Deck 31: Negotiable Instruments

Question 1

Jim Stanley writes a check on his checking account with a bank. The bank is the drawee here.

Answer 1

True

Question 2

If a bank maintains an electronic deposit and provides the customer with a statement indicating the amount of principal held on a certificate of deposit (CD), such a CD is negotiable.

Answer 2

False

Question 3

If an instrument is negotiable, the general rules of contract law control.

Answer 3

False

Question 4

If Viola owes Tina money, Tina may frame a document for the amount of the debt, naming Viola as drawee and herself or her bank as payee, and send the document to Viola's bank for payment. This document is a:

A) promissory note.
B) certificate of deposit.
C) draft.
D) bond.

Question 5

In 1990, Revised Article 3 of the UCC was developed, which now has been adopted by all the states.

Question 6

A check payable to the order of cash is an example of bearer paper.

Question 7

Joe writes a check payable to Advanced Autos. The check is drawn on his checking account with the Progressive Bank. The drawee on this check is:

A) Joe.
B) Progressive Bank.
C) Advanced Autos.
D) the Federal Reserve.

Question 8

An instrument that is payable on the happening of some uncertain event is negotiable.

Question 9

If an instrument is an order to pay, it must contain an unconditional order.

Question 10

Checks and drafts are:

A) documents required to evidence the shipment of goods.
B) documents which detail the transaction between a seller and a buyer.
C) orders to another person to pay money to a third person.
D) promises to pay someone money.

Question 11

A typed or rubber stamped signature is sufficient if it is put on the instrument to validate it.

Question 12

Instruments cannot be negotiable even if they are payable in a foreign currency.

Question 13

If a note or draft contains a conspicuous statement that the promise or order is not negotiable, it is not a negotiable instrument even if it meets the test for negotiability.

Question 14

Jill takes a loan from a bank. She signs a standard-form note prepared by the bank. The note obligates Jill to pay to the bank the amount of the loan, plus interest. Jill is the:

A) maker of the note.
B) bearer of the note.
C) drawee of the note.
D) payee of the note.

Question 15

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

Question 16

Kathy writes a check on her checking account with a bank. Kathy is the payee here.

Question 17

A promissory note is a credit instrument.

Question 18

A cashier's check is a check for which the same bank is both drawer and drawee.

Question 19

Under the Revised Article 3 of the UCC, the variable interest rate notes are not negotiable.

Question 20

Which of the following instruments defines an order directed to a certain person, namely a bank, to pay money from a person's account to a third person?

A) Check
B) Promissory note
C) Certificate of deposit
D) Draft

Question 21

Traveler's checks commonly require, as a condition to payment, a countersignature of a person whose specimen signature appears on the draft. Traveler's checks are:

A) voidable.
B) negotiable.
C) nonnegotiable.
D) unenforceable.

Question 22

A check is NOT negotiable if it:

A) reads "Pay Kim Turner."
B) states that it is payable only on a certain condition.
C) is signed with a rubber-stamped signature.
D) is issued by a drawer who lacks capacity to contract.

Question 23

Which of the following would be a nonnegotiable instrument?

A) "Payment is subject to the terms of a mortgage dated August 12, 2011."
B) A statement in the instrument that it was given in payment of last month's rent.
C) A statement in the instrument that it was given in payment of the purchase price of goods.
D) "This note is secured by a mortgage dated January 13, 2011."

Question 24

Which of the following statements will cause an instrument to be nonnegotiable?

A) "Payment is subject to the terms of a mortgage dated August 30, 2005."
B) "Payment is secured by a mortgage dated August 30, 2005."
C) "Payment is in consideration of two months' rent."
D) "Payment to be made 30 days after date, for a note dated August 30, 2005."

Question 25

A conditional indorsement:

A) destroys the negotiability of the instrument.
B) does not destroy the negotiability of an otherwise negotiable instrument.
C) validates the instrument.
D) does not destroy the negotiability of the instrument but invalidates it.

Question 26

Which of the following is a negotiable instrument?

A) "I owe you $100."
B) "I promise to repay the loan of $3,000 only if I succeed in my business."
C) "I promise to pay you the sum of $300 in the next week."
D) "Please pay the bearer the amount of $500."

