Question 1

Len makes a gift of a check to Millie who takes it in good faith and without notice of any claim, defense, or defect. With respect to this check, Millie is

Accepted Answer

A)  an acceptor. 
B)  a good faith purchaser. 
C)  an ordinary holder. 
D)  an ordinary holder in due course. 
A)  an acceptor. 
B)  a good faith purchaser. 
C)  an ordinary holder. 
D)  an ordinary holder in due course.

Question 2

A person can sign an instrument as an authorized agent of the drawer, but the instrument is not negotiable unless the drawer also signs it.

Accepted Answer

A) True 
 B)False

Question 3

Only the payee's bank can acquire the rights of a holder and negotiate a check indorsed by the payee "For deposit only."

Accepted Answer

A) True 
 B)False

Question 4

A consumer who signs a note to buy a defective product continues to be liable on the note to an HDC even if the consumer returns the faulty product to the seller.

Accepted Answer

A) True 
 B)False

Question 5

Duke signs a note "payable to the order of Equity Bank." Unless Duke has a valid defense against payment, his liability on this note is

Accepted Answer

A)  impaired. 
B)  primary. 
C)  secondary. 
D)  qualified. 
A)  impaired. 
B)  primary. 
C)  secondary. 
D)  qualified.

Question 6

If the numerical and written amounts on a check differ, the check is payable in the written amount.

Accepted Answer

A) True 
 B)False

Question 7

Ana signs a check payable to Boz, who indorses the back, gives it to Credit Union, and receives cash. The transfer of the check from Boz to Credit Union is

Accepted Answer

A)  an assignment. 
B)  a negotiation. 
C)  a payment. 
D)  a sale. 
A)  an assignment. 
B)  a negotiation. 
C)  a payment. 
D)  a sale.

Question 8

A difference between the handwriting in the body of a check and in the signature affects the validity of the item and will bar a holder from HDC status.

Accepted Answer

A) True 
 B)False

Question 9

Oliver signs an instrument that states it is being executed "as per a contract for the sale of a case of apples dated May 1." This instrument is

Accepted Answer

A)  negotiable. 
B)  nonnegotiable, because banks cannot easily process commodities. 
C)  nonnegotiable, because it includes the specific date of a contract. 
D)  nonnegotiable, because it refers to an express contract. 
A)  negotiable. 
B)  nonnegotiable, because banks cannot easily process commodities. 
C)  nonnegotiable, because it includes the specific date of a contract. 
D)  nonnegotiable, because it refers to an express contract.

Question 10

A promise that states an express condition to payment is negotiable if the condition is stated in writing on the instrument.

Accepted Answer

A) True 
 B)False

Question 11

A check "payable to the order of Bethany" is indorsed in blank if Bethany simply delivers it without signing it.

Accepted Answer

A) True 
 B)False

Question 12

A note made in exchange for funds that contains an acceleration clause is not negotiable because the exact value of the note cannot be ascertained.

Accepted Answer

A) True 
 B)False

Question 13

In the event that there is a conflicting, superior claim to an instrument, a holder in due course will not be able to collect payment.

Accepted Answer

A) True 
 B)False

Question 14

On the back of a check payable to Nero, he writes "Pay to Odell, without recourse" and signs it. This

Accepted Answer

A)  does not effect the check's negotiability or any party's liability. 
B)  relieves Nero of liability on the check. 
C)  relieves Odell of liability on the check. 
D)  renders the check nonnegotiable. 
A)  does not effect the check's negotiability or any party's liability. 
B)  relieves Nero of liability on the check. 
C)  relieves Odell of liability on the check. 
D)  renders the check nonnegotiable.

Question 15

Negotiating bearer instruments requires both indorsement and delivery because the use of bearer instruments involves more risk through loss or theft.

Accepted Answer

A) True 
 B)False

Question 16

Oren signs an instrument payable to the order of Pay-Out Loans, Inc., "on or before" June 15. This instrument is

Accepted Answer

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. 
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.

Question 17

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

Accepted Answer

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. 
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.

Question 18

To be negotiable, if an instrument is not payable on demand, it must be payable at a definite time.

Accepted Answer

A) True 
 B)False

Question 19

Colin signs a note "payable to the order of Debit Bank." The bank indorses the note in blank and negotiates it to Equity Funds, which sells it to Financial Investments. Liability associated with the transfer of the note from Equity to Financial is

Accepted Answer

A)  none of the choices. 
B)  contractual. 
C)  signature. 
D)  warranty. 
A)  none of the choices. 
B)  contractual. 
C)  signature. 
D)  warranty.

Question 20

If an instrument is acquired as part of a corporate purchase of assets, the holder will have only the rights of an ordinary holder.

Accepted Answer

A) True 
 B)False

Exam 22: Negotiable Instruments

Len makes a gift of a check to Millie who takes it in good faith and without notice of any claim, defense, or defect. With respect to this check, Millie is

A person can sign an instrument as an authorized agent of the drawer, but the instrument is not negotiable unless the drawer also signs it.

Only the payee's bank can acquire the rights of a holder and negotiate a check indorsed by the payee "For deposit only."

A consumer who signs a note to buy a defective product continues to be liable on the note to an HDC even if the consumer returns the faulty product to the seller.

Duke signs a note "payable to the order of Equity Bank." Unless Duke has a valid defense against payment, his liability on this note is

If the numerical and written amounts on a check differ, the check is payable in the written amount.

Ana signs a check payable to Boz, who indorses the back, gives it to Credit Union, and receives cash. The transfer of the check from Boz to Credit Union is

A difference between the handwriting in the body of a check and in the signature affects the validity of the item and will bar a holder from HDC status.

Oliver signs an instrument that states it is being executed "as per a contract for the sale of a case of apples dated May 1." This instrument is

A promise that states an express condition to payment is negotiable if the condition is stated in writing on the instrument.

A check "payable to the order of Bethany" is indorsed in blank if Bethany simply delivers it without signing it.

A note made in exchange for funds that contains an acceleration clause is not negotiable because the exact value of the note cannot be ascertained.

In the event that there is a conflicting, superior claim to an instrument, a holder in due course will not be able to collect payment.

On the back of a check payable to Nero, he writes "Pay to Odell, without recourse" and signs it. This

Negotiating bearer instruments requires both indorsement and delivery because the use of bearer instruments involves more risk through loss or theft.

Oren signs an instrument payable to the order of Pay-Out Loans, Inc., "on or before" June 15. This instrument is

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

To be negotiable, if an instrument is not payable on demand, it must be payable at a definite time.

Colin signs a note "payable to the order of Debit Bank." The bank indorses the note in blank and negotiates it to Equity Funds, which sells it to Financial Investments. Liability associated with the transfer of the note from Equity to Financial is

If an instrument is acquired as part of a corporate purchase of assets, the holder will have only the rights of an ordinary holder.

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