Question 1

Which of the following instruments satisfies the requirements of negotiability?

Accepted Answer

A)  An instrument that states, "payment is to be made at some future time after above date." 
B)  An instrument that states, "payment is to be made 10 days after delivery of the goods" but fails to indicate when delivery is to be made. 
C)  An instrument that states, "this contract was created for the purpose of being transferred." 
D)  An instrument that states, "an extension for payment is allowable" but fails to state a fixed time for payment. 
E)  An instrument that states, "payment shall be in the form of stock."

Question 2

Considering only the issue of terminology, not the issue of handwriting or whether Sophie properly performed, which of the following is true regarding whether the language "I, Reza Salehi, owe Sophie Smith $50" is insufficient to establish elements required for a negotiable instrument?

Accepted Answer

A)  The language is sufficient because it acknowledges the debt, and that is the only required standard. 
B)  The language is insufficient because it only acknowledges the debt and is not a promise to pay. 
C)  The language is sufficient only because the instrument is in an amount under $500. 
D)  The language is sufficient because it acknowledges the debt and is also a promise to pay. 
E)  The language is sufficient because it acknowledges the debt and is unconditional.

Question 3

[Book Payment] Hye and Pat signed a contract providing that "Pat will furnish the correct used business law book for use in Hye's business law class; and on August 15, 2016, Hye promises to pay Pat $50 for the book." Hye took the book and planned to pay Pat. Meanwhile, Pat properly assigned the contract Hye had signed to Jack. When Hye went to class, however, she discovered that the book was the incorrect book. When Jack asked Hye for payment, Hye refused. Hye told Jack that the book was useless to her and that she was not paying either him or Pat anything for it. Jack told Hye that he had an enforceable assignment in the form of a negotiable instrument and that he could collect regardless of whether the book was useless. Hye did not believe him. Since she was trying to save money on books, she also agreed to buy Dante's U.S. history book for $40. She had an oral agreement with Dante that he would give her the book and that she would pay him in three days. This time Hye got the right book. Dante, in writing, properly assigned the right to the $40 payment to Aris. Aris asked Hye for the money. Hye admitted her agreement with Dante but told Aris that she was not going to pay him because he did not have a negotiable instrument. Hye also purchased a communications book from Sam promising in writing to give him, to his order, a DVD she had in return the next day.
-Which of the following is true regarding Hye's assertion that Aris did not have a negotiable instrument?

Accepted Answer

A)  Hye is incorrect, and the document by which Dante assigned the right to Aris is a negotiable instrument in regard to her duty to pay. 
B)  Hye is correct because her agreement with Dante was not in a writing containing words of negotiability. 
C)  Hye is correct because Aris was not a party to the original contract. 
D)  Hye is incorrect because her admission establishes the existence of a negotiable instrument between her and Dante that could be assigned to Aris. 
E)  Hye is correct because the amount at issue is insufficient to create a negotiable instrument.

Question 4

Which of the following is true regarding simple contracts as compared to negotiable instruments?

Accepted Answer

A)  Simple contracts are assigned to an assignee, while negotiable instruments are negotiated to a holder. 
B)  Simple contracts may be assigned to an assignee or negotiated to a holder while negotiable instruments may only be negotiated to a holder in due course. 
C)  Simple contracts may be assigned to an assignee or negotiated to a holder while negotiable instruments may only be negotiated to a holder. 
D)  Simple contracts may not be assigned while negotiable instruments may be negotiated to holder. 
E)  Simple contracts may be assigned to a holder while negotiable instruments may not be assigned or negotiated.

Question 5

[Defaulted Loan] Bruce wanted to open his own restaurant, The Burger Bar, and called his friend Janet for a loan. Janet orally agreed to loan Bruce $200,000. The agreement was not put into writing. Two years later, the loan was never repaid and is in default. The Burger Bar is bankrupt and Janet decides to sue Bruce in his individual capacity.
-If Janet sues Bruce in his individual capacity, what burden of proof would she have to prove her claim?

