Deck 23: Negotiable Instruments: Transfer and Liability

Question 1

In the event that there is a conflicting, superior claim to an instrument, holder in due course will not be able to collect payment.

Answer 1

False

Question 2

A holder does not take an instrument for value if he or she receives it as a gift.

Answer 2

True

Question 3

Anyone who takes a time instrument the day after its expressed due date is on notice that it is overdue.

Answer 3

True

Question 4

Every party who signs a negotiable instrument is primarily liable for payment of that instrument when it comes due.

Question 5

A purchaser's knowledge of bankruptcy proceedings against the instrument's maker or drawer constitutes notice that the instrument is defective.

Question 6

In terms of requirements for holder-in-due-course (HDC) status, first an HDC must be a holder of a negotiable instrument.

Question 7

A holder takes an instrument for value if he or she plans to pay for the instrument later.

Question 8

A holder takes an instrument for value by performing the promise for which the instrument was issued.

Question 9

Corporate officers are personally liable on instruments signed on their firms' behalf.

Question 10

An instrument is defective if it contains an unauthorized signature or has been altered.

Question 11

Good faith includes the observance of reasonable commercial standards of fair dealing.

Question 12

An instrument is not defective simply because there is a defense against it or a claim to it.

Question 13

When a negotiable instrument is transferred, a holder in due course obtains only those rights that the transferor had in the instrument.

Question 14

When a promissory note is incomplete at the time the maker signs it, the maker is not obligated to pay.

Question 15

A holder is a person who, by the terms of a negotiable instrument, is legally entitled to enforce payment of it.

Question 16

The good faith requirement applies only to the holder.

Question 17

A person is liable on an instrument only if he or she has signed it personally.

Question 18

A person will be afforded HDC protection if he or she acquires an instrument knowing, or having reason to know, that it is defective.

Question 19

To qualify as an HDC, a person does not need to have acted honestly in acquiring the instrument.

Question 20

A holder will be deemed to have notice if he or she has reason to know that a defect exists, given all the facts and circumstances known at the time.

Question 21

An unauthorized signature will not bind the person whose name is signed.

Question 22

Lindsey, an accountant for Madison & Monroe, acquires a negotiable instru-ment from Norma by promising to pay its face value in thirty days. Lindsey ac-quires the status of an HDC when she

A) acquires possession of the negotiable instrument.
B) promises to pay the face value due on the instrument.
C) pays the face value due on the instrument.
D) transfers the instrument to another party.

Question 23

A person who signs an instrument without authorization can be held personally liable for payment.

Question 24

Entrepreneur LLC owes Data Analysis Company $2,000. Entrepreneur executes a note to Data Analysis as security for the debt. This security

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 25

Presentment can be properly made by any commercially means.

Question 26

Edna is the payee of a bearer instrument-a promissory note in the amount of $10,000. Flem offers to irrigate Edna's ranch next week in exchange for the note. She agrees and delivers the note to Flem. Flem is

A) an HDC, because he promised to perform services at a future date.
B) an HDC, because the transferor was the original payee on the note.
C) not an HDC, because he did not acquire the instrument in good faith.
D) not an HDC, because he did not yet give value for the instrument.

Question 27

Transfer warranties can be disclaimed with respect to any instrument, including checks .

Question 28

A drawer's secondary liability does not arise until the drawee fails to pay or to accept the instrument.

Question 29

Presentment warranties protect the person who presents an instrument.

Question 30

A person who transfers an instrument for consideration warrants that all signatures are authentic and authorized.

Question 31

Universal defenses are valid against all holders, including holders in due course.

Question 32

The holder of an instrument can discharge any party to the instrument by cancellation.

Question 33

Vicenzo, in good faith and for value, gets from Wren a check "payable to the order of bearer." Vicenzo does not know, or have reason to know that Wren stole the check. Vicenzo is

A) an HDC.
B) not an HDC, because Wren did not acquire the check for value.
C) not an HDC, because Wren did not acquire the check in good faith.
D) not an HDC, because the check is a bearer instrument.

