Q&A Hero

Q: 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.

Q: 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.

Q: 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.

Q: 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.

Q: 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.

Q: 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 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.

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

Q: 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 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.

Q: Ralph signs an instrument promising to pay a total of $10,000 to Martha in $1,000 monthly installments with the final payment being made on August 1. Ralph unexpectedly inherits $10,000 from his aunt on May 15. Ralph may a. not complete his $10,000 payment before August 1. b. complete his $10,000 payment before August 1. c. increase his monthly payments by five percent, but not more. d. increase his monthly payments by ten percent, but not more.

Q: Maria signs an instrument payable to the order of National Loans, Inc., "on or before" June 15. This instrument is a. negotiable. b. nonnegotiable, because the maker can move up the payment date. c. nonnegotiable, because moving up the payment date is optional. d. nonnegotiable, because the exact payment date cannot be determined from the face of the instrument.

Q: 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 a. goods of equal market value. b. money. c. any of the choices. d. shares in stock.

Q: Kelly signs an instrument in favor of Leo that states it is "subject to a certain agreement between Kelly and Mona." This instrument is a. negotiable. b. nonnegotiable, because it is made subject to a separate agreement. c. nonnegotiable, because it refers to a separate agreement. d. nonnegotiable, because Kelly and Mona are not the same persons.

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

Q: To borrow money to finance the start-up of his business, Bob executes an instrument in favor of City Bank. For the instrument to be negotiable, the signature must be a. anywhere on the instrument. b. anywhere on the lower half of the instrument only. c. in the lower left-hand corner of the instrument only. d. in the lower right-hand corner of the instrument only.

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

Q: 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 a. certificate of deposit. b. cashier's check. c. trade acceptance. d. draft.

Q: If a bank is both the drawer and the drawee with regard to a draft, then the draft is a a. certificate of deposit. b. cashier's check. c. nonnegotiable instrument. d. promissory note.

Q: Alpha Company issues a trade acceptance with itself and Beta Company as parties. A trade acceptance is a. a draft. b. an order to accept delivery of money. c. a promise to accept delivery of goods. d. a promise to deliver goods.

Q: To obtain a business license, Bess writes a check to a certain state agency. Bess is a. the drawee. b. the drawer. c. the indorser. d. the payee.

Q: 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 a. drawee. b. indorser. c. payee. d. drawer.

Q: InterComp normally sells $50,000 worth of software to Power Source, a retail electronics store, each summer on terms requiring payment in sixty days. One year, InterComp wants cash, but Power Source wants the usual sixty days. To meet both needs, the parties can arrange a. a certificate of deposit. b. a bearer bond. c. a trade acceptance. d. an international letter of credit.

Q: To obtain office supplies for All-Care Medical Clinic, Britney executes a draft in favor of Chris. A draft is a. a conditional promise to pay money. b. an unconditional written order to pay money. c. a qualified promise to set aside a sum of money. d. a restricted promise to deliver goods at a future date.

Q: 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 a. certificate of deposit. b. time draft. c. sight draft. d. promissory note.

Q: When there is a breach of an underlying contract for which an instrument was issued, the maker of a note can refuse to pay it.

Q: 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.

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

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

Q: Universal defenses are good against all holders except HDCs and holders through HDCs.

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

Q: 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.

Q: 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.

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

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

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

Q: Primary liability is unconditional.

Q: A person cannot become an HDC if a defense against payment is apparent on the face of the instrument.

Q: Bob is shopping in Carl's Hardware Store when a nail gun in use by Dan, one of Carl's employees, fires without warning and hits Bob in the leg. Carl checks the gun and discovers that it was assembled improperly. Bob files a suit against Eagle Tools, Inc., the manufacturer of the gun, for product liability, on the ground of strict liability. What are the elements for an action based on strict liability? In whose favor is the court likely to rule and why?

Q: Cutter Company makes and sells table saws, which are designed to be safe if used properly. Erin buys a Cutter saw and lends it to her neighbor Frank. To reach a toolbox on a high shelf in his garage, Frank props the saw at an angle against a cabinet and climbs onto the saw. Frank loses his footing, slips off the saw, falls on the blade, and is injured. He files a product liability suit against Cutter, on the ground of negligence. On what basis could the maker prevail?

