Deck 22: The Essentials of Negotiability

Question 1

An instrument that cannot easily be transferred in the ordinary course of business can still be negotiable.

Answer 1

False

Question 2

Because a check specifies no time for payment, a check is a time instrument.

Answer 2

False

Question 3

In an instrument, mere reference to another agreement does not affect negotiability.

Answer 3

True

Question 4

A promissory note is a negotiable instrument that functions as a substitute for cash.

Question 5

With cashier's checks the bank is both the drawer and the drawee.

Question 6

A bearer is a person to whom an instrument is made payable.

Question 7

Any instrument that orders the drawee to pay a certain sum of money is a draft .

Question 8

The Uniform Commercial Code applies to transactions involving negotiable instruments, except for bank deposits and collections.

Question 9

Negotiable instruments must be in written form.

Question 10

With respect to negotiability, the location of a signature on a document is unimportant .

Question 11

A demand is the first delivery of an instrument to a holder.

Question 12

An instrument recorded on an impermanent surface can still qualify as a negotiable instrument.

Question 13

With respect to negotiability, extreme latitude is granted in determining what constitutes a signature.

Question 14

A time instrument is payable at a future date.

Question 15

A conditional promise or order can be negotiable if the terms are included in writing in an instrument.

Question 16

To be negotiable, a mere acknowledgement of a debt is sufficient.

Question 17

For an instrument to be negotiable, a signature must be made manually.

Question 18

Checks received as negotiable instruments act as extensions of credit.

Question 19

For a note or a certificate of deposit to be negotiable, it must be signed by the drawer .

Question 20

A demand instrument is payable when payment is requested.

Question 21

An instrument payable to the order of an identified person is a bearer instrument .

Question 22

To be negotiable, if an instrument is not payable on demand, it must be payable at a definite time.

Question 23

With respect to negotiability, it is not necessary to know when the instrument is due.

Question 24

When an instrument is payable on or before a stated date, the instrument is clearly nonnegotiable.

Question 25

A negotiable instrument can be transferred by assignment.

Question 26

A restrictive indorsement prohibits the further negotiation of an instrument.

Question 27

Fact Pattern 22-2 LNG Corporation and Midstates Utility Company enter a contract for a sale of liquefied natural gas by LNG to Midstates. LNG draws a draft unconditionally ordering Midstates Utility to pay $50,000 to LNG's order in sixty days. Midstates Utility signs and dates the draft.
Refer to Fact Pattern 22-2. This instrument is

A) a cashier's check.
B) a nonnegotiable instrument.
C) a promissory note.
D) a trade acceptance.

Question 28

To obtain office supplies for Doctors Medical Clinic, Emma executes a draft in favor of Floyd. A draft is

A) a conditional promise to pay money.
B) an unconditional written order to pay money.
C) a qualified promise to set aside a sum of money.
D) a restricted promise to deliver goods at a future date.

Question 29

To be negotiable, an instrument must state with certainty a fixed amount of money at the time the instrument is payable.

Question 30

Fact Pattern 22-1 Erin draws a check payable to "Foodland" to buy groceries.
Refer to Fact Pattern 22-1. With respect to Erin's check, Foodland is

A) the drawee.
B) the drawer.
C) the maker.
D) the payee.

Question 31

Fact Pattern 22-2 LNG Corporation and Midstates Utility Company enter a contract for a sale of liquefied natural gas by LNG to Midstates. LNG draws a draft unconditionally ordering Midstates Utility to pay $50,000 to LNG's order in sixty days. Midstates Utility signs and dates the draft.
Refer to Fact Pattern 22-2. On this instrument, LNG is

A) the drawee.
B) the drawer.
C) the maker.
D) the payee.

Question 32

With respect to negotiability, it is necessary to know when the maker, drawee, or acceptor is required to pay.

Question 33

An indorsement is most often written on the back of an instrument itself.

Question 34

Mortgage notes tied a variable rate of interest are not negotiable.

Question 35

Fact Pattern 22-1 Erin draws a check payable to "Foodland" to buy groceries.
Refer to Fact Pattern 22-1. Erin's check is most likely

A) a certificate of deposit.
B) an order to pay.
C) a promise to pay.
D) a cashier's check

Question 36

The term fixed amount means an amount that is ascertainable from the instrument.

Question 37

A holder is a person who is legally entitled to payment on an instrument.

Question 38

A blank indorsement does not specify a particular indorsee.

Question 39

Usually, indorsements are unqualified indorsements.

Question 40

Indorsements are required whenever the instrument being negotiated is classified as a bearer instrument.

Question 41

Brad, the owner of Clear Cut Corporation, signs an instrument that includes the phrase "payment for this note will be made from the proceeds of next year's timber sale." This instrument is

A) not necessarily nonnegotiable .
B) nonnegotiable, because payment can be made only out of a particular source.
C) nonnegotiable, because it states an express condition to payment.
D) nonnegotiable, because the reasons for the note are not clear on its face.