Question 34

Sergio makes a gift of a check to Todd who takes it in good faith and without notice of any claim, defense, or defect. With respect to this check, Todd is

A) a defective holder.
B) an assignee.
C) an ordinary holder.
D) an ordinary holder in due course.

Question 35

The lack or failure of consideration is a personal defense and can be used to avoid payment to ordinary holders.

Question 36

Notice of dishonor may be given in any reasonable manner.

Question 37

If a maker or drawer believes an imposter to be the named payee on an instrument, the imposter's indorsement is not treated as unauthorized.

Question 38

Generally, when an indorsement is unauthorized, the burden of loss falls on the first party to take the instrument.

Question 39

The party to whom an instrument must be presented does not depend on what type of instrument involved.

Question 40

A fictitious payee is a person who, with the intent to deceive, pretends to be somebody else.

Question 41

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

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 42

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

A) Darby.
B) Education Loan Management.
C) Federal Bank.
D) no one.

Question 43

Talia, who is not an 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.

Question 44

Aziz transfers a negotiable instrument to Bhutto. The instrument is not defective if it is

A) overdue.
B) transferred the day after its expressed due date.
C) transferred the day before its expressed due date.
D) outstanding for an unreasonable time after its date.

Question 45

Amy is the maker of a note, on which Bert is secondarily liable. Credit Instruments Company (CIC) is the current holder of the note. Bert will be obli-gated to pay the note if

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

Question 46

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.

Question 47

Plumbing & Pipes Supply Company issues a promissory note 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.

Question 48

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) a knowledgeable acceptor.

Question 49

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 Kiley transferred the instrument without notice.

Question 50

Mark performs moving services for Nell, who pays him with a promissory note for $400. Mark is aware that there are bankruptcy proceedings against Nell. Mark is

A) an HDC.
B) not an HDC, because Mark obtained the note with notice of a defect.
C) not an HDC, because Mark did not acquire the instrument for value.
D) not an HDC, because Mark did not acquire the instrument in good faith.

Question 51

Duke signs a note "payable to the order of Equity Bank." Unless Duke has a valid defense against payment, his liability on this note is

A) impaired.
B) primary.
C) secondary.
D) qualified.

Question 52

Muni Investment Company signs a check payable to Notes & Loans, Inc., to buy a promissory note executed by Omni 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.

Question 53

Raul wants to transfer a check to Schmidt. The check is defective if it

A) is clearly stamped "insufficient funds."
B) contains handwritten terms.
C) is undated.
D) all of the choices.

Question 54

Len makes a gift of a check to Millie who takes it in good faith and without notice of any claim, defense, or defect. With respect to this check, Millie is

A) an acceptor.
B) a good faith purchaser.
C) an ordinary holder.
D) an ordinary holder in due course.

Question 55

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

A) Cici , Doug, and East Bank.
B) Cici and Doug only.
C) Cici and Frieda only.
D) Frieda only.

Question 56

At 1 a.m ., on the sidewalk in front of EZ Credit Corporation, which is closed, Frank buys a $500 promissory note for $50 from Greg. When presented with Frank's demand for payment, Diane, the maker of the note, could successfully claim that Frank

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 57

Personnel Company draws a check payable to Felix. Felix indorses the back and negotiates the check to Guaranty Bank. Primarily liable on the check is

A) Personnel Company.
B) Felix.
C) Guaranty Bank.
D) none of these.

Question 58

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.

Question 59

Calvert buys a promissory note from Darin. 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.

Question 60

Len signs a note "payable to the order of Account Collection Agency." Unless Len has a valid defense against payment, his liability on this note is

A) immediate.
B) imposed only after payment is demanded.
C) postponed until the note is dishonored by the payee.
D) suspended until payment is due.

Question 61

Logan is Mining Corporation's agent and is authorized to write checks on Mining's account in Northwest Bank. Logan writes a check "pay to the order of Oceanside Resort." Logan signs the check "Mining Corporation, by Logan, agent." Northwest Bank dishonors the check. Liability extends to

A) Logan.
B) Oceanside.
C) Mining Corporation.
D) no one.

