Deck 21: Essentials of Negotiability

Question 1

Explain the requirements of negotiability.

Answer 1

An instrument must comply with seven requirements in order to be negotiable. If it lacks any of these requirements, the document is not negotiable. The seven requirements are: 1. The instrument must be in writing and signed by the party executing it
2. The instrument must contain either an order to pay or a promise to pay
3. The order or the promise must be unconditional
4. The instrument must provide for the payment of a fixed amount of money
5. The instrument must be payable either on demand or at a fixed or definite time
6. The instrument must be payable to the order of a payee or to bearer
7. The payee and the drawee must be designated with reasonable certainty.

Question 2

Whenever delivery is made in connection with the original issue, it must be conditional.

Answer 2

False

Question 3

Which of the following is true of a negotiable instrument?

A) An instrument must be completely typed.
B) An instrument must be written with pen and ink.
C) An instrument can be partly written and partly typed.
D) A negotiable instrument cannot be written with a pencil.

Answer 3

C

Question 4

An instrument is payable to order when the drawer wishes to indicate that the instrument will be paid, to anyone the payee may transfer the instrument by indorsement.

Question 5

The language used in a promissory note need not show that a promise is intended.

Question 6

A negotiable instrument could be payable in gold bullion.

Question 7

An order or promise in an negotiable instrument must be conditional.

Question 8

The law requires that a negotiable instrument must be written in a  particular form.

Question 9

When a negotiable instrument is payable to order, the payee need not be named.

Question 10

Which of the following is true of a check made out to the order of a person?

A) The drawee can deposit the check after its validity expires.
B) The drawee can only deposit the check into his own account.
C) The drawee cannot indorse the check to anyone else.
D) The drawee can encash the check at the appropriate bank.

Question 11

In case a negotiable instrument is only partially filled in and signed before delivery:

A) the maker or drawer is liable if the blanks are filled in contrary to instructions.
B) the original payee can claim the unauthorized amount from the maker.
C) the maker is liable to a holder for any amount filled in the blanks.
D) the maker is liable to a holder in due course for any amount without authorization.

Question 12

The negotiability of an instrument is affected if it is undated.

Question 13

Which of the following is a requirement of negotiability?

A) The payee and the drawee need not be designated.
B) The instrument must be in writing and signed by the party executing it.
C) The instrument must provide for the payment of a flexible amount of money.
D) The order or the promise in the instrument must be conditional.

Question 14

The sum payable in a negotiable instrument cannot be dependent on future profits.

Question 15

An instrument executed with a lead pencil does not meet the legal requirements of negotiability.

Question 16

The name of the place where an instrument was drawn need not be specified.

Question 17

Jim agreed to pay Jose $1,000 by check, provided he is able to sell his farm. However, he did not mention the number of days it would take for him to sell the farm nor did he provide a contingency date. Which of the following is legally permissible in this scenario?

A) Jose can take possession of Jim's farm as repayment.
B) Jim's promise to pay is valid as he has offered Jose the money.
C) Jim can wait till he sells the farm and then pay the money.
D) Jim's promise to pay is conditional and he must remake the promise.

Question 18

A negotiable instrument must be in writing and signed by the party executing it.

Question 19

The UCC defines _____ as "the first delivery of an instrument by the maker or drawer for the purpose of giving rights on the instrument to any person."

A) possession
B) negotiation
C) issue
D) transfer

Question 20

Which of the following best describes delivery?

A) It is the unintentional transfer of possession or theft of something.
B) It is the intentional transfer of something illegal for safekeeping.
C) It is the conditional transfer of possession and control of something.
D) It is the intentional transfer of possession and control of something.