Deck 18: Negotiable Instruments: Transferability Liability

Question 1

A promissory note can be a negotiable instrument.

Answer 1

True

Question 2

A check is not negotiable if it is payable on demand.

Answer 2

False

Question 3

An instrument "payable to bearer" is transferable but not negotiable.

Answer 3

False

Question 4

A bearer instrument is an instrument that does not designate a specific payee.

Question 5

A signature must be the full name of a party.

Question 6

Instruments that say nothing about when payment is due are payable on demand.

Question 7

A maker of an instrument that is payable at a definite time does not have the option of paying before the stated date.

Question 8

An instrument payable "with ten hours of services" is negotiable.

Question 9

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

Question 10

An instrument "payable to bearer" is negotiated by delivery.

Question 11

To be negotiable, an instrument must be payable in a fixed amount.

Question 12

An instrument that states simply "I.O.U." is not negotiable.

Question 13

A special indorsement names the indorsee.

Question 14

A personal check cannot be a negotiable instrument.

Question 15

On a trade acceptance, the drawer is also the payee.

Question 16

A time draft is payable on sight.

Question 17

A holder takes an instrument for value if he or she gives a check as pay?ment for it.

Question 18

Rubber stamp signatures can be legally binding signatures.

Question 19

A promise to give value in the future is sufficient to confer the rights of an HDC on one in possession of a negotiable instrument.

Question 20

Stating on an instrument the underlying terms of an agreement renders the instrument nonnego?tiable.

Question 21

A person who acquires an instrument knowing that the instrument contains an unauthorized signature can still be afforded HDC protection.

Question 22

Universal defenses are good against all holders except HDCs and holders through HDCs.

Question 23

A fictitious payee is a payee on a negotiable instrument whom the maker or drawer does not intend to have an interest in the instrument.

Question 24

When an instrument is dishonored, only written notice is sufficient to hold secondary parties liable.

Question 25

When there is a breach of an underlying contract for which an instrument was issued, the maker of a note can refuse to pay it.

Question 26

The good faith requirement applies to both the holder and the transferor.

Question 27

A drawer who is induced by an imposter to issue a check in the name of an impersonated payee can avoid payment on the check to an innocent holder.

Question 28

Sarah has a checking account at Secure Bank. Sarah buys her roommate Sophie's two tickets to a Broadway musical for $200. Sarah writes Sophie a check for the tickets. In this situation, Secure Bank is the

A) drawee.
B) indorser.
C) payee.
D) drawer.

Question 29

Primary liability is unconditional.

Question 30

To obtain a business license, Bess writes a check to a certain state agency. Bess is

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

Question 31

To obtain office supplies for All-Care Medical Clinic, Britney executes a draft in favor of Chris. A draft is

A) a conditional promise to pay money.
B) an unconditional written order to pay money.
C) a qualified promise to set aside a sum of money.
D) a restricted promise to deliver goods at a future date.

Question 32

A person who transfers an instrument for consideration makes certain warranties to the transferee.

Question 33

InterComp normally sells $50,000 worth of software to Power Source, a retail elec?tronics store, each summer on terms requiring payment in sixty days. One year, InterComp wants cash, but Power Source wants the usual sixty days. To meet both needs, the parties can arrange

A) a certificate of deposit.
B) a bearer bond.
C) a trade acceptance.
D) an international letter of credit.

Question 34

The drawee who signs a draft or check is not primarily liable to any subsequent holders.

Question 35

Personal defenses are used to avoid payment to an ordinary holder of a negotiable instrument, but not to an HDC or a holder through an HDC.

Question 36

A person cannot become an HDC if a defense against payment is appar?ent on the face of the instrument.

Question 37

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

Question 38

When an instrument has a forged indorsement, the loss usually falls on the party whose indorsement was forged.

Question 39

On April 1 Richard arranges to buy a sixteen-speed bike from his neighbor Phil for $500. Phil agrees to deliver the bike on May 1. Richard writes a draft for $500 payable to Phil on May 1. In this situation, the draft is a

A) certificate of deposit.
B) time draft.
C) sight draft.
D) promissory note.

Question 40

An ordinary holder can recover nothing on an instrument that has been materially altered.

Question 41

Kelly signs an instrument in favor of Leo that states it is "subject to a cer?tain agreement between Kelly and Mona." This instru?ment is

A) negotiable.
B) nonnegotiable, because it is made subject to a separate agreement.
C) nonnegotiable, because it refers to a separate agreement.
D) nonnegotiable, because Kelly and Mona are not the same persons.

