Deck 24: The Function Creation of Negotiable Instruments

Question 1

A trade acceptance is a draft.

Answer 1

True

Question 2

A cashier's check drawn by a bank on itself is an instrument in which the bank is both the drawer and the drawee.

Answer 2

True

Question 3

A signature can consist of initials signed by a party.

Answer 3

True

Question 4

A promissory note that states it is payable within ninety days represents an ex?tension of credit by the holder to the debtor.

Question 5

A trade name can serve as a valid signature.

Question 6

A promissory note payable to "bearer" is not negotiable.

Question 7

To be negotiable, an instrument must be written on high-quality, letter- or le?gal-size paper.

Question 8

On a trade acceptance, the drawer is also the payee.

Question 9

A negotiable instrument serves as a substitute for cash.

Question 10

To be negotiable, an instrument must be signed in the lower right-hand corner.

Question 11

A certificate of deposit is a type of draft.

Question 12

A certificate of deposit represents a loan by its owner to a bank.

Question 13

A draft is an unconditional written order that involves two parties.

Question 14

For an instrument to be negotiable, it must be in writing.

Question 15

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

Question 16

As a substitute for money, an instrument does not have to be signed by anyone to be nego?tiable.

Question 17

To be negotiable, an instrument must be portable.

Question 18

A time draft is payable at a definite future time.

Question 19

A notation on an instrument that it is "negotiable" is sufficient to render it negotiable.

Question 20

Rubber stamp signatures can be legally binding signatures.

Question 21

An order stating "I wish you would pay" is sufficient to create a negotia?ble instrument.

Question 22

A promissory note is negotiable even if it does not state that it is payable on demand or at a definite time.

Question 23

An instrument that states simply "I.O.U." is negotiable.

Question 24

An undated instrument is not negotiable.

Question 25

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

Question 26

A conditional promise to pay is not a negotiable instrument.

Question 27

Stating on an instrument that it is "as per contract" renders it nonnegotiable.

Question 28

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

Question 29

To be negotiable, an instrument must include any conditions to payment on its face.

Question 30

An acceptor is a drawee who has agreed to pay an instrument when it is presented later for payment.

Question 31

A notation on a check that it is "nonnegotiable" is sufficient to render it nonnegotiable.

Question 32

An instrument payable "with interest" must specify a particular rate to be negotiable.

Question 33

A promissory note is not negotiable if reference must be made to foreign exchange rates at the time payment is due.

Question 34

An extension clause on an instrument is the reverse of an acceleration clause.

Question 35

A certificate of deposit may be negotiable even if it does not contain an express promise to pay.

Question 36

Any person in possession of a negotiable instrument payable to bearer is a holder.

Question 37

An acknowledgment of indebtedness is sufficient to create a ne?gotiable instrument.

Question 38

Normally, if the numerical amount and the written amount on a check differ, the words outweigh the figures.

Question 39

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

Question 40

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

Question 41

Rita owes $6,000 in unpaid taxes. In the sand of Seaside Beach, she exe?cutes an instrument for that amount that otherwise meets the re?quire?ments for negotiability. This instrument is likely

A) negotiable.
B) nonnegotiable, because an instrument must be on paper.
C) nonnegotiable, because sand is not sufficiently permanent.
D) nonnegotiable, because the government does not appreciate it.

Question 42

Fact Pattern 24-1B
Dominion Sales Ltd. in Canada and Eagle Buying Company in the United States enter a contract for a sale of forestry products. Dominion draws a draft unconditionally ordering Great Federal Bank, Eagle's bank, to pay $60,000 to Dominion's order in sixty days. Eagle signs and dates the draft.
Refer to Fact Pattern 24-1B. This instrument is

A) a banker's acceptance.
B) a nonnegotiable instrument.
C) a promissory note.
D) a trade acceptance.

Question 43

Dino, the chief executive officer of Electrician Services, Inc., signs an in?strument by plac?ing his thumbprint on it. This instru?ment is

A) negotiable.
B) nonnegotiable, because a thumbprint does not state the signer's name.
C) nonnegotiable, because a thumbprint implies a lack of binding intent.
D) nonnegotiable, because a thumbprint is not a signature.

Question 44

To finance the purchase of a house from Tuna, Uri signs an instrument promising to pay to "Verity Mortgage Service" $160,000 with interest in installments with the final payment due July 10, 2040. To be negotiable, this instrument must include the signature of

A) a non-party witness.
B) Tuna or Tuna's realtor.
C) Uri.
D) Verity's chief financial officer.

Question 45

Fact Pattern 24-2A
Quantity Sales Corporation and Resources Purchasing Company enter a contract for a sale of processed silver. Quantity Sales draws a draft unconditionally ordering Resources Purchasing to pay $50,000 to Quantity Sales's order in sixty days. Resources Purchasing signs and dates the draft.
Refer to Fact Pattern 24-2A. On this instrument, Quantity Sales is

A) the banker.
B) the drawer.
C) the maker.
D) the trader.