Question 27

A holder in due course of a negotiable instrument takes the instrument free of all defenses to the instrument except those that concern its:

A) validity.
B) reliability.
C) adaptability.
D) collectibility.

Question 28

Shania Watson has a checking account at the Capital Bank of New York. She goes to Lowe's and agrees to buy an electric water heater priced at $700. She writes a check to pay for it. Shania is the _____ of the check.

A) payer
B) drawer
C) payee
D) drawee

Question 29

A person creates a handwritten instrument in pencil on a piece of wrapping paper. The instrument is:

A) negotiable even though it is handwritten.
B) nonnegotiable because it is handwritten.
C) nonnegotiable since it is written on a piece of wrapping paper.
D) void.

Question 30

A check or draft that one bank draws upon another bank is called a:

A) certified check.
B) cashier's check.
C) teller's check.
D) bearer check.

Question 31

A _____ check is a draft on which the drawer and drawee are the same bank (or branches of the same bank).

A) cashier's
B) teller's
C) certified
D) traveler's

Question 32

Tim contracts with Home Dairy to deliver a bottle of milk to Tim's house every day. Home Dairy assigns Tim's contract to Mother Dairy. Tim is notified of the change and continues to get his daily bottle of milk. His contract is now with the new dairy. Mother Dairy is the:

A) assignee.
B) factor.
C) holder in due course.
D) assignor.

Question 33

Three of the following render an instrument nonnegotiable; one does not affect negotiability. Which of the following does NOT affect negotiability?

A) A draft that says: "Pay to the order of Sue Smith once she repairs my computer."
B) An instrument that says only: "This confirms my $1,000 debt to Sue Smith."
C) A note that says: "Payment is conditional upon the terms of the mortgage between the parties dated June 1, 2000."
D) A notes that says: "This note is secured by the property described in the parties' mortgage of June 1, 2000."

Question 34

To qualify as a negotiable instrument, an instrument in the form of a note must be signed by the:

A) payee.
B) drawee.
C) assignee.
D) maker.

Question 35

Selena Johnson has a checking account at the Union Bank of New York. She goes to Home Depot and agrees to buy a room heater priced at $200. She writes a check to pay for it. Home Depot is the:

A) payer.
B) drawer.
C) payee.
D) drawee.

Question 36

The _____ has adopted a regulation that alters the rights of a holder in due course in consumer purchase transactions.

A) Securities and Exchange Commission
B) Consumer Product Safety Commission
C) Bureau of Consumer Financial Protection
D) Federal Trade Commission

Question 37

Melissa Seles has a checking account at the Union Bank of New York. She goes to Home Depot and agrees to buy a room heater priced at $200. She writes a check to pay for it. The Union Bank of New York is the:

A) bearer.
B) drawer.
C) payee.
D) drawee.

Question 38

A check drawn by a credit union on its account at a federally insured bank would be an example of a:

A) cashier's check.
B) teller's check.
C) counter check.
D) traveler's check.

Question 39

A holder in due course is subject to the defense of _____ if the maker of a note wrote it under a threat of force.

A) fraudulent inducement
B) infancy
C) duress
D) breach of warranty

Question 40

Payments made with a credit card and payments made with a debit or ATM card are subject to:

A) both the federal law and the state law.
B) only federal laws.
C) only state laws.
D) only local laws.

Question 41

Which of the following instruments is nonnegotiable?

A) "I promise to pay to the order of Carol Reed $40, Jerry Jacobs."
B) A statement in the instrument that it was given in payment of the previous month's rent.
C) A statement in the instrument that it was given in payment of the purchase price of goods.
D) "I promise to pay to the order of Meg Raven, at my option, $100 or five baskets of oranges, Dan Gilbert."

Question 42

What are the conditions necessary for a person to be able to accept a negotiable instrument as a substitute for money?

Question 43

If the description of interest in the instrument does not allow the amount of interest to be ascertained, then interest is payable at the:

A) variable rate.
B) judgment rate.
C) order rate.
D) fixed rate.

Question 44

Which of the following can be negotiated or transferred only by indorsement?

