Question 1

An instrument is negotiable if it satisfies six standards.Which of the following is a standard of negotiability?
A)The instrument can be oral provided there is proof beyond a reasonable doubt.
B)The instrument must be payable on demand.
C)The instrument must be conditional.
D)The instrument must state a definite sum of money.

Accepted Answer

One of the six standards of negotiability is that the instrument must state a definite sum of money. Choices A, B, and C are incorrect because negotiable instruments must be in writing, payable at a definite time, and unconditional.

Question 2

Hayden owes Luther $5000.Hayden will only be able to pay this debt if he is able to sell his one-year-old Harley motorcycle,valued at $20,000.Hayden writes a check to Luther that reads,"Payable to the order of Luther the sum of $5000 as soon as my Harley motorcycle sells for a reasonable amount." This check is:
A)negotiable, assuming Luther accepts delivery of the check.
B)negotiable if Hayden also includes a date that he expects the motorcycle to sell.
C)non-negotiable because it does not state a definite amount of money.
D)non-negotiable because the check is conditional.

Accepted Answer

The check is conditional, as it only promises to pay if Hayden's Harley motorcycle sells for a "reasonable amount." Such a condition makes the check non-negotiable.

Question 3

In good faith,Clinton gave Jane $500 for a negotiable promissory note made out to Jane for $550.She needed some money before the due date on the note,and Clinton had no notice of outstanding claims or other defects of the note.Clinton:
A)has more rights than Jane.
B)has the same rights as Jane.
C)has only conditional rights because they depend on Jane's rights.
D)cannot transfer the note to anyone else.

Accepted Answer

The answer of In good faith,Clinton gave Jane $500 for...

Question 4

Laurel Speckle received a check from State University.She indorsed the check as follows: "For Deposit only,/s/ Laurel Speckle." Laurel's indorsement is a:
A)blank indorsement.
B)special indorsement.
C)restrictive indorsement.
D)None of the above is correct.

Accepted Answer

Laurel's indorsement is a restrictive indorsement because she limits the use of the check to only being deposited into her account.

Question 5

Generally,Rita signs her name using an infinity symbol rather than her legal name.Rita signed an instrument using this symbol.Which statement is correct?
A)The instrument cannot be negotiable.To be a negotiable, the instrument must be signed in Rita's legal name.
B)The instrument cannot be negotiable.To be negotiable, the instrument must be signed in Rita's given name.
C)The instrument cannot be negotiable.To be negotiable, the instrument must be signed using letters from the alphabet.
D)The instrument can be negotiable.Rita intended to indicate her signature.

Accepted Answer

As long as Rita intended to indicate her signature, the symbol she used is valid and the instrument can be negotiable. The Uniform Commercial Code allows for variations in a signature as long as it shows an intent to authenticate the instrument. Therefore, the use of an infinity symbol does not automatically invalidate the negotiability of the instrument.

Question 6

To be negotiable,a check must be in writing.Under the UCC,a check:
A)must be written on standard size paper of 6" ´ 2.5".
B)must be written on an official bank form.
C)need not be on any official form or even on paper.
D)must be confirmed by a bank if not on an official form.

Accepted Answer

The answer of To be negotiable,a check must be in...

Question 7

When a holder in due course transfers an instrument,the recipient acquires all the same rights even if he is not a holder in due course himself.This is the definition of:
A)negotiability.
B)the shelter rule.
C)a claim in recoupment.
D)a special indorsement.

Accepted Answer

The shelter rule protects a holder in due course who transfers an instrument to a subsequent holder, even if the subsequent holder is not a holder in due course.

Question 8

The Scott v.Mayflower Home Improvement Corp.case applied:
A)the shelter rule.
B)the restrictive indorsement rule.
C)the FTC Consumer Holder Rule.
D)the forgery defense.

Accepted Answer

The Scott v. Mayflower Home Improvement Corp. case applied the FTC Consumer Holder Rule, which protects consumers by allowing them to assert claims and defenses against any holder of a consumer credit contract.

Question 9

Kent Weston wrote a check for $500 payable to the order of Chester Jones.Chester indorsed the back of the check as follows: "Chester Jones." The check is now:
A)order paper.
B)bearer paper.
C)a cashier's check.
D)special paper.

