1) Which of the following is not negotiated?

A.Bearer paper that is transferred without indorsement.

B.Order paper that is transferred without indorsement.

C.Both a and b.

D.Neither a nor b.

2) Sharon wanted a video camera so she could record her son's soccer games and birthday parties. Reliable TV, a retailer, sold a digital video recorder to Sharon. The recorder had a one year warranty. Sharon paid with a negotiable promissory note. Later, Reliable TV properly negotiated and sold Sharon's note to First Finance Co. Sharon's recorder broke six months after she bought it. Reliable TV failed to honor its warranty, so Sharon stopped making payments on the note. First Finance has sued to force Sharon to pay on the note it bought from Reliable TV. The outcome of this case is that:

A.First Finance wins if at the time it took the note it was a holder in due course.

B.First Finance wins because a proper negotiation cuts off any defenses against payment that the maker (Sharon) had.

C.First Finance loses because Sharon is a consumer.

D.None of the above is correct.

3) Which of the following claimscannotbe successfully used against a holder in due course to avoid paying?

A.That the maker was a minor

B.That the maker was previously declared mentally incompetent by a court

C.Forgery

D.All of the above claims can be asserted against a holder in due course

4) Bob, a Big Bank checking account customer, wrote a check for $1,000 to Jan. At the time that Jan presents the check for payment at Big Bank, Bob has $1,500 in his account. However, the clerk mistakenly refuses to pay the check and stamps it "NSF" (non-sufficient funds). Jan then goes to the local prosecutor, and Bob is later arrested for writing a bad check. Bob could recover from Big Bank the damages involved in his arrest, such as attorney's fees.

True or false

5) Dave's Delicious Desserts, Inc. buys a refrigerated display case for its store from The Fridge Supply Co.Dave's pays by check made out to the order of The Fridge Supply Co. in the amount of $1,000.The Fridge Supply Co. doesn't cash the check.Instead, it properly negotiates the check to The Fridge Supply's landlord in payment for this month's rent.The landlord deposits the check for payment at the bank but it is returned stamped "NSF," meaning Dave's Desserts has insufficient funds in its account to cover the check.Dave's did not have sufficient funds in its account to cover the check because it withdrew all its funds from its account when it found out the refrigerated display case was defective.(It would have been a lot smarter to put a stop payment order in on the check, but that is beside the point).The landlord decides that it is easier to sell Dave's check at a small discount ($950) to Chuck's Check Collection rather than try to recover the money from Dave's or The Fridge Supply Co.When he sells the check to Chuck's, the landlord tells Chuck's that the check has been dishonored due to insufficient funds in Dave's account.Chuck's then sues Dave's seeking to collect on the check.

If Chuck's was able to prevail against Dave's, what amount would Dave's have to pay?

A.$950, the amount Chuck's paid for the check.

B.$1000, the amount for which the check was drawn.

6) Allan makes a promissory note for $1,000 payable to the order of Bob. Cathy steals the note from Bob, indorses (forges) Bob's name on the back, and gives it to David in exchange for a TV set. David negotiates the note for value to Emma. Emma then presents the note to Allan for payment. Allan refuses to pay the note because Bob has told him that the note had been stolen. Based on this scenario, which of the following isfalse?

A.Emma can recover the amount of the note against David because he warranted to

B.Allan is no longer liable on his underlying obligation to Bob.

C.After David pays Emma, he can recover against Cathy.

D.If David can't find Cathy, he must bear the risk of loss caused by Cathy's