Reference no: EM131396693

1. Felix draws a check payable to "DeliMart" to buy groceries. Felix's check is most likely

a. a certificate of deposit.

b. an order to pay.

c. a promise to pay.

d. a promissory note.

2. Felix draws a check payable to "DeliMart" to buy groceries With respect to Felix's check, DeliMart is

a. the drawee.

b. the drawer.

c. the maker.

d. the payee.

3. Commodity Sales Corporation (Commodity Sales) and Resource Purchasing Company (Resource Purchasing) enter into a contract for a sale of unprocessed silver. Commodity Sales draws a draft unconditionally ordering Resource Purchasing to pay $50,000 to Commodity Sales's order in sixty days. Resource Purchasing signs and dates the draft. This instrument is

a. a banker's acceptance.

b. a nonnegotiable instrument.

c. a promissory note.

d. a trade acceptance.

4. Bagels n' Coffee Café issues an instrument in favor of Eatery Supplies, Inc. 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.

5. To finance the purchase of a car from Giant Auto Sales, Hoppy signs an instrument promising to pay to "Ideal Credit Union" $18,000 with interest in installments with the final payment due May 15, 2014. To be negotiable, this instrument must include on its face

a. any conditions on the sale of the car.

b. any conditions to the disbursement of the funds.

c. any conditions to the repayment of the loan.

d. no conditions.

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

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.

7. Jack signs an instrument that states it is being executed "as per a contract for the sale of three magic beans dated June 1." This instrument is

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.

8. Hayley signs an instrument payable to the order of InstaCredit, Inc. The instrument allows a holder to demand payment of the entire amount due, with interest, if Hayley fails to make a payment. This instrument is

a. negotiable.

b. nonnegotiable, because a holder can move up the payment date.

c. nonnegotiable, because moving up the payment date is conditional.

d. nonnegotiable, because the exact payment date cannot be determined from the face of the instrument.

9. Shad signs a promissory note payable to Theresa "with interest" on which he conspicuously notes that it is "nonnegotiable." This instrument is

a. negotiable.

b. nonnegotiable, because it includes the notation "nonnegotiable."

c. nonnegotiable, because it does not specify a rate of interest.

d. nonnegotiable, because the exact amount payable cannot be determined from the face of the instrument.

10. Ollie negotiates an order instrument to Phil by

a. assignment of his rights under a contract.

b. delivery with any necessary indorsement.

c. making an unconditional promise to pay.

d. presenting it in response to a demand by Phil.

11. Ivy signs a check payable to Jon and gives it to him. Jon indorses the back of the check by signing his name, and transfers the check to Ked. To negotiate the check to Luis, Ked must

a. write "Ked" on the back.

b. write "pay to the order of Luis [signed] Ked" on the back.

c. deliver the check to Luis.

d. obtain Luis's signature on the back.

12. Rollo obtains a check payable to his order from Simone. Rollo signs the back and gives the check to Trey. Trey writes "Pay to Trey" above Rollo's signature. When Trey writes "Pay to Trey" above Rollo's signature, the check becomes

a. a bearer instrument.

b. an order instrument.

c. a promissory note.

d. a nonnegotiable instrument.

13. Rollo obtains a check payable to his order from Simone. Rollo signs the back and gives the check to Trey. Trey writes "Pay to Trey" above Rollo's signature. After Trey writes "Pay to Trey" above Rollo's signature, further negotiation of the check

a. requires Rollo's re-indorsement and delivery.

b. requires delivery alone.

c. requires Trey's indorsement and delivery.

d. is not possible.

14. Mike receives a payroll check from National Computer Systems, Inc., and indorses it by signing his 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.

15. Dora receives a check from Eagle Corporation. Dora indorses the check to First National Bank by writing "pay to First Nat'l Bank only" and signing her name. This is

a. a blank indorsement.

b. a qualified indorsement.

c. a restrictive indorsement.

d. a special indorsement.

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

a. an extraordinary holder in due course.

b. an ordinary check passer.

c. an ordinary holder.

d. an ordinary holder in due course.

17. Derby Stables (Derby) writes a check to Extendo Credit, Inc. (Extendo) that is drawn on Derby's account at Farm & Ranch Bank (Farm & Ranch) . If the bank does not accept the check, liability for its amount is on

a. Derby.

b. Extendo.

c. Farm & Ranch.

d. the holder of the check.

18. Dirk is the maker of a note, on which Erv is secondarily liable. Friendly Credit Company (Friendly Credit) is the current holder of the note. Erv will be obligated to pay the note if

a. Dirk defaults on the note.

b. Friendly Credit breaches a transfer warranty.

c. Friendly Credit negotiates the note to a third party.

d. Friendly Credit presents the note for payment.