Question 42

Karen writes on a piece of paper, "I owe you $600," signs it, and gives it to Lou. This instrument is

A) negotiable.
B) nonnegotiable, because it does not include an express promise to pay.
C) nonnegotiable, because it does not recite any consideration.
D) nonnegotiable, because it does not state any conditions to payment.

Question 43

To borrow funds to finance his business, Rollo executes an instrument in favor of Security Bank. For the instrument to be negotiable, the signature must be

A) anywhere on the instrument.
B) anywhere on the lower half of the instrument only.
C) in the lower left -hand corner of the instrument only.
D) in the lower right -hand corner of the instrument only.

Question 44

Fact Pattern 22-3 To borrow the funds to pay tuition at State College, Tia signs an instrument unconditionally promising to pay to "United Credit Company" $17,500 with interest in installments with the final payment due June 30, 2028.
Refer to Fact Pattern 22-3. With respect to this instrument, Tia is

A) the drawee.
B) the indorser.
C) the maker.
D) the payee.

Question 45

To finance the purchase of an electric guitar, Milos signs an instrument promising to pay to "National Lenders" $1,800 with interest in installments with the final payment due August 15, 2020. To be negotiable, this instrument must include on its face

A) any conditions on the sale of the goods.
B) any conditions to the disbursement of the funds.
C) any conditions to the repayment of the loan.
D) no conditional promises or orders to pay .

Question 46

Builders Exchange, Inc., issues an instrument in favor of Custom Construction Company.  F or the instrument to be negotiable, it must

A) be a conditional promise or order to pay.
B) be payable on demand or at a definite time.
C) be signed by the payee.
D) recite the consideration given in exchange for it.

Question 47

To finance the purchase of a house from Sander, Tobias signs an instrument promising to pay to "Uno Mortgage Company" $200,000 with interest in installments with the final payment due July 10, 2047. To be negotiable, this instrument must include the signature of

A) a non-party witness.
B) Sander or Sander's realtor.
C) Tobias.
D) all of these.

Question 48

Jane signs an instrument using a "J" with a swirl around it. With this mark for a signature, the instrument is

A) negotiable.
B) nonnegotiable, because an initial does not state the signer's name.
C) nonnegotiable, because an initial is not a signature.
D) nonnegotiable, because a simple initial implies a lack of binding intent.

Question 49

Oren signs an instrument payable to the order of Pay-Out Loans, Inc., "on or before" June 15.  This instrument is

A) negotiable.
B) nonnegotiable, because the maker can move up the payment date.
C) nonnegotiable, because moving up the payment date is optional.
D) nonnegotiable, because the exact payment date cannot be determined from the face of the instrument.

Question 50

Pedro signs an instrument that states it is being executed "as per a contract for the sale of a case of apples dated May 1." This instrument is

A) not necessarily nonnegotiable .
B) nonnegotiable, because banks cannot easily process commodities.
C) nonnegotiable, because it includes the specific date of a contract.
D) nonnegotiable, because it refers to an express contract.

Question 51

On behalf of Bubbly Drinks Company, Calvin signs an instrument in which he promises to deliver 100 cases of soda as payment to Dispatch & Delivery, Inc., on April 1. This instrument is

A) negotiable.
B) nonnegotiable, because cable is not a medium of exchange authorized or adopted by a government as currency.
C) nonnegotiable, because it does not indicate a specific brand of water.
D) nonnegotiable, because it does not recite any consideration.

Question 52

Fact Pattern 22-3 To borrow the funds to pay tuition at State College, Tia signs an instrument unconditionally promising to pay to "United Credit Company" $17,500 with interest in installments with the final payment due June 30, 2028.
Refer to Fact Pattern 22-3. The instrument that Tia signed is most likely

A) a trade assignment.
B) a draft.
C) an order to pay.
D) a promissory note.

Question 53

Rico agrees to buy a bicycle from Salvatore for $250. Salvatore agrees to deliver the bike on September 1. Rico writes a draft for $250 payable to Salvatore on September 1. This is

A) a place draft.
B) a time draft.
C) a sight draft.
D) a promissory note.

Question 54

Ben signs a promissory note for $1,500 in favor of Community College. The note is undated but specifies that it is "payable one month after date." This note is

A) negotiable.
B) nonnegotiable, because one month is not a reasonable time.
C) nonnegotiable, because there is no option to pay early.
D) nonnegotiable, because the maturity date cannot be determined from the face of the instrument.

Question 55

Kelly signs an instrument in favor of Leo that states it is "subject to a certain agreement between Kelly and Mona." This instrument is

A) negotiable.
B) nonnegotiable, because it is made subject to a separate agreement.
C) nonnegotiable, because it refers to a separate agreement.
D) nonnegotiable, because Kelly and Mona are not the same persons.

