Chapter 23

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Indicate whether the statement is true or false.1.?A demand instrument is payable immediately after it is issued.??a.?True?b.?False2.?A time draft is payable at a definite future time.?a.?True?b.?False3.?A check is a time instrument because it is payable in due time.?a.?True?b.?False4.?A promissory note must name a specific payee to be negotiable.?a.?True?b.?False5.?For an instrument to be negotiable, it must be in writing.?a.?True?b.?False6.?A symbol can serve as a valid signature.?a.?True?b.?False7.?With respect to negotiability, the location of a signature on a document is important.?a.?True?b.?False8.?With respect to negotiability, a mere reference to another writing or record makes a promise conditional.?a.?True?b.?False9.?To be negotiable, an instrument must be payable in money.?a.?True?b.?False10.?To be negotiable, an instrument must be payable on demand.?a.?True?b.?False11.?An order instrument must identify the payee with certainty.?a.?True?b.?False12.?A negotiable instrument can only be transferred by negotiation.?a.?True?b.?False13.?A transfer by assignment can make it possible for a transferee to receive more rights in the instrument than the prior possessor had.?a.?True?b.?False14.?Negotiating order instruments requires either delivery or indorsement but not both.?a.?True?b.?False15.?An indorser who does not wish to be liable on an instrument can use a qualified indorsement.?a.?True?b.?False16.?A holder takes an instrument for value by promising to perform in the future.?a.?True?b.?False17.?A holder does not take an instrument for value if he or she gives a negotiable instrument as payment.?a.?True?b.?False18.?A person who in good faith acquires a negotiable instrument from a thief cannot become an HDC under any circumstances.?a.?True?b.?False19.?Any irregularity on the face of an instrument that calls into question its validity will bar HDC status.?a.?True?b.?False20.?A holder cannot become an HDC if he or she has notice of any claim to the instrument or defense against it.?a.?True?b.?False21.?An instrument is dishonored when the party to whom the instrument is presented refuses to pay it.?a.?True?b.?False22.?A purchaser can become an HDC of an instrument even if it is so incomplete that an element of negotiability is lacking.?a.?True?b.?False23.?An instrument is not defective simply because it is overdue.?a.?True?b.?False24.??A maker is secondarily liable on an instrument.?a.?True?b.?False25.?To properly present a draft for payment, the holder must present it to the drawer.?a.?True?b.?False26.?Failure to present an instrument on time is not improper presentment.?a.?True?b.?False27.??Dishonor occurs if payment of an instrument cannot be obtained within the prescribed time.?a.?True?b.?False28.?An unauthorized signature binds the person whose name is signed.?a.?True?b.?False29.?An imposter’s indorsement on an instrument is never effective against its drawer or maker.?a.?True?b.?False30.?Under the fictitious payee rule, the payee’s indorsement is not treated as a forgery.?a.?True?b.?False31.??Warranty liability arises only from a transferor’s signature.?a.?True?b.?False32.??One of the transfer warranties is that the instrument has not been altered.?a.?True?b.?False33.??A person whose name is forged on an instrument normally has no liability to pay any holder the value of the instrument.?a.?True?b.?False34.??Discharge in bankruptcy is no defense on any instrument regardless of the status of the holder.?a.?True?b.?False35.??All parties to a negotiable instrument will be discharged when the party primarily liable on it pays to a holder the full amount due.?a.?True?b.?FalseIndicate the answer choice that best completes the statement or answers the question.Erin draws a check payable to “Foodland” to buy groceries.36.??Refer to Fact Pattern 23-1. Erin’s check is most likely?a.??a certificate of deposit.?b.??an order to pay.?c.??a promise to pay.?d.??a promissory note.37.?Refer to