Question 1

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

Accepted Answer

A) True 
 B)False  False

Question 2

Valley National Bank issued a note promising to repay an investor on October 1,2011,three years from the date of issue,plus interest.The note:

Accepted Answer

A)  is a certificate of deposit, and it will pay a lower rate of interest than a regular savings account at Valley. 
B)  is a certificate of deposit, and it will pay a higher rate of interest than a regular savings account at Valley. 
C)  is a certificate of deposit, and whether the bank pays a higher or lower rate of interest than it pays on its regular savings accounts depends upon particular bank policy. 
D)  constitutes a trade acceptance. 
A)  is a certificate of deposit, and it will pay a lower rate of interest than a regular savings account at Valley. 
B)  is a certificate of deposit, and it will pay a higher rate of interest than a regular savings account at Valley. 
C)  is a certificate of deposit, and whether the bank pays a higher or lower rate of interest than it pays on its regular savings accounts depends upon particular bank policy. 
D)  constitutes a trade acceptance. B

Question 3

Discuss the effect on an instrument of: (a)contradictory amounts between the numerals and amount written in words on a check; (b)the interest rate left blank on a promissory note; and (c)contradictory terms that are typed onto a promissory note and terms that are preprinted on the note form.

Accepted Answer

Rather than invalidating the defective documents,the UCC favors negotiability and provides rules to resolve uncertainty and supply missing terms.In situation (a),where terms in a negotiable instrument contradict each other,words take precedence over numbers.In situation (b),UCC Section 3-112 provides that the judgment rate applies.The judgment rate is the rate that courts use on court-ordered judgments.In situation (c),terms typed by the parties are controlling over preprinted terms on a form.In the case of contradictory terms,the UCC tries to give effect to the term least likely to contain the mistake.

Question 4

Which of the following can be negotiable?

Accepted Answer

A)  A promissory note that states, "Pay to Floyd Burchett $3000 on September 1, 2015." 
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. 
A)  A promissory note that states, "Pay to Floyd Burchett $3000 on September 1, 2015." 
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.

Question 5

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:

Accepted Answer

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. 
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.

Question 6

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)  Fraud in the inducement. 
A)  Forgery. 
B)  Prior payment. 
C)  Breach of contract. 
D)  Fraud in the inducement.

Question 7

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:

Accepted Answer

A)  order paper. 
B)  bearer paper. 
C)  a cashier's check. 
D)  special paper. 
A)  order paper. 
B)  bearer paper. 
C)  a cashier's check. 
D)  special paper.

Question 8

It was payday.Navidida decided to run some errands and then deposit her check in the bank over her lunch hour.So that she wouldn't have to spend too long at the bank,Navidida indorsed the back of the paycheck as follows,"Navidida Jones," before leaving work.While window shopping,Navidida lost the check.Roger finds Navidida's paycheck.
(A)Will Roger be able to cash Navidida's check?
(B)How could have Navidida indorsed the check so that she would not have to be concerned about losing the check?

Accepted Answer

(A)The check is bearer paper.This means

Question 9

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 nego

Question 10

Commercial paper is a contract to pay money.

Accepted Answer

A) True 
 B)False

Question 11

A claim in recoupment can be used against a holder in due course.

Accepted Answer

A) True 
 B)False

Question 12

Lucky loses in a high-stakes poker game to Fat Chance.To pay his debt,Lucky writes a check to Fat Chance,who negotiates the check to Convenient,who then tries to cash the check at Lucky's bank.Lucky has already stopped payment on the check,so the check is not honored by her bank.Convenient then tries to collect the check by suing Lucky.High-stakes poker games are illegal in this state.Which statement is correct?

Accepted Answer

A)  If Convenient can demonstrate that he is a holder in due course, he will prevail. 
B)  If Convenient can demonstrate that he was a buyer in the ordinary course of business, he will prevail. 
C)  If Convenient can demonstrate that he gave value without notice, he will prevail. 
D)  Convenient will not prevail. 
A)  If Convenient can demonstrate that he is a holder in due course, he will prevail. 
B)  If Convenient can demonstrate that he was a buyer in the ordinary course of business, he will prevail. 
C)  If Convenient can demonstrate that he gave value without notice, he will prevail. 
D)  Convenient will not prevail.

Question 13

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:

Accepted Answer

A)  blank indorsement. 
B)  special indorsement. 
C)  restrictive indorsement. 
D)  None of the above is correct. 
A)  blank indorsement. 
B)  special indorsement. 
C)  restrictive indorsement. 
D)  None of the above is correct.

Question 14

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)  None of the above are correct. 
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)  None of the above are correct.

Question 15

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.

Question 16

TriColor purchased an industrial stamping machine from Vicy,Inc.TriColor paid for the machine with a negotiable note.The note was payable to the order of Vicy,Inc.Vicy,Inc.indorsed the note and gave it to CCLoans to satisfy a debt.CCLoans knew nothing about the contract between TriColor and Vicy,Inc.CCLoans indorsed the note and gave it to Great River Youth Club as a charitable donation.When Great River Youth Club presented the note for payment on its due date,TriColor refused to pay,claiming that the stamping machine was defective.
(A)Is Great River Youth Club a holder in due course?
(B)Will TriColor be able to avoid liability to Great River Youth Club on the basis that the machine was defective?

Accepted Answer

(A)Great River Youth Club is not a holde

Question 17

Tyron purchased a $2900 promissory note from Jared for the discounted amount of $2500.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 $2900 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

Question 18

A draft is always a check,but a check is not always a draft.

Accepted Answer

A) True 
 B)False

Question 19

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?

Accepted Answer

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. 
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.

Question 20

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.

Exam 25: Creating A Negotiable Instrument

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

Valley National Bank issued a note promising to repay an investor on October 1,2011,three years from the date of issue,plus interest.The note:

Discuss the effect on an instrument of: (a)contradictory amounts between the numerals and amount written in words on a check; (b)the interest rate left blank on a promissory note; and (c)contradictory terms that are typed onto a promissory note and terms that are preprinted on the note form.

Which of the following can be negotiable?

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:

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

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:

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?

Commercial paper is a contract to pay money.

A claim in recoupment can be used against a holder in due course.

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:

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 draft is always a check,but a check is not always a draft.

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 "holder" of order paper can be described as:

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