Deck 38: Negotiable Instruments

Question 1

Many banks no longer issue certificates of deposit in paper form.

Answer 1

True

Question 2

Commercial paper may serve as a substitute for money payable immediately, or it can be used as a means of extending credit.

Answer 2

True

Question 3

The promissory note is a debit instrument.

Answer 3

False

Question 4

If there are conflicting terms on commercial paper, printed terms prevail over handwritten terms.

Question 5

If words and numbers on commercial paper are conflicting, the numbers control the words.

Question 6

An instrument has been signed if the maker or drawer has put a name or other symbol on it with the intention of validating it.

Question 7

The purpose of determining negotiability is to ascertain whether a possessor of the instrument can become a holder in due course.

Question 8

The promissory note is the simplest form of commercial paper.

Question 9

Commercial paper is basically a contract for the payment of money.

Question 10

A certificate of deposit is:

A) an instrument in which the maker makes an unconditional promise to pay a fixed amount of money with interest to the payee on demand.
B) the most widely used form of commercial paper that is a draft payable on demand and drawn on a bank.
C) an instrument in which the maker makes an unconditional promise to pay a fixed amount of money without interest to the payee at the specified future time.
D) an instrument containing an acknowledgment by a bank that it has received a deposit of money and a promise to repay the sum of money.

Question 11

A person could create a negotiable instrument in pencil on a piece of wrapping paper.

Question 12

When a person buys a television set and gives the merchant a check drawn on his checking account, that person uses a form of negotiable commercial paper.

Question 13

For an instrument to be negotiable, it need not be in writing.

Question 14

Commercial paper is:

A) the basic selling document of a 1933 Act registered offering.
B) a public offer by a bidder to purchase a target company's equity securities.
C) a way to either issue immediate payment or to extend credit.
D) any unit of goods that is treated by commercial usage as a single whole.

Question 15

A certificate of deposit is an instrument containing an acknowledgement by a bank that it has received a deposit of money and a promise by the bank to repay the sum of money.

Question 16

If there are conflicting terms on commercial paper, typewritten terms prevail over handwritten terms.

Question 17

Which of the following is true of the articles of the Uniform Commercial Code?

A) The law of commercial paper is covered in Article 3 and Article 4 of the Uniform Commercial Code.
B) Revised Article 3 of the Uniform Commercial Code developed in 1990 has now been adopted by all the states.
C) The law of commercial paper was originally adopted in Article 5 of the Uniform Commercial Code.
D) Negotiable documents, such as investment securities and documents of title, are not treated in the Uniform Commercial Code.

Question 18

Which of the following statements is true of commercial paper?

A) It cannot be used as a means of extending credit.
B) It is covered in Article 5 and Article 6 of the Uniform Commercial Code.
C) It can be accepted as a substitute for money.
D) It lacks the attribute of negotiability.

Question 19

For an instrument to be negotiable, it must be signed by the issuer.

Question 20

A two-party instrument in which one person makes an unconditional promise in writing to pay another person, with or without interest, either on demand or at a specified, future time is a _____.

A) promissory note
B) certificate of deposit
C) draft
D) check

Question 21

One of the basic requirements for an instrument to be negotiable is that it must be payable:

A) to a specific person.
B) in cash or kind.
C) "to order" or "to bearer."
D) on fulfillment of a conditional promise.

Question 22

Nigel, a resident of North Carolina, sent Claude, a resident of Lyon, France, a note that read, "Ninety days after date, I promise to pay to the order of Claude €5,000 (signed) Nigel." The note is:

A) payable in an equivalent dollar amount.
B) not payable in the foreign money specified.
C) payable on demand in the foreign money specified.
D) payable at sight in an equivalent dollar amount.

Question 23

If an instrument is nonnegotiable, the _____.

