Deck 38: Negotiable Instruments

Question 1

Negotiability is the same thing as validity with regard to commercial paper.

Answer 1

False

Question 2

A contract for the payment of money which also serves as a substitute for money payable immediately is a:

A)sovereign bond.
B)corporate bond.
C)commercial paper.
D)commodity paper.

Answer 2

C
Explanation: As commerce and trade developed,people moved beyond exclusive reliance on barter to the use of money and then to the use of substitutes for money.Commercial paper is basically a contract for the payment of money.It may serve as a substitute for money payable immediately,such as a check,or it can be used as a means of extending credit.

Question 3

Which of the following is true of the articles of the UCC that deal with the law of commercial paper?

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 UCC developed in 1990 has now been adopted by almost all the states.
C)The law of commercial paper is covered only in Article 3 of the UCC that deals with negotiable instruments.
D)Negotiable documents,such as investment securities and documents of title,are also treated in Article 3 of the UCC.

Answer 3

A
Explanation: The law of commercial paper is covered in Article 3 (Negotiable Instruments)and Article 4 (Bank Deposits and Collections)of the Uniform Commercial Code.Other negotiable documents,such as investment securities and documents of title,are treated in other articles of the Code.Revised Article 3 of the UCC,developed in 1990,has now been adopted by all the states except New York.

Question 4

Commercial paper may serve as a substitute for money payable immediately,but cannot be used as a means of extending credit.

Question 5

If an instrument is undated,its "date" is the date it is issued by the maker or drawer.

Question 6

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 7

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 8

A cashier's check is a draft drawn by a bank on another bank or payable through a bank.

Question 9

The negotiability of an instrument is affected by a statement of the consideration for which the instrument was given.

Question 10

To be negotiable,the only requirement is that the instrument be in writing.

Question 11

An instrument can qualify as a negotiable instrument if includes a clause concerning an authorization to confess judgment or to realize on or dispose of collateral.

Question 12

A draft is a form of commercial paper that involves a promise to pay money.

Question 13

A certificate of deposit:

A)is 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)is the most widely used form of commercial paper that is a draft payable on demand and drawn on a bank.
C)is 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)is 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 14

The object of a negotiable instrument is to have it accepted readily as a substitute for money.

Question 15

An instrument can be made payable to two or more payees.

Question 16

When the terms of a check are ambiguous,handwritten terms prevail over printed terms.

Question 17

An instrument that meets all of the formal requirements is not a negotiable instrument if it is unenforceable or uncollectible for other reasons.

Question 18

A check is a draft payable upon demand and drawn on the bank.

Question 19

The attribute of negotiability means that an item can be readily transferred and accepted as a substitute for money.

Question 20

Any instrument that does not meet the formal requirements for negotiability will be treated as a simple contract rather than a negotiable instrument.

Question 21

A promise or order is "payable on demand" if:

A)it states that it is payable only to the bearer.
B)it states a time for payment.
C)it states that it is payable on the fulfillment of a condition.
D)it states that it is payable at the will of the holder of the instrument.

Question 22

A negotiable instrument:

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

Question 23

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

A)Postdating it
B)Conditioning payment on the payee's performance
C)Permitting the holder to extend the payment date
D)Antedating it

Question 24

A draft is a:

A)two-party instrument.
B)three-party instrument.
C)single party instrument.
D)debit instrument.

Question 25

Ricardo borrowed $1,000 from his friend,John Wilfred.Ricardo signed a handwritten note stating,"I promise to pay $1,000 to John Wilfred on or before August 1,2001." Under these circumstances:

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

Question 26

If an instrument satisfies the formal requirements of writing,signature,unconditional order to pay,and pay ability on demand:

A)it is negotiable even though it is void or unenforceable for other reasons.
B)it cannot be held by a holder in due course.
C)validity of the instrument is automatically conferred.
D)it is not negotiable if it is uncollectible for other reasons.

Question 27

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)is a negotiable instrument.

Question 28

Which of the following statements will satisfy the basic requirement of a negotiable instrument to be in writing?

A)Only instruments that are handwritten are considered to be in writing.
B)An instrument written on a piece of wrapping paper will be considered a poor business practice and will not be negotiable.
C)Writing does not have to be on any particular material,all that is required is that the instrument be in writing to be negotiable.
D)An instrument written in pencil does not qualify as a negotiable instrument.

Question 29

Which of the following would qualify as a "check" under the terms of the Code?

A)A money order
B)A treasury bill
C)A promissory note
D)A certificate of deposit

Question 30

A note in which the maker promises to pay to the order of James Brown $1,000 or a seven-string Martin guitar:

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

Question 31

Richard borrowed $100 from his friend,Leonard Smith.Richard signed a handwritten note stating,"I promise to pay $100 to the order of Leonard Smith." Under these circumstances:

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

Question 32

Emily Henrik residing in the state of North Carolina sent Gustave Franka residing in France a note which read,"Ninety days after date,I promise to pay to the order of Gustave Franka 5,000 euros (signed)Emily Henrik." The note is:

A)payable in an equivalent dollar amount on the date of payment.
B)payable only in the foreign money specified on the date of payment.
C)payable on demand in the foreign money specified.
D)payable at sight in an equivalent dollar amount.

Question 33

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 except those it has notice of.

Question 34

An instrument must be signed to qualify as a negotiable instrument.Which of the following statements is true of this basic requirement?

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 considered to be negotiable only 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 35

Which of the following instruments is negotiable?

A)A note which states,"I promise to pay to the order of Karl Adams $1,000 if he replaces the roof on my garage."
B)An instrument which provides,"Payment is subject to the terms of a mortgage dated November 20,2009."
C)A note which contains the statement,"This note is secured by a mortgage dated August 30,2009."
D)An instrument which reads,"I promise to pay to the order of MyHome Appliance Co.$550 sixty days after the delivery of my new refrigerator."

Question 36

The 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)allows a consumer who gives a negotiable instrument to use only the defense of fraudulent inducement.
D)denies all rights of a holder in due course in consumer purchase transactions.

Question 37

A teller's check:

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

Question 38

If an instrument is nonnegotiable:

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

Question 39

The promise or order in an instrument must be to pay:

A)a fixed amount of money.
B)an undefined amount of money.
C)an amount of money subject to a condition subsequent.
D)the equivalent of the amount specified in any medium on demand.

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:

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

Question 41

Nation-wide Check 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 42

An instrument states,"Subject to Approval of Title,Pay to the Order of Holly Rosenberg,$1,999.00." Is the instrument negotiable?

Question 43

Shelly signed a check payable to the order of Jennifer Jones.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 Jennifer Jones,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 Jennifer Jones?

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

Question 44

John borrowed money from Alvin to buy school supplies.He drew up and signed the following promissory note,"IOU,Alvin Anderson,the sum of $20 for value received.John Adams." Is the note a negotiable instrument?

Question 45

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

Question 46

Tina borrowed $20,000 from ACME Mortgage and signed a promissory note secured by a deed of trust on the land she owned.The note provided for interest at "30% over prime to be adjusted monthly." Is a note providing for a variable amount of interest,not ascertainable from the face of the note,a negotiable instrument?

Question 47

The following hierarchy applies when a check contains ambiguous terms.

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

Question 48

A "bearer paper" is:

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

Question 49

Identify the statement that holds true of Revised Article 3.

A)Under 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 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,an instrument that 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 50

Under Revised Article 3,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.