Question 1

Which statement about notes and drafts is accurate?

Accepted Answer

A) With a draft, two people are involved: drawer and drawee. 
B) With a note, you order someone else to pay. 
C) With a note, two people are involved: maker and payee. 
D) With a draft, you make a promise that you will pay. 
A) With a draft, two people are involved: drawer and drawee. 
B) With a note, you order someone else to pay. 
C) With a note, two people are involved: maker and payee. 
D) With a draft, you make a promise that you will pay. C

Question 2

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?

Accepted Answer

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) Parol evidence would be needed to determine the purpose of the check. 
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) Parol evidence would be needed to determine the purpose of the check. C

Question 3

Tyron purchased a $2,900 promissory note from Jared for the discounted amount of $2,500. Tyron paid value, in good faith and without notice of any outstanding claims against this promissory note that read, "Pay to the order of Jared $2,900 on July 1, 2009, for the purchase of a 2001 Ford Taurus provided no major problems with the car arise prior to said payment date." Tyron is a holder in due course of a negotiable note.

Accepted Answer

A) True 
 B)False  False

Question 4

Which is an unconditional order to pay?

Accepted Answer

A) "I will pay $5,000 for the painting." 
B) "I will pay $2,500 for the truck if it is still running." 
C) "I will pay $400 if I have the money by Friday." 
D) All of these are correct. 
A) "I will pay $5,000 for the painting." 
B) "I will pay $2,500 for the truck if it is still running." 
C) "I will pay $400 if I have the money by Friday." 
D) All of these are correct.

Question 5

In which case would the holder in due course not receive payment?

Accepted Answer

A) Nineteen-year-old Dylan signs a promissory note to pay $500 to Alice and hands her the note. 
B) Ricardo forges Amberly's name to a promissory note and sells it to Divine. 
C) Yoko borrows money from Carole and signs a promissory note to repay the amount with interest. 
D) All of these are correct. 
A) Nineteen-year-old Dylan signs a promissory note to pay $500 to Alice and hands her the note. 
B) Ricardo forges Amberly's name to a promissory note and sells it to Divine. 
C) Yoko borrows money from Carole and signs a promissory note to repay the amount with interest. 
D) All of these are correct.

Question 6

Discuss the UCC rules for interpreting ambiguities when the terms in a negotiable instrument contradict each other.

Accepted Answer

Rather than invalidating the defective d

Question 7

Matt wrote a $500 check to Alistar for some yard work that Alistar had done. What will Alistar have to do negotiate this instrument to Totally Tough, Inc. in payment for some yard equipment Alistar had bought?

Accepted Answer

A check is order paper. To neg

Question 8

With non-negotiable commercial paper, a transferee's rights are conditional.

Accepted Answer

A) True 
 B)False

Question 9

The evening news was full of stories about how Levine sold fraudulent negotiable instruments to investors around the country. Two days later, Brighty, who did not hear the news reports, bought some of the fraudulent negotiable instruments from a swindled investor. Can Brighty claim the position of a holder in due course considering the publicity of the scam?

Accepted Answer

A) Brighty is presumed to have knowledge of the scam and therefore did not purchase the instruments in good faith. 
B) Although Brighty passes the subjective test of good faith, he fails the objective test and therefore cannot claim to have purchased the instruments in good faith. 
C) Brighty can claim to have purchased the instruments in good faith if he subjectively believed the instruments were valid and if objectively his purchase of the instruments was commercially reasonable. 
D) Brighty cannot be a holder in due course because once an action of fraud is discovered, no additional claims against that party can be sought. 
A) Brighty is presumed to have knowledge of the scam and therefore did not purchase the instruments in good faith. 
B) Although Brighty passes the subjective test of good faith, he fails the objective test and therefore cannot claim to have purchased the instruments in good faith. 
C) Brighty can claim to have purchased the instruments in good faith if he subjectively believed the instruments were valid and if objectively his purchase of the instruments was commercially reasonable. 
D) Brighty cannot be a holder in due course because once an action of fraud is discovered, no additional claims against that party can be sought.

