Question 1

The section of the UCC that governs negotiable instruments is:

Accepted Answer

A)  Article 3. 
B)  Article 2. 
C)  Article 6. 
D)  Article 9. 
A)  Article 3. 
B)  Article 2. 
C)  Article 6. 
D)  Article 9.

Question 2

Sophie issues a promissory note made "payable to the order of Molly." Molly indorses the note by signing her name and gives the note to Dana.Which of the following is correct?

Accepted Answer

A)  Sophie issued a bearer instrument and Molly kept it in bearer form. 
B)  Sophie issued an order instrument, but Molly changed it to bearer form. 
C)  Sophie issued an order instrument and Molly kept it in order form. 
D)  Sophie issued a bearer instrument and Molly changed it to order form. 
A)  Sophie issued a bearer instrument and Molly kept it in bearer form. 
B)  Sophie issued an order instrument, but Molly changed it to bearer form. 
C)  Sophie issued an order instrument and Molly kept it in order form. 
D)  Sophie issued a bearer instrument and Molly changed it to order form.

Question 3

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

Accepted Answer

A)  Forgery. 
B)  Prior payment. 
C)  Breach of contract. 
D)  Lack of consideration. 
A)  Forgery. 
B)  Prior payment. 
C)  Breach of contract. 
D)  Lack of consideration.

Question 4

Under the UCC:

Accepted Answer

A)  banks must provide customers with a monthly statement listing transactions. 
B)  a bank statement must include either canceled checks, substitute checks, or a list of check numbers, amounts, and dates of payment. 
C)  a bank statement must include any fees imposed by the bank and the number of days covered by the statement. 
D)  All of the above. 
A)  banks must provide customers with a monthly statement listing transactions. 
B)  a bank statement must include either canceled checks, substitute checks, or a list of check numbers, amounts, and dates of payment. 
C)  a bank statement must include any fees imposed by the bank and the number of days covered by the statement. 
D)  All of the above.

Question 5

Darrell owes Judy $50.He naively signs a blank check and tells Judy to fill it out for $50.Judy takes the opportunity to steal money from Darrell and fills in the check for $500.Judy then takes the check to the payor bank,cashes it,and is never heard from again.Which of the following is correct?

Accepted Answer

A)  If the bank pays the check, it is liable for $450. This is an altered check, so Darrell is liable for the original tender of $50. 
B)  If the bank pays the check, it is not liable at all since Darrell bears the risk of loss for giving the signed, incomplete check to Judy. The bank may be liable if it was on notice that the completion was improper. 
C)  If the bank pays the check, it is liable for $500. 
D)  Darrell and the bank will share the loss equally. 
A)  If the bank pays the check, it is liable for $450. This is an altered check, so Darrell is liable for the original tender of $50. 
B)  If the bank pays the check, it is not liable at all since Darrell bears the risk of loss for giving the signed, incomplete check to Judy. The bank may be liable if it was on notice that the completion was improper. 
C)  If the bank pays the check, it is liable for $500. 
D)  Darrell and the bank will share the loss equally.

Question 6

Tim wrote a negotiable note.Subsequently,Tim's debts were discharged in bankruptcy.If a holder in due course presents the note for payment,Tim does not have to pay.

Accepted Answer

A) True 
 B)False

Question 7

Hayden owes Luther $5,000.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 $5,000 as soon as my Harley motorcycle sells for a reasonable amount." This check is:

Accepted Answer

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. 
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.

Question 8

Margo is in possession of a check issued to her by Felix.The check states,"Pay to the order of Margo." If Margo wishes to transfer the check to Pete to pay a debt she owes him,all she needs to do is indorse the back of the check and give it to him.

Accepted Answer

A) True 
 B)False

Question 9

The holder must meet both an objective and a subjective test to be considered to have acquired an instrument in good faith.

Accepted Answer

A) True 
 B)False

Question 10

Russ wrote a check to buy some motors from Sam's Small Engine Shop.Before the check was cashed,Russ stopped payment on it because he found out the motors were not powerful enough for his needs and he was going to return them.The bank negligently paid the check over the stop payment order.Discuss what makes a stop payment order valid,including the length of time for which a stop payment order is effective,and whether a bank has liability for paying a check over a stop payment order.

Accepted Answer

As a general rule,a bank is liable to it

Question 11

Promissory notes have two parties: a maker and a payee.

Accepted Answer

A) True 
 B)False

Question 12

Negotiation means an instrument has been transferred:

Accepted Answer

A)  to another. 
B)  to someone by the issuer. 
C)  to the holder by someone other than the issuer. 
D)  by the issuer to a holder in due course. 
A)  to another. 
B)  to someone by the issuer. 
C)  to the holder by someone other than the issuer. 
D)  by the issuer to a holder in due course.

