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Law
Q:
A maker is secondarily liable on an instrument.
Q:
Signature liability extends to any person who signs a negotiable instrument.
Q:
A signature may be handwritten.
Q:
A signature may be typed.
Q:
Diner's Café receives daily shipments of dairy products from Eagle Dairy, Inc. The price is $900 per month. Diner's pays six months in advance with a note for $5,400. One month later, Eagle sells the note to First National Bank for $5,100. At the time the note is sold, Eagle is
a. an HDC for $5,400.
b. an HDC for $5,100.
c. an HDC for $900.
d. not an HDC.
Q:
A+ Auto Rentals owes Apex Auto Dealership $2,000. A+ executes a note to Apex 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:
Edie is the payee of a bearer instrumenta promissory note in the amount of $1,000. Frank offers to irrigate Edie's ranch next week in exchange for the note. Edie agrees and delivers the note to Frank. Frank 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.
Q:
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.
Q:
To pay property taxes, Alpha Corporation signs a check payable to "Beth, County Tax Collector." Before Beth negotiates the check, Dan replaces her in office. The check can be negotiated by
a. Alpha only.
b. Beth, Dan, or whoever holds the office of county tax collector.
c. Beth only.
d. no one.
Q:
To pay for a new desk bought at Office Outlet, Pete makes a check payable to "Offs Outlet." A proper indorsement of the check is
a. "Office Outlet" only.
b. "Offs Outlet" only.
c. "Office Outlet" or "Offs Outlet."
d. "Pete" only.
Q:
Todd indorses a check, "Pay to Interstate Trucking if they deliver the lumber by May 1, 2007." This is
a. a blank indorsement.
b. a qualified indorsement.
c. a restrictive indorsement.
d. a special indorsement.
Q:
Joe receives a check from Interstate Transport Corporation and indorses it "without recourse." This is
a. a blank indorsement.
b. a qualified indorsement.
c. a restrictive indorsement.
d. a special indorsement.
Q:
Burt pays Carol $100 in the form of a personal check. After Carol transfers the check to Dennis by signing her name on the instrument, she is
a. a drawee.
b. a drawer.
c. an indorser.
d. an indorsee.
Q:
Eve possesses an instrument that is "payable to bearer." She loses it. Fred finds it. On this instrument, Fred may
a. collect payment.
b. not collect payment, because he did not give value for it.
c. not collect payment, because he found it.
d. not collect payment, because he is not the "bearer."
Q:
Donna transfers an instrument to First National Bank. This transfer is not a negotiation unless
a. Donna is an HDC.
b. First National Bank is an HDC.
c. the instrument is a negotiable instrument.
d. the instrument is an order instrument with all required indorsements.
Q:
Under the shelter principle, one who acquires his or her title through an HDC acquires the HDC's rights.
Q:
A person can become an HDC only by acquiring an instrument with notice of any defense against it.
Q:
A person can become an HDC only if a defense against payment is apparent on the face of the instrument.
Q:
A person can become an HDC only by acquiring an instrument with notice of any claim to it.
Q:
Any installment note payment that is less than the amount due will put the holder on notice that some of the principal is overdue.
Q:
A person who acquires a check with notice that the drawee bank previously dishonored it cannot become an HDC.
Q:
If a note is payable in thirty days, payment is due by midnight on the thirtieth day.
Q:
A person who acquires an overdue negotiable instrument is on notice that it is defective.
Q:
A person who in good faith acquires a negotiable instrument from a thief cannot become an HDC.
Q:
A holder takes an instrument for value by performing the promise for which the instrument was issued.
Q:
A holder takes an instrument for value if he or she accepts the instrument as payment for a preexisting debt.
Q:
A holder takes an instrument for value if he or she accepts the instrument as security for a preexisting debt.
Q:
An HDC takes a negotiable instrument free of most defenses to it.
Q:
An ordinary holder takes only those rights that a transferor had in an instrument.
Q:
A payee whose name is misspelled on an instrument cannot indorse the instrument.
Q:
A blank indorsement converts a bearer instrument to an order instrument.
Q:
An indorsee cannot use the notation "without recourse" to avoid liability for payment on the instrument.
Q:
An indorsement is required to negotiate a bearer instrument.
Q:
An instrument "payable to bearer" is transferable but not negotiable.
Q:
Contract law governs the assignment of negotiable instruments.
Q:
Joan signs a note that states, "Payable in thirty days." The note is dated March Kent buys the note on April Is Kent an HDC of the note?
Q:
DigiTech Corporation pays its employees every two weeks. Eve gets her paycheck, indorses the back ("Eve Anderson"), and, on her lunch hour, goes to cash it at DigiTech's bank, First State Bank. On the street, in a crowd, she loses the check. Greg Smith finds it. Has the check been negotiated to Greg? Greg signs the back of the check beneath Eve's signature and cashes it. What might Eve have done to avoid this loss?
Q:
Perfect Roofing Company receives a check from Quik Mart for fixing its roof, and indorses the check to Repair Supplies, Inc. (RSI). Sam, RSI's owner, gives the check to Todd as a gift. In this situation, the party who is not an HDC of the check but who acquires HDC rights under the shelter principle is
a. no one.
b. Perfect Roofing.
c. Sam.
d. Todd.