A) Uniform Commercial Code controls the rights, and the general rules of property law control liabilities of the parties involved
B) general rules of contract law control the rights and liabilities of the parties involved
C) Uniform Commercial Code controls the rights, and the general rules of comparative law control the liabilities of the parties involved
D) general rules of tort law control the rights and liabilities of the parties involved

Question 24

A promise or order is "payable on demand" if it states that it is payable:

A) only to the bearer.
B) on a particular date.
C) on the fulfillment of a condition.
D) at the will of the holder of the instrument.

Question 25

Which of the following instruments is negotiable?

A) A note that states, "I promise to pay Vlad $800 if he repairs my car"
B) An instrument that provides, "Payment is subject to the terms of a contract dated November 20, 2009"
C) A note that contains the statement, "This note is secured by a mortgage dated July 01, 2009"
D) An instrument that reads, "I promise to pay to the order of Collin Corp. $550 sixty days after the delivery of my new refrigerator"

Question 26

A draft is a _____ instrument.

A) two-party
B) three-party
C) single-party
D) non-negotiable

Question 27

Which of the following is true of the negotiability of a written instrument?

A) The Uniform Commercial Code considers only instruments that are handwritten as negotiable.
B) An instrument written on a piece of wrapping paper will be considered a poor business practice and will not be negotiable.
C) The writing of an instrument does not have to be on any particular material; all that is required is that it be in writing to be negotiable.
D) An instrument written in pencil does not qualify as a negotiable instrument.

Question 28

A note which contains the statement, "I owe you $500":

A) constitutes an order to pay.
B) constitutes a promise to pay.
C) is not a negotiable instrument.
D) does not acknowledge a debt.

Question 29

Which of the following will destroy the negotiability of an instrument?

A) Postdating the negotiability of an instrument
B) Conditioning payment on the payee's performance
C) Using phrases such as "please pay" or "pay to the order of"
D) Antedating the negotiability of an instrument

Question 30

Which of the following statements is true of the monetary aspect of a promise or order in a negotiable instrument?

A) The promise or order in a negotiable instrument must be to pay a fixed amount of money.
B) The requirement of a "fixed amount" in a negotiable instrument applies only to interest and not principal.
C) The amount of any interest payable is not described in the instrument.
D) The amount of principal is calculated by reference to the formula or index referenced in the instrument if a variable rate of interest is prescribed.

Question 31

Carlos borrowed $100 from his friend, Juanita. Carlos signed a handwritten note stating, "I promise to pay $100 to the order of Juanita." Under these circumstances, the note is _____.

A) negotiable because it is a simple contract
B) not negotiable because it does not acknowledge the reason for the debt
C) not negotiable because it does not state the time payment is due
D) negotiable because it meets all the requirements for negotiability

Question 32

The Federal Trade Commission (FTC) has adopted a regulation that:

A) follows the traditional rights of a holder in due course in consumer purchase transactions.
B) alters the rights of a holder in due course in consumer purchase transactions.
C) prevents a consumer who gives a negotiable instrument to use the defense of fraudulent inducement.
D) denies all rights of a holder in due course in consumer purchase transactions.

Question 33

Which of the following statements is true of signing a negotiable instrument?

A) An instrument in the form of a note must be signed by the payee who accepts the promise of the issuer.
B) An instrument in the form of a draft must be signed by the person giving the instruction to pay.
C) An instrument is not considered to be negotiable when the maker signs by writing his name on it.
D) A person or company cannot authorize an agent to sign instruments for it.

Question 34

A holder in due course takes the instrument free of all:

A) defenses and claims to the instrument.
B) defenses and claims to the instrument except those which concern its validity.
C) defenses and claims to the instrument except those which concern its negotiability.
D) defenses and claims to the instrument including defenses of duress or infancy.

Question 35

Ricardo borrowed $5,000 from his friend, Lorenzo. Ricardo signed a handwritten note stating, "I promise to pay $5,000 to Lorenzo on or before August 1, 2001, in return for the same amount borrowed from him on May 1, 2001." Under these circumstances, the note is _____.

