Deck 24: Transferability and Liability

Question 1

For a check,a "reasonable time" is ninety days after the date of the check. 

Answer 1

True

Question 2

An instrument is not defective simply because it is overdue. 

Answer 2

False

Question 3

A purchaser can become an HDC of an instrument even if it is so incomplete that an element of negotiability is lacking. 

Answer 3

False

Question 4

A maker is secondarily liable on an instrument. 

Question 5

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

Question 6

A person is not liable on an instrument unless he or she has signed it personally or through an authorized representative. 

Question 7

An instrument is dishonored when the party to whom the instrument is presented refuses to pay it. 

Question 8

A holder takes an instrument for value by promising to perform in the future. 

Question 9

A holder takes an instrument for value if he or she inherits an instrument. 

Question 10

A holder takes an instrument for value if he or she accepts the instrument in payment of a preexisting obligation. 

Question 11

A holder does not take an instrument for value if he or she gives a negotiable instrument as payment. 

Question 12

A person who receives an instrument as a gift automatically possesses the rights of a holder in due course. 

Question 13

Often,whether a holder will be able to obtain payment on an instrument will depend on whether he or she is a holder in due course. 

Question 14

The dishonor of an instrument relieves secondary parties of liability. 

Question 15

A holder cannot become an HDC if he or she has notice of any claim to the instrument or defense against it. 

Question 16

The key to liability on a negotiable instrument is a signature.

Question 17

An instrument is defective if it has been previously dishonored. 

Question 18

Any irregularity on the face of an instrument that calls into question its validity will bar HDC status.

Question 19

To properly present a draft for payment,the holder must present it to the drawer. 

Question 20

A person who in good faith acquires a negotiable instrument from a thief cannot become an HDC under any circumstances. 

Question 21

All parties to a negotiable instrument will be discharged when the party primarily liable on it pays to a holder the full amount due. 

Question 22

Discharge in bankruptcy is no defense on any instrument regardless of the status of the holder. 

Question 23

Warranty liability arises only when the transferor indorses the instrument. 

Question 24

Lindsey,an accountant for Madison & Monroe,acquires a negotiable instrument 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 25

Vicenzo,in good faith and for value,gets from Wren a check "payable to the order of bearer." Vicenzo does not 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 26

A maker is primarily liable on an instrument.

Question 27

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 28

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 29

Under the fictitious payee rule,the payee's indorsement is not treated as a forgery,and an innocent holder can hold the maker or drawer liable on the instrument. 

Question 30

Personal defenses are used to avoid payment to an HDC or a holder through an HDC. 

Question 31

Dishonor occurs if payment of an instrument is refused within the prescribed time.

Question 32

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) ​none of the choices. 
B) ​an assignee. 
C) ​an ordinary holder. 
D) ​an ordinary holder in due course.

Question 33

Failure to present an instrument on time is not improper presentment.

Question 34

An unauthorized signature binds the person whose name is signed. 

Question 35

An authorized agent binds a principal on an instrument if the agent clearly names the principal in the signature.

Question 36

An imposter's indorsement on an instrument is never effective against its drawer or maker. 

Question 37

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

Question 38

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 39

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

Question 40

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

Question 41

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 42

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

A) ​Cici, Doug, and Eastside Bank. 
B) ​Cici and Doug only. 
C) ​Cici and Frederica only. 
D) ​Frederica only.

Question 43

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 44

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 45

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 46

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

A) ​Darwin. 
B) ​Education Loan Management. 
C) ​First Federal Bank. 
D) ​no one.

Question 47

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

A) ​immediate. 
B) ​imposed only after payment is demanded. 
C) ​postponed until the note is dishonored by Medical Account Collection Agency. 
D) ​suspended until payment is due.

Question 48

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 49

Wilson buys a promissory note from Ollie.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 50

Elinor performs ten hours of house cleaning for Floyd 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 Floyd.Elinor can 

A) ​obtain HDC status. 
B) ​not obtain HDC status, because she knows that there are bankruptcy proceedings against Floyd. 
C) ​not obtain HDC status, because she did not fulfill the value requirement. 
D) ​not obtain HDC status, because she did not fulfill the good faith requirement.

Question 51

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) ​fitness liability. 
B) ​contractual liability. 
C) ​signature liability. 
D) ​warranty liability.

Question 52

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 presented with Ben's demand for payment, Diann, the maker of the note, could successfully claim that Ben​ 

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 53

Lewis makes a note payable to MaxiFinance Corporation.MaxiFinance indorses the back of the note and negotiates it to Notes & Drafts Investments,Inc.Primarily liable on the note is 

A) ​none of the choices. 
B) ​MaxiFinance. 
C) ​Notes & Drafts Investments. 
D) ​Lewis.

Question 54

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 55

Fiona writes a check "pay to the order of Gerri" drawn on Fiona's account at Home State Bank.Gerri presents the check for payment to Home State,which accepts it.Primarily liable on the check is​ 

A) ​Fiona. 
B) ​Gerri. 
C) ​Home State. 
D) ​none of the choices.

Question 56

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 the instrument is a bearer instrument.

Question 57

Plumbing & Pipes Supply Company issues a promissory note as a demand instrument 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 58

A negotiable instrument is not defective only because it​ 

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

Question 59

Talia,who is not a 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 60

Jack wants to buy a promissory note from Jill.The note is due on April 1.To become an HDC,Jack must buy the note​ 

A) ​before midnight on April 1. 
B) ​before noon on April 1. 
C) ​before 8:00 A.M. on April 1 
D) ​within thirty days of April 1.

Question 61

Nakamura,an accountant for Outdoor Outfitters,Inc.,issues company checks payable to nonexistent persons drawn on Outdoor's account at Peerless Bank.Nakamura indorses the checks and deposits them in his account.Outdoor discovers the theft and demands that Peerless recredit its account.Peerless's best defense is that​ 

A) ​Nakamura was not authorized to issue the checks. 
B) ​Outdoor was in a better position than Peerless to prevent the theft. 
C) ​Peerless did not know that the checks were not to be paid. 
D) ​the checks were the property of Outdoor, not Peerless.

Question 62

Ada is the maker of a note,on which Bart is secondarily liable.Credit Instruments Company is the current holder of the note.Bart will be obligated to pay the note if​ 

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

Question 63

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) ​a transfer warranty. 
C) ​a signature warranty. 
D) ​a breach of warranty.

Question 64

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 65

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 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

Fact Pattern 24-1Lisa 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 24-1.Niklas is 

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

Question 68

Fact Pattern 24-1Lisa 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 24-1.If 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 69

Jeff convinces Kraus,who does not understand English,to sign a $1,000 note that Kraus believes is an application for a credit card.Jeff negotiates the note to Loni.Kraus​ 

A) ​can avoid payment on the note even if Loni is an HDC. 
B) ​can avoid payment on the note only if Loni is a holder. 
C) ​must pay Loni the amount that it paid for the note. 
D) ​must pay the note in full.

Question 70

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 71

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 notice of Fund Investments' act.Hasty later learns that Fund Investments was not authorized to fill in the check for $1,000 over the price.Is Hasty an HDC? If so,for how much?​

Question 72

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?​