Deck 25: The Function Creation of Negotiable Instruments

Question 1

A signature on a negotiable instrument cannot be made by a device, such as a rubber stamp or a thumbprint.

Answer 1

False

Question 2

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

Answer 2

False

Question 3

A symbol can serve as a valid signature.

Answer 3

True

Question 4

To be negotiable, an instrument cannot be portable.

Question 5

On a cashier's check, the drawer is also always the payee.

Question 6

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

Question 7

A holder is any person in possession of a negotiable instrument that is payable either to the bearer or to an identified person who is the person in possession.

Question 8

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

Question 9

A instrument "payable to the order of bearer" is neither an order instrument nor a bearer instrument.

Question 10

To be negotiable, an instrument must be in writing.

Question 11

An instrument is nonnegotiable unless the word "negotiable" is printed on it.

Question 12

An extension clause allows a payee or other holder of a time instrument to demand payment of the entire amount due, with interest, if a certain event occurs.

Question 13

A sight draft may be payable on acceptance.

Question 14

With respect to negotiability, an order on an instrument may be addressed to one person or to more than one person, either jointly or alternatively.

Question 15

The checks that you wrote are negotiable instruments that act as substitutes for cash.

Question 16

All checks are time instruments.

Question 17

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

Question 18

To be negotiable, an instrument must be payable in money.

Question 19

An order instrument must identify the payee with certainty.

Question 20

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

Question 21

Fact Pattern 25-1B (Questions B5-B6 apply)
Thalia signs an instrument unconditionally promising to pay to "Union Bank" $7500 with interest in installments with the final payment due June 1, 2017.
Refer to Fact Pattern 25-1B. The instrument that Thalia signed is most likely

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

Question 22

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 deter?mined from the face of the instrument.

Question 23

To borrow money to finance the start-up of his business, Rollo executes an instrument in favor of Security Bank. For the instru?ment 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 24

Northwest Energy Corporation signs an instrument that states it is being exe?cuted "as per contract for a purchase of 4,000 barrels of oil dated September 1." This instrument is

A) negotiable.
B) nonnegotiable, because information about the sale must be ob?tained from another source.
C) nonnegotiable, because it states an express condition to payment.
D) nonnegotiable, because the terms of the contract are not clear on the face of the instrument.

Question 25

To buy a stuffed cow, Ken executes a check "pay to Laura or bearer" and gives it to Laura, who does not own a stuffed cow. This check is

A) negotiable.
B) nonnegotiable, because it does not indicate a specific payee.
C) nonnegotiable, because it may be a joke.
D) nonnegotiable, because Laura does not own a stuffed cow.

Question 26

InterComp normally sells $50,000 worth of software to Power Source, a retail elec?tronics store, each summer on terms requiring payment in sixty days. One year, InterComp wants cash, but Power Source wants the usual sixty days. To meet both needs, the parties can arrange

A) a certificate of deposit.
B) a bearer bond.
C) a trade acceptance.
D) an international letter of credit.

Question 27

Trixie signs a $1,500 note payable, at 4.25 percent interest, on October 1 to Urban Bank and writes on its face that it is "nonnegotiable." This note is

A) negotiable.
B) nonnegotiable, because it is dated.
C) nonnegotiable, because it is payable with interest.
D) nonnegotiable, because it includes the notation "nonnegotiable."

Question 28

Willy deposits $5,000 with Home State Bank on July 1, 2012. Home State Bank promises to repay Willy the $5,000 plus 3 percent annual interest on July 1, 2017. This is

A) a certificate of deposit.
B) a cashier's check.
C) none of the choices.
D) a draft.

Question 29

Evermore Bank is both the drawer and the drawee with regard to a draft issued to Fernando. The draft is

A) a certificate of deposit.
B) a cashier's check.
C) a nonnegotiable instrument.
D) a promissory note.

Question 30

Efron borrows money to pay his tuition and signs a note payable to First Citizens Bank. The bank assigns the note to Guaranty Bank. The assignment

A) does not affect Efron's obligation to pay the note as promised.
B) frees Efron of the obligation to pay the note.
C) results in Guaranty Bank's co-liability on the note with Efron.
D) results in Guaranty Bank's co-liability on the note with First Citizens Bank.

Question 31

Brie wants one of Cari's purebred Dalmations. Brie signs an instrument in which she promises to pay Jasmine for a puppy. The instrument will be negotiable if it is payable in

A) goods of equal market value.
B) money.
C) any of the choices.
D) shares of stock.

Question 32

Cricket signs a check payable to the order of Discount Warehouse, Inc., that does not include a date. This check is

A) negotiable.
B) nonnegotiable, because it does not include a date.
C) nonnegotiable, because it is payable to a corporation.
D) nonnegotiable, because it is signed by the drawer.

Question 33

Payday Loans, Inc., signs an instrument payable to the order of Qiana that states, "The maker of this note at the date of maturity, April 1, 2016, can extend the time of pay?ment, but for no more than a rea?sonable 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 34

Sarah has a checking account at Secure Bank. Sarah buys her roommate Sophie's two tickets to a Broadway musical for $200. Sarah writes Sophie a check for the tickets. In this situation, Secure Bank is

A) the drawee.
B) the indorser.
C) the payee.
D) the drawer.

Question 35

Fact Pattern 25-1B (Questions B5-B6 apply)
Thalia signs an instrument unconditionally promising to pay to "Union Bank" $7500 with interest in installments with the final payment due June 1, 2017.
Refer to Fact Pattern 25-1B. With respect to this instrument, Union Bank is

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

Question 36

To obtain a business license, Bess writes a check to a certain state agency. Bess is

A) the drawee.
B) the drawer.
C) the indorser.
D) the payee.

Question 37

Grace signs an instrument payable to the order of Hillside Credit Union "on or before" June 15. This instrument is

A) negotiable.
B) nonnegotiable, because the maker can move up the payment date.
C) nonnegotiable, because moving up the payment date is optional.
D) nonnegotiable, because the exact payment date cannot be deter?mined from the face of the instrument.

Question 38

On April 1 Richard arranges to buy a sixteen-speed bike from his neighbor Phil for $500. Phil agrees to deliver the bike on May 1. Richard writes a draft for $500 payable to Phil on May 1. In this situation, the draft is

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

Question 39

Merry draws a check payable to "Cash" and presents it to National Bank for payment. This instrument is

A) a bearer instrument.
B) an order instrument.
C) valid but nonnegotiable.
D) void.

Question 40

Bart, the owner of Clear Cut Corporation, signs an instrument that includes the phrase "payment for this note will be made from the pro?ceeds 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 41

On the back of an envelope, Clark writes, "I promise to pay Dobie or bearer $700 on de?mand. [Signed] Clark." What type of instrument is this? Is it nego?tiable? If not, why not?

Question 42

Ralph gets his paycheck from Shakes n' Burgers Restaurant, his em?ployer, and attempts to deposit it in his account at Town Bank. Uri, the bank's teller, notices that on the check the amount stated in words is different from the amount stated in numerals. Which amount can the bank lawfully credit to Ralph's account?