Q: Dwayne, an electrician, files a suit against Electro Mechanix, Inc., alleging that its circuit breakers are unreasonably dangerous due to the possibility of electrical shock. Dwayne's suit is most likely to a. fail, because Dwayne assumes the risk if he uses an Electro product. b. fail, because Dwayne is a knowledgeable user. c. succeed, because the danger is open and obvious. d. succeed, because Electro's products are not safe for all uses.

Q: The brakes on a River Valley Railroad train malfunction and it rolls towards maintenance workers on the tracks. Everyone gets out of the way except Dick, who wants to show off. The train hits Dick, who sues Stops-it, Inc., the brakes' manufacturer. Stops-it can raise the defense of a. a component-part manufacturer. b. assumption of risk. c. consumer participation. d. product misuse.

Q: Toyoda Company buys gas pedals and other parts from suppliers and puts them in its vehicles without changing their composition. If the pedals or other parts are defective, strictly liable for any damage caused by the defects are a. neither Toyoda nor the suppliers. b. Toyoda and the suppliers. c. the suppliers only. d. Toyoda only.

Q: SurgeStop Company makes electrical cords and other connectors for electronic devices. Rollo files a product liability suit against SurgeStop, alleging a warning defect. In deciding whether to hold SurgeStop liable, the court may consider a. consumers' general lack of desire to read the product's warnings. b. the plaintiff's specific lack of desire to read the product warnings. c. the obvious risks of other products. d. the obvious risks of this product.

Q: Goldtone Corporation makes cell phones. Haji files a product liability suit against Goldtone, alleging a design defect. In deciding whether to hold Goldtone liable, the court may consider an alternative design's a. popularity among industrial designers. b. attractiveness to consumers. c. aesthetics. d. effect on the product.

Q: Fun Toyz Corporation makes skateboards, which it sells to consumers, including Holly and Ira. Due to a defect, Holly is injured while using her new board. Ira's board has the same defect, but he is not injured. In a product liability suit based on strict product liability, Fun Toyz may be liable to a. Holly and Ira. b. Holly only. c. Ira only. d. no one.

Q: Cold Stuf, Inc., makes snowboards, which it sells to Deep Freeze Sports Store (DFS). DFS sells Cold Stuf boards to consumers, including Ed. Ed is injured while using the board. In a product liability suit based on strict liability, Ed may recover from a. Cold Stuf only. b. Cold Stuf or DFS. c. DFS only. d. no one.

Q: Paltry Assembly Company makes espresso machines and sells one to Vim through a misrepresentation on the label on which Vim relies and that results in an injury to Vim. Paltry is most likely liable for a. a commonly known danger. b. fraud. c. privity. d. puffery.

Q: Garden Tool Company makes hedge trimmers. Troy is injured while using a Garden Tool trimmer and sues the company for product liability based on negligence. To win, Troy must show that a. Garden Tool did not use due care with respect to the trimmer. b. Garden Tool misrepresented a material fact regarding the trimmer. c. Troy was experienced in the use of trimmers. d. Troy was in privity of contract with Garden Tool.

Q: Forest & Field Company makes and leases a backhoe to Zac. Due to a defect attributable to Forest & Field's negligence, Zac is injured in an accident in which his neighbor Aaron is also hurt. In a product liability suit based on negligence, Forest & Field may be liable to a. Aaron only. b. no one. c. Zac and Aaron. d. Zac only.

Q: Ceramic Tile Company designs and makes floor tiles. In a product liability suit based on negligence, Ceramic could be liable for violating its duty of care with respect to a. neither the design nor the making of the tiles. b. the design and the making of the tiles. c. the design of the tiles only. d. the making of the tiles only.

Q: GR8 Skates Company makes and sells a pair of skates to Hugh. GR8 fails to exercise "due care" to make the skates safe, and Hugh is injured as a result. GR8 is most likely liable for a. assumption of risk. b. knowledgeable use. c. negligence. d. product misuse.

Q: Jack's Pet Houses, Inc. sells shelters for animals under "limited" warranties. Under the Magnuson-Moss Warranty Act, this means that the warranties on shelters from Jack's Pet Houses a. do not meet one of the requirements of a full warranty. b. are only good for one year. c. are illegal. d. are oral.