Fact Pattern 23-1. With respect to Erin’s check, Foodland is?a.?thedrawee.?b.?thedrawer.?c.?themaker.?d.?the payee.LNG Corporation and Midstates Utility Company enter a contract for a sale of liquefied natural gas. LNG draws a draft unconditionally ordering Midstates Utility to pay $50,000 to LNG’s order in sixty days. Midstates Utility signs and dates the draft.?38.?Refer to Fact Pattern 23-2. This instrument is??a.??a banker’s acceptance.?b.??a nonnegotiable instrument.?c.??apromissory note.?d.??a trade acceptance.39.?Refer to Fact Pattern 23-2. On this instrument, LNG is?a.?thebanker.?b.?thedrawer.?c.?themaker.?d.?the trader.40.??Builders Exchange, Inc., issues an instrument in favor of Custom Construction Company.? For the instrument to be negotiable, it must?a.?be a conditional promise or order to pay.??b.??be payable on demand or at a specific time.?c.??be signed by the payee.?d.??recite the consideration given in exchange for it.?Thalia signs an instrument unconditionally promising to pay to “Union Bank” $7500 with interest in installments with the final payment due June 1, 2017.41.??Refer to Fact Pattern 23-3. The instrument that Thalia signed is most likely?a.??a certificate of deposit.?b.??a draft.?c.??an order to pay.?d.?a promissory note.42.?Refer to Fact Pattern 23-3. With respect to this instrument, Union Bank is?a.?thedrawee.??b.?theindorser.?c.?themaker.?d.?the payee.43.??To finance the purchase of an electric guitar and amplifier from Leon’s Guitars, Milo signs an instrument promising to pay to “National Lenders” $1,800 with interest in installments with the final payment due August 15, 2016. To be negotiable, this instrument must include on its face?a.??any conditions on the sale of the goods.?b.??any conditions to the disbursement of the funds.?c.??any conditions to the repayment of the loan.?d.??no conditions.44.?Gwen deposits $5,000 with Home State Bank on July 1, 2016. Home State Bank promises to repay Gwen the $5,000 plus 3 percent annual interest on July 1, 2021. Home State Bank issued to Gwen?a.??acertificate of deposit.?b.?a check.?c.?anonnegotiable instrument.?d.?a trade acceptance.45.?Bart, the owner of Clear Cut Corporation, signs an instrument that includes the phrase “payment for this note will be made from the proceeds of next year’s timber sale.” This instrument is?a.?negotiable.?b.?notnegotiable, because payment can be made only out of a particular source.?c.?notnegotiable, because it states an express condition to payment.?d.?notnegotiable, because the reasons for the note are not clear on its face.46.?To finance the purchase of a house from Tuna, Uri signs an instrument promising to pay to “Verity Mortgage Service” $160,000 with interest in installments with the final payment due July 10, 2045. To be negotiable, this instrument must include the signature of?a.?a non-party witness.?b.?Tuna or Tuna’s realtor.?c.?Uri.?d.?Verity’s chief financial officer.47.?Alvin signs a promissory note payable to the order of Borrow & Spend Loan Company. The note states that it is payable “with interest at the legal rate.” This note is?a.?negotiable.?b.?notnegotiable, because it does not specify a rate of interest.?c.?notnegotiable, because it is a promissory note.?d.?notnegotiable, because it is a promissory note.48.?Pedro 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.?negotiable.?b.?notnegotiable, because banks cannot easily process commodities.?c.?notnegotiable, because it includes the specific date of a contract.?d.?notnegotiable, because it refers to an express contract.49.?Bernice signs a promissory note for $1,500 in favor of Community College. The note is undated but specifies that it is “payable one month after date.” This note is?a.?negotiable.?b.?notnegotiable, because one month is not a reasonable time.?c.?notnegotiable, because there is no option to pay early.?d.?notnegotiable, because the maturity date cannot be deter-mined from the face of the instrument.50.?Barry draws a check payable to “Cash” and presents