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Q:
A holder takes an instrument for value if he or she gives a check as payment for it.
Q:
A special indorsement names the indorsee.
Q:
An instrument "payable to bearer" is negotiated by delivery.
Q:
An instrument "payable to bearer" is transferable but not negotiable.
Q:
A check "payable to the order of bearer" is neither an order instrument nor a bearer instrument.
Q:
A bearer instrument is an instrument that does not designate a specific payee.
Q:
A maker of an instrument that is payable at a definite time does not have the option of paying before the stated date.
Q:
A check is not negotiable if it is payable on demand.
Q:
Instruments that say nothing about when payment is due are payable on demand.
Q:
An instrument payable "with ten hours of services" is negotiable.
Q:
To be negotiable, an instrument must be payable in a fixed amount.
Q:
Stating on an instrument the underlying terms of an agreement renders the instrument nonnegotiable.
Q:
An instrument that states simply "I.O.U." is not negotiable.
Q:
Rubber stamp signatures can be legally binding signatures.
Q:
A signature must be the full name of a party.
Q:
A promissory note can be a negotiable instrument.
Q:
On a trade acceptance, the drawer is also the payee.
Q:
A personal check cannot be a negotiable instrument.
Q:
A time draft is payable on sight.
Q:
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 Corporation10 Corporate Park Avenue, Chicago, Illinoisand 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?
Q:
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?
Q:
Burt, a mentally impaired person, is asked by Carl to sign a piece of paper that Carl says is an autograph book. In fact, the document is a note. If later sued on the note by an HDC
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.
Q:
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
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.
Q:
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
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.
Q:
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.
Q:
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 obligated 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.
Q:
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. nothing.
b. primary.
c. secondary.
d. conditional.
Q:
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.
Q:
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.
Q:
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
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.
Q:
Wilson buys a promissory note from Oli. 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. defective.
Q:
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.
Q:
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.
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.