BLTE-10E PRACTICE QUIZ

CHAPTER 13:
NEGOTIABLE INSTRUMENTS

1. If you write a check to pay for a sweater that you buy, the check is:

a. a certified note.
b. a negotiable instrument.
c. a promise to pay.
d. a certificate of deposit.

ANS:
a. Incorrect. A check is a kind of draft and is not a certified note.
b. Correct. A check is the most commonly used form of a draft, and a draft is
a negotiable instrument.
c. Incorrect. A check is an order to pay, not a promise to pay.
d. Incorrect. A check is not a certificate of deposit.

2. You write a check to pay for your haircut. In this transaction, who is the
drawee?

a. You are, because you drew up the check.

b. Your bank is, because it must pay the check.
c. The person who cuts your hair is, because the check is payable to her.
d. There is no drawee in this transaction.

ANS:
a. Incorrect. In this transaction you are the drawer.
b. Correct. When a check is written, the bank upon which it is drawn is
always the drawee.
c. Incorrect. The person who cut your hair is the payee.
d. Incorrect. A check or draft does involve a drawee as well as a drawer.

3. In order for an instrument to be negotiable, the UCC requires that it be signed

by whom?

a. By the maker or drawer.

b. By the payee.
c. By the promisee.
d. By no one.
ANS:
a. Correct. The maker or drawer must sign the instrument.
b. Incorrect. The party who will receive payment does not need to sign the
instrument for it to be negotiable.
c. Incorrect. The promisee is the party receiving the promise of payment, and
that person need not sign the instrument for it to be negotiable.
d. Incorrect. Someone must sign, either the maker or the drawer.

4. If you write a check to pay for repairs to your automobile, presentment occurs
when?

a. When you write the check.

b. When you turn the check over to the person repairing the car.
c. When the person repairing the car presents the check to your bank.
d. When your bank presents you with the canceled check.

ANS:
a. Incorrect. Presentment happens when a person presents an instrument to
the party liable on the instrument for payment--in this case, the bank.
b. Incorrect. Presentment does not occur in this situation.
c. Correct. Because the bank is liable for payment, presentment occurs
when the payee presents the check to the bank.
d. Incorrect. Presentment occurs before the bank returns your canceled
check.

5. An indorsement is defined as:

a. a piece of paper firmly attached to a negotiable instrument.

b. a person who transfers an instrument by signing it and delivering it to
another person.
c. a person to whom a negotiable instrument is transferred by indorsement
and delivery.
d. a signature placed on an instrument, or to a piece of paper firmly attached
to an instrument, designed to transfer ownership rights in that instrument.

ANS:
a. Incorrect. An indorsement is not a piece of paper attached to an
instrument, although an indorsement may be written on a piece of paper
firmly attached to a negotiable instrument.
b. Incorrect. Such a person is known as an indorser.
c. Incorrect. Such a person is known as an indorsee.
d. Correct. An indorsement is a signature such as is described.
6. Suppose that you receive a check from your mother. You sign the check on
the back and transfer it to your friend, Kit, in payment for some of Kit’s used
books. When you signed the check on the back, you became:

a. an indorser.
b. an indorsee.
c. kit’s agent.
d. a third party beneficiary of the check.

ANS:
a. Correct. One who signs (indorses) the back of a check is an indorser.
b. Incorrect. You became an indorser.
c. Incorrect. You did not become Kit’s agent.
d. Incorrect. You did not become a third party beneficiary of the check.

7. Which is the following is not a restrictive indorsement?

a. An indorsement prohibiting further indorsement.

b. A conditional indorsement.
c. A blank indorsement.
d. A trust indorsement.

ANS:
a. Incorrect. This is a type of restrictive indorsement.
b. Incorrect. This is a type of restrictive indorsement.
c. Correct. A blank indorsement is not a restrictive indorsement.
d. Incorrect. This is a type of restrictive indorsement.

8. The UCC requires that HDCs take instruments in good faith. This means that:

a. The holders must have performed a special oath before taking the
instrument.
b. The holders must be assured the instrument has no defects.
c. The holders must be aware that the instrument is defective.
d. The holders must have acted honestly and observed all reasonable
commercial standards of fair dealing.

ANS:
a. Incorrect. There is no oath-taking requirement to meet the good faith
standard.
b. Incorrect. Defects in an instrument are related to notice requirements, not
to good faith requirements.
c. Incorrect. If holders know an instrument is defective they will not be HDC.
d. Correct. A holder must act honestly and observe reasonable commercial
standards of fair dealing.
9. Anyone who does not qualify as an HDC, but who derives her title through an
HDC, can acquire the right and privileges of an HDC. This principle is known as:

a. the impermanence principle.

b. the shelter principle.
c. the reformed holder rule.
d. the new holder principle.

ANS:
a. Incorrect. There is no impermanence principle with respect to HDCs.
b. Correct. The shelter rule allows a non-HDC to find shelter in the privileges
and immunities of a previous HDC.
c. Incorrect. There is no reformed holder rule with respect to HDCs.
d. Incorrect. There is no new holder in HDC law.

10. One universal defense to liability for payment on a negotiable instrument is:

a. breach of contract.
b. lack of consideration.
c. forgery.
d. delivery of the instrument.

ANS:
a. Incorrect. Breach of contract is a personal defense, not a universal
defense.
b. Incorrect. Lack of consideration is a personal defense.
c. Correct. Forgery is a universal defense to payment so long as the maker
or drawer does not ratify the forgery or is otherwise precluded from
denying the forgery.
d. Incorrect. Delivery of the instrument is a personal defense that may be
used to avoid payment.