirty days of April 1.

Question 67

Fanny signs a note "payable to the order of Guaranty Bank." Guaranty indorses the note in blank and negotiates it to Haji, who sells it to Iona. Liability associated with the transfer of the note from Haji to Iona is​

A) ​conceptual.
B) ​contractual.
C) ​signature.
D) ​warranty.

Question 68

Lenora signs a note "payable to the order of Medical Account Collection Agency." Unless Lenora has a valid defense against payment, Lenora's liability on this note is​

A) ​immediate.
B) ​imposed only after payment is demanded.
C) ​postponed until the note is dishonored by the payee.
D) ​suspended until payment is due.

Question 69

On a sheet of paper, Elle writes, without her signature, "I acknowledge that I owe Frank $600, payable out of the proceeds of the sale of my car, a 1995 Honda Civic, which I promise to advertise 'For Sale' next week. Payment is to be made on or before six months from today." What type of instrument is this? Is it negotiable? If not, why not?​

Question 70

GR8 Products, Inc., warrants its goods to be free of defects. Heck issues an instrument to obtain goods from GR8 that prove defective. With respect to payment on the instrument, Heck​

A) ​is liable only to a subsequent holder of the instrument.
B) ​has a universal defense against it.
C) ​has a personal defense against it.
D) ​cannot avoid it.

Question 71

Fiona writes a check "pay to the order of Gerri" drawn on Fiona's account at Hearthstone Bank. Gerri presents the check for payment to Hearthstone, which accepts it. Primarily liable on the check is​

A) ​Fiona.
B) ​Gerri.
C) ​Hearthstone.
D) ​none of the choices.

Question 72

Lewis makes a note payable to Milly. She indorses the back of the note and negotiates it to Negotiable Investments, Inc. Primarily liable on the note is

A) ​none of the choices.
B) ​Milly.
C) ​Negotiable Investments.
D) ​Lewis.