Deck 15: Negotiable Instruments

Question 1

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

Answer 1

False

Question 2

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

Answer 2

False

Question 3

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

Answer 3

False

Question 4

On a trade acceptance, the drawer is also the drawee.

Question 5

A time draft is payable at a definite future time.

Question 6

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

Question 7

The most common type of draft is a check.

Question 8

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

Question 9

A sight draft may be payable on acceptance.

Question 10

For an instrument to be negotiable, the word "negotiable" must appear on it.

Question 11

A personal check cannot be a negotiable instrument.

Question 12

A symbol can serve as a valid signature.

Question 13

To be negotiable, an instrument must have portability.

Question 14

A demand instrument is payable immediately after it is issued.

Question 15

A promissory note can be a negotiable instrument.

Question 16

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

Question 17

To be negotiable, an instrument must be on material that lends itself to permanence.

Question 18

Rubber stamp signatures can be legally binding signatures.

Question 19

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

Question 20

On a cashier's check, the bank is the drawer.

Question 21

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

Question 22

An instrument whose terms indicate payment to no particular person is payable to no one.

Question 23

For an instrument to be negotiable, it must not contain an express promise or order to pay.

Question 24

Fact Pattern 15-2
LNG Corporation and Mid-state Utility Company enter a contract for a sale of liquefied natural gas. LNG draws a draft unconditionally ordering Mid-state Utility to pay $50,000 to LNG's order in sixty days. Mid-state Utility signs and dates the draft.
Refer to Fact Pattern 15-2.This instrument is

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

Question 25

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

Question 26

Only unconditional promises or orders can be negotiable.

Question 27

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

Question 28

Any person in possession of a negotiable instrument payable to bearer is a holder.

Question 29

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

Question 30

Fact Pattern 15-1
Erin draws a check payable to "Foodland" to buy groceries.
Refer to Fact Pattern 15-1.With respect to Erin's check, Foodland is

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

Question 31

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

Question 32

Fact Pattern 15-1
Erin draws a check payable to "Foodland" to buy groceries.
Refer to Fact Pattern 15-1.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 33

An undated instrument cannot be negotiable.

Question 34

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

Question 35

To be negotiable, an order to pay must be addressed to only one person.

Question 36

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 37

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

Question 38

To be negotiable, an instrument must not be payable in money.

Question 39

Fact Pattern 15-2
LNG Corporation and Mid-state Utility Company enter a contract for a sale of liquefied natural gas. LNG draws a draft unconditionally ordering Mid-state Utility to pay $50,000 to LNG's order in sixty days. Mid-state Utility signs and dates the draft.
Refer to Fact Pattern 15-2.On this instrument, LNG is

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

Question 40

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

Question 41

Fact Pattern 15-3
To borrow the funds to pay tuition at Alpha College, Bea signs an instrument unconditionally promising to pay to "Country Loan Corporation" $7,500 with interest in installments with the final payment due June 1, 2030.
Refer to Fact Pattern 15-3.The instrument that Bea signed is most likely

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

Question 42

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

A) ​negotiable.
B) ​not negotiable, because an initial is not state the signer's name.
C) ​not negotiable, because an initial is not a signature.
D) ​not negotiable, because an initial is not an indication of serious intent.

Question 43

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, 2018. 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 44

Fact Pattern 15-3
To borrow the funds to pay tuition at Alpha College, Bea signs an instrument unconditionally promising to pay to "Country Loan Corporation" $7,500 with interest in installments with the final payment due June 1, 2030.
Refer to Fact Pattern 15-3.With respect to this instrument, Bea is

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

Question 45

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) ​Uno's chief financial officer.

Question 46

Eden signs a promissory note payable to the order of First Mortgage 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 payable with interest.
D) ​nonnegotiable, because the exact amount payable cannot be determined from the face of the instrument.

Question 47

Camille signs an instrument in favor of Donald that states it is "subject to a certain agreement between Camille and Enzo." This instrument is

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

Question 48

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 49

Gwen deposits $5,000 with Home State Bank on July 1, 2016. Home State Bank promises to repay Gwen the $5,000 plus 3 percent annual interest on July 1, 2021. Home State Bank issued to Gwen

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

Question 50

Fact Pattern 15-2
LNG Corporation and Mid-state Utility Company enter a contract for a sale of liquefied natural gas. LNG draws a draft unconditionally ordering Mid-state Utility to pay $50,000 to LNG's order in sixty days. Mid-state Utility signs and dates the draft.
Refer to Fact Pattern 15-2.On this instrument, Mid-state is

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

Question 51

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 52

Fact Pattern 15-3
To borrow the funds to pay tuition at Alpha College, Bea signs an instrument unconditionally promising to pay to "Country Loan Corporation" $7,500 with interest in installments with the final payment due June 1, 2030.
Refer to Fact Pattern 15-3.With respect to this instrument, Country Bank is

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

Question 53

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

Question 54

Laura writes on a piece of paper, "I owe you $400," signs it, and gives it to Max. This instrument is

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

Question 55

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

Question 56

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) ​not negotiable, because soda is not a medium of exchange authorized or adopted by a government as currency.
C) ​not negotiable, because it does not identify a specific soda.
D) ​not negotiable, because it does not recite any consideration.

Question 57

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

Question 58

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 59

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 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) ​any of the choices.
D) ​shares of stock equal in value to the market price of the car.

Question 61

Consumer Loans LLC signs an instrument payable to the order of Diana that states, "The maker of this note at the date of maturity, April 1, 2019, can extend the time of payment, but for no more than a reasonable time." This instrument is

A) ​negotiable.
B) ​nonnegotiable, because it includes an extension clause.
C) ​nonnegotiable, because it is not payable within a definite time.
D) ​nonnegotiable, because it is payable to a specific payee.

Question 62

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 63

Lucas signs an instrument payable to the order of MoneyNow, Inc., that allows a holder to demand payment of the entire amount due, with interest, if Lucas fails to make a payment. This instrument is

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

Question 64

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

Question 65

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 66

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

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

Question 67

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 68

Jacob signs a promissory note payable to Kent "with interest" on which he conspicuously notes that it is "nonnegotiable." This instrument is

A) ​negotiable.
B) ​nonnegotiable, because it includes the notation "nonnegotiable."
C) ​nonnegotiable, because it does not specify a rate of interest.
D) ​nonnegotiable, because the exact amount payable cannot be determined from the face of the instrument.

Question 69

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 70

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) ​not negotiable, because the amount of money is less than $500.
C) ​not negotiable, because it is illegal to write an order instrumentpayable to a relative.
D) ​nonnegotiable, because there is no specific person identified.

Question 71

Theo signs a check payable to the order of Urban Bank, filling in the blanks for the amount with the figures "$100" and "One thousand and 00/100 dollars." This check is payable in the amount of

A) ​$0.
B) ​$100.
C) ​$1,000.
D) ​$1,100.

Question 72

On May 1, Mia signs a check that is payable to the order of Nicole and that is dated July 1. This check is

A) ​negotiable.
B) ​nonnegotiable, because it is payable to a corporation.
C) ​nonnegotiable, because it is postdated.
D) ​nonnegotiable, because it is signed by the drawer.