Question 1

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

Accepted Answer

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

Question 2

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. D

Question 3

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

Accepted Answer

A) True 
 B)False  False

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

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.

Accepted Answer

A) True 
 B)False

Question 7

InterComp normally sells $50,000 worth of software to Power Source, a retail electronics 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

Accepted Answer

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

Question 8

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

Accepted Answer

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. 
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 9

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

Accepted Answer

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. 
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 10

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

Accepted Answer

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 determined from the face of the instrument. 
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 determined from the face of the instrument.

Question 11

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

Accepted Answer

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

Question 12

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

Accepted Answer

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. 
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 13

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

Accepted Answer

A) True 
 B)False

Question 14

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

Accepted Answer

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

Question 15

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

Accepted Answer

A)  an unreasonable time after its due date. 
B)  before its due date. 
C)  on its due date. 
D)  without noticing its due date. 
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 16

Burt, a mentally impaired person, is asked by Carl to sign a piece of paper 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 17

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

Accepted Answer

A) True 
 B)False

Question 18

Kelly signs an instrument in favor of Leo that states it is "subject to a certain agreement between Kelly and Mona." This instrument 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 19

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

Accepted Answer

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. 
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 20

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' 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?

Accepted Answer

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

Exam 18: Negotiable Instruments: Transferability Liability

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

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

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

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

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

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.

InterComp normally sells $50,000 worth of software to Power Source, a retail electronics 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

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

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

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

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

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

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

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

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

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

Kelly signs an instrument in favor of Leo that states it is "subject to a certain agreement between Kelly and Mona." This instrument 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

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