Deck 16: Negotiability,transferability,and Liability

Question 1

A conditional promise to pay is not a negotiable instrument.

Answer 1

True

Question 2

An instrument is nonnegotiable unless the word "negotiable" is printed on it.

Answer 2

False

Question 3

A certificate of deposit may be negotiable even if it does not contain an express promise to pay.

Answer 3

True

Question 4

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

Question 5

Normally,if the numerical amount and the written amount on a check differ,the words outweigh the figures.

Question 6

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

Question 7

A payee whose name is misspelled on an instrument cannot indorse the instrument.

Question 8

The recipient of a negotiable instrument becomes a holder regardless of the form of the transfer.

Question 9

An instrument payable to two persons jointly requires the indorsement of only one of the payees for negotiation.

Question 10

An instrument payable "with interest" must specify a particular rate to be negotiable.

Question 11

A blank indorsement specifies no particular indorsee.

Question 12

A check "payable to the order of bearer" is neither an order instrument nor a bearer instrument.

Question 13

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

Question 14

A person who receives an instrument as a gift normally possesses the rights of an HDC.

Question 15

To be negotiable,an instrument must be signed in the lower right-hand corner.

Question 16

A holder takes an instrument for value by performing the promise for which the instrument was issued.

Question 17

An order stating "I wish you would pay" is sufficient to create a negotiable instrument.

Question 18

A certificate of deposit is a type of draft.

Question 19

A time draft is payable at a definite future time.

Question 20

A signature can consist of initials signed by a party.

Question 21

The dishonor of an instrument relieves secondary parties of liability.

Question 22

An alteration of an instrument is material if it changes the terms between two parties in any way.

Question 23

An instrument is not defective simply because it is overdue.

Question 24

Fact Pattern 16-1
Ewa signs an instrument unconditionally promising to pay to “First State Bank” $5,000 with interest in installments with the final payment due June 1, 2012.


-Refer to Fact Pattern 16-1.With respect to this instrument,First States Bank is

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

Question 25

The completion of an originally incomplete instrument in an unauthorized manner is a defense against payment on the instrument to an HDC.

Question 26

When an instrument has a forged indorsement,the loss usually falls on the first party to take the instrument.

Question 27

If a note is payable in thirty days,payment is due by midnight on the thirtieth day.

Question 28

Transfer warranties attempt to impose liability on the wrongdoer or the party who dealt most immediately with the wrongdoer.

Question 29

Presentment warranties protect the person who presents an instrument for payment.

Question 30

A drawer is primarily liable on an instrument.

Question 31

An unauthorized signature binds the person whose name is forged.

Question 32

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 10,2040.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 33

To finance the purchase of a car from Giant Auto Sales,Hoppy signs an instrument promising to pay to "Ideal Credit Union" $18,000 with interest in installments with the final payment due May 15,2014.To be negotiable,this instrument must include on its face

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

Question 34

An instrument is not defective because it has been previously dishonored.

Question 35

Fact Pattern 16-1
Ewa signs an instrument unconditionally promising to pay to “First State Bank” $5,000 with interest in installments with the final payment due June 1, 2012.



-Refer to Fact Pattern 16-1.The instrument that Ewa signed is most likely

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

Question 36

A lack or failure of consideration is no defense to payment of a negotiable instrument to any holder.

Question 37

When the drawee of an unaccepted draft or check pays to a holder the amount due in full,all parties to the instrument are discharged.

Question 38

A person whose name is forged on an instrument is liable to pay only a holder in due course the value of the forged instrument.

Question 39

A maker is secondarily liable on an instrument.

Question 40

USA Oil Corporation signs an instrument that states it is being executed "in accord with a contract for the purchase of 4,000 barrels of oil dated May 1." This instrument is

A)negotiable.
B)nonnegotiable,because information about the sale must be obtained from another source.
C)nonnegotiable,because it states an express condition to payment.
D)nonnegotiable,because the terms of the sale are not clear.

Question 41

EZ Credit Company signs an instrument payable to the order of Flem that states,"The maker of this note at the date of maturity,May 1,2013,can extend the time of payment,but for no more than a reasonable time." This instrument is

A)negotiable.
B)nonnegotiable,because it includes an extension clause.
C)nonnegotiable,because it is not payable at a definite time.
D)nonnegotiable,because it is payable to a specific payee.