Question 56

Gail owes $5,000 in unpaid taxes. Using the back of an old t-shirt, she exe-cutes an instrument for $5,000 that otherwise meets the requirements for negotiability. This instrument is likely

A) negotiable.
B) nonnegotiable, because an instrument must be on paper.
C) nonnegotiable, because a t-shirt is not sufficiently permanent.
D) nonnegotiable, because the government does not appreciate it.

Question 57

Alvin signs a promissory note payable to the order of Borrow & Spend Loan Company. The note states that it is payable "with interest at the legal rate." This note is

A) not necessarily nonnegotiable .
B) nonnegotiable, because it does not specify a rate of interest.
C) nonnegotiable, because it is a promissory note.
D) nonnegotiable, because it is payable only with interest.

Question 58

Gwen deposits $5,000 with Home Bank on July 1, 2018. Home Bank promises to repay Gwen the $5,000 plus 1 percent annual interest on July 1, 2023. Home Bank has issued Gwen

A) a certificate of deposit.
B) a check.
C) a nonnegotiable instrument.
D) a trade acceptance.

Question 59

Quincy draws a check payable to "Replay Stadium" to buy two season tickets to the next year's State College football games. This instrument is

A) a bearer instrument.
B) an order instrument.
C) nonnegotiable.
D) void.

Question 60

Brie signs an instrument in which she promises to pay Carmen a certain price for her Dodge Dart. The instrument will be negotiable if it meets all of the requirements for negotiability, including that it is payable in

A) goods equal in value to the market price of the car.
B) money.
C) all of these.
D) services equal in value to the market price of the car.

Question 61

Ollie negotiates an order instrument to Phil by

A) assignment of its rights under a contract.
B) delivery with any necessary indorsement.
C) making an unconditional promise to pay.
D) presenting it in response to a demand by B.

Question 62

Fred has six nieces, ages five to sixteen. He writes an order instrument for $50 that states "Pay to the order of my niece." The order instrument is

A) negotiable.
B) nonnegotiable, because the amount of money is less than $500.
C) nonnegotiable, because it is illegal to write an order instrument payable to a relative.
D) nonnegotiable, because there is no specific person identified.

Question 63

Rick negotiates a bearer instrument to Shane by

A) delivery with an assignment of its rights under a contract.
B) delivery with any necessary indorsement.
C) delivery alone.
D) presenting it in response to a demand by Shane.

Question 64

Avril receives a payroll check from Business Solutions, Inc., and indorses it by signing her name on the back of the check. This is

A) a blank indorsement.
B) a qualified indorsement.
C) a restrictive indorsement.
D) a special indorsement.

Question 65

On the back of an envelope, Phoebe writes, "I promise to pay Quint or bearer $600 on demand. [Signed] Phoebe." What type of instrument is this? Is it negotiable? If not, why not?

Question 66

Barry draws a check payable to "Cash" and presents it to Dollars & Sense store for payment. This instrument is

A) a bearer instrument.
B) an order instrument.
C) nonnegotiable.
D) void.

Question 67

Emily writes and signs a check payable to "Festival Cinema." Georg, Festival's manager, indorses the check "For deposit only." This is

A) a blank indorsement.
B) a qualified indorsement.
C) a restrictive indorsement.
D) a special indorsement.

Question 68

On a sheet of paper, Elle writes, without her signature, "I acknowledge that I owe Frank $600, payable out of the proceeds of the sale of my car, a 2005 Honda Civic, which I promise to advertise 'For Sale' next week. Payment is to be made on or before six months from today." What type of instrument is this? Is it negotiable? If not, why not?

Question 69

On the back of a check payable to Nero, Nero writes "Pay to Odell, without recourse" and signs it. This

A) does not effect the check's negotiability or any party's liability.
B) relieves Nero of liability on the check if he has not breached any transfer warranties.
C) relieves Odell of liability on the check if he has not breached any transfer warranties.
D) renders the check nonnegotiable.

Question 70

Ryan negotiates an order instrument to Selina by

A) delivery with an assignment of its rights under a contract.
B) delivery with any necessary indorsement.
C) delivery alone.
D) presenting it in response to a demand by Selina.

Question 71

Petra signs a check payable to Quincy, who indorses the back, gives it to Regional Credit Union, and receives cash. The transfer of the check from Quincy to the credit union is

A) an assignment.
B) a negotiation.
C) a payment.
D) a sale.

Question 72

Mort negotiates an instrument to Nell. This is the transfer of an instrument

A) for valuable consideration under a contract.
B) in such form that the transferee becomes a holder.
C) pursuant to preliminary contract discussions.
D) without the payment of a recognized medium of exchange.