Question 46

Fact Pattern 24-1A
Flik draws a check payable to "GrocMart" to buy groceries.
Refer to Fact Pattern 24-1A. With respect to Flik's check, GrocMart is

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

Question 47

Fact Pattern 24-2B
Ewa signs an instrument unconditionally promising to pay to "First State Bank" $5,000 with interest in installments with the final payment due June 1, 2012.
Refer to Fact Pattern 24-2B. The instrument that Ewa signed is most likely

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

Question 48

USA Oil Corporation signs an instrument that states it is being exe?cuted "in accord with a contract for the purchase of 4,000 barrels of oil dated May 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 sale are not clear.

Question 49

Fact Pattern 24-1A
Flik draws a check payable to "GrocMart" to buy groceries.
Refer to Fact Pattern 24-1A. Flik's check is most likely

A) a certificate of deposit.
B) a negotiable instrument.
C) a promise to pay.
D) a promissory note.

Question 50

To borrow money to finance the start-up of his business, Buck executes an instrument in favor of City 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 51

Beck draws a check payable to "County Farm Supply" to buy a quantity of fertilizer to deposit in Beck's field. This check is

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

Question 52

Fact Pattern 24-2A
Quantity Sales Corporation and Resources Purchasing Company enter a contract for a sale of processed silver. Quantity Sales draws a draft unconditionally ordering Resources Purchasing to pay $50,000 to Quantity Sales's order in sixty days. Resources Purchasing signs and dates the draft.
Refer to Fact Pattern 24-2A. This instrument is

A) a banker's acceptance.
B) a nonnegotiable instrument.
C) a promissory note.
D) a trade acceptance.

Question 53

Diners Restaurant issues an instrument in favor of Eatery Supplies, Inc. For the instrument to be negotiable, it need not

A) be an unconditional promise or order to pay.
B) be payable on demand or at a specific time.
C) be signed by Diner's Restaurant.
D) recite the consideration given in exchange for a promise to pay.

Question 54

Fact Pattern 24-2B
Ewa signs an instrument unconditionally promising to pay to "First State Bank" $5,000 with interest in installments with the final payment due June 1, 2012.
Refer to Fact Pattern 24-2B. With respect to this instrument, First States Bank is

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

Question 55

To finance the purchase of a car from Giant Auto Sales, Hoppy signs an instrument promising to pay to "Ideal Credit Union" $18,000 with interest in installments with the final payment due May 15, 2014. To be negotiable, this instrument must include on its face

A) any conditions on the sale of the car.
B) any conditions to the disbursement of the funds.
C) any conditions to the repayment of the loan.
D) no conditions.

Question 56

Ross signs an instrument using an "R" with a circle around it. With this mark for a signature, the instrument is

A) negotiable.
B) nonnegotiable, because an initial does not state the signer's name.
C) nonnegotiable, because an initial is not a signature.
D) nonnegotiable, because a simple initial implies a lack of binding intent.

Question 57

To obtain office supplies for Doctors Medical Clinic, Elmo executes a draft in favor of Flynn. A draft is

A) a conditional promise to pay money.
B) an unconditional written order to pay money.
C) a qualified promise to set aside a sum of money.
D) a restricted promise to deliver goods at a future date.

Question 58

Gail owes $5,000 in unpaid taxes. Using the back of an old t-shirt, she exe?cutes an instrument for $5,000 that otherwise meets the re?quire?ments for negotiability. This instrument is most likely

A) negotiable.
B) nonnegotiable, because an instrument must be on paper.
C) nonnegotiable, because a t-shirt is not sufficiently permanent.
D) nonnegotiable, because the government does not appreciate it.

Question 59

Kevin, the owner of Livestock Ranch Corporation, signs an instrument that includes the phrase "payment for this note will be made from the pro?ceeds of next year's stock sale." 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 reasons for the note are not clear.

Question 60

Fact Pattern 24-1B
Dominion Sales Ltd. in Canada and Eagle Buying Company in the United States enter a contract for a sale of forestry products. Dominion draws a draft unconditionally ordering Great Federal Bank, Eagle's bank, to pay $60,000 to Dominion's order in sixty days. Eagle signs and dates the draft.
Refer to Fact Pattern 24-1B. With respect to this instrument, Dominion is

A) the banker.
B) the maker.
C) the payee.
D) the trader.

Question 61

Karen writes on a piece of paper, "I owe you $600," signs it, and gives it to Lou. This instrument is

A) negotiable.
B) nonnegotiable, because it does not include an express promise to pay.
C) nonnegotiable, because it does not recite any consideration.
D) nonnegotiable, because it does not state any conditions to payment.

