40. Which of the following is not a reason for the use of negotiable instruments?
a. Reduction of the chance of forgery or material alteration
b. Convenience
c. Elimination of the risk of loss or theft of cash
d. Reduction of cost to the federal government of maintaining an adequate supply of currency
41. Which of the following would not be considered “money” within the meaning of the Code?
a. Diamonds
b. Mexican pesos
c. German marks
d. Nigerian naira
42. The Check Clearing for the 21st Century Act:
a. creates a new negotiable instrument.
b. requires banks to accept checks in electronic form.
c. requires banks to create image replacement documents for any checks received.
d. All of these.
43. Payment to a named payee by a bank with a check drawn on itself is a:
a. cashier’s check.
b. trade acceptance.
c. sight draft.
d. time draft.
44. Akeya sells and delivers goods to Wayne for $10,000. Wayne executes and delivers a negotiable note to Akeya for
$10,000 payable to Akeya’s order in sixty days. A week later, Akeya duly negotiates the note to Maria. Which of
the following is correct?
a. Maria is required to notify Wayne that she has acquired the note from Akeya.
b. If the goods are defective, Wayne’s defense against Akeya is not available against Maria if Maria acquired
the note in good faith and for value and had no knowledge of Wayne’s defense against Akeya and took the
note without reason to question its authenticity.
c. Maria is not entitled to hold Wayne for the full face amount of the note at maturity if Wayne has a valid
defense against Akeya for defective goods regardless of the circumstances surrounding the negotiation of the
note to Maria.
d. If there is a valid defense against Akeya, Maria cannot become a holder in due course when the note is
transferred to her.
45. Which of the following would be a bearer instrument?
a. A check payable to cash
b. A check that says “pay to the order of John Jones”
c. A check that says “pay to the order of Quality Oil Company”
d. All of these.
46. Which of the following will destroy negotiability?
a. Antedating a check
b. Making the right to payment subject to the terms of another agreement
c. Marking a check payable only out of the proceeds of a particular sale
d. Writing a check on notebook paper
47. Which of the following will destroy negotiability?
a. Leaving the name of the payee off a check
b. Making the check payable in German marks
c. Signing a check with an “X”
d. All of these.
48. A medium of exchange adopted or authorized by a sovereign government as part of its currency is known in the law
of negotiable instruments as:
a. the sum certain.
b. consideration.
c. value.
d. money.
49. Which article of the UCC deals with “negotiable instruments”?
a. Article 1
b. Article 2
c. Article 3
d. Article 9
50. Amanda goes to American Bank where she uses $2,000 of her savings to purchase a six-month certificate of
deposit. In this case:
a. Amanda is the maker.
b. American Bank is the maker.
c. American Bank is the payee.
d. Amanda is the promisor.
51. Which of the following is correct with respect to negotiability?
a. The writing requirement means that a check must be written on paper.
b. An order or promise to pay only out of a particular fund is permissible under Revised Article 3.
c. Money must be in U.S. dollars.
d. A negotiable instrument must be payable at a definite time.
52. Which of the following is correct with respect to the fixed amount requirement of negotiability under Revised Article
3?
a. The fixed amount requirement applies only to the principal.
b. Interest may be stated in an instrument as a fixed or variable amount of money or it may be expressed as a
fixed or variable rate or rates.
c. A sum certain may be payable in installments or with a fixed discount if paid before maturity.
d. All of these are correct.
53. Words of negotiability are:
a. “To the order of.”
b. “To bearer.”
c. “Pay to.”
d. All of these
54. Joel’s car broke down on a dark, rainy night. Along came Andy in his four-wheel drive truck with tools and supplies
in the back. Joel didn’t have any credit cards and had only $3.25 cash, so Andy told him to write a check or an IOU.