Accepted Answer

The check is now considered bearer paper because Chester Jones did not specify any specific payee on the endorsement, thus making it payable to whoever possesses the physical check.

Question 10

Tim buys a high-powered tool from Binford Tools to use on the construction of his own garage.Binford Tools provides a full warranty on the tool for the first six months.To pay for the tool,Tim signs a negotiable promissory note which contains the FTC Notice.Binford properly negotiates the note to First Finance.Within three weeks,the tool stops working and Binford refuses to repair or replace it.In the meantime,First Finance demands payment from Tim.Under the Federal Trade Commission rules,this consumer credit situation means First Finance can:
A)collect if it is a holder in due course.
B)collect if it is not a holder in due course.
C)collect whether or not it is a holder in due course.
D)not collect.

Accepted Answer

The answer of Tim buys a high-powered tool from Binford...

Question 11

Which of the following requirements must an instrument meet in order to be negotiable?
A)It must be in writing.
B)It must contain an unconditional promise to pay.
C)It must be signed by the drawe.
D)All of the above.

Accepted Answer

All of the above requirements must be met in order for an instrument to be negotiable according to the Uniform Commercial Code (UCC). It must be in writing, contain an unconditional promise to pay, and be signed by the drawer or maker.

Question 12

Sonny has a negotiable instrument which he gives to Cheryl as a birthday present.Sonny is a holder in due course on the instrument.As it turns out,Cheryl can only collect on the instrument if she has holder in due course status.If Cheryl sues to collect this instrument,what will be the result?
A)Cheryl is not a holder in due course, so she is subject to personal and real defenses of the issuer.
B)If Cheryl took the instrument in good faith and without knowledge of any claims against the instrument, she is a holder in due course even though Sonny gave her the instrument for her birthday.
C)Cheryl must pass the instrument on to someone else for money.That is the only way she can realize payment of the instrument.
D)Although Cheryl does not qualify as a holder in due course, she can claim the holder in due course status through Sonny and collect the instrument.

Accepted Answer

The answer of Sonny has a negotiable instrument which he...

Question 13

Which of the following can be negotiable?
A)A promissory note that states, "Pay to Floyd Burchett $3000 on September 1, 2012."
B)A check written on the standard check form that does not state the date it was issued.
C)A promissory note from Farmer Douglas to Hainey Seeds, Inc.promising to pay for the seed purchased in the spring with bushels of grain harvested in the fall.
D)An oral promise to pay to the order of Justin $500 on demand.

Accepted Answer

The answer of Which of the following can be negotiable?
A)A...

Question 14

Sprock is a holder in due course on an instrument issued by a Klingon.Which of the following defenses could be successfully raised by the Klingon?
A)Forgery.
B)Prior payment.
C)Breach of contract.
D)Fraud in the inducement.

Accepted Answer

If the instrument was forged, then the Klingon could successfully raise the defense of forgery. As a holder in due course, Sprock would typically be immune to personal defenses (such as breach of contract or fraud in the inducement), but not to real defenses like forgery. Prior payment would also not be a valid defense, as Sprock would have no reason to believe that the instrument had already been paid.

Question 15

The section of the UCC that governs negotiable instruments is:
A)Article 3.
B)Article 2.
C)Article 6.
D)Article 9.

Accepted Answer

Article 3 of the Uniform Commercial Code (UCC) governs negotiable instruments. This includes instruments such as checks, promissory notes, and certificates of deposit. Article 3 provides rules for the creation, transfer, and enforcement of negotiable instruments.

Question 16

In June,The Seascape Gallery sells an oil painting to Collegiate Systems,Inc.Collegiate promises to pay for the painting in three months.The gallery prepares a draft ordering Collegiate Systems to pay $3,000 to First Bank on September 15.Collegiate Systems signs the draft.The draft is a:
A)sight draft.
B)time draft.
C)trade acceptance.
D)Both b and c.

Accepted Answer

The answer of In June,The Seascape Gallery sells an oil...

Question 17

Felicia,an elderly woman,does not speak or read English well.Felicia is a recent immigrant to this country.A dishonest immigration officer tells Felicia to sign several documents as being necessary to maintain her legal alien status.Unknown to Felicia,she signs a promissory note.The immigration officer thereafter sells the note to Neighborhood Bank,a holder in due course,who goes after Felicia for payment of the note.Felicia's defense to the Neighborhood Bank is:
A)fraud in the inducement; a real defense.
B)fraud in the execution; a real defense.
C)unauthorized completion; a personal defense.
D)breach of contract; a real defense.

