Question 1

The main objective of Article 3 of the UCC and the law of commercial paper is to:

Accepted Answer

A)  create a nonnegotiable instrument. 
B)  create legal money. 
C)  create an instrument to be accepted in place of money in commercial transactions. 
D)  guarantee the payment of all transactions. 
E)  prevent fraud. 
A)  create a nonnegotiable instrument. 
B)  create legal money. 
C)  create an instrument to be accepted in place of money in commercial transactions. 
D)  guarantee the payment of all transactions. 
E)  prevent fraud.

Question 2

An I.O.U.is another form of note that is considered to be a promise to pay.

Accepted Answer

A) True 
 B)False

Question 3

Security for the repayment of a note is called collateral.

Accepted Answer

A) True 
 B)False

Question 4

An instrument does not have to be payable with interest,but if it is,the amount of interest being charged may be expressed as either a ________ or a(n)________ rate.

Accepted Answer

A)  fixed; variable 
B)  prime; subprime 
C)  legal; equitable 
D)  par; non-par 
E)  commercial; non-commercial 
A)  fixed; variable 
B)  prime; subprime 
C)  legal; equitable 
D)  par; non-par 
E)  commercial; non-commercial

Question 5

Where must the signature appear on a negotiable instrument in order to meet the signature requirement?

Accepted Answer

A)  anywhere on the face of the instrument 
B)  anywhere on the face of the instrument or anywhere on the back of the instrument 
C)  on the face only, and only at the end of the instrument 
D)  anywhere on the face, or in the proper indorsement place on the back 
E)  at the end of the instrument on the face, or in the proper indorsement place on the back 
A)  anywhere on the face of the instrument 
B)  anywhere on the face of the instrument or anywhere on the back of the instrument 
C)  on the face only, and only at the end of the instrument 
D)  anywhere on the face, or in the proper indorsement place on the back 
E)  at the end of the instrument on the face, or in the proper indorsement place on the back

Question 6

Which of the following is not one of the four general types of negotiable instruments?

Accepted Answer

A)  notes 
B)  drafts 
C)  certificates of deposit 
D)  money orders 
E)  checks 
A)  notes 
B)  drafts 
C)  certificates of deposit 
D)  money orders 
E)  checks

Question 7

An instrument that is bearer paper can be changed to order paper by a later indorsement.

Accepted Answer

A) True 
 B)False

Question 8

To prevent the risk of loss from theft,a special indorsement is preferred over a blank indorsement.

Accepted Answer

A) True 
 B)False

Question 9

An instrument that is nonnegotiable is unenforceable.

Accepted Answer

A) True 
 B)False

Question 10

A qualified indorsement can be either a special qualified indorsement or a blank qualified indorsement.

Accepted Answer

A) True 
 B)False

Question 11

A promissory note is an unconditional written order by one party (the drawer)that orders a second party (the drawee)to pay money to a third party (the payee).

Accepted Answer

A) True 
 B)False

Question 12

An indorsement can be both blank and qualified.

Accepted Answer

A) True 
 B)False

Question 13

Drafts can be negotiated from party to party; however,a promissory note,if used as an extension of credit,cannot be freely negotiated.

Accepted Answer

A) True 
 B)False

Question 14

Kathy endorses a check for which she is the payee to Mike by simply signing her name and handing him the check.If he later adds the words,"Pay to Mike" above her signature,he is committing a material alteration that voids Kathy's indorsement and negotiation to him.

Accepted Answer

A) True 
 B)False

Question 15

A bearer instrument requires both an endorsement and delivery for the instrument to be transferred.

Accepted Answer

A) True 
 B)False

Question 16

Is the following instrument negotiable? "On January 3,2012,I promise to pay to the order of Mary Atkins the sum of $500 plus interest at the rate of Citibank's prime rate as of January 3,2012.The interest rate shall be 15% per year after January 3,2012.Further,I will pay the costs of collection if legal action is necessary to collect this amount.Dated this January 3,2008.(Signed)Colleen Smith."

Accepted Answer

A)  Yes, this is a negotiable instrument. 
B)  No, there is not an unconditional promise or order to pay. 
C)  No, interest at the legal rates does not constitute a fixed amount. 
D)  No, the different interest rate after default destroys negotiability. 
E)  No, the additional promise to pay collection costs destroys negotiability. 
A)  Yes, this is a negotiable instrument. 
B)  No, there is not an unconditional promise or order to pay. 
C)  No, interest at the legal rates does not constitute a fixed amount. 
D)  No, the different interest rate after default destroys negotiability. 
E)  No, the additional promise to pay collection costs destroys negotiability.

Question 17

Which of the following is true about the law governing negotiable instruments?

Accepted Answer

A)  Somewhat fewer than half the states adopted the original version of Article 3 of the UCC. 
B)  Most negotiable instrument law is contained in federal statutes. 
C)  The most recent version of Article 3 of the UCC was released in 1990. 
D)  Negotiable instruments law comes primarily from common law. 
E)  Federal law has exclusive jurisdiction in negotiable instruments law. 
A)  Somewhat fewer than half the states adopted the original version of Article 3 of the UCC. 
B)  Most negotiable instrument law is contained in federal statutes. 
C)  The most recent version of Article 3 of the UCC was released in 1990. 
D)  Negotiable instruments law comes primarily from common law. 
E)  Federal law has exclusive jurisdiction in negotiable instruments law.

Question 18

Even if an instrument proves to be nonnegotiable,it is still subject to UCC Article 3 provisions regarding transfer.

Accepted Answer

A) True 
 B)False

Question 19

An acceleration clause does not affect negotiability however an extension clause will render an instrument nonnegotiable.

Accepted Answer

A) True 
 B)False

Question 20

A signature can operate as a valid indorsement even if the indorsement is accompanied by other words.

Accepted Answer

A) True 
 B)False

Exam 20: Creation and Transfer of Negotiable Instruments

The main objective of Article 3 of the UCC and the law of commercial paper is to:

An I.O.U.is another form of note that is considered to be a promise to pay.

Security for the repayment of a note is called collateral.

An instrument does not have to be payable with interest,but if it is,the amount of interest being charged may be expressed as either a ________ or a(n)________ rate.

Where must the signature appear on a negotiable instrument in order to meet the signature requirement?

Which of the following is not one of the four general types of negotiable instruments?

An instrument that is bearer paper can be changed to order paper by a later indorsement.

To prevent the risk of loss from theft,a special indorsement is preferred over a blank indorsement.

An instrument that is nonnegotiable is unenforceable.

A qualified indorsement can be either a special qualified indorsement or a blank qualified indorsement.

A promissory note is an unconditional written order by one party (the drawer)that orders a second party (the drawee)to pay money to a third party (the payee).

An indorsement can be both blank and qualified.

Drafts can be negotiated from party to party; however,a promissory note,if used as an extension of credit,cannot be freely negotiated.

Kathy endorses a check for which she is the payee to Mike by simply signing her name and handing him the check.If he later adds the words,"Pay to Mike" above her signature,he is committing a material alteration that voids Kathy's indorsement and negotiation to him.

A bearer instrument requires both an endorsement and delivery for the instrument to be transferred.

Which of the following is true about the law governing negotiable instruments?

Even if an instrument proves to be nonnegotiable,it is still subject to UCC Article 3 provisions regarding transfer.

An acceleration clause does not affect negotiability however an extension clause will render an instrument nonnegotiable.

A signature can operate as a valid indorsement even if the indorsement is accompanied by other words.

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An instrument does not have to be payable with interest,but if it is,the amount of interest being charged may be expressed as either a or a(n) rate.