Neither Andy nor Joel had any paper, so Joel wrote on the cover of Andy’s lunchbox: “If my car is fixed right by
Andy Walcott, I will pay him $150. (Signed) Joel Boyd.” Andy indorses the note and takes it to a commercial factor
for negotiation. The factor refuses, saying it is non-negotiable because:
a. it is written on a lunchbox.
b. it mentions the existence of a contract to repair the car.
c. it is conditional on satisfactory repair of the car.
d. All of these.
55. An instrument contains the following language: “Harold T. Stone as President hereby promises to pay $12,348 to the
order of Joe Jones Furniture for office equipment for Redkenn Corporation, payable from its corporate assets.
(Signed) Harold T. Stone as President, Redkenn Corporation.” Would the instrument be negotiable?
a. No, because the promise refers to another contract
b. No, because its payment is limited to a particular fund
c. Yes, because it meets all the requirements of a negotiable instrument
d. Yes, because it is unequivocal
56. A promise or order is payable at a definite time if it is payable:
a. on or before a stated date.
b. at a definite period of time after sight or acceptance.
c. at a time readily ascertainable at the time the promise or order is issued.
d. All of these.
57. Which of the following is not true?
a. To have the full benefit of negotiability, negotiable instruments not only must meet the requirements of
negotiability but also must be acquired by a holder in due course.
b. A transferee of a negotiable instrument can acquire rights no greater than those of the transferor.
c. A holder in due course takes a negotiable instrument free of most of the defenses to which an assignee would
be subject.
d. The number of checks written each year has decreased in recent years.
58. A definite time required for negotiability would NOT be satisfied in which instance?
a. Payable on or before January 1, 2015
b. Payable one week after demand is made
c. Payable one year from the completion of the building
d. A dated instrument payable “90 days after date”
59. A draft is payable “to the order of Joe Jones or to bearer.” Sally finds it and demands payment. Should the drawer
pay Sally?
a. No, unless Joe Jones’ name is crossed off
b. No, unless “bearer” is handwritten
c. Yes, an instrument made payable both to order and to bearer is payable to bearer
d. Yes, since the instrument is ambiguous, Joe Jones has no right to payment and only the bearer has the right to
demand payment
60. The Code provides that which of the following provisions may be included in an instrument without adversely
affecting negotiability?
a. A power to give collateral to secure payment
b. Authorization to confess judgment on the instrument
c. Waiver of the benefit of any law intended for the protection of the obligor
d. All of these
61. The Code section which sets forth the requirements that must be met for an instrument to be negotiable is:
a. 2-209.
b. 3-104.
c. 4-405.
d. 3-250.
62. Which of the following would be an unconditional promise or order to pay?
a. I hereby acknowledge my debt to John Jones.
b. I hereby assign all my rights under this instrument to John Jones.
c. Pay to the order of bearer ten dollars.
d. IOU fifty dollars.
63. All but which of the following is required of a negotiable instrument?
a. It must be payable only out of a particular fund.
b. It must contain an unconditional promise to pay a fixed amount in money.
c. It must be payable on demand or at a fixed future date.
d. It must be in writing and signed by the maker or drawer.
64. Which of the following is true of the “order to pay” requirement of a negotiable instrument?
a. It is an instruction to pay and must be more than an authorization or request.
b. It must identify with reasonable certainty the person to be paid.
c. The addition of words of courtesy, such as “please pay,” will not destroy the negotiability.
d. All of these.
65. Michael is the maker of a note which states that it will be due on March 10, 2015. The note contains a clause stating
that “payment will be limited to the proceeds of the sale of the contents of freight car No. 1234.” Is the note
negotiable? Why or why not? Explain.
66. What are the requirements of negotiability under the Code? List and briefly summarize them.
67. Distinguish between a note and a certificate of deposit. How are they alike? How are they different? Explain your
answer.
68. Identify the parties to checks and notes.
69. Which of the following would NOT be negotiable? Explain.
a. A check with the name of the payee omitted.
b. A draft for 3,000 bushels of corn.
c. A check written in pencil on a paper towel.
d. A note stating that it is secured by a mortgage on a specified parcel of land.
e. A note stating “IOU fifty dollars.”