Accepted Answer

Felicia's defense is fraud in the execution because she was misled as to the nature of the document she signed. This defense is a real defense, and if proven, would render the promissory note void.

Question 18

Maia wrote a check which said,"Pay to the order of Kevin Mathews $10.97." The next line of the check stated,"One thousand ninety-seven Dollars." In applying the rules of interpretation,how much should the drawee pay?
A)Nothing; when the instrument is ambiguous it is declared non-negotiable.
B)Ten dollars and 97 cents.Numbers control over words.
C)One thousand, ninety-seven dollars or $1,097.00.Words control over numbers.
D)parole evidence would be needed to determine the purpose of the check.

Accepted Answer

According to the rules of interpretation for checks, when there is a discrepancy between the numerical and written amounts, the written words control over the numbers. Therefore, the drawee should pay $1,097.00.

Question 19

Which of the following would be notice of an overdue instrument?
A)Taking a demand instrument after a request for payment is made.
B)Taking an instrument one day after the due date.
C)Taking a check 91 days after its issue date.
D)All of the above illustrate overdue instruments.

Accepted Answer

Taking a demand instrument after a request for payment is made indicates that the payment is overdue. Taking an instrument one day after the due date also means that the payment is overdue. Similarly, taking a check 91 days after its issue date implies that the payment has not been made on time, and it is overdue. Therefore, all the given options illustrate an overdue instrument.

Question 20

The Hartford Accident & Indemnity Co.v.American Express,Co.,the New York Court of Appeals discussed:
A)the signature requirement for negotiable instruments.
B)the concept of holder in due course.
C)the bankruptcy defense.
D)the shelter rule.

Accepted Answer

The case discussed the concept of holder in due course, which is a key principle in negotiable instruments law, providing certain protections to holders who acquire the instrument in good faith and without notice of any defects.

Quiz 22: Creating a Negotiable Instrument

An instrument is negotiable if it satisfies six standards.Which of the following is a standard of negotiability?

In good faith,Clinton gave Jane $500 for a negotiable promissory note made out to Jane for $550.She needed some money before the due date on the note,and Clinton had no notice of outstanding claims or other defects of the note.Clinton:

Laurel Speckle received a check from State University.She indorsed the check as follows: "For Deposit only,/s/ Laurel Speckle." Laurel's indorsement is a:

Generally,Rita signs her name using an infinity symbol rather than her legal name.Rita signed an instrument using this symbol.Which statement is correct?

To be negotiable,a check must be in writing.Under the UCC,a check:

When a holder in due course transfers an instrument,the recipient acquires all the same rights even if he is not a holder in due course himself.This is the definition of:

The Scott v.Mayflower Home Improvement Corp.case applied:

Kent Weston wrote a check for $500 payable to the order of Chester Jones.Chester indorsed the back of the check as follows: "Chester Jones." The check is now:

Which of the following requirements must an instrument meet in order to be negotiable?

Sonny has a negotiable instrument which he gives to Cheryl as a birthday present.Sonny is a holder in due course on the instrument.As it turns out,Cheryl can only collect on the instrument if she has holder in due course status.If Cheryl sues to collect this instrument,what will be the result?

Which of the following can be negotiable?

Sprock is a holder in due course on an instrument issued by a Klingon.Which of the following defenses could be successfully raised by the Klingon?

The section of the UCC that governs negotiable instruments is:

In June,The Seascape Gallery sells an oil painting to Collegiate Systems,Inc.Collegiate promises to pay for the painting in three months.The gallery prepares a draft ordering Collegiate Systems to pay $3,000 to First Bank on September 15.Collegiate Systems signs the draft.The draft is a:

Maia wrote a check which said,"Pay to the order of Kevin Mathews $10.97." The next line of the check stated,"One thousand ninety-seven Dollars." In applying the rules of interpretation,how much should the drawee pay?

Which of the following would be notice of an overdue instrument?

The Hartford Accident & Indemnity Co.v.American Express,Co.,the New York Court of Appeals discussed: