Deck 22: Creating a Negotiable Instrument

Question 1

To be negotiated,bearer paper must simply be delivered.

Answer 1

True

Question 2

Commercial paper is a contract to pay money.

Answer 2

True

Question 3

In the Rosenbaum v.Bulow,the court ruled that Bulow neither gave value for the promissory note nor acted in good faith.

Answer 3

False

Question 4

The term "issuer":

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 5

Forgery is a valid defense against a holder in due course.

Question 6

A & D,Inc.wrote a negotiable note payable to Vicy,Inc.A & D left the amount of the note blank because it was uncertain as to amount of the applicable tax.Vicy completed the note for $3,000 more than A & D actually owed for the products it purchased.The note was negotiated to a holder in due course.A & D will not have to honor the note as this constituted fraud in the execution.

Question 7

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?

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 bearer form.

Question 8

Charlene has possession of a check made out to her order 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.

Question 9

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:

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 10

There are three kinds of commercial paper: negotiable,non-negotiable and promissory.

Question 11

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.

Question 12

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

Question 13

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

Question 14

Commercial paper is only used as a substitute for money.

Question 15

Francenie has a checking account at Corner Bank.She wants tickets to an upcoming concert.She writes a check to Ticketmaster for the cost of two tickets.In this scenario:

A)Francenie is the drawee, Corner Bank is the drawer, and Ticketmaster is the payee.
B)Francenie is the maker, Corner Bank is the drawee, and Ticketmaster is the payee.
C)Francenie is the drawer, Corner Bank is the drawee, and Ticketmaster is the payee.
D)Francenie is the payee, Corner Bank is the drawer, and Ticketmaster is the maker.

Question 16

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

Question 17

A check is the most common form of a draft.

Question 18

Trisha loaned Brian $600 evidenced by a promissory note.When Brian paid off the loan,he did not ask Trisha for the note.She sold it to Carin,a holder in due course.Brian does not have to pay Carin since he already paid Trisha the full $600.

Question 19

Handy Hardware purchases 1200 metallic hooks from Heavy Metals for $1.25 each.Handy promises to pay the money in three months.Heavy Metals wants the money now,as well as keeping Handy as a customer.Heavy Metals (as drawer)drafts an instrument ordering Handy (as drawee)to pay $1500 to First Bank (the payee).This instrument is:

A)a check.
B)a promissory note.
C)a trade acceptance.
D)a payable on demand note.

Question 20

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.

Question 21

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

A)The instrument can be oral provided there is proof beyond a reasonable doubt.
B)The instrument must be payable on demand.
C)The instrument must be conditional.
D)The instrument must state a definite sum of money.

Question 22

Hayden owes Luther $5000.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 $5000 as soon as my Harley motorcycle sells for a reasonable amount." This check is:

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 23

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:

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 24

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:

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

Question 25

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)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 26

To be negotiable,a check must be in writing.Under the UCC,a check:

A)must be written on standard size paper of 6" ´ 2.5".
B)must be written on an official bank form.
C)need not be on any official form or even on paper.
D)must be confirmed by a bank if not on an official form.

Question 27

When a holder in due course transfers an instrument,the recipient acquires all the same rights even if he is not a holder in due course himself.This is the definition of:

A)negotiability.
B)the shelter rule.
C)a claim in recoupment.
D)a special indorsement.

Question 28

The Scott v.Mayflower Home Improvement Corp.case applied:

A)the shelter rule.
B)the restrictive indorsement rule.
C)the FTC Consumer Holder Rule.
D)the forgery defense.

Question 29

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:

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

Question 30

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 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 can:

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

Question 31

Which of the following requirements must an instrument meet in order to be negotiable?

A)It must be in writing.
B)It must contain an unconditional promise to pay.
C)It must be signed by the drawe.
D)All of the above.

Question 32

Sonny has a negotiable instrument which he gives to Cheryl as a birthday present.Sonny is a holder in due course on the instrument.As it turns out,Cheryl can only collect on the instrument if she has holder in due course status.If Cheryl sues to collect this instrument,what will be the result?

A)Cheryl is not a holder in due course, so she is subject to personal and real defenses of the issuer.
B)If Cheryl took the instrument in good faith and without knowledge of any claims against the instrument, she is a holder in due course even though Sonny gave her the instrument for her birthday.
C)Cheryl must pass the instrument on to someone else for money.That is the only way she can realize payment of the instrument.
D)Although Cheryl does not qualify as a holder in due course, she can claim the holder in due course status through Sonny and collect the instrument.

Question 33

Which of the following can be negotiable?

A)A promissory note that states, "Pay to Floyd Burchett $3000 on September 1, 2012."
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 34

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

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

Question 35

The section of the UCC that governs negotiable instruments is:

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

Question 36

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:

A)sight draft.
B)time draft.
C)trade acceptance.
D)Both b and c.

Question 37

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 alien 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:

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.

Question 38

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

Question 39

Which of the following would be notice of an overdue instrument?

A)Taking a demand instrument after a request for payment is made.
B)Taking an instrument one day after the due date.
C)Taking a check 91 days after its issue date.
D)All of the above illustrate overdue instruments.

Question 40

The Hartford Accident & Indemnity Co.v.American Express,Co.,the New York Court of Appeals discussed:

A)the signature requirement for negotiable instruments.
B)the concept of holder in due course.
C)the bankruptcy defense.
D)the shelter rule.

Question 41

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?

Question 42

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?

Question 43

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.

Question 44

Define commercial paper and explain what it is used for.

Question 45

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?

Question 46

Explain the shelter rule.