Deck 18: Negotiability, transferability, and Liability

Question 1

An undated instrument is negotiable.

Answer 1

True

Question 2

To be negotiable,an instrument must include an unconditional promise to pay.

Answer 2

True

Question 3

Mortgage notes tied to a variable rate of interest are not negotiable.

Answer 3

False

Question 4

An instrument payable in the United States with a face amount stated in a foreign currency is not negotiable.

Question 5

An instrument including a clause that permits the date of maturity to be ex?tended by the maker for "no more than a reasonable time" is negotiable.

Question 6

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

Question 7

A notation on an instrument that it is "negotiable" is sufficient to render it negotiable.

Question 8

The location of a signature on an instrument is important.

Question 9

The party that holds an instrument "pay to the order of cash" is entitled to present the in?strument for payment.

Question 10

To be negotiable,an instrument must be written on high-quality,letter- or le?gal-size paper.

Question 11

A negotiable instrument serves as a substitute for cash.

Question 12

An instrument payable to the order of a specified person is negotiable.

Question 13

To be negotiable,an instrument must indicate an account to be charged.

Question 14

If the figures and the written amount on a check differ,the figures out?weigh the words.

Question 15

An order instrument is negotiated by delivery alone.

Question 16

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

Question 17

A negotiable instrument can be transferred by negotiation only.

Question 18

A holder is any person in possession of an instrument drawn,issued,or indorsed to his or her order or to bearer or in blank.

Question 19

An instrument that promises to pay "in gold" can be negotiable.

Question 20

A promise to give value in the future is normally sufficient to confer the rights of a holder in due course (HDC)on one in possession of a negotiable instrument.

Question 21

To borrow money to finance the start-up of a business,Prince executes an instrument in favor of Quay 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 22

A drawer's liability arises before presentment and notice of dishonor.

Question 23

Rita owes $6,000 in unpaid taxes.In the sand of Seaside Beach,she exe?cutes an instrument for that amount that otherwise meets the re?quire?ments for negotiability.This instrument is likely

A)negotiable.
B)nonnegotiable,because an instrument must be on paper.
C)nonnegotiable,because sand is not sufficiently permanent.
D)nonnegotiable,because the government does not appreciate it.

Question 24

A breach of contract is a defense against payment on a check to an ordi?nary holder.

Question 25

Jane orally promises to pay $400 to Kitchens 'n More Store.This is

A)a negotiable instrument.
B)a nonnegotiable instrument,because it is not in writing.
C)a nonnegotiable instrument,because the amount is within the Statute of Frauds.
D)a nonnegotiable instrument,because it does not recite consideration.

Question 26

A maker is secondarily liable on a promissory note.

Question 27

All presentment war?ranties apply to the drawer of a check.

Question 28

Gasqard owes $6,000 in unpaid taxes.On the back of an old shirt,he exe?cutes an instrument for that amount that otherwise meets the re?quire?ments for negotiability.This instrument is likely

A)negotiable.
B)nonnegotiable,because an instrument must be on paper.
C)nonnegotiable,because a shirt is not sufficiently permanent.
D)nonnegotiable,because the government does not appreciate it.

Question 29

If a note is payable on a legal holiday,payment is due on the next business day.

Question 30

Intentional destruction of a negotiable instrument cancels it.

Question 31

Fraud in the execution occurs whenever someone signs an instrument before all es?sential terms have been completed.

Question 32

An indorser is secondarily liable on an instrument.

Question 33

An instrument is dishonored when its acceptance is refused.

Question 34

An acceptor is secondarily liable on an instrument.

Question 35

An unauthorized signature never binds the person whose name is forged.

Question 36

For an ordinary holder to become an HDC,the person from whom the holder acquired a negotiable instrument must have acted in good faith.

Question 37

A person can become an HDC only by acquiring an instrument with no?tice of any defense against payment on it.

Question 38

Doug writes a check for $200 payable to Edwina on his account at Friendly Federal Credit Union.The credit union is

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

Question 39

A person whose name is forged on an instrument cannot avoid payment on the instrument to an HDC.

Question 40

A person can become an HDC only by acquiring an instrument with no?tice of any defect to it.

Question 41

Ida executes an instrument in favor of Joy that states,"The holder of this note at the date of maturity,July 1,2010,can extend the time of pay?ment indefinitely,if the holder so desires." After July 1,2010,this in?strument is

A)a bearer instrument.
B)a demand instrument.
C)a nonnegotiable instrument.
D)an order instrument.

Question 42

Kelly signs an instrument in favor of Len 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 43

Ivan signs a promissory note payable to Jade on which Ivan conspicuously notes that it is "not negotiable" and gives the note to Jade.This instru?ment is

A)negotiable.
B)nonnegotiable,because it includes the notation "not negotiable."
C)nonnegotiable,because it is a promissory note.
D)nonnegotiable,because it was given to Jade.