Question 62

Orson signs a check "pay to the order of Painless Dental" drawn on Orson's account in Quantum Bank. To impose liability on Orson if the bank dishonors the check, Painless Dental should present it for payment within

A) one year.
B) six months.
C) ten days.
D) thirty days.

Question 63

Vera gives Will a $500 check as payment for a debt. Will crudely increases the amount of the check to $5,000 and deposits the check in his First Bank account. Vera is liable for the payment of $5,000 to

A) no one.
B) Will and First Bank.
C) First Bank only.
D) Will only.

Question 64

Doyle gives a check to eMarket Finance to buy 100 shares of stock in FabNu Corporation for Doyle. The price of the shares is constantly fluctuating. eMarket asks Doyle to leave the amount of the check blank and allow it to fill in the price when making the purchase. Doyle agrees. eMarket 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 Guido & Hollis Accountants (G&H), which takes the check in good faith and without notice of eMarket's act. G&H later learns that eMarket was not authorized to fill in the check for $1,000 over the price. Is G&H an HDC? If so, for how much?

Question 65

Fact Pattern 23-1 Lisa writes a check on her account at Metro Bank to Niklas to pay a debt. Niklas negotiates the check by indorsement to O'Leary, who presents it for payment to Prime Bank.
Refer to Fact Pattern 23-1. I f Prime Bank dishonors the check, O'Leary can obtain payment from Niklas

A) if O'Leary timely notifies Niklas.
B) only if Lisa refuses to pay the check.
C) only to the extent that Lisa overpaid her debt to Niklas.
D) under no circumstances.

Question 66

GR8 Products, Inc., warrants its goods to be free of defects. Harold issues an instrument to GR8 to obtain goods that prove to be defective. With respect to payment on the instrument, Harold

A) is liable only to a subsequent holder of the instrument.
B) has a universal defense against it.
C) has a personal defense against it.
D) cannot avoid it.

Question 67

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) no liability.
B) contractual liability.
C) signature liability.
D) warranty liability.

Question 68

Jack pays Kelly in good faith for a promissory note. Kelly warrants that the note has not been altered. This is

A) a presentment warranty.
B) a transfer warranty.
C) a signature warranty.
D) a breach of warranty.

Question 69

Equity Credit Company has in its possession an instrument dated May 1, 2017. The instrument is payable to the order of First Choice Moving & Storage Company "on June 1, 2018," for $5,000. In the upper left corner is an address for Greater Metro Development Corporation-10 Corporate Park Avenue, Chicago, Illinois-and in the lower right corner is the signature of "Hilltop Investments, Inc., By Ida, President." In the lower left corner is stamped "ACCEPTED: Greater Metro Development Corporation by John, President, May 5, 2017." On the back is the signature of "First Choice Moving & Storage Company by Kathleen, 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?

Question 70

Olivia is Physicians Clinic agent and is not authorized to sign checks or notes on its behalf. Despite the lack of authority, Olivia issues a note "payable to the order of Loan Company [signed] Physicians Clinic, by Olivia." Liability on this note extends to

A) Physicians Clinic.
B) Olivia.
C) Loan Company.
D) no one.

Question 71

Owen is a holder of a promissory note obtained from Purchase Money, Inc.  Regarding the defenses against payment of the note to which Purchase Money is subject, Owen, as an ordinary holder, is subject to

A) more defenses.
B) no defenses.
C) some defenses, but not as many.
D) the same defenses.

Question 72

Fact Pattern 23-1 Lisa writes a check on her account at Metro Bank to Niklas to pay a debt. Niklas negotiates the check by indorsement to O'Leary, who presents it for payment to Prime Bank.
Refer to Fact Pattern 23-1. Niklas is

A) not liable for payment under any circumstances.
B) primarily liable.
C) secondarily liable.
D) contractually liable.