Negotiable Instruments: A Comprehensive Guide for Juris Doctor Students

Question 1

In the context of negotiable instruments, which ethical consideration holds the highest priority?

Accepted Answer

Preserving the integrity of the financial system

Answer

Maximizing personal financial gain

Answer

Mitigating potential legal consequences

Answer

Safeguarding the interests of a specific party

Question 2

What is the primary distinction between negotiable and non-negotiable instruments?

Accepted Answer

Transferability via Endorsement

Answer

Requirement of a Signature

Answer

Indication of Monetary Value

Question 3

Who bears primary liability on a promissory note?

Accepted Answer

The maker

Answer

The payee

Answer

The indorser

Answer

The acceptor

Question 4

What is the primary effect of a restrictive indorsement?

Accepted Answer

It limits the further negotiability of the instrument.

Answer

It transfers ownership of the instrument to the indorsee.

Answer

It guarantees payment of the instrument by the indorser.

Answer

It has no effect on the negotiability of the instrument.

Question 5

What is the key distinction between an accommodation party and a surety?

Accepted Answer

An accommodation party is liable to the holder of the instrument, while a surety is liable to the accommodated party.

Answer

An accommodation party is primarily liable, while a surety is secondarily liable.

Answer

There is no difference between an accommodation party and a surety.

Answer

An accommodation party is always a co-maker, while a surety is not.

Question 6

What is the primary purpose of a stop payment order?

Accepted Answer

To prevent payment of a check that has been lost or stolen.

Answer

To cancel a check that has already been paid.

Answer

To change the amount of a check that has already been issued.

Answer

To transfer ownership of a check to another person.

Question 7

What is the primary purpose of Article 3 of the Uniform Commercial Code (UCC)?

Accepted Answer

To establish the governing law for negotiable instruments.

Answer

To regulate the sale of goods.

Answer

To establish the rules for the formation of contracts.

Answer

To provide a comprehensive framework for commercial transactions.

Question 8

Which of the following is NOT an essential element of a negotiable instrument?

Accepted Answer

Must be payable on demand

Answer

Must be in writing

Answer

Must be signed by the maker

Answer

Must contain a promise to pay

Question 9

Who is primarily liable on a promissory note?

Accepted Answer

The maker

Answer

The payee

Answer

The drawer

Answer

The drawee

Question 10

What is the effect of a holder in due course taking a negotiable instrument?

Accepted Answer

The holder in due course takes the instrument free of any defenses that the maker may have against the payee.

Answer

The holder in due course is subject to all of the defenses that the maker may have against the payee.

Answer

The holder in due course is only subject to defenses that the maker has against the holder.

Answer

The holder in due course has no rights against the maker.

Question 11

What is the effect of a forged indorsement on a negotiable instrument?

Accepted Answer

The forged indorsement is void.

Answer

The forged indorsement is valid.

Answer

The forged indorsement is voidable.

Answer

The forged indorsement has no effect.

Question 12

What is the primary distinction between an accommodation party and a surety?

Accepted Answer

An accommodation party is primarily liable on the instrument, while a surety is secondarily liable.

Answer

A surety is primarily liable on the instrument, while an accommodation party is secondarily liable.

Answer

There is no difference between an accommodation party and a surety.

Answer

An accommodation party is only liable to the holder in due course, while a surety is liable to all parties.

Question 13

What is the effect of a material alteration on a negotiable instrument?

Accepted Answer

The material alteration voids the instrument.

Answer

The material alteration does not affect the validity of the instrument.

Answer

The material alteration makes the instrument voidable.

Answer

The material alteration has no effect.

Question 14

Which of the following is not a type of negotiable instrument?

Accepted Answer

Stock certificate

Answer

Check

Answer

Draft

Answer

Promissory note

Question 15

The payee of a check is:

Accepted Answer

The person to whom the check is made payable

Answer

The person who writes the check

Answer

The person who signs the check

Answer

The person who deposits the check

Question 16

Which of the following is NOT an essential element of a negotiable instrument?

Accepted Answer

Due date

Answer

Unconditional promise or order to pay a sum certain in money

Answer

Fixed amount of money

Answer

Signature of the maker or drawer

Question 17

A check is a negotiable instrument that is drawn on a:

Accepted Answer

Financial institution

Answer

Drawer

Answer

Payee

Answer

Holder

Question 18

Which of the following parties is primarily liable on a promissory note?

Accepted Answer

Maker

Answer

Drawer

Answer

Drawee

Answer

Payee

Question 19

A draft is a negotiable instrument that orders the drawee to pay the:

Accepted Answer

Payee

Answer

Drawer

Answer

Holder

Answer

Maker

Question 20

The Uniform Commercial Code governs the law of negotiable instruments in all 50 states.