Q: ValuRich Tools, Inc., sells tools, tool parts, and related supplies under "full" warranties. Under the Magnuson-Moss Warranty Act, this means that ValuRich must provide a. a choice between a refund or replacement if a product cannot be fixed and repair or replacement of defective parts. b. neither a choice of a refund or replacement, or repair of defective parts. c. only a choice of a refund or replacement if a product cannot be fixed. d. only repair or replacement of defective parts.

Q: Mountain Bikes, Inc. (MBI), and Nero enter into a contract for a sale of a mountain bike. MBI, a merchant who deals in goods of the kind sold, makes implied and express warranties in connection with the sale. The Magnuson-Moss Warranty Act attempts to prevent deception in warranties by a. displacing the UCC as the primary source of warranty rules. b. making warranties easier to understand. c. prohibiting disclaimers of warranties. d. requiring sellers to give written warranties for consumer goods.

Q: Robert is selling his used lawnmower. He wants to disclaim any implied warranties. Roberta. cannot disclaim implied warranties.b. should include a written disclaimer that the lawnmower is being sold "as is."c. should orally disclose all known faults of the lawnmower.d. should include a written warranty of title.

Q: Sweet Candy, Inc., and Tasty Treats stores enter into a contract for a sale of confections. Sweet, a merchant who deals in goods of the kind sold, makes express warranties in connection with the sale. Under the UCC, at the time a contract is formed, an express warranty can be disclaimed or modified a. by clear, conspicuous language called to the buyer's attention. b. by implied affirmations of fact relating to the goods. c. in any way that the seller sees fit for the ordinary purpose. d. in no way.

Q: Regal Autos, Inc., sells cars to consumers. To avoid liability for oral express warranties, each sales agreement should note that a car is sold a. as is. b. in perfect condition. c. subject to warranties included in the written contract only. d. with no known defects.

Q: Regional Wood Products Company and Sylvia enter into a contract for a sale of lumber. Regional knows the purpose for which Sylvia will use the goods. Under the UCC, an implied warranty of fitness of a particular purpose arises a. if the buyer is relying on the seller to select suitable goods. b. if the buyer asks for it. c. if the seller is a merchant who deals in goods of the kind sold. d. in conjunction with lease contracts, not sales contracts.

Q: Fred goes to Carla, a knowledgeable dog breeder, and tells her that he wants to get a dog that will be good with small children. Carla sells Fred a dog. When Fred takes the dog home, it bites both his small children and causes them serious injuries. Fred can sue Carla for breach of a. an express warranty. b. an implied warranty of fitness for a particular purpose. c. an implied warranty of merchantability. d. a warranty of title.

Q: Sigrud buys spiked mountain-climbing shoes from Rockridge Gear store. The spikes come out of the shoes when Sigrud is on the side of a mountain, causing her to be injured in a fall. Rockridge breached a. an express warranty. b. an implied warranty of fitness for a particular purpose. c. an implied warranty of merchantability. d. a warranty of title.

Q: Ocean Vessels, Inc., and Pacific Harbor Company enter into a contract for a sale of a boat. Ocean is a merchant who deals in goods of the kind sold. The goods are defective. Under the UCC, the implied warranty of merchantability is breached a. only if Ocean did not know about and could not have discovered the defect. b. only if Ocean did not know about the defect. c. only if Ocean knew about or could have discovered the defect. d. regardless of what Ocean knew or could have discovered.

Q: Good Tire Company and Hiway Auto Service enter into a contract for a sale of tires. Good Tire is a merchant who deals in goods of the kind sold. Under the UCC, an implied warranty of merchantability arises a. automatically in sales contracts. b. only if the buyer asks for it. c. only if the seller does not expressly disclaim it. d. only in conjunction with lease contracts, not sales contracts.

Q: Trucks & Trailers, Inc. (T&T), and United Delivery Service enter into a contract for a lease of trucks. T&T is a merchant who deals in goods of the kind leased. Under the UCC, an implied warranty of merchantability arises a. automatically in lease contracts. b. only if the lessee asks for it. c. only if the lessor does not expressly disclaim it. d. only in conjunction with sales contracts, not lease contracts.