Question 42

If a bank is both the drawer and the drawee with regard to a draft, then the draft is a

A) certificate of deposit.
B) cashier's check.
C) nonnegotiable instrument.
D) promissory note.

Question 43

Maria signs an instrument payable to the order of National Loans, Inc., "on or before" June 15. This instrument is

A) negotiable.
B) nonnegotiable, because the maker can move up the payment date.
C) nonnegotiable, because moving up the payment date is optional.
D) nonnegotiable, because the exact payment date cannot be deter?mined from the face of the instrument.

Question 44

To borrow money to finance the start-up of his business, Bob executes an instrument in favor of City Bank. For the instru?ment to be negotiable, the signature must be

A) anywhere on the instrument.
B) anywhere on the lower half of the instrument only.
C) in the lower left-hand corner of the instrument only.
D) in the lower right-hand corner of the instrument only.

Question 45

Fred has six nieces, ages five to sixteen. He writes an order instrument for $50 that states, "Pay to the order of my niece." The order instrument is

A) negotiable.
B) nonnegotiable, because the amount of money is less than $500.
C) nonnegotiable, because it is illegal to write an order instrument payable to a relative.
D) nonnegotiable, because there is no specific person identified.

Question 46

At 1
A) acquired the note with notice that it was overdue.

A)m., on the sidewalk in front of Ace Credit Corporation, which is closed, Ben buys a $500 promissory note for $50 from Curt. When pre?sented with Ben's demand for payment, Diann, the maker of the note, could successfully claim that Ben
B) did not acquire the instrument in good faith.
C) did not give value for the instrument.
D) none of the choices.

Question 47

To buy a stuffed cow, Ken executes a check "pay to Laura or bearer" and gives it to Laura, who does not own a stuffed cow. This check is

A) negotiable.
B) nonnegotiable, because it does not indicate a specific payee.
C) nonnegotiable, because it may be a joke.
D) nonnegotiable, because Laura does not own a stuffed cow.

Question 48

Ralph signs an instrument promising to pay a total of $10,000 to Martha in $1,000 monthly installments with the final payment being made on August 1. Ralph unexpectedly inherits $10,000 from his aunt on May 15. Ralph may

A) not complete his $10,000 payment before August 1.
B) complete his $10,000 payment before August 1.
C) increase his monthly payments by five percent, but not more.
D) increase his monthly payments by ten percent, but not more.

Question 49

Jill, in good faith and for value, gets from Kiley a negotiable bearer in?stru?ment. Jill does not know that Kiley stole the instrument. Jill is

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

Question 50

Willy deposits $5,000 with Home State Bank on July 1, 2012. Home State Bank promises to repay Willy the $5,000 plus 3 percent annual interest on July 1, 2017. Home State Bank has issued Willy a

A) certificate of deposit.
B) cashier's check.
C) trade acceptance.
D) draft.

Question 51

Muni Investment Company signs a check payable to Enterprise Lenders, Inc., to buy a promissory note executed by Fallow Corporation. This check

A) does not constitute sufficient consideration for HDC status.
B) does not satisfy the value requirement for HDC status.
C) satisfies the consideration requirement for HDC status.
D) satisfies the value requirement for HDC status.

Question 52

Kris wants one of Jasmine's purebred Persian kittens. Kris signs an instrument in which she promises to pay Jasmine for a kitten. The instrument will be negotiable if it is payable in

A) goods of equal market value.
B) money.
C) any of the choices.
D) shares in stock.

Question 53

Jeff's grandmother is the payee of a promissory note for $7,500. Jeff's grandmother gives Jeff the note for his sixteenth birthday. Jeff is

A) an HDC.
B) not an HDC, because he received the note as a gift.
C) not an HDC, because he is a minor.
D) not an HDC, because the note was for less than $10,000.

Question 54

Karen writes on a piece of paper, "I owe you $600," signs it, and gives it to Lou. This instrument is

A) negotiable.
B) nonnegotiable, because it does not include an express promise to pay.
C) nonnegotiable, because it does not recite any consideration.
D) nonnegotiable, because it does not state any conditions to payment.

Question 55

Beth, an accountant for Credits & Debits, acquires a negotiable instru?ment from Ellen by promis?ing to pay its face value in thirty days. Beth ac?quires the status of an HDC when she

A) acquires possession of the negotiable instrument.
B) agrees with Ellen to buy the negotiable instrument.
C) pays the face value due on the instrument.
D) transfers the instrument to another party.

Question 56

Efron transfers an instrument to First Citizens Bank. This is not a negotiation unless

A) the parties bargained over the amount paid for the instrument.
B) the transfer is an assignment.
C) the instrument is a negotiable instrument.
D) the transfer includes rights under a contract.