Question 13

Faye has been declared incompetent by a court.Her bank:

Accepted Answer

A)  may continue to pay her checks until it has received notice that a court has determined her to be incompetent. 
B)  must itself make a determination of her competence. 
C)  is not liable if it pays her checks since it has contractual obligations to pay her checks as long as she has an account and there are sufficient funds in the account to cover the checks. 
D)  is liable only for reasonable check amounts written by Faye. 
A)  may continue to pay her checks until it has received notice that a court has determined her to be incompetent. 
B)  must itself make a determination of her competence. 
C)  is not liable if it pays her checks since it has contractual obligations to pay her checks as long as she has an account and there are sufficient funds in the account to cover the checks. 
D)  is liable only for reasonable check amounts written by Faye.

Question 14

Shane called his bank and asked that it wire his mortgage payment each month to his lender.This authorization is effective until he gives the bank written notice of cancellation at least three business days before the scheduled payment date.

Accepted Answer

A) True 
 B)False

Question 15

Maria writes a check for $120 on September 2.This instrument is overdue on October 3.

Accepted Answer

A) True 
 B)False

Question 16

If West Side Bank pays a $350 check on which the issuer's name is forged,it must recredit the issuer's account.

Accepted Answer

A) True 
 B)False

Question 17

Dan received his bank statement on Monday.On the following Friday,he noticed an omitted electronic transfer and called the bank informing it of the error.The bank:

Accepted Answer

A)  must investigate and report to Dan within ten business days. 
B)  if it discovers an error, must recredit Dan's account, including interest, within one business day. 
C)  if it finds no error, must give Dan a full, written explanation within three business days of so finding. 
D)  if it cannot complete its investigation within ten business days, must provisionally credit Dan's account, including interest, pending the termination of its investigation, which must be completed within 45 calendar days. 
E)  All of the above. 
A)  must investigate and report to Dan within ten business days. 
B)  if it discovers an error, must recredit Dan's account, including interest, within one business day. 
C)  if it finds no error, must give Dan a full, written explanation within three business days of so finding. 
D)  if it cannot complete its investigation within ten business days, must provisionally credit Dan's account, including interest, pending the termination of its investigation, which must be completed within 45 calendar days. 
E)  All of the above.

Question 18

The transferee's rights in non-negotiable commercial paper are conditional,but the transferee's rights in negotiable commercial paper are unconditional.

Accepted Answer

A) True 
 B)False

Question 19

On March 14 Michael wrote checks to the electric company for $134.85 and to his dentist for $145.If both checks arrive at the bank on March 17 and Michael has only $230 in his account,the bank may choose which check to pay,or it may pay both checks even if that causes an overdraft.

Accepted Answer

A) True 
 B)False

Question 20

To be negotiable an instrument need not be in writing,but must contain a conditional promise or order to pay.

Accepted Answer

A) True 
 B)False

Exam 13: Negotiable Instruments and Banks

The section of the UCC that governs negotiable instruments is:

Sophie issues a promissory note made "payable to the order of Molly." Molly indorses the note by signing her name and gives the note to Dana.Which of the following is correct?

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

Under the UCC:

Darrell owes Judy $50.He naively signs a blank check and tells Judy to fill it out for $50.Judy takes the opportunity to steal money from Darrell and fills in the check for $500.Judy then takes the check to the payor bank,cashes it,and is never heard from again.Which of the following is correct?

Tim wrote a negotiable note.Subsequently,Tim's debts were discharged in bankruptcy.If a holder in due course presents the note for payment,Tim does not have to pay.

Margo is in possession of a check issued to her by Felix.The check states,"Pay to the order of Margo." If Margo wishes to transfer the check to Pete to pay a debt she owes him,all she needs to do is indorse the back of the check and give it to him.

The holder must meet both an objective and a subjective test to be considered to have acquired an instrument in good faith.

Promissory notes have two parties: a maker and a payee.

Negotiation means an instrument has been transferred:

Faye has been declared incompetent by a court.Her bank:

Shane called his bank and asked that it wire his mortgage payment each month to his lender.This authorization is effective until he gives the bank written notice of cancellation at least three business days before the scheduled payment date.

Maria writes a check for $120 on September 2.This instrument is overdue on October 3.

If West Side Bank pays a $350 check on which the issuer's name is forged,it must recredit the issuer's account.

Dan received his bank statement on Monday.On the following Friday,he noticed an omitted electronic transfer and called the bank informing it of the error.The bank:

The transferee's rights in non-negotiable commercial paper are conditional,but the transferee's rights in negotiable commercial paper are unconditional.

On March 14 Michael wrote checks to the electric company for $134.85 and to his dentist for $145.If both checks arrive at the bank on March 17 and Michael has only $230 in his account,the bank may choose which check to pay,or it may pay both checks even if that causes an overdraft.

To be negotiable an instrument need not be in writing,but must contain a conditional promise or order to pay.

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