Accepted Answer

A)  Beyond a reasonable doubt 
B)  By a preponderance of the evidence 
C)  Clear and convincing 
D)  Reasonable suspicion 
E)  Some credible evidence

Question 6

[Used Car Commission] William promised to sell Caileen's car for her, but he wanted a commission of 10%. Caileen signed an instrument promising to pay William a 10% commission if he sold her car. William assigned the agreement to Mehdi. Caileen's car was sold and the buyer paid Caileen. A dispute ensued between Caileen and William regarding whether William found the buyer or the buyer found Caileen. When Mehdi asked Caileen for payment on the instrument, Caileen refused. William, Caileen, and Mehdi settled their dispute without going to court and Caileen wrote Mehdi a check for $3,000. Mehdi endorsed the check on the back by signing his name planning to take it to the bank the next day. Unfortunately, Mehdi lost the check which was found by Caileen and cashed by the local bank. Caileen then left town.
-Which of the following is true regarding the instrument signed by Caileen promising to pay William a 10% commission if he sold her car?

Accepted Answer

A)  The instrument is negotiable. 
B)  The instrument is not negotiable only for the reason that it is based on a condition. 
C)  The instrument is not negotiable only for the reason that Caileen is not a merchant. 
D)  The instrument is not negotiable only for the reason that it is not for a sum certain. 
E)  The instrument is not negotiable because it is based on a condition and also because it is not for a sum certain.

Question 7

Which of the following is not a requirement for an instrument to be negotiable?

Accepted Answer

A)  Be an oral or written contract. 
B)  Have an unconditional promise or order to pay. 
C)  Specify a fixed sum of national currency. 
D)  Contain no additional promises. 
E)  Be signed by the creator of the instrument.

Question 8

In order to satisfy the requirement of negotiability that payment be at a time certain or on demand, acceleration of payment is not allowable.

Accepted Answer

A) True 
 B)False

Question 9

In which of the following ways does an assignee from a simple contract differ from a holder of a negotiable instrument?

Accepted Answer

A)  A holder has greater rights than the transferor. 
B)  A holder has less rights than the transferor. 
C)  An assignee has greater rights than the transferor. 
D)  An assignee has less rights than the transferor. 
E)  An assignee and a holder's rights are equivalent.

Question 10

If an instrument fails to qualify as a negotiable instrument, which of the following statements is true?

Accepted Answer

A)  The instrument by definition fails to be a good contract. 
B)  Failure to qualify as a negotiable instrument does not mean the instrument fails to be a good contract. 
C)  The instrument by definition is a good contract. 
D)  The instrument by definition is a good contract only if it is made out in an amount less than $1,000. 
E)  The instrument by definition is a good contract only if it is made out in an amount more than $1,000.

Question 11

An instrument that merely mentions another document is not considered negotiable.

Accepted Answer

A) True 
 B)False

Question 12

Belinda asks Jordan to explain what an example of a negotiable instrument is for their upcoming test. Which of the following should Jordan tell Belinda are examples of negotiable instruments?

Accepted Answer

A)  Checks only 
B)  Drafts and checks only 
C)  Promissory notes only 
D)  Promissory notes and certificates of deposits, but not checks or drafts 
E)  Checks, drafts, certificates of deposit, and promissory notes

Question 13

A substitute for cash, or ________, is a written document containing the signature of the creator that makes an unconditional promise to pay.

Accepted Answer

A)  a nonnegotiable instrument 
B)  a negotiable instrument 
C)  a payable document 
D)  a nonpayable document 
E)  an endorsed payable document

Question 14

What are the two exceptions to the time-certain requirement for negotiability discussed in the text?

Accepted Answer

The answer of What are the two exceptions to the...

