7. Jake bought a motorcycle from his neighbor Randy. Randy had owned the motorcycle
for his personal use for about two years. The day after the purchase, Jake is seriously
injured after the motorcycle suddenly veers off of the highway due to a manufacturing
defect. Jake brings a strict liability action against Randy. Jake will likely lose because
A. the motorcycle can’t have been substantially changed from the time the product
was sold to the time of the injury.
B. the defendant must normally be engaged in the business
of selling or otherwise
C. the plaintiff must incur physical harm by use of the motorcycle.
D. the product must be in a defective condition when the defendant sells it.
8. Carrie owed Charlotte $20,000. Carrie offered Charlotte a promissory note (a negotiable
instrument) worth $200,000 upon maturity, which occurred in six months, as
payment for the debt. Carrie had actually stolen the promissory note from her friend
Samantha. Charlotte probably won’t qualify as a holder in due course because
A. Charlotte didn’t give value for the instrument.
B. Charlotte didn’t take the instrument in good faith.
C. Charlotte should have known the instrument was stolen.
D. the instrument was stolen from Samantha.
9. Ella owed Mark $500. Since Ella didn’t have the money to pay Mark, she asked Mark if
he would accept a negotiable instrument, such as a promissory note, as payment for
the debt. Mark indicated he would accept a negotiable instrument as payment. Ella
wrote out a promissory note in which she agreed to pay Mark $550 in 60 days if she
failed to pay him the $500 in cash within the next 30 days. Ella’s promissory note isn’t
negotiable because negotiable instruments must
A. be payable at a definite time.
B. state a fixed amount of money.
C. be payable to order or to bearer.
D. give an unconditional promise or order to pay.
10. Don purchased a boat from Randy. Randy told Don that he owned the boat free and
clear of all liens, which Randy knew to be false, because he had just put the boat up
on a loan at the bank two weeks earlier. Don issued Randy a negotiable
promissory note for $5,000 to pay for the boat. By the time the promissory note came
due, the bank had repossessed the boat, making Don aware of Randy’s deception. Don
will be able to avoid payment to Randy because there was
A. a failure of consideration
. C. some sort of illegality.
B. a breach of contract
. D. fraud in the inducement.
11. Samantha writes a check to Miranda for $2,500, to be drawn from her account with
Mahopani Bank. Miranda deposits the check into her account with Central Bank. Central
Bank sends the check to Buffalo Bank, which sends the check to Mahopani Bank for
payment. Which of the following is true about this set of facts?
A. Buffalo Bank is an intermediary and collecting bank.
B. Mahopani Bank is an intermediary and collecting bank.
C. Central Bank is the payor bank.
D. Buffalo Bank is the depository bank.
12. Leroy writes a $50 check made payable to “Cash,” and gives the check to Laurie.
Which one of the following best describes what has happened?
A. Transfer by assignment
B. Taking for value
C. Transfer by negotiation
D. Transfer to a holder in due course
13. Janice gives Chandler a promissory note made out in her favor, signed by Joey for
$1,000. When the note comes due, Joey asserts a personal defense to avoid liability on
the note. Chandler isn’t a holder in due course, and thus doesn’t benefit from the
protections afforded a holder in due course, because Chandler
A. did not take the note in good faith.
B. should have known a defense existed to the note.
C. should have known the note would be dishonored.
D. did not take the note for value.
14. Brenda wrote a check to Kelli for $50, to be drawn from her account at Beverly Bank.
Beverly Bank refused to cash the check. Which one of the following correctly states
Brenda’s liability in this situation?
A. Brenda is secondarily liable if she is given timely notice of the dishonor.
B. Brenda is primarily liable if she is given timely notice of the dishonor.
C. Brenda is secondarily liable regardless of any notice of dishonor.
D. Brenda is primarily liable regardless of any notice of dishonor.
15. Jayla and Jamal enter an agreement in which Jamal agrees to pay Jayla $500 over the
next three months for a new stereo. Jamal calls Jayla on the phone and promises to
pay her the entire $500 no later than 90 days from that date. This agreement fails to
constitute a negotiable instrument, because negotiable instruments must
A. be payable on demand or at a definite time.
B. state an unconditional promise or order to pay.
C. state a fixed amount of money.
D. be in writing.