Accepted Answer

True

Answer

False

Question 21

Which of the following is NOT a type of indorsement?

Accepted Answer

Conditional indorsement

Answer

Blank indorsement

Answer

Special indorsement

Answer

Restrictive indorsement

Question 22

Which type of negotiable instrument is commonly utilized to transfer funds between financial institutions?

Accepted Answer

Draft.

Answer

Check.

Answer

Promissory note.

Answer

Bill of exchange.

Question 23

Which type of negotiable instrument is uniquely designed for use in international trade?

Accepted Answer

Letter of credit.

Answer

Bill of lading.

Answer

Certificate of deposit.

Answer

Warehouse receipt.

Question 24

Who has the primary obligation to pay a draft?

Accepted Answer

Drawee

Answer

Drawer

Answer

Payee

Answer

Maker

Question 25

What is the purpose of a stop-payment order?

Accepted Answer

To prevent payment on a check

Answer

To cancel a negotiable instrument

Answer

To give notice of dishonor

Question 26

What is the effect of a forged signature on a negotiable instrument?

Accepted Answer

Instrument is void

Answer

Instrument remains enforceable for its original amount

Answer

Holder in due course is not affected by the forgery

Answer

Instrument is enforceable only against the party who forged the signature

Question 27

Which of the following is NOT an essential element of a negotiable instrument?

Accepted Answer

Valuable consideration

Answer

Signature of the maker or drawer

Answer

Delivery

Answer

Unconditional promise or order to pay a sum of money

Question 28

What is the primary right of the holder of a negotiable instrument?

Accepted Answer

To receive payment according to its terms

Answer

To modify the terms of the instrument

Answer

To transfer the instrument solely to a specific party

Question 29

Which of the following is a type of negotiable instrument that represents an unconditional written promise to pay a specified sum of money?

Accepted Answer

Promissory note

Answer

Certificate of deposit

Answer

Bank draft

Answer

Bill of lading

Question 30

What is the liability of an endorser of a negotiable instrument?

Accepted Answer

Secondary liability if the primary obligor defaults on payment

Answer

Primary liability alongside the maker or drawer

Answer

No liability unless specifically named in the instrument

Question 31

What is the "parol evidence rule" in relation to negotiable instruments?

Accepted Answer

Extrinsic evidence is inadmissible to contradict the unambiguous terms of a negotiable instrument

Answer

Extrinsic evidence is always admissible to explain the terms of a negotiable instrument

Answer

Extrinsic evidence is admissible to show fraud or forgery

Question 32

What is the difference between a "holder in due course" and a "transferee" of a negotiable instrument?

Accepted Answer

A holder in due course takes the instrument free from personal defenses, while a transferee does not

Answer

A transferee has a better title to the instrument than a holder in due course

Answer

A holder in due course is liable for all previous endorsements on the instrument, while a transferee is not

Question 33

Which of the following is a "negotiated" negotiable instrument?

Accepted Answer

A check that has been endorsed and delivered to a third party

Answer

A promissory note that has been signed by the maker

Answer

A draft that has been presented for payment

Question 34

What is the effect of a "stale check"?

Accepted Answer

It is not a valid negotiable instrument and cannot be enforced

Answer

It is valid for a reasonable time after its date of issuance

Answer

It can be reissued by the drawer for a new period of time

Answer

It can be negotiated to a holder in due course who takes it free from the staleness defense

Question 35

**Which of the following is NOT an essential element of a negotiable instrument?**

Accepted Answer

Seal

Answer

Sum certain

Answer

Unconditional promise or order to pay

Answer

Signature of the maker or drawer

Question 36

**What is the liability of an indorser without qualification on a negotiable instrument?**

Accepted Answer

Secondary liability

Answer

No liability

Answer

Primary liability

Answer

Joint and several liability

Question 37

**What is the effect of a holder in due course taking a negotiable instrument?**

Accepted Answer

Takes the instrument free from most defenses, except for conditions

Answer

Becomes subject to all defenses

Answer

Must prove good faith

Question 38

**What is the purpose of a dishonor notice?**

Accepted Answer

To notify the drawer or indorser of the instrument's dishonor

Answer

To cancel the instrument

Answer

To demand payment from the maker

Question 39

**What is the effect of an accommodation party on a negotiable instrument?**

Accepted Answer

Secondarily liable to the holder

Answer

Primarily liable to the holder

Answer

Jointly and severally liable to the holder

Answer

Not liable to the holder