Question 10

A "holder" of order paper can be described as

Accepted Answer

A) the payee. 
B) any person in possession of the instrument. 
C) any person in possession of the instrument if it is payable to or indorsed to him. 
D) the first party to come in contact with a negotiable instrument. 
A) the payee. 
B) any person in possession of the instrument. 
C) any person in possession of the instrument if it is payable to or indorsed to him. 
D) the first party to come in contact with a negotiable instrument.

Question 11

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

Accepted Answer

A) The instrument can be oral provided there is proof beyond a reasonable doubt. 
B) The instrument must be signed by the payee. 
C) The instrument must be conditional. 
D) The instrument must state a definite sum of money. 
A) The instrument can be oral provided there is proof beyond a reasonable doubt. 
B) The instrument must be signed by the payee. 
C) The instrument must be conditional. 
D) The instrument must state a definite sum of money.

Question 12

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 strike out her name on the front of the check, write in Felix's name, and give it to him.

Accepted Answer

A) True 
 B)False

Question 13

The term "issuer"

Accepted Answer

A) is not used in relation to commercial paper. 
B) is an all-purpose term that means both maker and drawer. 
C) is synonymous with drawee. 
D) is used in relation to commercial paper only to indicate the bank which creates a certificate of deposit. 
A) is not used in relation to commercial paper. 
B) is an all-purpose term that means both maker and drawer. 
C) is synonymous with drawee. 
D) is used in relation to commercial paper only to indicate the bank which creates a certificate of deposit.

Question 14

There are two types of commercial paper: express and implied.

Accepted Answer

A) True 
 B)False

Question 15

An indorsement is the signature of the

Accepted Answer

A) drawer. 
B) payer. 
C) issuer. 
D) payee. 
A) drawer. 
B) payer. 
C) issuer. 
D) payee.

Question 16

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 17

Charlene Brown has possession of a check made out to the order of Charlene Brown (herself)which she received in payment for writing a manuscript for her publisher. Charlene is a holder in due course and the publisher cannot claim any "real" defenses to payment. Charlene has an unconditional right to be paid for the check.

Accepted Answer

A) True 
 B)False

Question 18

Value means that the holder of an instrument

Accepted Answer

A) has already done something in exchange for the instrument. 
B) cannot transfer the instrument to another person. 
C) is not in physical possession of the instrument. 
D) believes the transaction was honest in fact. 
A) has already done something in exchange for the instrument. 
B) cannot transfer the instrument to another person. 
C) is not in physical possession of the instrument. 
D) believes the transaction was honest in fact.

Question 19

A possessor of non-negotiable commercial paper has the same rights as the person who made the original contract.

Accepted Answer

A) True 
 B)False

Question 20

There are three parties on a promissory note: the maker, the drawee, and the payee.

Accepted Answer

A) True 
 B)False

Exam 15: Negotiable Instruments

Which statement about notes and drafts is accurate?

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 is an unconditional order to pay?

In which case would the holder in due course not receive payment?

Discuss the UCC rules for interpreting ambiguities when the terms in a negotiable instrument contradict each other.

Matt wrote a $500 check to Alistar for some yard work that Alistar had done. What will Alistar have to do negotiate this instrument to Totally Tough, Inc. in payment for some yard equipment Alistar had bought?

With non-negotiable commercial paper, a transferee's rights are conditional.

A "holder" of order paper can be described as

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

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 strike out her name on the front of the check, write in Felix's name, and give it to him.

The term "issuer"

There are two types of commercial paper: express and implied.

An indorsement is the signature of the

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.

Value means that the holder of an instrument

A possessor of non-negotiable commercial paper has the same rights as the person who made the original contract.

There are three parties on a promissory note: the maker, the drawee, and the payee.

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