Deck 24: Transferability and Liability

Question 1

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

Answer 1

False

Question 2

A holder cannot take an instrument for value by performing the promise for which the instrument was issued.

Answer 2

False

Question 3

Primary liability is unconditional.

Answer 3

True

Question 4

A purchaser who takes a check that has been outstanding for six months will be considered on notice that the instrument is overdue.

Question 5

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

Question 6

An instrument is not defective simply because it is overdue.

Question 7

A person who in good faith acquires a negotiable instrument from a thief can become an HDC.

Question 8

If an instrument is incomplete when the maker signs it,then the maker's obligation to pay is according to the terms as stated at that time.

Question 9

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

Question 10

If a note is payable in thirty days,payment is due by noon on the thir?tieth day.

Question 11

To be a holder,a person is required only to have possession of a negotia?ble instrument.

Question 12

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

Question 13

The concept of value in the law of negotiable instruments is the same as the concept of consideration in the law of contracts.

Question 14

A promise to give value in the future is NOT sufficient to confer the rights of an HDC on one in possession of a negotiable instrument.

Question 15

An instrument is defective if it has been previ?ously dis?honored.

Question 16

The dishonor of an instrument relieves secondary parties of liability.

Question 17

One of the requirements to be a holder in due course is that the holder must have taken the negotiable instrument in good faith.

Question 18

If a note is payable in ten days,counting begins on the day the instrument is dated.

Question 19

Signature liability extends to any person who signs a negotiable instrument except a qualified indorser.

Question 20

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

Question 21

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

Question 22

An alteration of an instrument is material if it changes the terms between two parties in any way.

Question 23

A drawer's discharge in bankruptcy will defeat the claim of an HDC.

Question 24

One of the transfer warranties is that the instrument has not been materially altered.

Question 25

A person whose name is forged on an instrument is liable to pay only a holder in due course the value of the forged instrument.

Question 26

Timeliness is one of the most crucial criteria for proper presentment.

Question 27

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

Question 28

Breach of contract or warranty is no defense to payment of a negotiable instrument to any holder.

Question 29

Will is the payee of a promissory note for $500.James offers to mow Will's lawn five times in exchange for the note.Will agrees.After fifth time James mows Will's lawn,James is

A)an HDC.
B)not an HDC,because he has not fully performed his promise.
C)not an HDC,because he did not take the note in good faith.
D)not an HDC,because he did not check if the note was overdue.

Question 30

An unauthorized signature will NOT necessarily bind the person whose name is forged.

Question 31

DeAnn is the payee of a bearer instrument-a promissory note in the amount of $10,000.LeBurt offers to irrigate DeAnn's ranch next week in ex?change for the note.DeAnn agrees and delivers the note to LeBurt.LeBurt 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 32

Jeff's grandmother is the payee of a promissory note for $7,500.Jeff's grandmother gives Jeff the note for his sixteenth birthday.Jeff is

A)an HDC.
B)not an HDC,because he received the note as a gift.
C)not an HDC,because he is a minor.
D)not an HDC,because the note was for less than $10,000.

Question 33

When an instrument is dishonored,only written notice is sufficient to hold secondary parties liable.

Question 34

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)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 35

Presentment war?ranties protect the person to whom the instrument is presented.

Question 36

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.

Question 37

A drawer's liability does not arise until presentment and notice of dishonor.

Question 38

In good faith and for value,Carol receives from Dick a negotiable bearer in?strument.Carol does not know that Dick stole the instrument.Carol is

A)an HDC,because the good faith requirement applies only to the holder,not the transferor.
B)not an HDC,because the instrument is a bearer instrument.
C)not an HDC,because Dick did not acquire the instrument for value.
D)not an HDC,because Dick did not acquire the instrument in good faith.

Question 39

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.

Question 40

A maker is primarily liable on an instrument.

Question 41

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

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 42

Which of the following is NOT a condition that would render a negotiable instrument defective?

A)The instrument is overdue.
B)The instrument has been transferred more than once.
C)The instrument has been dishonored.
D)The instrument has been altered.

Question 43

Beth,an accountant for Credits & Debits,acquires a negotiable instru?ment from Ellen by promis?ing to pay its face value in thirty days.Beth ac?quires 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 44

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)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 45

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)an ordinary note taker.

Question 46

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

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 47

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)lateral.
B)primary.
C)secondary.
D)tertiary.

Question 48

Don writes a check to Eve drawn on Don's account at First Town Bank.Eve presents the check for payment to the bank,which ac?cepts the check.The bank is

A)not liable for payment.
B)primarily liable for payment.
C)secondarily liable for payment.
D)simultaneously liable for payment.

Question 49

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

A)an extraordinary holder in due course.
B)an ordinary check passer.
C)an ordinary holder.
D)an ordinary holder in due course.

Question 50

At 1
A)acquired the note with notice that it was overdue.

