Multiple Choice Identify the choice that best completes the statement or answers the question. Fact

Multiple Choice
Identify the choice
that best completes the statement or answers the question.

Fact Pattern A
Felix draws a check payable to “DeliMart” to buy
groceries.

____ 1. Refer to Fact Pattern A. 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. Refer to Fact Pattern A. With respect to
Felix’s check, DeliMart is

a.

the drawee.

b.

the drawer.

c.

the maker.

d.

the payee.

Fact Pattern B
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.

____ 3. Refer to Fact Pattern B. 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. Locke signs a check payable to the order of
Metro Bank, filling in the blanks for the amount with the figures
“$100” and “One thousand and 00/100 dollars.” This check is
payable in the amount of

a.

$0.

b.

$100.

c.

$1,000.

d.

$1,100.

____ 11. Ollie negotiates an order instrument to Phil
by

a.

assignment of its 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 B.

____ 12. Ivy signs a check payable to Jon and gives it
to him. Jon indorses the back, 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.

Fact Pattern C
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.

____ 13. Refer to Fact Pattern C. 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.

____ 14. Refer to Fact Pattern C. 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.

____ 15. 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.

____ 16. 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.

____ 17. 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.

____ 18. 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.

____ 19. 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.

Fact Pattern D
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.

____ 20. Refer to Fact Pattern D. Teri is

a.

not liable for payment under any circumstances.

b.

primarily liable.

c.

secondarily liable.

d.

simultaneously liable.

____ 21. Refer to Fact Pattern D. 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.

___ 22. 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 note. If sued on the note by an 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.

____ 23. 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.

____ 24. 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 for
payment

a.

Laptop’s best defense would be breach
of warranty.

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.

____ 25. 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.

____ 26. 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.

____ 27. 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.

____ 28. 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.

___ 29. 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.

____ 30. On Monday morning, Bob deposits into his
account at County Bank a $500 check from Dyna, who also has an account at County
Bank. On that same day, this check is considered

a.

cashiered.

b.

certified.

c.

paid.

d.

provisionally credited.

Fact Pattern E
Mike loses his National Bank (National) access card. He realizes
his loss the next day but waits a week to call National. Meanwhile, Opal finds
and uses Mike’s card to withdraw $3,000 from Mike’s account.

____ 31. Refer to Fact Pattern E. Mike is responsible
for

a.

$0.

b.

$50.

c.

$500.

d.

$3,000.

____ 32. Refer to Fact Pattern E. When Mike receives
his National statement, he demands that the bank investigate the matter and
recredit his account. The bank

a.

has no duty to investigate.

b.

must investigate and, if the dispute
is not resolved within ten days, recredit Mike’s account (at least until the
dispute is resolved).

c.

must investigate and immediately
recredit Mike’s account (at least until the dispute is resolved).

d.

must investigate but need not recredit
Mike’s account.

____ 33. 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.

____ 34. 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.

____ 35. Sydney borrows money from Rite Now Loan
Company (Rite Now). Generallly, for Rite Now to obtain a writ of execution,
Sydney must

a.

be unable or refuse to pay the amount
of a judgment.

b.

be unable to redeem Sydney’s exempt
property.

c.

notify Rite Now in writing (in a
“writ”) of his intent.

d.

surrender possession of his property
to a court.

____ 36. Flip’s debt to George is past due. George
brings a legal action against Flip to collect the debt. George asks the court
to order Home Bank, in which Flip has an account, to pay a portion of the funds
to George. This is a request for

a.

a writ of execution.

b.

an order of garnishment.

c.

an order that would violate most state
laws.

d.

an artisan’s lien.

___ 37. John,
the secured party, perfects its security interest by filing a financing
statement. What is the effect of
perfection of John’s security interest?
a. The secured party has priority in the
collateral over most creditors who acquire a security interest in the same
collateral after the filing.
b. The security interest becomes
enforceable against the debtor.
c. The debtor is protected against all
other parties who acquire an interest in the collateral after the filing.
d. The assets subject to the security
interest do not become part of the bankruptcy estate in the event the creditor
files an involuntary petition against the debtor.

______38. With regard to a prior perfected security
interest in goods for which a financing statement has been filed, which of the
following parties is most likely to have a superior interest in the same
collateral?
a. The trustee in bankruptcy of the
debtor.
b. Lien creditors of the debtor.
c. A buyer of goods in the ordinary course
of business.
d. A subsequent buyer of consumer goods
who purchased the goods from another consumer.

______39. A
party who, on April 1, 2012, filed a financing statement covering all of the
debtor’s inventory on April1, 2012 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, 2012.
b. A judgment lien creditor who filed its
judgment on April 15, 2012.
c. A holder of a purchase money security
interest in after-acquired inventory
filed on March 20, 2012.
d. A purchaser in the ordinary course of the
debtor’s business who purchased inventory on April 10, 2012.

____ 40. 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.

 

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