Question 1

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

Accepted Answer

A) True 
 B)False  False

Question 2

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

Accepted Answer

A) True 
 B)False  False

Question 3

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

Accepted Answer

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. 
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. A

Question 4

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

Accepted Answer

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. 
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 5

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

Accepted Answer

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

Question 6

A promissory note can be a negotiable instrument.

Accepted Answer

A) True 
 B)False

Question 7

A special indorsement names the indorsee.

Accepted Answer

A) True 
 B)False

Question 8

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

Accepted Answer

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. 
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 9

An instrument that states simply "I.O.U." is notnegotiable.

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

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?

Accepted Answer

Hasty is an HDC to the extent of $5,000,

Question 13

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

Accepted Answer

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. 
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 14

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

Accepted Answer

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. 
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 15

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

Accepted Answer

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

Question 16

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

Accepted Answer

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

Question 17

A signature must be the full name of a party.

Accepted Answer

A) True 
 B)False

Question 18

A personal check cannot be a negotiable instrument.

Accepted Answer

A) True 
 B)False

Question 19

At 1A.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

Accepted Answer

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. 
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.

Question 20

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.

Accepted Answer

A) True 
 B)False

Exam 17: Negotiability, transferability, and Liability

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

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

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

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

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 promissory note can be a negotiable instrument.

A special indorsement names the indorsee.

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

An instrument that states simply "I.O.U." is notnegotiable.

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

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

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

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

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

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 signature must be the full name of a party.

A personal check cannot be a negotiable instrument.

At 1A.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

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.

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