Question 42

Petra signs a check payable to Quincy,who indorses the back,gives it to Regional Credit Union,and receives cash.The transfer of the check from Quincy to the credit union is

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

Question 43

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

A)an extraordinary holder in due course.
B)an ordinary check passer.
C)an ordinary holder.
D)an ordinary holder in due course.

Question 44

Vladimir negotiates a bearer instrument to Wendy by

A)assignment.
B)delivery.
C)presenting it in response to a demand by Wendy.
D)promising to pay.

Question 45

Superior Company draws a check payable to Ted.Uri makes a note payable to Vital Finance Corporation.Primarily liable parties include

A)neither Superior nor Uri.
B)Superior and Uri.
C)Superior only.
D)Uri only.

Question 46

Owen is a holder of a promissory note obtained from Purchase Money,Inc.Regarding the defenses against payment of the note to which Purchase Money is subject,Owen,as an ordinary holder,is subject to

A)more defenses.
B)no defenses.
C)some defenses,but not as many.
D)the same defenses.

Question 47

Tyrone draws a check payable to "Cash" and presents it to United Bank for payment.This instrument is

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

Question 48

Biff signs a note "payable to the order of County Credit Union." Unless Biff has a valid defense against payment,Biff's liability on this note is

A)lateral.
B)primary.
C)secondary.
D)tertiary.

Question 49

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 50

To pay for a new desk bought at Office Outlet,Pete makes a check payable to "Offs Outlet." A proper indorsement of the check is

A)"Office Outlet" only.
B)"Offs Outlet" only.
C)"Office Outlet" or "Offs Outlet."
D)"Pete" only.

Question 51

Ray signs a promissory note for $10,000 in favor of State University (SU).The note does not specify the date of its payment.Ray defaults.In SU's suit to collect on the note,the court will most likely rule in favor of

A)Ray,because SU assumed the risk that the note would not be paid.
B)Ray,because the note is not payable at a definite time or on demand.
C)SU,because the note is an unconditional promise to pay the holder.
D)SU,because there is a uniform "default time" for repayment when a date is not specified.

Question 52

Todd indorses a check,"Pay to Interstate Trucking if they deliver the lumber by May 1,2013." This is

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

Question 53

Kris transfers a note,on which Liu is the maker,to Mia,who takes it for value and in good faith.Mia knows that Kris breached the contract underlying the note,giving Liu a defense against payment.With respect to this note,Mia is

A)a knowledgeable holder in due course.
B)an ordinary holder.
C)an ordinary holder in due course.
D)an ordinary note taker.

Question 54

Quincy draws a check payable to "Replay Stadium" to buy two season tickets to the next year's State College football games.This instrument is

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

Question 55

Pola wants to transfer a check to Quin.The check is defective if it

A)has been previously dishonored.
B)has no irregularities on its face.
C)is not overdue.
D)is so complete that no element of negotiability is lacking.

Question 56

On May 1,Dooley signs a check that is payable to the order of Extra Credit Corporation and that is dated July 1.This check is

A)negotiable.
B)nonnegotiable,because it is payable to Extra Credit Corporation.
C)nonnegotiable,because it is postdated.
D)nonnegotiable,because it is signed by Dooley.

Question 57

Ollie negotiates an order instrument to Phil by

A)assignment of its rights under a contract.
B)delivery with any necessary indorsement.
C)making an unconditional promise to pay.
D)presenting it in response to a demand by B.

Question 58

Wilbur signs a note that includes a clause under which the note's holder can delay the date of its payment indefinitely.This is

A)an acceleration clause.
B)an extension clause.
C)an immaturity clause.
D)a stop-payment clause.

Question 59

Opal signs a promissory note payable to the order of Payday Loan Company.The note states that it is payable "with interest at the legal rate." This note is

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

Question 60

Nina wants to transfer a check to Opie.The check is not defective if it

A)has an obvious irregularity on its face.
B)has been previously honored.
C)is incomplete so that an element of negotiability is lacking.
D)is overdue.

Question 61

Bob writes a check on his account at County Bank to Dona,a famous singer.The person claiming to be Dona is an imposter,however,named Edy.Edy indorses the check to Frank,for whom County Bank cashes it.Ultimately,the loss will most likely fall on

A)Bob.
B)County Bank.
C)Dona.
D)Frank.

Question 62

Opal asks Paolo,who does not understand English,to sign what Opal says is an application to open a bank account.In fact,the "application" is a note.If sued on the note by an HDC,Paolo's best defense would be

A)extreme duress.
B)fraud in the execution.
C)fraud in the inducement.
D)mistake.

