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Exam 22: Negotiable Instruments

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Question 41

Multiple Choice

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Ben 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) nonnegotiable, because one month is not a reasonable time.
C) nonnegotiable, because there is no option to pay early.
D) nonnegotiable, because the maturity date cannot be determined from the face of the instrument.

E) B) and D)
F) B) and C)

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Question 42

Multiple Choice

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Ryan negotiates an order instrument to Selina by delivery

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.

E) All of the above
F) A) and B)

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Question 43

Multiple Choice

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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

The shelter principle promotes the marketability of instruments by permitting a holder with notice of a claim or defense to attain HDC status by reacquiring the instrument from a later HDC.

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

A trade acceptance is created when, as part of a deal to buy wheat from Moyo, Naruta signs a draft ordering the buyer to pay for the wheat within ninety days.

An instrument is not negotiable unless it is "payable to order or to bearer" at the time it is issued or first comes into the possession of a holder.

Home Products, Inc., warrants its goods to be free of defects. Ian issues an instrument to Home Products for the purchase of a thermos that leaks. With respect to payment on the instrument, Ian

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?

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

To most securely minimize the risk of loss on a loan evidenced by a note, a creditor needs only the debtor's promise that the note will be paid.

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