Exam 22: Creation of Negotiable Instruments

Roger, a lawyer, borrowed money from Jax to start a business. He gave a promissory note to Jax promising to pay the money back anytime within the next five years. But in order to accept the note, Jax demanded a security deposit. Roger gave the gold that he owned as security. Roger in turn demanded that a specific clause be added to the promissory note to allow faster repayment of the loan in case he inherited money within the next five years. But even after five years, Roger was unable to complete payment. He made a new promissory note promising to finish payment within the next year, and promised to provide free legal service to Jax for the next two years. Which of the following is true of the validity of the new promissory note made by Roger?

A promissory note is a two-party transaction.

If a promissory note is secured by a piece of real estate, then the note is called a(n) ________.

An order instrument is payable to anyone in physical possession of the instrument and presents it for payment when it is due.

A promise or an order becomes conditional if it refers to a different writing for a description of rights to collateral, prepayment, or acceleration.

Once an appointed authorized representative signs a negotiable instrument, while unambiguously disclosing his or her agency status, and the identity of the maker or drawer, then ________.

A ________ is an exception in promissory notes, as it does not require the maker's unconditional and affirmative promise to pay.

Article 3 of the Uniform Commercial Code (UCC) governs the use of negotiable instruments.

A(n) ________ is a clause in an instrument that allows the payee or holder to speed up payment of the principal amount of the instrument, plus accrued interest, upon the occurrence of an event.

Mike deposited $100,000 in a bank and procured a certificate of deposit on it, payable to himself, for repayment in five years with a five percent interest rate. A year after that, Mike borrowed $25,000 from Jill, and gave her a promissory note to repay it in one year. As collateral, Mike gave Jill the certificate of deposit and asked to put in a prepayment clause, to which Jill agreed. They agreed that Mike could repay in monthly payments, as mentioned in the note. In which of the following ways will the prepayment clause help Jill?

Which of the following is true of a draft?

A two-party negotiable instrument that is a special form of note created when a person deposits money at a financial institution in exchange for the institution's promise to pay back the amount of the deposit plus an agreed-on rate of interest upon the expiration of a set time period agreed upon by the parties is known as a ________.

A trade acceptance is legally a two-party transaction.

In a draft transaction, the drawee is the party who ________.

A conditional promise is not a negotiable instrument.

Mike deposited $100,000 in a bank and procured a certificate of deposit on it, payable to himself, for repayment in five years with a five percent interest rate. A year after that, Mike borrowed $25,000 from Jill, and gave her a promissory note to repay it in one year. As collateral, Mike gave Jill the certificate of deposit and asked to put in a prepayment clause, to which Jill agreed. They agreed that Mike could repay in monthly payments, as mentioned in the note. If Mike defaults on the payment even after one year, which of the following is true of the foreclosure options Jill has with the certificate of deposit Mike gave her?

Which of the following is a characteristic of a check?

Which of the following is a similarity between a demand draft and a trade acceptance?

A(n) ________ is type of instrument that is payable to anyone in physical possession of the instrument and presents it for payment when it is due.

List and briefly explain the functions of a negotiable instrument.