Q:
Aaron signs a check payable to B2C Services, Inc., and gives it to B2C, leaving the amount blank but authorizing B2C to fill it in for $1,000. B2C fills in $1,500 and negotiates the check to County Credit Corporation, an HDC. County Credit can enforce the check for
a. $0.
b. $500.
c. $1,000.
d. $1,500.
Q:
Fine Office Company employs General Construction, Inc. (GCI), to renovate an office and signs a note for $10,000 payable to GCI. GCI breaches the contract, but sells the note for $5,000 to Happy Collection Agency, which knows that GCI has not performed. Happy is an HDC of the note in the amount of
a. $0.
b. $5,000.
c. $10,000.
d. $15,000.
Q:
Bruce acquires a series of notes with successive maturity dates that Cody issued on May 15 for a loan from Delta Credit, Inc. At the time of Bruce's acquisition, he learns that Cody defaulted on one of the notes. Bruce is
a. an HDC if he reacquires the notes after their negotiation to any unsuspecting third party.
b. an HDC only with respect to the notes on which Cody has not defaulted.
c. an HDC with respect to all of notes.
d. not an HDC.
Q:
First Credit Corporation (FCC) has notice that a check is overdue if FCC takes it
a. an unreasonable time after the date of the check.
b. any time after the date of the check.
c. any time before the date of the check.
d. on the date of the check.
Q:
Standard Loan Company has notice that a promissory note is overdue if the note is a demand instrument and Standard 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:
Fact Pattern 25-1
First Bank's account agreement states that deposited items will be given provisional credit only until collection is final, but the bank's practice is to extend immediate credit.
Refer to Fact Pattern 25-1. Suppose First Bank has no reason to suspect there would be a problem if immediate credit is extended on an item on which, in fact, there is an outstanding stop-payment order. According to the court's decision in Case 25.2, Mid Wisconsin Bank v. Forsgard Trading, Inc., with respect to this item, First Bank would be
a. a holder, but not an HDC.
b. an HDC.
c. an HDC as against all parties except the item's depositor.
d. an HDC as against all parties except the item's drawer.
Q:
Fact Pattern 25-1
First Bank's account agreement states that deposited items will be given provisional credit only until collection is final, but the bank's practice is to extend immediate credit.
Refer to Fact Pattern 25-1. According to the reasoning of the court in Case 2, Mid Wisconsin Bank v. Forsgard Trading, Inc., First Bank's practice is consistent with "reasonable commercial standards of fair dealing"
a. if it is consistent with reasonable banking standards.
b. if First Bank's customers have notice, give value, and agree to it in good faith.
c. if First Bank has notice, gives value, and agrees to accept items in good faith.
d. under no circumstances.
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, Dian, 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 above.
Q:
Donna gets her paycheck from Eagle Financial Services, Inc., her employer, and attempts to deposit it in her account at First National Bank. Greg, the bank's teller, notices that on the check the amount stated in words is different from the amount stated in numerals. Which amount can the bank lawfully credit to Donna's account?
Q:
On the back of an envelope, Phoebe writes, "I promise to pay Quint or bearer $600 on demand. [Signed] Phoebe." What type of instrument is this? Is it negotiable? If not, why not?
Q:
Julie signs a check payable to the order of Kwik-Mart Stores, Inc., that does not include a date. This check is
a. negotiable.
b. nonnegotiable, because it does not include a date.
c. nonnegotiable, because it is payable to Kwik-Mart.
d. nonnegotiable, because it is signed by Julie.
Q:
Will signs a check payable to "X" and gives it to Yvonne. This check is
a. negotiable.
b. nonnegotiable, because Yvonne is not "X."
c. nonnegotiable, because it does not indicate a specific payee.
d. nonnegotiable, because it was executed as a joke.
Q:
Quinn signs an instrument payable to the order of Payday Loan Company that states, "The maker of this note at the date of maturity, May 1, 2007, can extend the time of payment, but for no more than a reasonable time." This instrument is
a. negotiable.
b. nonnegotiable, because it includes an extension clause.
c. nonnegotiable, because it is not payable within a definite time.
d. nonnegotiable, because it is payable to Payday Loan Company.
Q:
Wendy signs a check payable "to the order of X" and gives it to Yves. This check is
a. negotiable.
b. nonnegotiable, because Yves is not "X."
c. nonnegotiable, because it does not indicate a specific payee.
d. nonnegotiable, because it was executed as a joke.
Q:
Flo executes a promissory note in favor of General Credit Corporation that allows a holder to demand payment of the entire amount due, with interest, if Flo fails to make a payment. This is
a. a codependency clause.
b. an acceleration clause.
c. an extension clause.
d. a surety clause.
Q:
Maria signs an instrument payable to the order of National Loans, Inc., "on or before" June 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:
Opal signs a promissory note payable to the order of Payday Loan Company. The note states that it is payable "with interest at the legal rate." This note is
a. negotiable.
b. nonnegotiable, because it does not specify a rate of interest.
c. nonnegotiable, because it is a promissory note.
d. nonnegotiable, because it is payable only with interest.
