Question 1

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.

Accepted Answer

The answer of Kris transfers a note,on which Liu is...

Question 2

Cici signs a check "pay to the order of Doug" drawn on Cici's account in Eastside Bank.Cici shows the check to Frederica,who agrees that the signature is Cici's and that Doug is owed the amount that the check represents.Doug signs the back of the check.Liability on this check extends to​ 
A) ​Cici, Doug, and Eastside Bank. 
B) ​Cici and Doug only. 
C) ​Cici and Frederica only. 
D) ​Frederica only.

Accepted Answer

Once Doug endorses the check by signing the back, he becomes the legal owner of the check and can deposit or cash it. The liability for the check, however, remains with Cici, the account holder, and Doug, the payee who endorsed it. Frederica, who only verified the signature and the amount owed, does not assume any liability for the check. Eastside Bank is not liable either since they only provide the banking services and do not endorse the check or participate in the transaction beyond processing it.

Question 3

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.

Accepted Answer

The check from Muni Investment Company constitutes sufficient value for HDC status because it represents the purchase price of the promissory note executed by Fallow Corporation. The consideration requirement for HDC status is satisfied when there is a promise to pay, a transfer of value, or an exchange of promises to pay.

Question 4

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.

Accepted Answer

The answer of Jen makes a gift of a check...

Question 5

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.

Accepted Answer

The answer of Elinor performs ten hours of house cleaning...

Question 6

Darwin writes a check to Education Loan Management,Inc.,that is drawn on Darwin's account at First Federal Bank.If the bank does not accept the check,liability for its amount is on 
A) ​Darwin. 
B) ​Education Loan Management. 
C) ​First Federal Bank. 
D) ​no one.

Accepted Answer

The liability for the amount of the check is on Darwin since he is the drawer of the check and has the responsibility to ensure that there are sufficient funds in his account to cover the check. If the bank does not accept the check, Darwin will be responsible for providing alternative payment.

Question 7

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 Medical Account Collection Agency. 
D) ​suspended until payment is due.

Accepted Answer

By signing a note payable to a third-party, Lenora becomes immediately liable for payment unless she has a valid defense against payment. Therefore, her liability is immediate.

Question 8

Paula wants to transfer a check to Quinn.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.

Accepted Answer

A check that has been previously dishonored is considered defective and cannot be transferred to Quinn.

Question 9

Wilson buys a promissory note from Ollie.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) ​considered defective.

Accepted Answer

If the note is due on December 5 and that day is a Sunday, then it would be payable on the next business day, which is December 6. Therefore, choice B is the correct option.

Question 10

Elinor performs ten hours of house cleaning for Floyd 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 Floyd.Elinor can 
A) ​obtain HDC status. 
B) ​not obtain HDC status, because she knows that there are bankruptcy proceedings against Floyd. 
C) ​not obtain HDC status, because she did not fulfill the value requirement. 
D) ​not obtain HDC status, because she did not fulfill the good faith requirement.

Accepted Answer

The answer of Elinor performs ten hours of house cleaning...

Question 11

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) ​fitness liability. 
B) ​contractual liability. 
C) ​signature liability. 
D) ​warranty liability.

Accepted Answer

The liability associated with the transfer of the note from Haji to Iona is warranty liability. This is because when Guaranty Bank indorsed the note in blank, they provided a warranty that they had the right to transfer the note and that it was free from any undisclosed defects or claims. Haji, in turn, also provided a warranty to Iona that they were transferring a note that was free from any undisclosed defects or claims. If any such defects or claims later arise, Haji may be held liable for breach of warranty.

Question 12

At 1 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 presented with Ben's demand for payment, Diann, the maker of the note, could successfully claim that Ben​ 
A) ​acquired the note with notice that it was overdue. 
B) ​did not acquire the instrument in good faith. 
C) ​did not give value for the instrument. 
D) ​none of the choices.

Accepted Answer

Ben purchased the promissory note from Curt at 1 a.m. in front of Ace Credit Corporation, which is closed. This suggests that Ben did not acquire the instrument in good faith, as he likely knew that the note may not be legitimate or may have already been due. Therefore, Diann, the maker of the note, could successfully claim that Ben did not acquire the instrument in good faith.

Question 13

Lewis makes a note payable to MaxiFinance Corporation.MaxiFinance indorses the back of the note and negotiates it to Notes & Drafts Investments,Inc.Primarily liable on the note is 
A) ​none of the choices. 
B) ​MaxiFinance. 
C) ​Notes & Drafts Investments. 
D) ​Lewis.

