Question 1

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

Accepted Answer

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. 
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 2

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

Accepted Answer

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. 
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 3

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

Accepted Answer

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. 
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 4

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 5

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

Accepted Answer

A) True 
 B)False

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

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 8

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.

Accepted Answer

A) True 
 B)False

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

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

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 12

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.

Question 13

A signature must be the full name of a party.

Accepted Answer

A) True 
 B)False

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

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?

Accepted Answer

No one is primarily liable on this instr

Question 17

Primary liability is unconditional.

Accepted Answer

A) True 
 B)False

Question 18

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

Accepted Answer

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. 
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 19

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

Question 20

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

Accepted Answer

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

Exam 18: Negotiable Instruments: Transferability Liability

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

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

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

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

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

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 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.

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

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

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

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

A signature must be the full name of a party.

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

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

Primary liability is unconditional.

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

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.

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

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