Question 1

Good faith includes the observance of reasonable commercial standards of fair dealing.

Accepted Answer

A) True 
 B)False

Question 2

Entrepreneur LLC owes Data Analysis Company $2,000. Entrepreneur executes a note to Data Analysis as security for the debt. This security

Accepted Answer

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. 
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 3

A holder will be deemed to have notice if he or she has reason to know that a defect exists, given all the facts and circumstances known at the time.

Accepted Answer

A) True 
 B)False

Question 4

Generally, when an indorsement is unauthorized, the burden of loss falls on the first party to take the instrument.

Accepted Answer

A) True 
 B)False

Question 5

Vera gives Will a $500 check as payment for a debt. Will crudely increases the amount of the check to $5,000 and deposits the check in his First Bank account. Vera is liable for the payment of $5,000 to

Accepted Answer

A)  no one. 
B)  Will and First Bank. 
C)  First Bank only. 
D)  Will only. 
A)  no one. 
B)  Will and First Bank. 
C)  First Bank only. 
D)  Will only.

Question 6

Fact Pattern 23-1 Lisa 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 23-1. Niklas is

Accepted Answer

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

Question 7

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

Accepted Answer

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 Kiley transferred the instrument without notice. 
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 Kiley transferred the instrument without notice.

Question 8

Doyle gives a check to eMarket Finance to buy 100 shares of stock in FabNu Corporation for Doyle. The price of the shares is constantly fluctuating. eMarket asks Doyle to leave the amount of the check blank and allow it to fill in the price when making the purchase. Doyle agrees. eMarket 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 Guido & Hollis Accountants (G&H), which takes the check in good faith and without notice of eMarket's act. G&H later learns that eMarket was not authorized to fill in the check for $1,000 over the price. Is G&H an HDC? If so, for how much?

Accepted Answer

G&H is an HDC to the extent of $5,000, t

Question 9

Anyone who takes a time instrument the day after its expressed due date is on notice that it is overdue.

Accepted Answer

A) True 
 B)False

Question 10

The lack or failure of consideration is a personal defense and can be used to avoid payment to ordinary holders.

Accepted Answer

A) True 
 B)False

Question 11

A holder takes an instrument for value by performing the promise for which the instrument was issued.

Accepted Answer

A) True 
 B)False

Question 12

Orson signs a check "pay to the order of Painless Dental" drawn on Orson's account in Quantum Bank. To impose liability on Orson if the bank dishonors the check, Painless Dental should present it for payment within

Accepted Answer

A)  one year. 
B)  six months. 
C)  ten days. 
D)  thirty days. 
A)  one year. 
B)  six months. 
C)  ten days. 
D)  thirty days.

Question 13

Presentment warranties protect the person who presents an instrument.

Accepted Answer

A) True 
 B)False

Question 14

Paula wants to transfer a check to Quinn. The check is defective if it

Accepted Answer

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. 
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 15

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

Accepted Answer

A)  immediate. 
B)  imposed only after payment is demanded. 
C)  postponed until the note is dishonored by the payee. 
D)  suspended until payment is due. 
A)  immediate. 
B)  imposed only after payment is demanded. 
C)  postponed until the note is dishonored by the payee. 
D)  suspended until payment is due.

Question 16

The holder of an instrument can discharge any party to the instrument by cancellation.

Accepted Answer

A) True 
 B)False

Question 17

A person who transfers an instrument for consideration warrants that all signatures are authentic and authorized.

Accepted Answer

A) True 
 B)False

Question 18

If a maker or drawer believes an imposter to be the named payee on an instrument, the imposter's indorsement is not treated as unauthorized.

Accepted Answer

A) True 
 B)False

Question 19

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

Accepted Answer

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. 
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 20

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

Accepted Answer

A)  a defective holder. 
B)  an assignee. 
C)  an ordinary holder. 
D)  an ordinary holder in due course. 
A)  a defective holder. 
B)  an assignee. 
C)  an ordinary holder. 
D)  an ordinary holder in due course.

Exam 23: Negotiable Instruments: Transfer and Liability

Good faith includes the observance of reasonable commercial standards of fair dealing.

Entrepreneur LLC owes Data Analysis Company $2,000. Entrepreneur executes a note to Data Analysis as security for the debt. This security

A holder will be deemed to have notice if he or she has reason to know that a defect exists, given all the facts and circumstances known at the time.

Generally, when an indorsement is unauthorized, the burden of loss falls on the first party to take the instrument.

Vera gives Will a $500 check as payment for a debt. Will crudely increases the amount of the check to $5,000 and deposits the check in his First Bank account. Vera is liable for the payment of $5,000 to

Fact Pattern 23-1 Lisa 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 23-1. Niklas is

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

Anyone who takes a time instrument the day after its expressed due date is on notice that it is overdue.

The lack or failure of consideration is a personal defense and can be used to avoid payment to ordinary holders.

A holder takes an instrument for value by performing the promise for which the instrument was issued.

Orson signs a check "pay to the order of Painless Dental" drawn on Orson's account in Quantum Bank. To impose liability on Orson if the bank dishonors the check, Painless Dental should present it for payment within

Presentment warranties protect the person who presents an instrument.

Paula wants to transfer a check to Quinn. The check is defective if it

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

The holder of an instrument can discharge any party to the instrument by cancellation.

A person who transfers an instrument for consideration warrants that all signatures are authentic and authorized.

If a maker or drawer believes an imposter to be the named payee on an instrument, the imposter's indorsement is not treated as unauthorized.

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

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

Introduction to the Law

Ethics in Business

The Courts and Our Legal System

Constitutional Law

Business Torts

Intellectual Property

Business Crimes

Introduction to Contracts

Offer and Acceptance

Consideration

Capacity

The Legality of Agreements

Voluntary Consent

Written Contracts

Third Party Rights

Termination and Remedies

Introduction to Sales and Lease Contracts

Title and Risk of Loss

Performance and Breach

Warranties and Product Liability

Consumer Protection

The Essentials of Negotiability

Banking in the Digital Age

Agency Relationships

Employment, Immigration, and Labor Law

Employment Discrimination

Types of Business Organizations

Formation and Ownership of a Corporation

Management of a Corporation

Combining and Dissolving a Corporation

Credit and Security

Mortgages

Bankruptcy

Insurance

Personal Property

Bailments

Real Property

Landlord and Tenant Law

Wills and Trusts

Administrative Law

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