it to Dollars & Sensestore for payment. This instrument is?a.?a bearer instrument.?b.?an order instrument.?c.?valid but nonnegotiable.?d.?void.51.?O’Malley negotiates an order instrument to Phil by?a.?anassignment of O’Malley’s rights under a contract.?b.?adelivery to Phil with any necessary indorsement.?c.?making an unconditional promise to pay.?d.?presenting it in response to a demand by Phil.52.?Petra signs a check payable to Quentin, who indorses the back, gives it to Regional Credit Union (RCU), and receives cash. The transfer of the check from Quentin to RCU is?a.?an assignment.?b.?a negotiation.?c.?a payment.?d.?a sale.53.?Mortimer negotiates an instrument to Nelson. Negotiation is the transfer of an instrument?a.?for valuable consideration? under a contract.?b.?in such form that the transferee becomes a holder.?c.?pursuant to preliminary contract discussions.?d.?without the payment of a recognized medium of exchange.54.?Avril receives a payroll check from Business Solutions, Inc., and indorses it by signing her name on the back of the check. This is?a.?a blank indorsement.?b.?a qualified indorsement.?c.?a restrictive indorsement.?d.?a special indorsement.55.?On the back of a check payable to Nero, he writes “Pay to Odell, without recourse” and signs it. This?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.56.?Emily writes and signs a check payable to “Festival Cinema.” Georg, Festival’s manager, indorses the check “For deposit only.” This is?a.?a blank indorsement.?b.?a qualified indorsement.?c.?a restrictive indorsement.?d.?a special indorsement.57.?Lindsey, an accountant for Madison & Monroe, acquires a negotiable instrument from Norma by promising to pay its face value in thirty days. Lindsey acquires the status of an HDC when she?a.?acquires possession of the negotiable instrument.?b.?promises to pay the face value due on the instrument.?c.?pays the face value due on the instrument.?d.?transfers the instrument to another party.58.?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?a.?none of the choices.?b.?an assignee.?c.?an ordinary holder.?d.?an ordinary holder in due course.59.?Vicenzo, in good faith and for value, gets from Wren a check “payable to the order of bearer.” Vicenzo does not know that Wren stole the check. Vicenzo is?a.?an HDC.?b.?not an HDC, because Wren did not acquire the check for value.?c.?not an HDC, because Wren did not acquire the check in good faith.?d.?not an HDC, because the check is a bearer instrument.60.?Talia, who is not a Urban Bank customer, attempts to cash a check drawn on the bank. The check is considered dishonored if Urban Bank?a.?refuses to pay it.?b.?charges a fee to cash it.?c.?asks Talia for reasonable identification.?d.?asks Talia to sign a receipt for the payment on the check.61.?Idina wants to buy a promissory note from Jill. The note is due on April 1. To become an HDC, Idina must buy the note?a.?before midnight on April 1.?b.?before noon on April 1.?c.?before 8:00 a.m. on April 1?d.?within thirty days of April 1.62.?Raul wants to transfer a check to Schmidt. The check is defective if it ??a.?has been previously dishonored.?b.?contains handwritten terms.?c.?is undated, antedated, or postdated.?d.?all of the choices.63.?Plumbing & Pipes Supply Company issues a promissory note as a demand instrument with a due date of October 5. QuikPay Loan Company accepts the note. QuikPay has notice that the note is overdue if the firm takes the note?a.?after October 5.?b.?before October 5.?c.?on October 5.?d.?at any time.64.?Daria writes a check to Education Loan Management, Inc., that is drawn on Daria’s account at First Federal Bank. If the bank does not accept the check, liability for its amount is on?a.?Daria.?b.?Education Loan Management.?c.?First Federal Bank.?d.?no one.65.?Fiona writes a check “pay to the order of Gerri” drawn on Fiona’s account at Hearthstone Bank. Gerri presents the check for payment to Hearthstone, which accepts it. Primarily liable on the check is?a.?Fiona.?b.?Gerri.?c.?Hearthstone.?d.?none of the choices.66.?Fanny signs a note “payable to the order of Guaranty Bank.” Guaranty indorses the note in blank and negotiates it to Haji, who sells it to Iona. Liability associated with the transfer of the note from Haji to Iona is?a.?conceptual.?b.?contractual.?c.?signature.?d.?warranty.67.?Lenora signs a note “payable to the order of Medical Account Collection Agency.” Unless Lenora has a valid defense against payment, Lenora’s liability on this note is?