Q:
On behalf of First-Rate Capital, Inc., Greg signs an instrument promising to pay $5,000 in gold to Hot Funds, Inc., on May 15. This instrument is
a. negotiable.
b. nonnegotiable, because gold is not a medium of exchange authorized or adopted by a government as currency.
c. nonnegotiable, because it does not recite any consideration.
d. nonnegotiable, because it is for an amount of $500 or more.
Q:
USA Gasoline Corporation signs an instrument that states it is being executed "in accord with a contract for the sale of 4,000 barrels of oil dated May 1." This instrument is
a. negotiable.
b. nonnegotiable, because information about the sale must be obtained from another source.
c. nonnegotiable, because it states an express condition to payment.
d. nonnegotiable, because the terms of the sale are not clear.
Q:
Kevin, the owner of Livestock Ranch Corporation, signs an instrument that includes the phrase "payment for this note will be made from the proceeds of next year's stock sale." This instrument is
a. negotiable.
b. nonnegotiable, because information about the sale must be obtained from another source.
c. nonnegotiable, because it states an express condition to payment.
d. nonnegotiable, because the reasons for the note are not clear.
Q:
International Properties, Inc. (IPI), signs an instrument in favor of Financial Investments Corporation that includes the statement "IPI plans to pay this debt from the proceeds of the sale of the IPI Office Building in Montreal." This instrument is
a. negotiable.
b. nonnegotiable, because banks cannot easily process office buildings.
c. nonnegotiable, because it refers to a separate sale.
d. nonnegotiable, because Montreal is in Canada, not the United States.
Q:
Don, the chief executive officer of Epsilon Products, Inc., signs an instrument by placing his thumbprint on it. This instrument is
a. negotiable.
b. nonnegotiable, because a thumbprint does not state the signer's name.
c. nonnegotiable, because a thumbprint implies a lack of binding intent.
d. nonnegotiable, because a thumbprint is not a signature.
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:
Jim owes $5,000 in unpaid taxes. On the flank of his quarter horse, he executes an instrument for that amount that otherwise meets the requirements for negotiability. This instrument is likely
a. negotiable.
b. nonnegotiable, because an instrument must be on paper.
c. nonnegotiable, because a quarter horse is not freely transferable.
d. nonnegotiable, because the government does not appreciate it.
Q:
Gail owes $5,000 in unpaid taxes. Using the back of an old t-shirt, she executes an instrument for $5,000 that otherwise meets the requirements for negotiability. This instrument is likely
a. negotiable.
b. nonnegotiable, because an instrument must be on paper.
c. nonnegotiable, because a t-shirt is not sufficiently permanent.
d. nonnegotiable, because the government does not appreciate it.
Q:
Jane orally promises to pay $400 to Ken. This is
a. a negotiable instrument.
b. a nonnegotiable instrument, because it is not in writing.
c. a nonnegotiable instrument, because $400 is under the Statute of Frauds.
d. a nonnegotiable instrument, because it does not recite consideration.
Q:
Tyler signs an unconditional promissory note payable to United Freight Company. Vince attempts to collect payment on United's behalf. This note is
a. a negotiable instrument payable to any holder.
b. a negotiable instrument payable to a specific payee.
c. a negotiable instrument payable to bearer.
d. a nonnegotiable instrument.
Q:
To pay for improvements to Diners Cafe, Earl executes a negotiable instrument in favor of First County Bank. They are the only parties to the instrument. A negotiable instrument that has only two parties is
a. a bank draft.
b. a check.
c. an indorsement.
d. a promissory note.
Q:
To obtain his business license, Alan writes a check to the appropriate state agency. Alan is
a. the drawee.
b. the drawer.
c. the indorser.
d. the payee.
Q:
In a sale of appliances to Home Furnishings Store, Interstate Products, Inc. (IPI), draws an instrument that orders Home Furnishings to pay $150,000 to the order of IPI in thirty days. Home Furnishings accepts the instrument by signing and dating the face of it. This is
a. a certificate of deposit.
b. a bearer bond.
c. a trade acceptance.
d. a international letter of credit.
Q:
Normally, if the numerical amount and the written amount on a check differ, the figures outweigh the words.
Q:
An instrument "payable to bearer" can be presented for payment or transferred to another party.
Q:
An instrument including a clause that permits the date of maturity to be extended by the maker for "no more than a reasonable time" is negotiable.
Q:
A promissory note is not negotiable if reference must be made to foreign exchange rates at the time payment is due.
Q:
An instrument that promises to pay "in goods" can be negotiable.
Q:
To be negotiable, an instrument must be payable in money.
Q:
Making a note secured by a mortgage does not affect the note's negotiability.
Q:
An order stating "I wish you would pay" is sufficient to create a negotiable instrument.
Q:
An acknowledgment of indebtedness is sufficient to create a negotiable instrument.
Q:
A signature can consist of initials signed by a party.
Q:
The location of a signature on an instrument is important.
Q:
A thumbprint made on a document with the intent that it serve as a valid signature will be legally valid if it is witnessed.