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
B)did not acquire the instrument in good faith.
C)did not give value for the instrument.
D)none of the choices.

Question 51

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 52

Which of the following is NOT a requirement for a party who is secondarily liable for a negotiable instrument to pay on the instrument?

A)The instrument is properly and timely presented
B)The instrument is dishonored
C)The instrument is transferred
D)Timely notice of dishonor is given to the secondarily liable party

Question 53

Muni Investment Company signs a check payable to Enterprise Lenders,Inc.,to buy a promissory note executed by Fallow 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 54

Which of the following is NOT a requirement for a holder of a negotiable instrument to obtain HDC status?

A)The holder must have taken the instrument for value.
B)The holder must have taken the instrument in good faith.
C)The holder must have inherited the instrument.
D)The holder must have taken the instrument without notice that it has been dishonored.

Question 55

Jill,in good faith and for value,gets from Kiley a negotiable bearer in?stru?ment.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 the instrument is a bearer instrument.

Question 56

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 57

Jack wants to buy a promissory note due on April 1 from Jill.To be able to be a HDC,Jack

A)must purchase the note before midnight on April 1.
B)must purchase the note before noon on April 1.
C)must purchase the note before 8:00 A.M.on April 1
D)can purchase the note at anytime within thirty days of April 1.

Question 58

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

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 59

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

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

Question 60

Jane is Karin's agent.As Karin's agent,Jane signs a check to Happy Home Repairs,Inc.With regard to the check

A)Jane has primary liability.
B)Jane and Karin have primary liability.
C)Karin has primary liability.
D)neither Jane nor Karin has primary liability.

Question 61

Vera gives Willy a $500 check as payment for a debt.Willy crudely raises the amount of the check to $5,000 and transfers it to Xtreem Sportz store for a new bike.Xtreem deposits the check in its Yankee Bank account.Vera is liable for the payment of $5,000 to

A)no one.
B)Willy,Xtreem Sportz,and Yankee Bank.
C)Willy only.
D)Xtreem Sportz and Yankee Bank only.

Question 62

GR8 Products,Inc.,warrants its goods to be free of defects.If Heck is?sues an instrument to obtain goods from GR8 that prove defective,Heck can avoid paying on the instrument

A)only if it is a check.
B)only if it is a note.
C)whether it is a check or a note.
D)under no circumstances.

Question 63

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?

Question 64

Fact Pattern 24-1 (Questions 27-28 apply)
Jake is the maker of a $2,000 promissory note payable to Kim.Kim indorses the note to Lou who,in turn,indorses it to Mona,who then in?dorses it to Nat,the present holder.
Refer to Fact Pattern 24-1.Suppose that Mona pays Nat on the note.With timely notice to the proper parties,Mona may collect payment on the note from

A)Jake,Kim,or Lou.
B)Jake or Kim only.
C)Lou only.
D)no one.

Question 65

Opal asks Paolo,who does not understand English,to sign what Opal says is an application to open a bank account.In fact,the "application" is a note.If sued on the note by an HDC,Paolo's best defense would be

A)extreme duress.
B)fraud in the execution.
C)fraud in the inducement.
D)mistake.

Question 66

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 67

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?

Question 68

Bob writes a check on his account at County Bank to Dona,a fa?mous singer.The person claiming to be Dona is an imposter,however,named Edy.Edy indorses the check to Frank,for whom County Bank cashes it.Ultimately,the loss will most likely fall on

A)Bob.
B)County Bank.
C)Dona.
D)Frank.

Question 69

Rodeo Ranch's agent Slim is authorized to draw checks on Rodeo Ranch's account in Town Bank.Upper Range Corporation is a Rodeo Ranch supplier.Slim writes a check "pay to the order of Upper Range [signed] Slim," indorses the check in Upper Range's name,and deposits it in his account in Verity Bank.If Verity Bank collects payment,the ultimate party most likely to suffer the loss is

A)no one.
B)Rodeo Ranch.
C)Town Bank.
D)Upper Range.

Question 70

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

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

Question 71

Nero signs a check "pay to the order of Olive" drawn on Nero's account in Plum Bank.Olive signs the back of the check.Secondary liability on this check extends to

A)Nero and Olive only.
B)Nero and Plum Bank only.
C)Nero only.
D)Plum Bank only.

Question 72

Fact Pattern 24-1 (Questions 27-28 apply)
Jake is the maker of a $2,000 promissory note payable to Kim.Kim indorses the note to Lou who,in turn,indorses it to Mona,who then in?dorses it to Nat,the present holder.
Refer to Fact Pattern 24-1.Nat properly pre?sents the note to Jake for pay?ment,but Jake dishonors it.With timely notice to the proper parties,Nat may collect payment on the note from

A)Kim,Lou,or Mona.
B)Kim or Lou only.
C)Mona only.
D)no one.