19. Seymour writes a check on his account at Platinum Bank to Teri to pay a debt. Teri negotiates the check by indorsement to Rosanna, who presents it for payment to Onyx Bank. Teri is

a. not liable for payment under any circumstances.

b. primarily liable.

c. secondarily liable.

d. simultaneously liable.

20. Seymour writes a check on his account at Platinum Bank to Teri to pay a debt. Teri negotiates the check by indorsement to Rosanna, who presents it for payment to Onyx Bank If Onyx Bank dishonors the check, Rosanna can obtain payment from Teri

a. if Rosanna timely notifies Teri.

b. only if Seymour refuses to pay the check.

c. under any circumstances.

d. under no circumstances.

21. Opalina asks Paolo, who does not understand English, to sign what Opalina says is an application to open a bank account. In fact, the "application" is a promissory note. If sued on the note by a holder in due course (HDC)

a. Paolo must pay the note.

b. Paolo's best defense would be fraud in the execution.

c. Paolo's best defense would be fraud in the inducement.

d. Paolo's best defense would be mistake.

22. Chris convinces Dion, who does not understand English, to sign a $1,000 note that Dion believes is an application for a credit card. Chris negotiates the note to EZ Finance Company (EZ). Dion

a. can avoid payment on the note even if EZ is an HDC.

b. can avoid payment on the note only if EZ is a holder.

c. must pay EZ the amount that it paid for the note.

d. must pay the note in full.

23. Laptop Assembly Company (Laptop) gives a $3,000 promissory note to My-T-Fast Delivery Service to deliver a load of computer chips to Laptop's plant. The chips are contaminated during transit, and are useless to Laptop on delivery. If My-T-Fast presents the note to Laptop for payment

a. Laptop's best defense would be breach of contract.

b. Laptop must pay the note.

c. Laptop's best defense would be nondelivery of an instrument.

d. Laptop's best defense would be failure of consideration.

24. Elmo pays First National Bank $1,000 plus a service fee to draw a check on itself made payable to Go Delivery Service. This is

a. a cashier's check.

b. a certified check.

c. a trade acceptance.

d. a traveler's check.

25. First Community Bank agrees to accept a check by setting aside sufficient funds to cover the amount. This check is considered

a. cashed.

b. certified.

c. deposited.

d. provisionally credited.

26. Brandy forges Caleb's signature on a check "payable to the order of Brandy" drawn on Caleb's account in Delphi Bank. Caleb's forged signature is

a. effective if an innocent third party accepts the check.

b. effective to the degree that it matches Caleb's genuine signature.

c. effective to the extent that Downtown Bank debits Caleb's account.

d. not effective.

27. Elmer has a checking account at Finance City Bank on which he is the sole signatory. Gina steals the checks, forges Elmer's signature, and cashes the checks at Finance City. The bank is excused from any liability if, after receipt of the first forged check, Elmer fails to report the forgeries within

a. five days.

b. fourteen days.

c. one year.

d. three years.

28. Ronald writes a check for $700 payable to Savannah. Savannah indorses the check in blank and transfers it to Mitchell, who alters the check to read $7,000 and presents it to Union Bank, the drawee, for payment. The bank cashes it. Ronald discovers the alteration and files a suit against the bank. Ronald can recover

a. $7,000.

b. $6,300.

c. $700.

d. 0.

29. Dominion Sales Ltd. in Canada and Eagle Buying Company in the United States enter a contract for a sale of forestry products. Dominion draws a draft unconditionally ordering Great Federal Bank, Eagle's bank, to pay $60,000 to Dominion's order in sixty days. Eagle signs and dates the draft. This instrument is

a. a banker's acceptance.

b. a nonnegotiable instrument.

c. a promissory note.

d. a trade acceptance.

30. Beck draws a check payable to "County Farm Supply" to buy a quantity of fertilizer to deposit in Beck's field. This check is

a. a certificate of deposit.

b. a draft.

c. a promise to pay.

d. a promissory note.

31. Ewa signs an instrument unconditionally promising to pay to "Sunny State Bank" $5,000 with interest in installments with the final payment due June 1, 2016. The instrument that Ewa signed is most likely

a. a certificate of deposit.

b. a draft.

c. an order to pay.

d. a promissory note.

32. Ewa signs an instrument unconditionally promising to pay to "Sunny State Bank" $5,000 with interest in installments with the final payment due June 1, 2016. With respect to this instrument, Sunny States Bank is

a. the drawee.

b. the drawer.

c. the maker.

d. the payee.

