Question 1

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 2

Fred has six nieces, ages five to sixteen. He writes an order instrument for $50 that states, "Pay to the order of my niece." The order instrument is

Accepted Answer

A)  negotiable. 
B)  nonnegotiable, because the amount of money is less than $500. 
C)  nonnegotiable, because it is illegal to write an order instrument payable to a relative. 
D)  nonnegotiable, because there is no specific person identified. 
A)  negotiable. 
B)  nonnegotiable, because the amount of money is less than $500. 
C)  nonnegotiable, because it is illegal to write an order instrument payable to a relative. 
D)  nonnegotiable, because there is no specific person identified.

Question 3

Rubin writes a check drawn on his account at Clearwater Bank and payable to the order of Gwyn. The bank does not pay the check. Rubin is

Accepted Answer

A)  absolved of liability on the check. 
B)  liable to Gwyn for the amount of the check. 
C)  liable to the bank for the amount of the check. 
D)  entitled to payment of the amount of the check from Gwyn. 
A)  absolved of liability on the check. 
B)  liable to Gwyn for the amount of the check. 
C)  liable to the bank for the amount of the check. 
D)  entitled to payment of the amount of the check from Gwyn.

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

InterComp normally sells $50,000 worth of software to Power Source, a retail elec?tronics 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 6

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 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 7

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 8

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

Accepted Answer

A) True 
 B)False

Question 9

Dewey is the payee for a check written by Fred. Cash Credit Corporation (CCC) accepts the check from Dewey as part of a payment. CCC cannot become a HDC if

Accepted Answer

A)  the check has been transferred more than once. 
B)  the check has been outstanding for one week. 
C)  the check has been outstanding for more than ninety days. 
D)  there are bankruptcy proceedings against Fred. 
A)  the check has been transferred more than once. 
B)  the check has been outstanding for one week. 
C)  the check has been outstanding for more than ninety days. 
D)  there are bankruptcy proceedings against Fred.

Question 10

Rubber stamp signatures can be legally binding signatures.

Accepted Answer

A) True 
 B)False

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

Ada is the maker of a note, on which Bart is secondarily liable. Cash & Credit Company (C&C) is the current holder of the note. Bart will be obli?gated to pay the note if

Accepted Answer

A)  Ada defaults on the note. 
B)  C&C breaches a transfer warranty. 
C)  C&C negotiates the note to Delta Collection Agency, a third party. 
D)  C&C presents the note for payment. 
A)  Ada defaults on the note. 
B)  C&C breaches a transfer warranty. 
C)  C&C negotiates the note to Delta Collection Agency, a third party. 
D)  C&C presents the note for payment.

Question 13

Instruments that say nothing about when payment is due are payable on demand.

Accepted Answer

A) True 
 B)False

Question 14

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 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

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

Accepted Answer

A) True 
 B)False

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

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 19

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.

Question 20

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.

Exam 21: Negotiable Instruments: Transferability Liability

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

Fred has six nieces, ages five to sixteen. He writes an order instrument for $50 that states, "Pay to the order of my niece." The order instrument is

Rubin writes a check drawn on his account at Clearwater Bank and payable to the order of Gwyn. The bank does not pay the check. Rubin is

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

InterComp normally sells $50,000 worth of software to Power Source, a retail elec?tronics 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

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 pre?sented with Ben's demand for payment, Diann, the maker of the note, could successfully claim that Ben

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 holder takes an instrument for value if he or she gives a check as pay?ment for it.

Dewey is the payee for a check written by Fred. Cash Credit Corporation (CCC) accepts the check from Dewey as part of a payment. CCC cannot become a HDC if

Rubber stamp signatures can be legally binding signatures.

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

Ada is the maker of a note, on which Bart is secondarily liable. Cash & Credit Company (C&C) is the current holder of the note. Bart will be obli?gated to pay the note if

Instruments that say nothing about when payment is due are payable on demand.

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

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

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

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

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.

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

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

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