Question 1

A check is always a[n] ________ instrument and can never be a[n] ________ instrument.

Accepted Answer

A check is always a demand instrument, meaning it is payable on demand, and it can never be a time instrument, which is payable at a future date.

Question 2

A ________ is a two-party instrument and a ________ is a three-party instrument.

Accepted Answer

The answer of A ________ is a two-party instrument and...

Question 3

Which of the following refers to the quality of a negotiable instrument that ensures its longevity?

Accepted Answer

Relative permanence refers to the quality of a negotiable instrument that ensures its longevity, meaning it remains valid and enforceable over time until it is fulfilled or extinguished.

Question 4

Which of the following instruments satisfies the requirements of negotiability?

Accepted Answer

The answer of Which of the following instruments satisfies the...

Question 5

An instrument fails to be negotiable because it states, "payment will be made by $100 and a rare antique vase." Which of the following scenarios would render the instrument negotiable?

Accepted Answer

For an instrument to be negotiable, it must promise or order payment of a fixed amount of money. By omitting the rare antique vase, the instrument would meet the requirement of being payable solely in money.

Question 6

Which of the following is not required for an instrument to be considered negotiable?

Accepted Answer

For an instrument to be considered negotiable, it must not be payable at any indefinite future time. Instead, it should specify a definite time for payment or be payable on demand. Option C, which states the instrument must be payable at any indefinite future time, is incorrect because negotiable instruments require a certain degree of predictability regarding their payment.

Question 7

Which term refers to the time it takes for a check to go through the traditional check-clearing process and be paid?

Accepted Answer

Float is the correct term, referring to the time period between when a check is written and when the bank settles the transaction by transferring funds from the check writer's account to the recipient's account.

Question 8

________ refers to the quality of a negotiable instrument that ensures it is mobile or available in a commercially reasonable and expected manner.

Accepted Answer

Movability is the correct term that refers to the quality of a negotiable instrument being transferable or available in a commercially reasonable and expected manner.

Question 9

[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

The instrument is not negotiable because it is conditional upon William selling the car and does not specify a sum certain, as the amount depends on the final sale price of the car.

Question 10

Which of the following is not a bearer instrument?

Accepted Answer

Bearer instruments are negotiable instruments that allow the transfer of ownership to another party by possession alone. Options A, B, C, and D are considered bearer instruments because they do not specify a particular payee or endorse a specific individual, making them payable to whoever holds them. Option E, however, specifies "the order of John Doe," making it an order instrument rather than a bearer instrument. This means it is payable only to John Doe or someone he endorses it to, not to whoever holds it.

Question 11

[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.
-Before Mehdi endorsed the check it was a[n] ________ instrument; and after he endorsed it, the check was a[n] ________ instrument.

Accepted Answer

Before Mehdi endorsed the check, it was an order instrument because it was payable to a specific person (Mehdi). After Mehdi endorsed the check by signing his name on the back without designating a new payee, it became a bearer instrument, meaning it could be cashed by whoever held it.

Question 12

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

Accepted Answer

A holder of a negotiable instrument can have greater rights than the transferor due to the principle of "holder in due course," which allows them to take the instrument free of certain defenses. An assignee, however, generally steps into the shoes of the assignor and cannot have greater rights than the assignor.

Question 13

Which of the following is a note of the bank where a payee purchases it and collects principle plus a set amount of interest in the future?

Accepted Answer

A Certificate of Deposit (CD) is a financial product sold by banks to customers that offers a fixed interest rate over a specified period of time. Upon purchasing a CD, the buyer agrees to lend the bank money for a fixed period, after which the initial amount (principal) plus accrued interest is returned to the buyer.

Question 14

[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

In civil cases, such as a lawsuit over a defaulted loan, the standard of proof is typically "by a preponderance of the evidence." This means that Janet must prove that it is more likely than not that Bruce owes her the money.

Question 15

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

Accepted Answer

Negotiable instruments must be in writing. An oral contract does not meet the criteria for negotiability. The other options (B, C, D, E) are indeed requirements for an instrument to be considered negotiable.

Question 16

Carl and Anabelle are arguing about negotiable instruments under the UCC and which article governs them. Which Article of the UCC governs negotiable instruments?

Accepted Answer

Article 3 of the UCC governs negotiable instruments, which include checks, notes, drafts, and certificates of deposit.

Question 17

Which of the following is not a negotiable instrument?

Accepted Answer

U.S. Dollars are not considered a negotiable instrument because they are currency, not a document promising payment like the others listed. Negotiable instruments include things like checks, notes, and certificates of deposit, which are formal financial instruments that promise the bearer or a specified individual payment of a particular amount of money either on demand or at a set time.

Question 18

Which of the following is the most likely result if Mehdi attempts to require that the bank reimburse him for the value of the check cashed by Caileen?

Accepted Answer

Checks are typically considered bearer instruments unless specifically endorsed otherwise. This means that the bank is authorized to pay whoever presents the check, and the original issuer of the check (Mehdi, in this case) would not have recourse against the bank for cashing the check when presented by another party (Caileen).

Question 19

[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 the reasoning of the case in the text, Athanasios Valsamis v. Néstor González-Romero is followed, what would Janet have to prove in court?

Accepted Answer

Janet must prove that money is due and that Bruce, in his individual capacity, is the responsible party for the repayment of the loan. This involves demonstrating the existence of the loan agreement and Bruce's personal responsibility for its repayment.

Question 20

Disregarding the issue of whether Sophie properly performed, is the statement "I, Reza Salehi, promise to pay Sophie Smith or to bearer, the sum of $100 on Monday, July 22, 2016," without a signature anywhere else on the document, sufficient to satisfy the signature requirement of negotiability?

Accepted Answer

The signature requirement for negotiability can be satisfied if the maker's name is included in the statement, as it indicates the maker's identity and intent to be bound by the promise, even if not traditionally signed at the bottom.

Quiz 26: Negotiable Instruments: Negotiability and Transferability

A check is always a[n] instrument and can never be a[n] instrument.

A is a two-party instrument and a is a three-party instrument.