Question 63

Don writes a check to Eve drawn on Don's account at First Bank.Eve presents the check for payment to First Bank,which accepts it.The bank is

A)not liable for payment.
B)primarily liable for payment.
C)secondarily liable for payment.
D)simultaneously liable,with Don,for payment.

Question 64

Eppie gives a check to Fund Investments to buy 100 shares of stock in GR8 Tech Corporation for Eppie.The price of the shares is constantly fluctuating.Fund Investments asks Eppie to leave the amount of the check blank and allow it to fill in the price when making the purchase.Eppie agrees.Fund Investments buys the stock when the price is $4,000,but fills in the check for $5,000.The check is negotiated as payment for a $5,000 debt to Hasty Accounting Services,which takes the check in good faith and without notice of Fund Investments's act.Hasty later learns that Fund Investments was not authorized to fill in the check for $1,000 over the price.Is Hasty an HDC? If so,for how much?

Question 65

State Bank receives a check drawn by Tricia.The check is received after the established "cutoff" hour.Payment can be postponed without dishonor

A)indefinitely.
B)under no circumstances.
C)unless Tricia personally demands acceptance.
D)until the close of the next business day.

Question 66

Fact Pattern 16-2
Jake is the maker of a $2,000 promissory note payable to Kim. Kim indorses the note to Lou who, in turn, indorses it to Mona, who then in¬dorses it to Nat, the present holder.



-Refer to Fact Pattern 16-2.Suppose that Mona pays Nat on the note.With timely notice to the proper parties,Mona may collect payment on the note from

A)Jake,Kim,or Lou.
B)Jake or Kim only.
C)Lou only.
D)no one.

Question 67

Nero signs a check "pay to the order of Olive" drawn on Nero's account in Plum Bank.Olive signs the back of the check.Secondary liability on this check extends to

A)Nero and Olive only.
B)Nero and Plum Bank only.
C)Nero only.
D)Plum Bank only.

Question 68

Vera gives Willy a $500 check as payment for a debt.Willy crudely raises the amount of the check to $5,000 and transfers it to Xtreem Sportz store for a new bike.Xtreem deposits the check in its Yankee Bank account.Vera is liable for the payment of $5,000 to

A)no one.
B)Willy,Xtreem Sportz,and Yankee Bank.
C)Willy only.
D)Xtreem Sportz and Yankee Bank only.

Question 69

Fact Pattern 16-2
Jake is the maker of a $2,000 promissory note payable to Kim. Kim indorses the note to Lou who, in turn, indorses it to Mona, who then in¬dorses it to Nat, the present holder.



-Refer to Fact Pattern 16-2.Nat properly presents the note to Jake for payment,but Jake dishonors it.With timely notice to the proper parties,Nat may collect payment on the note from

A)Kim,Lou,or Mona.
B)Kim or Lou only.
C)Mona only.
D)no one.

Question 70

GR8 Products,Inc. ,warrants its goods to be free of defects.If Heck issues an instrument to obtain goods from GR8 that prove defective,Heck can avoid paying on the instrument

A)only if it is a check.
B)only if it is a note.
C)whether it is a check or a note.
D)under no circumstances.

Question 71

Commercial Credit Company has in its possession an instrument dated May 1,2009.The instrument is payable to the order of Alpha Company "on June 1,2009," for $5,000.In the upper left corner is an address for Beta Corporation-10 Corporate Park Avenue,Chicago,Illinois-and in the lower right corner is the signature of "Delta,Inc. ,By Eve,President." In the lower left corner is stamped "ACCEPTED: Beta Corporation by Frank,President,May 5,2009." On the back is the signature of "Alpha Company by Gail,President." What type of instrument is this? Is it negotiable? Who,if anyone,is primarily liable on this instrument on May 1? On May 5? Who,if anyone,is secondarily liable on this instrument?

Question 72

Rodeo Ranch's agent Slim is authorized to draw checks on Rodeo Ranch's account in Town Bank.Upper Range Corporation is a Rodeo Ranch supplier.Slim writes a check "pay to the order of Upper Range [signed] Slim," indorses the check in Upper Range's name,and deposits it in his account in Verity Bank.If Verity Bank collects payment,the ultimate party most likely to suffer the loss is

A)no one.
B)Rodeo Ranch.
C)Town Bank.
D)Upper Range.