33. Rupert owes $5,000 in unpaid taxes. Using the back of an old t-shirt, he executes an instrument for $5,000 that otherwise meets the requirements for negotiability. This instrument is most 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.

34. Gladys, the chief executive officer of Home Electrical, Inc., signs an instrument by using a rubber stamp with her thumbprint on it. This instrument is

a. negotiable.

b. nonnegotiable, because a rubber stamp does not identify the signer.

c. nonnegotiable, because a thumbprint implies a lack of serious intent.

d. nonnegotiable, because a thumbprint is not a signature.

35. To borrow money to finance the start-up of his business, Buck 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.

36. 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." The sale has been completed. 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.

37. USA Oil Corporation signs an instrument that states it is being executed "as per contract for a purchase 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 contract are not clear on the face of the instrument.

38. Olena 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." The quoted language

a. does not affect the negotiability of the check.

b. makes the note nonnegotiable, because the note does not specify a rate of interest.

c. makes the note nonnegotiable, because the note is payable with interest.

d. makes the note nonnegotiable, because the exact amount payable cannot be determined from the face of the instrument.

39. On behalf of Equity Capital, Inc., Flip signs an instrument promising to pay $5,000 in gold to Growth Investments, 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.

40. Tyrone draws a check payable to "Cash" and presents it to Urban Bank for payment. This instrument is

a. a bearer instrument.

b. an order instrument.

c. valid but nonnegotiable.

d. void.

41. 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 a corporation.

d. nonnegotiable, because it is signed by the drawer.

42. Residence Painting Company has a claim against Stuart's property to satisfy a debt that takes priority over other claims against the same property. This is

a. a lien.

b. a violation of most state laws.

c. a writ of attachment.

d. a garnishment.

43. Delia refuses to pay Ewing $500 in cash on their contract to repair certain theater sets, which Ewing still possesses. Ewing's lien on the sets will terminate

a. if Ewing continues to maintain possession.

b. if Ewing does not file a written notice of lien within thirty days.

c. if Ewing voluntarily surrenders possession.

d. within thirty days.

44. A party who, on April 1, 2015, filed a financing statement covering all of the debtor's inventory on April1, 2015 would have a superior interest to which of the following parties?

a. A holder of a mechanic's lien whose lien was filed on March 15, 2015.

b. A judgment lien creditor who filed its judgment on April 15, 2015.

c. A holder of a purchase money security interest in after-acquired inventory

filed on March 20, 2015.

d. A purchaser in the ordinary course of the debtor's business who purchased inventory on April 10, 2015.

45. General Leasing Company (GLC) buys equipment for use as inventory, borrowing $1 million from Helpful Finance Corporation (Helpful). Helpful takes back a security interest in the equipment. The next day, GLC borrows $500,000 from Interstate Bank (Interstate), and Interstate also takes back a security interest in the equipment. GLC then defaults on both loans.

Two weeks after GLC takes possession of the equipment, Helpful and Interstate file financing statements, with Interstate filing first. In that circumstance, the party with priority to the equipment is

a. GLC only.

b. Helpful and Interstate proportionately.

c. Helpful only.

d. Interstate Bank only.

46. Gary borrows $100,000 from Friendly First Federal to buy a home which secures the loan. Three years later Gary stops making payments on the loan. After Friendly First forecloses on the home and sells it to Mary, equity remains after the sale. The equity amount remaining belongs to

a. Gary.

b. Friendly First.

c. Mary.

d. the county government where the property is located.

47. Billy Bob files a petition in bankruptcy. The initial proceeding on his petition will be in

a. a federal bankruptcy court.

b. a state bankruptcy court.

c. the highest court in the state in which Billy Bob resides.

d. a federal claims court.

48. Billy Bob's voluntary petition for bankruptcy is found to be proper. The order for relief is effective as soon as

a. Billy Bob files his petition.

b. Billy Bob posts a bond to cover the cost of the proceedings.

c. Billy Bob's creditors agree to the terms of the order for relief.

d. the trustee in bankruptcy collects and distributes the property of Billy Bob's bankruptcy estate.

49. Abelard's debt to Heloise is past due. Heloise obtains a court order of garnishment to require Abelard's employer, R.U. Sirius, Inc., to pay part of Abelard's paycheck to her. The law

a. limits the amount that can be taken from Abelard's take-home pay.

b. permits R.U. Sirius ,Inc. to fire Abelard because his wages were garnished.

c. as a practical matter, does not allow Heloise to collect the court awarded amount.

d. requires R.U. Sirius, Inc. to keep Abelard as an employee until his debt is paid.

50. The payment of Eden's debt to Carrie is guaranteed by Eden's personal property. This property is

a. a secured party.

b. a secured transaction.

c. a security interest.

d. collateral.