Q: Olga, a salesperson for Pre-owned Cars & Trucks, Inc., tells Quincy, "This is the best car I"ve ever seen." This statement is a. an express warranty. b. an implied warranty. c. a warranty of title. d. puffery.

Q: Dependable Appliances, Inc., and Elaine enter into a contract for a sale of kitchen appliances. Dependable, a merchant who deals in goods of the kind sold, notes that its goods come with an implied warranty of merchantability. Under the UCC, this means that the goods are reasonably a. fit for the buyer's particular purpose. b. fit for the ordinary purpose for which such goods are used. c. suitable for resale at an acceptable price. d. the best quality that money can buy.

Q: John is an art dealer with special expertise in modern art. Rachel comes to John's gallery to purchase a modern art painting as an investment. John shows her several paintings that he says are high quality and will increase in value in the next ten years. John's statement is a. an express warranty. b. an implied warranty. c. an opinion. d. puffery.

Q: Sari buys a new sport utility vehicle (SUV) from Terrific Cars & Trucks, Inc. The most important factor in determining whether an express warranty is created is whether a. Sari expresses to Terrific what she wants warranted. b. Sari's desire for the SUV becomes part of her motivation to deal. c. Terrific expresses to Sari what it expects of its customers. d. Terrific's promise becomes part of the basis of the bargain.

Q: Fancy's Feedlot orders one hundred sacks of cattle feed from Bovine Feeders, Inc. Each bag has the words "Twenty percent protein" printed on the front. This is a. an express warranty. b. an implied warranty. c. a warranty of title. d. puffery.

Q: Krissa, a horse breeder, shows Maggie, a customer looking for a new stallion for her breeding program, a stallion and tells her that the stallion is very fertile and can easily breed twenty mares per year. Krissa's statement is a. an express warranty. b. an implied warranty. c. a warranty of title. d. puffery.

Q: Barry buys a bulldozer from Big Sandbox Equipment Company. Barry is unaware that there is a lien against the bulldozer when he buys it. Under the UCC, if the creditor reposes the bulldozer, Barry a. can recover from Big Sandbox Equipment for breach of warranty. b. can do nothing. c. can file criminal charges against Big Sandbox Equipment. d. can recover damages from the creditor.

Q: Big Screen Video Corporation sells high-definition television sets. Under most circumstances, Big Screen Video will be presumed to have warranted that its title to the TVs is a. the same as each brand's name. b. none of the choicesa warranty of title is not presumed. c. good and valid. d. the best that money can buy.

Q: Merchant Supply Company and National Discount Stores enter into a contract for a lease of cash registers. Merchant assures National that it has valid title to the goods. Under the UCC, a warranty of title arises a. automatically in most lease contracts. b. only if the lessee asks for such a warranty. c. only if the lessor expresses such a warranty. d. only in conjunction with sales contracts, not lease contracts.

Q: Jean buys a bike from Mike's Bike Shop. She wants to make sure that there is a warranty of title. Jean a. does not need to do anything because warranties of title arise automatically in most sales contracts. b. must request a written warranty of title. c. must request an oral warranty of title. d. must request both a written and an oral warranty of title.

Q: William steals a valuable collection of baseball cards from Phillip. William then sells the cards to Darrel, who does not know that the cards are stolen. Phillip discovers that Darrel has the cards. Which of the following best describes the rights and liabilities of the parties involved? a. Darrel has the right to keep the cards if he compensates Phillip monetarily. b. Phillip has the right to reclaim the cards from Darrel, but is liable to Darrel for damages. c. Phillip has the right to reclaim the cards from Darrel and William is liable to Darrel for damages. d. Darrel has the right to keep the cards without compensating William.

Q: The dangers associated with using sharp knives are so commonly known that manufacturers need not warn users of those dangers

Q: Courts in many jurisdictions will consider the negligent actions of both the plaintiff and the defendant when apportioning liability in a product liability action.

Q: Suppliers are generally required to expect reasonably foreseeable misuses of their products.

Q: Recovery in a product liability case may be limited when it can be shown that the plaintiff misused the product.

Q: A design defect is not the sort of product defect that will support the imposition of liability on a strict product liability basis.

Q: Sellers or lessors are liable only for products that are reasonably dangerous.

Q: An action in strict product liability requires that the product not be in a defective condition when the defendant sells it.