Understanding Business and Personal Law

Chapter 26: Collecting Negotiable Instruments

Collecting Negotiable Instruments


1.	Two parties have primary liability: the maker of the note and the holder in due course.
		A)	TRUE
		B)	FALSE


2.	A holder in due course is a holder who
		A)	accepts all liability for the paying of the instrument.
		B)	is found with a fraud in the inducement.
		C)	takes an instrument for value, in good faith, and without notice.
		D)	accepts a properly negotiated instrument.


3.	A holder in due course must first be a holder.
		A)	TRUE
		B)	FALSE


4.	Two types of parties are secondarily liable on negotiable instruments:
		A)	the drawer of the draft and the indorsers of either a note or a draft.
		B)	the primary party and the holder in due course.
		C)	the payee of the draft and the acceptor of the note.
		D)	the drawee of the draft and the indorsers of the note.


5.	Real defenses include
		A)	mental incompetence and fraud in the inducement.
		B)	mental incompetence and duress.
		C)	breach of contract and lack of consideration.
		D)	breach of contract and lack of delivery.


6.	Personal defenses can be used against holders in due course.
		A)	TRUE
		B)	FALSE


7.	Real defenses can be used against holders in due course.
		A)	TRUE
		B)	FALSE


8.	When someone uses fraud to persuade another to enter into a contract it is called
		A)	a failure of consideration.
		B)	fraud in the lack of consideration.
		C)	a breach of contract.
		D)	fraud in the inducement.


9.	It is illegal to dishonor an instrument.
		A)	TRUE
		B)	FALSE


10.	A party with primary liability has
		A)	promised to pay the instrument at the time of presentment.
		B)	promised to pay the instrument without reservations of any kind.
		C)	a liability to pay only if there is a resentment of the instrument.
		D)	a liability to pay only after certain conditions have been met.