Accepted Answer

The answer of Lewis makes a note payable to MaxiFinance...

Question 14

Beth,an accountant for Credits & Debits,acquires a negotiable instrument from Ellen by promising to pay its face value in thirty days.Beth acquires 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.

Accepted Answer

To become a holder in due course (HDC), Beth must give value for the negotiable instrument, which in this context means paying the face value due on the instrument.

Question 15

Fiona writes a check "pay to the order of Gerri" drawn on Fiona's account at Home State Bank.Gerri presents the check for payment to Home State,which accepts it.Primarily liable on the check is​ 
A) ​Fiona. 
B) ​Gerri. 
C) ​Home State. 
D) ​none of the choices.

Accepted Answer

The answer of Fiona writes a check "pay to the...

Question 16

Jill,in good faith and for value,gets from Kiley a negotiable bearer instrument.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.

Accepted Answer

According to the UCC, in order to be a holder in due course, a person must acquire the instrument for value, in good faith, without notice of any claims or defenses to the instrument. In this case, Jill acquired the instrument for value (in exchange for something of worth), in good faith (without knowledge of any wrongdoings by Kiley), and since it is a negotiable bearer instrument, possession alone is enough to establish ownership. Therefore, Jill is an HDC.

Question 17

Plumbing & Pipes Supply Company issues a promissory note as a demand instrument with a due date of October 5.Quantum Loan Company accepts the note.Quantum Loan 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.

Accepted Answer

The due date for the promissory note is October 5, which means that the note becomes due and payable on that date. Therefore, the note would be overdue if taken by Quantum Loan Company after October 5.

Question 18

A negotiable instrument is not defective only because it​ 
A) ​is overdue. 
B) ​has been transferred more than once. 
C) ​has been dishonored. 
D) ​has been altered.

Accepted Answer

A negotiable instrument is not considered defective merely because it has been transferred more than once. This is a normal part of its function as a negotiable instrument.

Question 19

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.

Accepted Answer

The check is considered dishonored if the bank refuses to pay it. This could be due to insufficient funds, a closed account, or other reasons.

Question 20

Jack wants to buy a promissory note from Jill.The note is due on April 1.To become an HDC,Jack must buy the note​ 
A) ​before midnight on April 1. 
B) ​before noon on April 1. 
C) ​before 8:00 A.M. on April 1 
D) ​within thirty days of April 1.

Accepted Answer

To become a holder in due course (HDC), Jack must purchase the promissory note before it becomes due. The note is due on April 1, which means Jack must purchase it before April 1 ends, which is at midnight. Therefore, option A is the correct choice.

Quiz 24: Transferability and Liability

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​

Cici signs a check "pay to the order of Doug" drawn on Cici's account in Eastside Bank.Cici shows the check to Frederica,who agrees that the signature is Cici's and that Doug is owed the amount that the check represents.Doug signs the back of the check.Liability on this check extends to​

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

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​

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

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

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

Paula wants to transfer a check to Quinn.The check is defective if it​

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

Elinor performs ten hours of house cleaning for Floyd 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 Floyd.Elinor can

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

At 1 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 presented with Ben's demand for payment, Diann, the maker of the note, could successfully claim that Ben​

Lewis makes a note payable to MaxiFinance Corporation.MaxiFinance indorses the back of the note and negotiates it to Notes & Drafts Investments,Inc.Primarily liable on the note is

Beth,an accountant for Credits & Debits,acquires a negotiable instrument from Ellen by promising to pay its face value in thirty days.Beth acquires the status of an HDC when she​

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

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

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

A negotiable instrument is not defective only because it​

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

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

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

Cici signs a check "pay to the order of Doug" drawn on Cici's account in Eastside Bank.Cici shows the check to Frederica,who agrees that the signature is Cici's and that Doug is owed the amount that the check represents.Doug signs the back of the check.Liability on this check extends to

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

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

Paula wants to transfer a check to Quinn.The check is defective if it

At 1 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 presented with Ben's demand for payment, Diann, the maker of the note, could successfully claim that Ben

Beth,an accountant for Credits & Debits,acquires a negotiable instrument from Ellen by promising to pay its face value in thirty days.Beth acquires the status of an HDC when she

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

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

A negotiable instrument is not defective only because it

Jack wants to buy a promissory note from Jill.The note is due on April 1.To become an HDC,Jack must buy the note