Question 44

Lucy is the maker of a $1,000 promissory note in favor of Milo.Milo indorses the note to Nim who,in turn,indorses it to Opie,the present holder.If the note is dishonored,the party entitled to re?cover pay?ment from Nim is

A)Lucy.
B)Milo.
C)Opie.
D)no one.

Question 45

Paco signs an instrument payable in installments to the order of Quik Cash,Inc. ,that allows a holder to demand payment of the entire amount due,with inter?est,if Paco fails to make a payment.This instrument is

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

Question 46

Reel Time Film Production Company issues a promissory note as a demand instrument with a due date of October 5.Syncopated Loan Company accepts the note.Syncopated has notice that the note is overdue if the firm takes the note

A)an unreasonable time after October 5.
B)before October 5.
C)on or after October 5.
D)on or before October 5.

Question 47

On January 1,Klancy issues a note payable to Lorena on May 1.On April 29,Klancy dies.In this situation

A)the note is considered dishonored.
B)the payment on the note is due immediately.
C)the payment on the note is postponed indefinitely.
D)the required presentment is excused.

Question 48

Edie signs a check payable to the order of First Federal Bank,filling in the blanks for the amount with the figures "$100" and "One thousand and 00/100 dol?lars." This check is payable in the amount of

A)$0.
B)$100.
C)$1,000.
D)$1,100.

Question 49

Ilsa wants to negotiate a bearer instrument in her possession to Jia for an order instrument in Jia's possession.Indorsements are required to negotiate

A)bearer instruments and order instruments.
B)bearer instruments only.
C)neither bearer instruments nor order instruments.
D)order instruments only.

Question 50

Ebony possesses an instrument that is "payable to bearer." She loses it.Fyodor finds it.On this instrument,Fyodor may

A)collect payment.
B)not collect payment,because he did not give value for it.
C)not collect payment,because he found it.
D)not collect payment,because he is not the "bearer."

Question 51

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

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

Question 52

Jack signs an instrument that states it is being executed "in accord with a contract for the sale of three magic beans dated July 1." This instru?ment is

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

Question 53

Gina writes and signs a check payable to "Happy Market." Irma,Happy'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 54

On behalf of Platinum Assets,Inc. ,Quigley signs an instrument promising to pay $5,000 in gold to Resources Exchange,Inc. ,on September 10.This in?strument is

A)negotiable.
B)nonnegotiable,because gold is not "a medium of exchange author?ized or adopted by a domestic or foreign government as part of its currency."
C)nonnegotiable,because it does not recite any consideration.
D)nonnegotiable,because it is for an amount of $500 or more.

Question 55

Valley Properties,Inc.(VPI),signs an instrument in favor of Wellspring Finance Corporation that includes the statement "VPI plans to pay this debt from the proceeds of the sale of the VPI Office Building in Xibalba,Mexico." This instrument is

A)negotiable.
B)nonnegotiable,because banks cannot easily process office buildings.
C)nonnegotiable,because it refers to a separate sale.
D)nonnegotiable,because Xibalba is in Mexico,not the United States.

Question 56

On behalf of Medical Imaging Company,Nonny signs an instrument in which she promises to deliver an MRI scanner to Openheart Cardia Clinic on June 1.This instrument is

A)negotiable.
B)nonnegotiable,because an MRI scanner is not "a medium of exchange author?ized or adopted by a domestic or foreign government as part of its currency."
C)nonnegotiable,because it does not indicate a specific brand of MRI scanner.
D)nonnegotiable,because it does not recite any consideration.

Question 57

Patch-It Roofing Company receives a check from Quik Mart for fixing its roof,and indorses the check to Repair Supplies,Inc.(RSI).Sam,RSI's owner,gives the check to Todd as a gift.In this situation,the party who is not an HDC of the check but who acquires HDC rights under the shelter principle is

A)no one.
B)Patch-It Roofing.
C)Sam.
D)Todd.

Question 58

Wyatt inherits a promissory note from Xena,his aunt.Wyatt has no no?tice that the note has been dishon?ored or is over?due.Wyatt has the rights of

A)a holder and an HDC.
B)a holder only.
C)an HDC only.
D)neither a holder nor an HDC.

Question 59

Julie's Juice Bar receives daily shipments of dairy products from Kelso Dairy,Inc.The price is $900 per month.Julie's pays six months in ad?vance with a note for $5,400.One month later,Kelso sells the note to Littleton Bank for $5,100.At the time the note is sold,Kelso is

A)an HDC for $5,400.
B)an HDC for $5,100.
C)an HDC for $900.
D)not an HDC.

