Question 1

Personal and real defenses are valid against an ordinary holder; only real defenses can be used against a holder in due course.

Accepted Answer

A) True 
 B)False  True

Question 2

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 immigration 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

Accepted Answer

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. 
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. B

Question 3

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. B

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

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 6

Because negotiable instruments are more valuable than non-negotiable ones, it is important for buyers and sellers to be able to tell, easily and accurately, if an instrument is indeed negotiable. What six standards must an instrument meet in order for it to be negotiable?

Accepted Answer

In order for an instrument to be negotia

Question 7

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)  mental incapacity 
B)  prior payment 
C)  breach of contract 
D)  fraud in the inducement 
A)  mental incapacity 
B)  prior payment 
C)  breach of contract 
D)  fraud in the inducement

Question 8

On March 1 Donna wrote a check for $296 to Sun Services. When will the check be overdue? What is the effect of the check's being overdue? What is the effect if the check is stamped "Insufficient Funds" by Donna's bank?

Accepted Answer

A check is overdue 90 days after its dat

Question 9

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

Accepted Answer

A)  sight draft. 
B)  time draft. 
C)  trade draft. 
D)  future draft. 
A)  sight draft. 
B)  time draft. 
C)  trade draft. 
D)  future draft.

Question 10

Under the UCC, a holder in due course is a holder who has given value for the instrument. Which of the following holders have given value for the instrument?

Accepted Answer

A)  Beth promises to paint the neighbor's house in exchange for a promissory note as an advance payment for the job. 
B)  Steve gives a note and mortgage on his house to his attorney as a retainer to handle his pending divorce. 
C)  Todd, a newspaper carrier, accepts a properly indorsed two-party check for the past two months of deliveries. 
D)  All of these are correct. 
A)  Beth promises to paint the neighbor's house in exchange for a promissory note as an advance payment for the job. 
B)  Steve gives a note and mortgage on his house to his attorney as a retainer to handle his pending divorce. 
C)  Todd, a newspaper carrier, accepts a properly indorsed two-party check for the past two months of deliveries. 
D)  All of these are correct.

Question 11

Commercial paper is a contract to pay money.

Accepted Answer

A) True 
 B)False

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

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 Consumer Credit 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

Accepted Answer

A)  can collect if it is a holder in due course. 
B)  can collect if it is not a holder in due course. 
C)  can collect whether or not it is a holder in due course. 
D)  cannot collect. 
A)  can collect if it is a holder in due course. 
B)  can collect if it is not a holder in due course. 
C)  can collect whether or not it is a holder in due course. 
D)  cannot collect.

Question 14

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 15

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.

Question 16

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 17

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.

Question 18

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 19

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

Accepted Answer

A) True 
 B)False

Question 20

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

Exam 25: Creating a Negotiable Instrument

Personal and real defenses are valid against an ordinary holder; only real defenses can be used against a holder in due course.

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

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

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?

Because negotiable instruments are more valuable than non-negotiable ones, it is important for buyers and sellers to be able to tell, easily and accurately, if an instrument is indeed negotiable. What six standards must an instrument meet in order for it to be negotiable?

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

On March 1 Donna wrote a check for $296 to Sun Services. When will the check be overdue? What is the effect of the check's being overdue? What is the effect if the check is stamped "Insufficient Funds" by Donna's bank?

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

Under the UCC, a holder in due course is a holder who has given value for the instrument. Which of the following holders have given value for the instrument?

Commercial paper is a contract to pay money.

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

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?

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

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.

Which statement about notes and drafts is accurate?

A "holder" of order paper can be described as

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

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