Question 15

Salma arranged with ABC Bank for a revolving line of credit up to $50,000 for her antique shop. The bank required that she provide a promissory note promising payment of $50,000 to the bank or as much as may be outstanding in amounts owed to the bank payable on demand. The note allowed for partial early prepayment and for interest after default. A few months later, although Salma was not in default, the bank canceled the line of credit and demanded payment of all amounts due based on the promissory note. If the reasoning of the case in the text Reger Development, LLC v. National City Bank is followed, which of the following is the most likely result of the dispute between Salma and ABC Bank?

Accepted Answer

A)  Salma will prevail because she was current on payments, and the bank did not exercise good faith in calling the note. 
B)  Salma will prevail because the reference to prepayment destroyed the note's negotiability. 
C)  Salma will prevail because the reference to interest after default destroyed the note's negotiability. 
D)  The bank will prevail because, although the note is not a negotiable instrument, the bank has an enforceable contract. 
E)  The bank will win because it had the right to call for payment of the demand instrument.

Question 16

[Yard Mowing] Sophie agreed to mow Reza's yard once a week for $50 per week throughout the summer. Sophie, however, was having trouble getting her money from Reza. On one occasion, he in handwriting gave her an IOU saying "I, Reza Salehi, owe Sophie Smith $50." A couple of weeks later, Reza did not have the money to pay Sophie what he owed her, and he handwrote the following on a piece of paper and gave it to her: "I, Reza Salehi, promise to pay Sophie Smith or to bearer, the sum of $100 on Monday, July 22, 2016." Sophie quit mowing Reza's yard; and, disgusted with Reza, Sophie assigned both documents to Vince. When Vince presented the documents to Reza, Reza refused to pay on the basis that after inspecting the yard, he decided that Sophie was doing a poor job. Vince told him the documents constituted negotiable instruments, but Reza pointed out that he had not signed the documents with his signature at the end.
-What is the effect of the instruments being written by hand?

Accepted Answer

A)  Handwriting does not prevent the instruments from being considered negotiable only because neither Sophie nor Reza would be considered merchants in the transactions at issue. 
B)  Handwriting does not prevent the instruments from being considered negotiable only because Reza would not be considered a merchant in the transaction at issue, and Sophie's status as a merchant is irrelevant. 
C)  Handwriting does not prevent the instrument from being considered negotiable only because Sophie would not be considered a merchant in the transaction at issue, and Reza's status as a merchant is irrelevant. 
D)  Handwriting does not prevent the IOU instrument from being negotiable, but it does prevent the other instrument from being negotiable. 
E)  The issue of the instruments being handwritten does not prevent either from being considered negotiable.

Question 17

Under the UCC which of the following statements is sufficient to make a promise or order to pay conditional?

Accepted Answer

A)  "I promise to pay from the corporate account." 
B)  "I promise to pay as per the contract for the sale of goods between the parties." 
C)  "I promise to pay because I owe the money." 
D)  "I promise to pay if the following occurs." 
E)  "Borrower may pay without penalty all or a portion of the amount owed earlier than it is due."

Question 18

Documents used as payments to facilitate commercial transactions were labeled as negotiable instruments under ________.

Accepted Answer

A)  the common law 
B)  Article 2 of the UCC 
C)  Article 2 and 3 of the UCC 
D)  Article 3 of the UCC 
E)  certain state statutes

Question 19

The term that stands for the time it takes a check to go through the traditional check-clearing process and be paid is known as ________.

Accepted Answer

A)  check clearing 
B)  bank time 
C)  tender time 
D)  demand time 
E)  float

Question 20

What two characteristics must a written document have in order to satisfy the requirement that a negotiable instrument be in writing?

Accepted Answer

A)  (1) relative permanence and (2) a signature by both parties. 
B)  (1) a signature at the end by the party to be charged and (2) movability. 
C)  (1) relative permanence and (2) acknowledgement. 
D)  (1) movability and (2) acknowledgement. 
E)  (1) relative permanence and (2) movability.

Exam 26: Negotiable Instruments: Negotiability and Transferability