Question 1

Every party who signs a negotiable instrument is primarily liable for payment of that instrument when it comes due.

Accepted Answer

A) True 
 B)False

Question 2

To avoid the risk of loss from theft, a holder can convert a blank indorsement to a special indorsement by writing, above the signature of the indorser, the name of the indorsee.

Accepted Answer

A) True 
 B)False

Question 3

If a check is made "payable to the order of Marcus or Nathan," both parties' indorsements are necessary for negotiation.

Accepted Answer

A) True 
 B)False

Question 4

Warranty liability arises in the negotiation of an instrument even when the transferor does not sign it.

Accepted Answer

A) True 
 B)False

Question 5

The lack or failure of consideration is a personal defense and can be used to avoid payment to an ordinary holder, an HDC, and a holder through an HDC.

Accepted Answer

A) True 
 B)False

Question 6

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.

Question 7

When a note is lost, impaired, or destroyed, the owner loses the right to be paid its value, even if its existence can be proved with a copy.

Accepted Answer

A) True 
 B)False

Question 8

Kelly signs an instrument in favor of Leo that states it is "subject to a certain agreement between Kelly and Mona." This instrument is

Accepted Answer

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.

Question 9

A person who transfers an instrument for consideration warrants to all subsequent transferees and holders who take the instrument in good faith that all signatures on the item are authentic and authorized.

Accepted Answer

A) True 
 B)False

Question 10

Rick negotiates a bearer instrument to Shane by delivery

Accepted Answer

A)  with an assignment of its rights under a contract. 
B)  with any necessary indorsement. 
C)  without more. 
D)  with formal presentment in response to a demand by Shane.

Question 11

On behalf of Bubbly Drinks Company, Calvin signs an instrument in which he promises to deliver 100 cases of soda as payment to Dispatch & Delivery, Inc., on April 1. This instrument is

Accepted Answer

A)  negotiable. 
B)  nonnegotiable, because soda is not a medium of exchange authorized or adopted by a government as currency. 
C)  nonnegotiable, because it does not indicate a specific brand of water. 
D)  nonnegotiable, because it does not recite any consideration.

Question 12

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

Accepted Answer

A)  negotiable. 
B)  nonnegotiable, because it does not state a specific rate of interest. 
C)  nonnegotiable, because it is a promissory note. 
D)  nonnegotiable, because it is payable only with interest.

Question 13

Kris transfers a note, on which Liu is the maker, to Mia, who takes it for value and in good faith. Mia knows that Kris breached the contract underlying the note, giving Liu a defense against payment. With respect to this note, Mia is

Accepted Answer

A)  a knowledgeable holder in due course. 
B)  an ordinary holder. 
C)  an ordinary holder in due course. 
D)  a knowledgeable acceptor.

Question 14

At 1 A.M., in front of EZ Credit Corporation, which is closed, Frank buys a $500 promissory note for $50 from Greg. When presented with Frank's demand for payment, Diane, the maker of the note, could successfully claim that Frank

Accepted Answer

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.

Question 15

LNG LLC and Mainline Utility Corporation enter a contract for a sale of liquefied natural gas. LNG draws a draft unconditionally ordering Mainline to pay $50,000 to LNG's order in sixty days. Mainline signs and dates the draft. LNG can sell the draft to

Accepted Answer

A)  Mainline only. 
B)  LNG's bank only. 
C)  any party after the draft has been paid. 
D)  any party before payment is due.

Question 16

Brie signs an instrument in which she promises to pay Carmen a certain price for her Dodge Dart. The instrument will be negotiable if it meets all of the requirements for negotiability, including that it is payable in

Accepted Answer

A)  goods equal in value to the market price of the car. 
B)  money. 
C)  any of the choices. 
D)  services equal in value to the market price of the car.

Question 17

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

Accepted Answer

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.

Question 18

For a negotiable instrument to operate practically as a substitute for cash, it must be easily transferable and uncollectible.

Accepted Answer

A) True 
 B)False

Question 19

Coki receives a payroll check from Data Solutions Inc. and indorses it by signing her name on the back of the check. This is

Accepted Answer

A)  a blank indorsement. 
B)  a qualified indorsement. 
C)  a restrictive indorsement. 
D)  a special indorsement.

Question 20

Mortgage notes tied to a variable rate of interest-fluctuating in response to market conditions-are not negotiable.

Accepted Answer

A) True 
 B)False

Exam 22: Negotiable Instruments

Every party who signs a negotiable instrument is primarily liable for payment of that instrument when it comes due.

To avoid the risk of loss from theft, a holder can convert a blank indorsement to a special indorsement by writing, above the signature of the indorser, the name of the indorsee.

If a check is made "payable to the order of Marcus or Nathan," both parties' indorsements are necessary for negotiation.

Warranty liability arises in the negotiation of an instrument even when the transferor does not sign it.

The lack or failure of consideration is a personal defense and can be used to avoid payment to an ordinary holder, an HDC, and a holder through an HDC.

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

When a note is lost, impaired, or destroyed, the owner loses the right to be paid its value, even if its existence can be proved with a copy.

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 person who transfers an instrument for consideration warrants to all subsequent transferees and holders who take the instrument in good faith that all signatures on the item are authentic and authorized.

Rick negotiates a bearer instrument to Shane by delivery

On behalf of Bubbly Drinks Company, Calvin signs an instrument in which he promises to deliver 100 cases of soda as payment to Dispatch & Delivery, Inc., on April 1. This instrument is

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

Kris transfers a note, on which Liu is the maker, to Mia, who takes it for value and in good faith. Mia knows that Kris breached the contract underlying the note, giving Liu a defense against payment. With respect to this note, Mia is

At 1 A.M., in front of EZ Credit Corporation, which is closed, Frank buys a $500 promissory note for $50 from Greg. When presented with Frank's demand for payment, Diane, the maker of the note, could successfully claim that Frank

LNG LLC and Mainline Utility Corporation enter a contract for a sale of liquefied natural gas. LNG draws a draft unconditionally ordering Mainline to pay $50,000 to LNG's order in sixty days. Mainline signs and dates the draft. LNG can sell the draft to

Brie signs an instrument in which she promises to pay Carmen a certain price for her Dodge Dart. The instrument will be negotiable if it meets all of the requirements for negotiability, including that it is payable in

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

For a negotiable instrument to operate practically as a substitute for cash, it must be easily transferable and uncollectible.

Coki receives a payroll check from Data Solutions Inc. and indorses it by signing her name on the back of the check. This is

Mortgage notes tied to a variable rate of interest-fluctuating in response to market conditions-are not negotiable.