Question 62

Ray signs a promissory note for $10,000 in favor of State University (SU). The note does not specify the date of its payment. Ray defaults. In SU's suit to collect on the note, the court will most likely rule in favor of

A) Ray, because SU assumed the risk that the note would not be paid.
B) Ray, because the note is not payable at a definite time or on demand.
C) SU, because the note is an unconditional promise to pay the holder.
D) SU, because there is a uniform "default time" for repayment when a date is not specified.

Question 63

International Properties, Inc. (IPI), signs an instrument in favor of Financial Investments Corporation that includes the statement "IPI plans to pay this debt from the proceeds of the sale of the IPI Office Building in Montreal." This instrument is

A) negotiable.
B) nonnegotiable, because banks cannot easily process office buildings.
C) nonnegotiable, because it refers to a separate sale.
D) nonnegotiable, because Montreal is in Canada, not the United States.

Question 64

Will signs a check payable to "X" and gives it to Yves. This check is

A) negotiable.
B) nonnegotiable, because it does not indicate a specific payee.
C) nonnegotiable, because obviously it was executed as a joke.
D) nonnegotiable, because "Yves" is not "X."

Question 65

Lucy signs a $1,000 note payable, at 6 percent interest, on May 1 to Metro Bank and writes on its face that it is "nonnegotiable." This note is

A) negotiable.
B) nonnegotiable, because it does not include an acceleration clause.
C) nonnegotiable, because it is payable with interest.
D) nonnegotiable, because its maker conspicuously wrote this on its face.

Question 66

Julie signs a check payable to the order of Kwik Mart Stores, 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 Kwik-Mart.
D) nonnegotiable, because it is signed by Julie.

Question 67

Bill signs a check payable to the order of City Bank, filling in the blanks for the amount with the figures "$100" and "One thousand and 00/100 dol?lars." This check is payable in the amount of

A) $0.
B) $100.
C) $1,000.
D) $1,100.

Question 68

Pam signs an instrument payable to the order of Quick Credit, Inc., that allows a holder to demand payment of the entire amount due, with inter?est, if Pam fails to make a payment. This instrument is

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

Question 69

Jack signs an instrument that states it is being executed "in accord with a contract for the sale of three magic beans dated June 1." This instru?ment is

A) negotiable.
B) nonnegotiable, because banks cannot easily process commodities.
C) nonnegotiable, because it includes the specific date of a contract.
D) nonnegotiable, because it refers to an express contract.

Question 70

Maria signs an instrument payable to the order of National Loans, Inc., "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 71

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

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

Question 72

Sid signs a promissory note payable to Tony on which Sid conspicuously notes that it is "not negotiable" and gives the note to Toney. This instru?ment is

A) negotiable.
B) nonnegotiable, because it includes the notation "not negotiable."
C) nonnegotiable, because it is a promissory note.
D) nonnegotiable, because it was given to Bob.

Question 73

On behalf of Digital Cable Company, Ed signs an instrument in which he promises to deliver 1,000 feet of optic fiber cable to First Internet Bank on March 1. This instrument is

A) negotiable.
B) nonnegotiable, because cable is not a medium of exchange author?ized or adopted by a government as currency.
C) nonnegotiable, because it does not indicate a specific type of cable.
D) nonnegotiable, because it does not recite any consideration.

Question 74

Kelly signs an instrument in favor of Leo that states it is "subject to a cer?tain agreement between Kelly and Mona." This instru?ment is

A) negotiable.
B) nonnegotiable, because it is made subject to a separate agreement.
C) nonnegotiable, because it refers to a separate agreement.
D) nonnegotiable, because Kelly and Mona are not the same persons.

Question 75

EZ Credit Company signs an instrument payable to the order of Flem that states, "The maker of this note at the date of maturity, May 1, 2011, 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 76

Opal signs a promissory note payable to the order of Payday Loan 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 a promissory note.
D) nonnegotiable, because it is payable only with interest.

Question 77

On behalf of First-Rate Capital, Inc., Greg signs an instrument promis?ing to pay $5,000 in gold to Hot Funds, Inc., on May 15. This in?strument is

A) negotiable.
B) nonnegotiable, because gold is not a medium of exchange author?ized or adopted by a government as currency.
C) nonnegotiable, because it does not recite any consideration.
D) nonnegotiable, because it is for an amount of $500 or more.

Question 78

Wilbur signs a note that includes a clause under which the note's holder can delay the date of its payment indefinitely. This is

A) an acceleration clause.
B) an extension clause.
C) an immaturity clause.
D) a stop-payment clause.

Question 79

On May 1, Doug signs a check that is payable to the order of Excel Credit Corporation and that is dated July 1. This check is

A) negotiable.
B) nonnegotiable, because it is payable to Excel Credit Card Corporation.
C) nonnegotiable, because it is postdated.
D) nonnegotiable, because it is signed by Doug.

Question 80

Quincy draws a check payable to "Replay Stadium" to buy two season tickets to the next year's State College football games. This instrument is

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