Question 57

Alpha Company issues a trade acceptance with itself and Beta Company as parties. A trade acceptance is

A) a draft.
B) an order to accept delivery of money.
C) a promise to accept delivery of goods.
D) a promise to deliver goods.

Question 58

Entrepreneur Auto Rentals owes Sole Saver Auto Dealership $2,000. Entrepreneur executes a note to Sole Saver as security for the debt. This security

A) does not constitute sufficient consideration for HDC status.
B) does not satisfy the value requirement for HDC status.
C) satisfies the consideration requirement for HDC status.
D) satisfies the value requirement for HDC status.

Question 59

Ron signs an instrument using an "R" with a circle around it. With this mark for a signature, the instrument is

A) negotiable.
B) nonnegotiable, because an initial does not state the signer's name.
C) nonnegotiable, because an initial is not a signature.
D) nonnegotiable, because a simple initial implies a lack of binding intent.

Question 60

Elinor performs ten hours of house cleaning for Zack in exchange for a promissory note for $400. At the time that Elinor accepts the note, she is aware that bankruptcy proceedings are being filed against Zack. Elinor

A) can obtain HDC status.
B) cannot obtain HDC status, because she knows that there are bankruptcy proceedings against Zack.
C) cannot obtain HDC status, because she did not fulfill the value requirement.
D) cannot obtain HDC status, because she did not fulfill the good faith requirement.

Question 61

Rubin writes a check drawn on his account at Clearwater Bank and payable to the order of Gwyn. The bank does not pay the check. Rubin is

A) absolved of liability on the check.
B) liable to Gwyn for the amount of the check.
C) liable to the bank for the amount of the check.
D) entitled to payment of the amount of the check from Gwyn.

Question 62

Opalina asks Paolo, who does not understand English, to sign what Opalina says is an application to open a bank account. In fact, the "application" is a note. If sued on the note by an HDC

A) Paolo must pay the note.
B) Paolo's best defense would be fraud in the execution.
C) Paolo's best defense would be fraud in the inducement.
D) Paolo's best defense would be mistake.

Question 63

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) nothing.
B) primary.
C) secondary.
D) conditional.

Question 64

Cash National Bank is an HDC of a note for $1,000 on which there is the forged signature of "Dudley." If sued on the note by Cash

A) Dudley must pay the note.
B) Dudley's best defense would be fraud in the execution.
C) Dudley's best defense would be material alteration.
D) Dudley's best defense would be forgery.

Question 65

Ada is the maker of a note, on which Bart is secondarily liable. Cash & Credit Company (C&C) is the current holder of the note. Bart will be obli?gated to pay the note if

A) Ada defaults on the note.
B) C&C breaches a transfer warranty.
C) C&C negotiates the note to Delta Collection Agency, a third party.
D) C&C presents the note for payment.

Question 66

Commercial Credit Company has in its possession an instrument dated May 1, 2012. The instrument is payable to the order of Alpha Company "on June 1, 2013," 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, 2012." On the back is the signature of "Alpha Company By Gail, President." 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 67

Wilson buys a promissory note from Oli. The note is due on December 5. December 5 is a Sunday. The note is

A) payable anytime the week of December 6.
B) payable December 6.
C) payable on December 5 only.
D) defective.

Question 68

Stature Loan Company has notice that a promissory note is overdue if the note is a demand instrument and Stature takes it

A) an unreasonable time after its due date.
B) before its due date.
C) on its due date.
D) without noticing its due date.

Question 69

Burt, a mentally impaired person, is asked by Carl to sign a piece of pa?per that Carl says is an autograph book. In fact, the document is a note. If later sued on the note by an HDC

A) Burt must pay the note.
B) Burt's best defense would be fraud in the execution.
C) Burt's best defense would be fraud in the inducement.
D) Burt's best defense would be mistake.

Question 70

Dewey is the payee for a check written by Fred. Cash Credit Corporation (CCC) accepts the check from Dewey as part of a payment. CCC cannot become a HDC if

A) the check has been transferred more than once.
B) the check has been outstanding for one week.
C) the check has been outstanding for more than ninety days.
D) there are bankruptcy proceedings against Fred.

Question 71

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 no?tice of Fund Investments' act. Hasty later learns that Fund Investments was not author?ized to fill in the check for $1,000 over the price. Is Hasty an HDC? If so, for how much?

Question 72

Jackson pays Phil in good faith for a promissory note. Phil warrants that the draft has not been altered. This warranty is a

A) presentment warranty.
B) consideration warranty.
C) conditional warranty.
D) fixed warranty.