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.68.?Lewis makes a note payable to Milly. She indorses the back of the note and negotiates it to Negotiable Investments, Inc. Primarily liable on the note is?a.?none of the choices.?b.?Milly.?c.?Negotiable Investments.?d.?Lewis.69.?Ray pays Slim in good faith for a promissory note. Slim warrants that the note has not been altered. This is?a.?a presentment warranty.?b.?a transfer warranty.?c.?a signature warranty.?d.?a breach of warranty.70.?GR8 Products, Inc., warrants its goods to be free of defects. Heck issues an instrument to obtain goods from GR8 that prove defective. With respect to payment on the instrument, Heck?a.?is liable only to a subsequent holder of the instrument.?b.?has a universal defense against it.?c.?has a personal defense against it.?d.?cannot avoid it.71.??On the back of an envelope, Phoebe writes, “I promise to pay Quint or bearer $600 on de-mand. [Signed] Phoebe.” What type of instrument is this? Is it nego-tiable? If not, why not?72.?On a sheet of paper, Elle writes, without her signature, “I acknowledge that I owe Frank $600, payable out of the proceeds of the sale of my car, a 1995 Honda Civic, which I promise to advertise ‘For Sale’ next week. Payment is to be made on or before six months from today.” What type of instrument is this? Is it nego-tiable? If not, why not??Answer Key1.?True2.?True3.?False4.?False5.?True6.?True7.?False8.?False9.?True10.?False11.?True12.?False13.?False14.?False15.?True16.?False17.?False18.?False19.?True20.?True21.?True22.?False23.?False24.?False25.?False26.?False27.?True28.?False29.?True30.?True31.?False32.?True33.?False34.?False35.?True36.?b37.?d38.?d39.?b40.?b41.?d42.?d43.?d44.?a45.?a46.?c47.?a48.?a49.?d50.?a51.?b52.?b53.?b54.?a55.?b56.?c57.?c58.?c59.?a60.?a61.?a62.?a63.?a64.?a65.?c66.?d67.?a68.?d69.?a70.?c71.??This instrument is a promissory note and a bearer note, and it is negotiable. A promissory note is an instrument with two parties: a maker and a payee. The maker of this note is Phoebe. The payee is “Quint or bearer.” A note that is payable to a specific payee “or bearer” is a bearer note. To be negotia-ble, an instrument must be in writing, be signed by the maker or drawer, be an unconditional promise or order to pay, state a fixed amount of money, bee payable on demand or at a defi-nite time, and be payable to order or to bearer (unless it is a check). This instrument meets all of these requirements. It is hand-written on the back of an enve-lope, which has permanence and is transferable. The maker signed it. Its payment is not conditional and includes the maker’s definite promise to pay. Also, “$600” is a fixed amount payable in money, and the instrument is payable on demand and to “bearer.”72.?This instrument is a promissory note, but it is nonnegotia-ble. A promissory note is an instrument with two parties—a maker and a payee. The maker of this note is Elle. The payee is Frank. The note is nonnegotiable because (1) Elle did not sign it; (2) it does not include a defi-nite promise to pay but only acknowl-edges that a debt is owed; (3) it is un-dated, which means that the end of the six-month period is uncertain, making the note not payable at a definite time; and (4) it is payable only to Frank, not to his order or to bearer. Any of these alone would make the note nonnegotiable. (Pay-ment is also conditioned on the sale of Elle’s car, but this does not make the note nonnegotiable.) ................
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