Question

1. Kurt, a successful author, signs a promissory note that he gives to Raj. The note states that the sum of $10,000 is due and payable at such time when Kurt publishes his next book. Which of the following statements is most accurate?
   A. Given Kurt's success as an author, the promissory note is a negotiable instrument.
   B. Given that Raj could demand payment from Kurt, the promissory note is a negotiable instrument.
   C. Article 3 does not apply to the promissory note.
   D. The promissory note is a negotiable instrument because a specific amount of money is mentioned.

2. Maria purchased a digital camera, paying with a promissory note. The note stated that Maria promised to pay $300 (the purchase price of the camera) in ten monthly installments of $30 plus interest. Payments are due on the first day of each month, starting on January 2006. The interest is to be calculated as "three percent over the Chase Manhattan Prime Rate". Is this instrument negotiable?
   A. No, because the future prime rate is not known at the time of the making of the note.
   B. No, because the note does not describe a fixed amount of money to be paid.
   C. Yes, because the variable rate of interest is calculated by reference to an index.
   D. Yes, because the future prime rate is known at the time of the making of the note.
   

3. Jack received a check as payment for the work he did. He indorsed the check "without recourse." This has what legal effect?
   A. The drawer of the check is discharged from primary liability on the check.
   B. Jack is discharged from secondary liability on the check.
   C. The drawer of the check is discharged from secondary liability on the check.
   D. Jack is discharged from primary liability on the check.

4. Flanigan is the Treasurer of ABC Corp. As such, he is authorized to sign checks for the corporation. A supplier bills ABC for a legitimate obligation. Flanigan made out a check to the supplier and signed it "ABC Corp., by Flanigan, Treasurer". Who is liable on this check?
   A. ABC only.
   B. Flanigan only.
   C. ABC and Flanigan.
   D. Neither ABC nor Flanigan.

5. Maya Efrat, Chief Financial Officer for BAZ Inc., is authorized to sign checks for BAZ Inc. She signs a check "BAZ Inc. by Efrat, Chief Financial Officer." Which of the following statements is most accurate?
   A. Maya and not BAZ Inc. is liable on the check.
   B. BAZ Inc. and not Maya is liable on the check.
   C. Both BAZ Inc. and Maya are liable on the check.
   D. Neither BAZ Inc. nor Maya are liable on the check.

6. Which of the following is true regarding a transferor's liability on a transfer warranty?
   A. The warranties apply only when the transfer was accompanied by the transferor's indorsement.
   B. The transferor is liable only after presentment to the drawee or a primarily liable party, followed by that party's dishonor.
   C. They apply even when there was no consideration for the transfer.
   D. If the transfer was by indorsement, the warranty extends to all subsequent transferees, and not just the immediate transferee.

7. Sue enters into an agreement with Joe for taking loan to buy a motor vehicle. She agrees to provide her diamond necklace as collateral for the loan. However, the security agreement is not authenticated. Sue defaults in payment. Joe sues. Will he succeed?
   A. Yes because, Joe has control over the necklace.
   B. No because, Joe owns the necklace.
   C. Yes because, authentication of the agreement was done.
   D. No because, Joe should have sold the necklace.

Answer 1

1) Solution: Article 3 does not apply to the promissory note

Explanation: Article 3 is not applicable to the promissory note

2) Solution: Yes, because the variable rate of interest is calculated by reference to an index

Explanation: The variable rate of interest is computed by reference to an index thus the instrument is negotiable

3) Solution: Jack is discharged from secondary liability on the check

Explanation: Jack will be discharged from the check's secondary liability.

4) Solution: ABC only

Explanation: ABC will be only liable on the check because ABC is authorized to sign checks

5) Solution: BAZ Inc. and not Maya is liable on the check.

Explanation: BAZ Inc. will be only liable on the check

6) Solution: If the transfer was by indorsement, the warranty extends to all subsequent transferees, and not just the immediate transferee.

Explanation: In case of the transfer by indorsement, it extends warranty to all subsequent transferees, and not limited to only immediate transferee