A) negotiable because it was handwritten
B) not negotiable because the note states the reason for the debt
C) not negotiable because the note is not payable to bearer or to order
D) negotiable because it is a simple contract

Question 36

A note in which the maker states, "I promise to pay to the order of Oliver $600 or a six-string guitar" is:

A) not negotiable because it contains a conditional promise.
B) negotiable for payment of the guitar only.
C) negotiable for payment only if Oliver is the holder of the instrument.
D) not negotiable because it is not payable for money alone.

Question 37

A _____ is a draft on which the drawer or drawee are the same bank (or branches of the same bank).

A) cashier's check
B) teller's check
C) promissory note
D) certificate of deposit

Question 38

A teller's check is a:

A) draft drawn by a bank on any other financial institutions other than a bank.
B) check drawn by a bank on an individual's funds.
C) draft on which the drawer or drawee are the same bank.
D) draft drawn by a bank on another bank or payable at or through a bank.

Question 39

If an instrument meets all of the formal requirements required for negotiability, _____.

A) it is negotiable even though it is void or unenforceable for other reasons
B) it cannot be held by a person who had no notice of certain defenses against payment
C) its validity is automatically conferred
D) it is nonnegotiable if uncollectible

Question 40

A traveler's check that requires, as a condition to payment, the countersignature of a person whose specimen signature appears on the draft is:

A) negotiable.
B) not negotiable.
C) negotiable only if it is payable "to cash."
D) not negotiable only if it is payable "at sight."

Question 41

Which of the following rules of interpretation is applied to resolve conflict or ambiguity in a check?

A) Printed terms prevail over typewritten terms.
B) Typewritten terms prevail over handwritten terms.
C) Where words and numbers conflict, the words control the numbers.
D) Where handwritten terms and printed terms conflict, printed terms prevail over handwritten terms.

Question 42

Identify the statement that holds true of revised Article 3 of the Uniform Commercial Code regarding checks.

A) Under revised Article 3, an instrument does not qualify as a check if it contains the engraving "money order" on its face.
B) Revised Article 3 prevents an instrument from meeting the "unconditional promise" if it requires a countersignature of a person whose specimen signature appears on the draft.
C) Under revised Article 3, a payor bank may pay a postdated check before the stated date unless the drawer has notified the bank of postdating pursuant to a procedure set out in the Code.
D) Revised Article 3 states that an instrument which names a fixed time for payment should not contain a clause permitting the time for payment to be accelerated at the option of the maker.

Question 43

Under revised Article 3 of the Uniform Commercial Code, an exception to the rule that an instrument payable on demand is not payable before the date of the instrument is made for:

A) checks.
B) promissory notes.
C) a holder in due course.
D) certificates of deposits.

Question 44

Franklin Corp. sold money orders to drugstores. The money orders contained the words, "Payable to," followed by a blank. Can the money order qualify as a negotiable instrument?

Question 45

What is the difference between a promissory note and a check? Why is the distinction important?

Question 46

An instrument states, "Subject to Approval of Title, Pay to the Order of Yvette, $3,000." Is the instrument negotiable?

Question 47

If a note reads, "I promise to pay to the order of Sarah Smith, at my option, $40 or five bushels of apples, John Jones," is the note negotiable?

Question 48

Tasmia signed a check payable to the order of Shubha. The check contained an obvious variance between the numbers and the written words. The numbers indicated that the bank should pay $13,000 to the order of Shubha, but the written words indicated the bank should pay "the sum of thirteen hundred dollars." Under these circumstances what amount, if any, should the bank pay to the order of Shubha?

A) $1,300
B) $13,000
C) $6,500
D) $650

Question 49

A check is bearer paper if it:

A) is made payable "to cash."
B) can be transferred only by indorsement.
C) can be negotiated only by indorsement.
D) is payable to the order of a specific person.

Question 50

Jamal borrowed money from Amir to buy school supplies. He drew up and signed the following promissory note, "IOU, Amir Shah, the sum of $30 for value received. Jamal Khan." Is the note a negotiable instrument?