Deck 23: The Essentials of Negotiability

Question 1

A time draft is payable at a definite future time. 

Answer 1

True

Question 2

A promissory note can be a negotiable instrument. 

Answer 2

True

Question 3

With respect to negotiability,a mere reference to another writing or record makes a promise conditional.

Answer 3

False

Question 4

A promissory note must name a specific payee to be negotiable. 

Question 5

To be negotiable,an instrument must be portable.

Question 6

Only unconditional promises or orders can be negotiable.

Question 7

A personal check cannot be a negotiable instrument.

Question 8

A statement in an instrument that payment can be made only out of a particular fund or source renders it nonnegotiable. 

Question 9

A symbol can serve as a valid signature. 

Question 10

For an instrument to be negotiable,it must be in writing.

Question 11

On a certificate of deposit,the bank is the maker and the depositor is the payee. 

Question 12

To be negotiable,an instrument must be payable in a certain amount.

Question 13

The writing evidencing a negotiable instrument must be on material that lends itself to permanence. 

Question 14

A sight draft may be payable on acceptance.

Question 15

A demand instrument is payable immediately after it is issued.

Question 16

A check is a time instrument because it is payable in due time. 

Question 17

The transfer of a negotiable instrument from one person to another is governed by Article 2 of the Uniform Commercial Code.

Question 18

Rubber stamp signatures can be legally binding signatures. 

Question 19

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

Question 20

For a certificate of deposit to be negotiable,it must be signed by the maker. 

Question 21

An instrument that promises to pay "in goods" can be negotiable. 

Question 22

A special indorsement does not specify a particular indorsee. 

Question 23

An order instrument must identify the payee with certainty.

Question 24

Fact Pattern 23-1Erin draws a check payable to "Foodland" to buy groceries.
Refer to Fact Pattern 23-1.Erin's check is most likely​ 

A) ​a certificate of deposit. 
B) ​an order to pay. 
C) ​a promise to pay. 
D) ​a promissory note.

Question 25

Instruments that say nothing about when payment is due are payable on demand.

Question 26

Fact Pattern 23-2LNG Corporation and Midstates Utility Company enter a contract for a sale of liquefied natural gas. 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 23-2.On this instrument,LNG is​ 

A) ​the banker. 
B) ​the drawer. 
C) ​the maker. 
D) ​the trader.

Question 27

Fact Pattern 23-2LNG Corporation and Midstates Utility Company enter a contract for a sale of liquefied natural gas. 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 23-2.This instrument is 

A) ​a banker's acceptance. 
B) ​a nonnegotiable instrument. 
C) ​a promissory note. 
D) ​a trade acceptance.

Question 28

A blank indorsement can consist of a mere signature. 

Question 29

An indorser who does not wish to be liable on an instrument can use a qualified indorsement. 

Question 30

To obtain office supplies for All-Care Medical Clinic,Britney executes a draft in favor of Chris.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 31

A negotiable instrument can only be transferred by negotiation. 

Question 32

To be negotiable,an instrument must be payable in money. 

Question 33

With an interest-bearing instrument,it is necessary to know the exact interval during which the interest will accrue. 

Question 34

Negotiating order instruments requires either delivery or indorsement but not both. 

Question 35

Fact Pattern 23-1Erin draws a check payable to "Foodland" to buy groceries.
Refer to Fact Pattern 23-1.With respect to Erin's check,Foodland is 

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

Question 36

An instrument payable "with interest" must specify a particular rate to be negotiable.

Question 37

To be negotiable,an instrument must be payable on demand.

Question 38

A restrictive indorsement does not destroy negotiability. 

Question 39

Usually,indorsements are qualified indorsements. 

Question 40

A transfer by assignment can make it possible for a transferee to receive more rights in the instrument than the prior possessor had. 

Question 41

Gail owes $5,000 in unpaid taxes.Using the back of an old t-shirt,she executes 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 42

Ron signs an instrument using an "R" with a circle 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 43

Bence 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 deter-mined from the face of the instrument.

Question 44

To borrow money to finance the start-up of 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 45

Bart,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) ​negotiable. 
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 46

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

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

Question 47

Fact Pattern 23-3Thalia signs an instrument unconditionally promising to pay to "Union Bank" $7500 with interest in installments with the final payment due June 1, 2017.
Refer to Fact Pattern 23-3.The instrument that Thalia signed is most likely​ 

A) ​a certificate of deposit. 
B) ​a draft. 
C) ​an order to pay. 
D) ​a promissory note.

Question 48

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

A) ​negotiable. 
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 49

Fact Pattern 23-3Thalia signs an instrument unconditionally promising to pay to "Union Bank" $7500 with interest in installments with the final payment due June 1, 2017.
Refer to Fact Pattern 23-3.With respect to this instrument,Union Bank is​ 

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

Question 50

Ralph signs an instrument promising to pay a total of $10,000 to Martha in $1,000 monthly installments with the final payment being made on August 1.Ralph unexpectedly inherits $10,000 from his aunt on May 15.Ralph may​ 

A) ​not complete his $10,000 payment before August 1. 
B) ​complete his $10,000 payment before August 1. 
C) ​increase his monthly payments by five percent, but not more. 
D) ​increase his monthly payments by ten percent, but not more.

Question 51

To finance the purchase of an electric guitar and amplifier from Leon's Guitars,Milo signs an instrument promising to pay to "National Lenders" $1,800 with interest in installments with the final payment due August 15,2016.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 conditions.

Question 52

To finance the purchase of a house from Tuna,Uri signs an instrument promising to pay to "Verity Mortgage Service" $160,000 with interest in installments with the final payment due July 10,2045.To be negotiable,this instrument must include the signature of​ 

A) ​a non-party witness. 
B) ​Tuna or Tuna's realtor. 
C) ​Uri. 
D) ​Verity's chief financial officer.

Question 53

On April 1 Richard arranges to buy a sixteen-speed bike from his neighbor Phil for $500.Phil agrees to deliver the bike on May 1.Richard writes a draft for $500 payable to Phil on May 1.In this situation,the draft is​ 

A) ​a certificate of deposit. 
B) ​a time draft. 
C) ​a sight draft. 
D) ​a promissory note.

Question 54

Oliver 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) ​negotiable. 
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 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

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 57

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) ​valid but nonnegotiable. 
D) ​void.

Question 58

Maria signs an instrument payable to the order of National 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 deter-mined from the face of the instrument.

Question 59

On behalf of Bottled Drinks Company,Devlin signs an instrument in which he promises to deliver 100 cases of bottled springwater as payment to Containers & Packaging,Inc.,on April 1.This instrument is​ 

A) ​negotiable. 
B) ​nonnegotiable, because cable is not a medium of exchange author-ized 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 60

Gwen deposits $5,000 with Home State Bank on July 1,2012.Home State Bank promises to repay Gwen the $5,000 plus 3 percent annual interest on July 1,2017.Home State Bank has issued Gwen​ 

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

Question 61

Mortimer negotiates an instrument to Nadia.Negotiation 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.

Question 62

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 63

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 64

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 65

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 66

On the back of a check payable to Nero,he 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. 
C) ​relieves Odell of liability on the check. 
D) ​renders the check nonnegotiable.

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 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 69

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 1995 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 70

Roderick negotiates a bearer instrument to Shauna 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

Merry draws a check payable to "Cash" and presents it to National Bank for payment.This instrument is​ 

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

Question 72

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.