Question 1

Stating on an instrument the underlying terms of an agreement renders the instrument nonnegotiable.

Accepted Answer

A) True 
 B)False

Question 2

Opalina asks Paolo, who does not understand English, to sign what Opalina says is an application to open a bank account. In fact, the "application" is a note. If sued on the note by an HDC

Accepted Answer

A)  Paolo must pay the note. 
B)  Paolo's best defense would be fraud in the execution. 
C)  Paolo's best defense would be fraud in the inducement. 
D)  Paolo's best defense would be mistake.

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

Cash National Bank is an HDC of a note for $1,000 on which there is the forged signature of "Dudley." If sued on the note by Cash

Accepted Answer

A)  Dudley must pay the note. 
B)  Dudley's best defense would be fraud in the execution. 
C)  Dudley's best defense would be material alteration. 
D)  Dudley's best defense would be forgery.

Question 5

On April 1 Richard arranges to buy a sixteen-speed bike from his neighbor Phil for $500. Phil agrees to deliver the bike on May 1. Richard writes a draft for $500 payable to Phil on May 1. In this situation, the draft is a

Accepted Answer

A)  certificate of deposit. 
B)  time draft. 
C)  sight draft. 
D)  promissory note.

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

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

Accepted Answer

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 8

Kris wants one of Jasmine's purebred Persian kittens. Kris signs an instrument in which she promises to pay Jasmine for a kitten. The instrument will be negotiable if it is payable in

Accepted Answer

A)  goods of equal market value. 
B)  money. 
C)  any of the choices. 
D)  shares in stock.

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.

Question 10

Willy deposits $5,000 with Home State Bank on July 1, 2012. Home State Bank promises to repay Willy the $5,000 plus 3 percent annual interest on July 1, 2017. Home State Bank has issued Willy a

Accepted Answer

A)  certificate of deposit. 
B)  cashier's check. 
C)  trade acceptance. 
D)  draft.

Question 11

To be negotiable, an instrument must be payable in a fixed amount.

Accepted Answer

A) True 
 B)False

Question 12

A time draft is payable on sight.

Accepted Answer

A) True 
 B)False

Question 13

Sarah has a checking account at Secure Bank. Sarah buys her roommate Sophie's two tickets to a Broadway musical for $200. Sarah writes Sophie a check for the tickets. In this situation, Secure Bank is the

Accepted Answer

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

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

A personal check cannot be a negotiable instrument.

Accepted Answer

A) True 
 B)False

Question 16

A special indorsement names the indorsee.

Accepted Answer

A) True 
 B)False

Question 17

Personal defenses are used to avoid payment to an ordinary holder of a negotiable instrument, but not to an HDC or a holder through an HDC.

Accepted Answer

A) True 
 B)False

Question 18

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

Accepted Answer

A)  nothing. 
B)  primary. 
C)  secondary. 
D)  conditional.

Question 19

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.

Question 20

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.

Exam 18: Negotiable Instruments: Transferability Liability

Stating on an instrument the underlying terms of an agreement renders the instrument nonnegotiable.

Opalina asks Paolo, who does not understand English, to sign what Opalina says is an application to open a bank account. In fact, the "application" is a note. If sued on the note by an HDC

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

Cash National Bank is an HDC of a note for $1,000 on which there is the forged signature of "Dudley." If sued on the note by Cash

On April 1 Richard arranges to buy a sixteen-speed bike from his neighbor Phil for $500. Phil agrees to deliver the bike on May 1. Richard writes a draft for $500 payable to Phil on May 1. In this situation, the draft is a

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

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

Kris wants one of Jasmine's purebred Persian kittens. Kris signs an instrument in which she promises to pay Jasmine for a kitten. The instrument will be negotiable if it is payable in

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

Willy deposits $5,000 with Home State Bank on July 1, 2012. Home State Bank promises to repay Willy the $5,000 plus 3 percent annual interest on July 1, 2017. Home State Bank has issued Willy a

To be negotiable, an instrument must be payable in a fixed amount.

A time draft is payable on sight.

Sarah has a checking account at Secure Bank. Sarah buys her roommate Sophie's two tickets to a Broadway musical for $200. Sarah writes Sophie a check for the tickets. In this situation, Secure Bank is the

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

A personal check cannot be a negotiable instrument.

A special indorsement names the indorsee.

Personal defenses are used to avoid payment to an ordinary holder of a negotiable instrument, but not to an HDC or a holder through an HDC.

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

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