Question 60

Julie signs a check payable to the order of Kwik-Mart Stores,Inc. ,that does not include a date.This check is

A)negotiable.
B)nonnegotiable,because it does not include a date.
C)nonnegotiable,because it is payable to Kwik-Mart.
D)nonnegotiable,because it is signed by Julie.

Question 61

Moe,the owner of NeverSayNo Sales Company,stores blank NeverSayNo checks in an unlocked office drawer.Owen,an employee,forges Moe's signature on one of the blank checks and indorses it to Payday Loans,Inc.With re?spect to Payday,Moe

A)is definitely liable.
B)is definitely not liable.
C)may be liable if the forgery is not obvious.
D)may be liable if the storage of the checks facilitated the forgery.

Question 62

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

Question 63

Qacy signs a check payable to Regal Investors,Inc. ,and gives it to Regal,leaving the amount blank but authorizing Regal to fill in the check for $1,000.Regal fills in $1,500 and negotiates the check to State Bank,to whom Regal owes $1,500.State Bank,an HDC,can enforce the check for

A)$0.
B)$500.
C)$1,000.
D)$1,500.

Question 64

Francois,who is not a Giant Bank customer,attempts to cash a check drawn on the bank,but the bank refuses to cash the check.The check is considered dishonored if its payment is postponed or refused because Francois

A)did not present the check for payment on time.
B)presented the check after the bank's established cutoff hour.
C)refused to give reasonable identification.
D)would not sign a receipt for the payment on the check.

Question 65

Chris convinces Dion,who does not understand English,to sign a $1,000 note that Dion believes is an application for a credit card.Chris negotiates the note to EverLend Finance Company.Dion

A)can avoid payment on the note even if EverLend is an HDC.
B)can avoid payment on the note only if EverLend is a holder.
C)must pay EverLend the amount that it paid for the note.
D)must pay the note in full.

Question 66

Tina indorses a check.Tina is potentially liable for

A)any amount paid on the check after Tina indorsed it.
B)any amount paid on the check at any time.
C)any amount paid on the check before Tina indorsed it.
D)the amount paid to Tina when she indorsed the check.

Question 67

Delores's Restaurante borrows $100,000 at 6 percent interest from El Credito y Dinero Company and signs a promissory note for that amount.El Credito changes the amount of the note to $120,000 and increases the rate to 8 per?cent.Delores's best defense against payment on the note is

A)breach of warranty.
B)failure of consideration.
C)material alteration.
D)nondelivery of an instrument.

Question 68

Nina is an administrative assistant with Open Pit BBQ Corporation,but has no authority to sign Open Pit checks.Nina orders merchandise from Pleasant Retail Company delivered to her home and pays with an Open Pit check,signing "Open Pit BBQ Corp.by Nina,admin.assist." Pleasant does not know that Nina has no authority to sign the check.Who is liable on the check,and why?

Question 69

Fact Pattern 18-1
Prime Irrigation Systems,Inc. ,signs a check payable to Qwest Landscape Design,Inc. ,drawn on Prime's account at Riverton Bank and dated June 1.Qwest in?dorses the check to Serene Lawn Care Corporation.
Refer to Fact Pattern 18-1.To hold Prime secondarily liable,Serene must present the check for payment within

A)one year of its issue.
B)six months of its date.
C)thirty days of its date.
D)thirty days of its indorsement.

Question 70

Fact Pattern 18-1
Prime Irrigation Systems,Inc. ,signs a check payable to Qwest Landscape Design,Inc. ,drawn on Prime's account at Riverton Bank and dated June 1.Qwest in?dorses the check to Serene Lawn Care Corporation.
Refer to Fact Pattern 18-1.To hold Qwest secondarily liable,Serene must pre?sent the check for payment within

A)one year of its issue.
B)six months of its date.
C)thirty days of its date.
D)thirty days of its indorsement.

Question 71

Vibrant Company gives a $3,000 promissory note to White Van Delivery Service to de?liver a load of computer chips to Vibrant's plant.The chips are contami?nated during transit,and are useless to Vibrant on delivery.Vibrant's best defense against payment on the note is

A)breach of warranty.
B)failure of consideration.
C)material alteration.
D)nondelivery of an instrument.

Question 72

Twyla buys a used car for $10,000 under an express warranty from U-Drive Autos.Twyla pays $2,000 and signs a negotiable promissory note for $8,000.The car does perform as warranted.Twyla returns the car,asks U-Drive to refund the $2,000,and seeks to cancel the contract.Twyla

A)can assert breach of warranty to avoid payment on the note.
B)can force U-Drive to sell the note to her for the amount of the refund.
C)must pay the note if U-Drive refuses to cancel the contract.
D)must pay the note if U-Drive refuses to refund the $2,000.