Deck 27: Kinds of Negotiable Instruments and Negotiability

Question 1

An accommodation party is a third person who signs an instrument to lend credit to another party to the paper.

Answer 1

True

Question 2

The maker is the person who writes out and creates a promissory note.

Answer 2

True

Question 3

The signature on an instrument must appear at the lower right-hand corner of the face of the instrument.

Answer 3

False

Question 4

An acceptor is a drawer who has accepted the liability of paying the amount of money specified in a draft.​

Question 5

Commercial paper are transferable, written, signed promises to pay a specified sum of money.

Question 6

The bank is the drawee on a check and has no liability until it has accepted the instrument.

Question 7

Article 2 of the Uniform Commercial Code governs negotiable instruments.

Question 8

A certificate of deposit is a written promise made and signed by the maker to pay a sum certain in money to the holder of the instrument.

Question 9

A check is an order by a bank itself to pay a sum of money to the order of another party.

Question 10

A negotiable instrument may be partly printed and partly typewritten.

Question 11

The drawee on a check can be a bank.

Question 12

If an instrument is nonnegotiable, the rights of the parties are governed by the general principles of contract law.

Question 13

Revised UCC Article 3 refers to drawers, indorsers, and accommodation parties as "secondary obligors."

Question 14

The payee has no rights in an instrument until the drawer or the maker has delivered it to the payee.

Question 15

A nonnegotiable instrument's terms are not enforceable.

Question 16

If an instrument is negotiable, it is governed by Article 4 of the UCC.

Question 17

The drawer is the person on whom the order to pay a draft is made.

Question 18

Commercial paper facilitates the transfer of funds and payment.

Question 19

Negotiation of commercial paper results in lesser rights to transferees than those rights afforded assignees of contracts under contract law.

Question 20

Negotiability is the characteristic that distinguishes commercial paper and instruments from ordinary contracts.

Question 21

Article 3 of the UCC establishes a four year statute of limitations for most actions involving negotiable instruments.

Question 22

A person who becomes a party to an instrument to add strength to the instrument for the benefit of another party to the instrument is called a:

A)​benefactor.
B)secondary obligor.​
C)​collateral obligor.
D)​contingent beneficiary.

Question 23

The party who writes or creates a promissory note is called the:

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

Question 24

An authorized agent signing an instrument will not be liable on the instrument if the agent discloses on the paper either the identity of the principal or the fact that the agent has signed in a representative capacity.

Question 25

If an instrument states no time for payment, the note is payable on demand.

Question 26

A(n) __________ instrument's terms are enforceable, but the instrument is treated simply as a contract governed by contract law.

A)​nonnegotiable
B)negotiable​
C)accommodation​
D)secondary​

Question 27

Antedating an instrument affects an instrument's negotiability.

Question 28

The person to whom the order in a draft is addressed is known as the:​

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

Question 29

In a negotiable instrument, the promise or order to pay must be unconditional.

Question 30

Revised UCC Article 3 refers to all of the following as secondary obligors, except:​

A)​drawers
B)indorsers​
C)accommodation parties​
D)acceptors​

Question 31

A payee has no rights in an instrument until:​

A)​the drawer or the maker has delivered the instrument to the payee.
B)an acceptor has been established.​
C)an accommodation party has signed the instrument.​
D)a guarantor has signed the instrument.​

Question 32

A promissory note that is payable "on the date of my marriage" is nonnegotiable even if the maker of the note marries.

Question 33

The requirement of a sum certain in money is fulfilled even though the interest rate changes at maturity.

Question 34

If  instrument is negotiable, it can be:​

A)​paid on demand.
B)cancelled by the maker.​
C)assigned by contract.​
D)transferred by negotiation.​

Question 35

An unconditional written promise made by one person to another, signed by the maker, that promises to pay on demand a specific sum of money to the bearer is a:

A)​nonnegotiable draft.
B)bill of exchange.
C)​promissory note.
D)​certificate of deposit.

Question 36

When the drawee of a draft has indicated by writing or record a willingness to pay the amount specified in the draft the drawee is called a(n):

A)​acceptor.
B)accommodation party.​
C)payee.​
D)secondary obligator.​

Question 37

An instrument is order paper when by its terms it is payable to the order of any person described in it, or to a person or order.

Question 38

If a check is made payable to Paolo, and Paolo signs on the back of the check, Paolo is:​

A)​the payee and the indorser.
B)the drawee and the indorser.​
C)the payee and the endorsee.​
D)​only the indorser.

Question 39

If an order or promise is not for money, the instrument is not negotiable.

Question 40

A check that is postdated ceases to be order paper.

Question 41

Bruce agrees to buy Joe's ranch.They draw up a note, under which Bruce is to pay Joe in three installments, each payable on a specified date.Joe has concerns about Bruce's ability to pay on time, so he insists that the note include an acceleration clause.Such a clause would allow Joe to:​

A)​accelerate the sale of the ranch.
B)demand payment of the entire amount Bruce owes him if a certain event occurs.​
C)extend the date of maturity on the note until a certain date in the future.​
D)accelerate the statute of limitations in a case involving negotiable instruments​

Question 42

To be negotiable, an instrument must include all of the following, except:​

A)​a writing.
B)signature of the maker or drawer.​
C)unconditional promise or order to pay.​
D)​holder in due course.

Question 43

Conville signed a note as an officer of the Hughesville Manufacturing Corporation, but she did not name the corporation in the note or indicate that she was acting as an officer for it.Later, she was sued by the Grange National Bank, the holder of the note.She raised the defense that the corporation was liable on the note.Who was liable?​

Question 44

A check that is made out to "Cash" and signed by the writer is​

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

Question 45

Any of the following constitutes a signature as an element of negotiability, except:​

A)​the use of initials.
B)a mark.​
C)a trade name.​
D)all of these.​

Question 46

An action taken by a person on behalf of another is called:​

A)​agency.
B)negotiability.​
C)representative capacity.​
D)​identification of principal.

Question 47

JeanClaude creates and signs a promissory note.He promises to pay Suzy $1,000 worth of French francs plus $500 worth of custom-made shirts on October 15, in exchange for Suzy's help in renovating his kitchen.The note is :

A)​nonnegotiable, because of JeanClaude's signature.
B)negotiable, because all the elements of the note are valid.
C)​nonnegotiable, because it calls for payment in French francs.
D)​nonnegotiable, because it calls for payment in shirts.

Question 48

Article 3 of the UCC establishes a __________-year statute of limitations for most actions involving negotiable instruments.​

A)​one
B)two
C)three​
D)four​

Question 49

When ambiguous language in an instrument exists:

A)​the instrument becomes non-negotiable.
B)handwriting supersedes typewritten words.​
C)typewritten words supercede handwritten words.​
D)judgment interest accumulates at the rate of 5% per annum.​

Question 50

Order instruments are negotiated by:

A)​delivery with the necessary indorsement.
B)word of mouth.​
C)constructive recovery.​
D)​an unconditional promise.

Question 51

Which of the following terms would make an instrument nonnegotiable?

A)​It is dependent upon an event.
B)It is undated.​
C)It is payable in foreign money.​
D)It gives the holder the right to receive interest.​

Question 52

George was the maker of a written promissory note that stated that $500 would be paid on the sale of George's automobile.George initialed the note instead of writing his full name.The promissory note stated that it would be payable six months from the date.The promissory note was not dated.You now have come into possession of this note.Is this note negotiable? Discuss the elements of negotiability and whether each one has been met.​