Question 1

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

Accepted Answer

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 2

A check "payable to the order of bearer" is neither an order instrument nor a bearer instrument.

Accepted Answer

A) True 
 B)False

Question 3

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 4

On a trade acceptance, the drawer is also the payee.

Accepted Answer

A) True 
 B)False

Question 5

Primary liability is unconditional.

Accepted Answer

A) True 
 B)False

Question 6

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.

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.

Question 8

An instrument that states simply "I.O.U." is not negotiable.

Accepted Answer

A) True 
 B)False

Question 9

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.

Question 10

Karen writes on a piece of paper, "I owe you $600," signs it, and gives it to Lou. This instrument is

Accepted Answer

A)  negotiable. 
B)  nonnegotiable, because it does not include an express promise to pay. 
C)  nonnegotiable, because it does not recite any consideration. 
D)  nonnegotiable, because it does not state any conditions to payment.

Question 11

A personal check cannot be a negotiable instrument.

Accepted Answer

A) True 
 B)False

Question 12

Burt, a mentally impaired person, is asked by Carl to sign a piece of pa?per that Carl says is an autograph book. In fact, the document is a note. If later sued on the note by an HDC

Accepted Answer

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

Question 13

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

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.

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

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 17

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

Accepted Answer

A) True 
 B)False

Question 18

An instrument "payable to bearer" is negotiated by delivery.

Accepted Answer

A) True 
 B)False

Question 19

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 20

To buy a stuffed cow, Ken executes a check "pay to Laura or bearer" and gives it to Laura, who does not own a stuffed cow. This check is

Accepted Answer

A)  negotiable. 
B)  nonnegotiable, because it does not indicate a specific payee. 
C)  nonnegotiable, because it may be a joke. 
D)  nonnegotiable, because Laura does not own a stuffed cow.

Exam 21: Negotiable Instruments: Transferability Liability

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 check "payable to the order of bearer" is neither an order instrument nor a bearer instrument.

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 a trade acceptance, the drawer is also the payee.

Primary liability is unconditional.

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

Entrepreneur Auto Rentals owes Sole Saver Auto Dealership $2,000. Entrepreneur executes a note to Sole Saver as security for the debt. This security

An instrument that states simply "I.O.U." is not negotiable.

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

Karen writes on a piece of paper, "I owe you $600," signs it, and gives it to Lou. This instrument is

A personal check cannot be a negotiable instrument.

Burt, a mentally impaired person, is asked by Carl to sign a piece of pa?per that Carl says is an autograph book. In fact, the document is a note. If later sued on the note by an HDC

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

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

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

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.

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

An instrument "payable to bearer" is negotiated by delivery.

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

To buy a stuffed cow, Ken executes a check "pay to Laura or bearer" and gives it to Laura, who does not own a stuffed cow. This check is