A) Order paper
B) Bearer paper
C) Cashier's check
D) Teller's check

Question 45

A(n) _____ can be negotiated or transferred by delivery of possession without indorsement.

A) order paper
B) bearer paper
C) cashier's check
D) teller's check

Question 46

The rate of interest that courts impose on losing parties until they pay the winning parties is known as a(n):

A) variable rate.
B) order rate.
C) judgment rate.
D) fixed rate.

Question 47

Except for _____, to be negotiable an instrument must be "payable to order or to bearer."

A) promissory notes
B) bonds
C) checks
D) certificates of deposit

Question 48

Which of the following is nonnegotiable?

A) A note that does not state any other undertaking by the person promising to do any act in addition to the payment of money.
B) A draft payable "15 days after sight."
C) A note with a clause permitting the time for payment to be accelerated at the option of the maker.
D) A note that is payable "when the interest rate on 30-year treasury bonds reaches 10 percent."

Question 49

Clint wrote a check to pay for his phone bill. The amount of the bill was $50. He wrote out the words "Fifty dollars only" but he also wrote "$60" in the area for numbers. As a result, the check:

A) is disqualified as a negotiable instrument.
B) qualifies as a negotiable instrument, and the payee can collect $50.
C) qualifies as a negotiable instrument, and the payee can collect $60.
D) is disqualified as a negotiable instrument, unless Clint's intent is ascertained.

Question 50

Carl writes a check made payable to "Patricia Sullivan or William Hayes." Who may negotiate the check?

A) Neither Patricia nor William: The check is unenforceable.
B) Patricia as she is the first named party to whom the check is made payable.
C) William as he is the last named party to whom the check is made payable.
D) Either Patricia or William may negotiate the check.

Question 51

Which of the following is the order of priority in case of an internal conflict in a negotiable instrument?

A) Typewritten terms beat printed terms, which beat handwritten terms.
B) Printed terms beat typewritten terms, which beat handwritten terms.
C) Handwritten terms beat printed terms, which beat typewritten terms.
D) Handwritten terms beat typewritten terms, which beat printed terms.

Question 52

Which of the following is true if an instrument is undated?

A) Its date is the date it is signed by the maker or the drawer.
B) Its date is the date it is issued by the maker or the drawer.
C) Its date is the date it is received by the payee.
D) The instrument is nonnegotiable if it is undated.

Question 53

Alice writes a check "Pay to the order of Caleb." The check is drawn on the Berkley's Bank. Who are the drawer, the drawee, and the payee on this instrument? Why is this check called order paper?

Question 54

To be negotiable, an instrument must be payable on demand or at a definite time. Under this test, how does the law treat instruments that do not state any time for payment?

Question 55

Which of the following is nonnegotiable?

A) A check written "Pay James Watson."
B) A note written "I promise to pay James Watson."
C) A note written "I promise to pay James Watson or bearer."
D) A draft payable "to the order of bearer."

Question 56

Why does negotiability matter? Hint: To what is negotiability a prerequisite? Furthermore, why does this matter? Also, why is it important to society?

Question 57

The requirement that, to be negotiable, an instrument must promise or order payment of a fixed amount of money applies:

A) only to principal.
B) only to interest.
C) to both principal and interest together.
D) neither to principal nor interest.

Question 58

An instrument payable on demand is:

A) not payable before the date of the instrument.
B) payable before the date of the instrument.
C) not payable after the date of the instrument.
D) nonnegotiable without a date.

Question 59

The Code determines negotiability at _____, so that indorsements do not affect the underlying negotiability of the instrument.

A) precompliance
B) abeyance
C) issuance
D) disaffirmance

Question 60

Marion purchased a digital camera, paying with a promissory note. The note stated that Marion promised to pay $300 (the purchase price of the camera) in 10 monthly installments of $30 plus interest. Payments are due on the first day of each month, starting in January 2010. The interest is to be calculated as "three percent over the Chase Manhattan Prime Rate". Is this instrument negotiable?

A) No, because the future prime rate is not known at the time of the making of the note.
B) No, because the note does not describe a fixed amount of money to be paid.
C) Yes, because the variable rate of interest is calculated by reference to an index.
D) Yes, because the future prime rate is known at the time of the making of the note.

Question 61

The drafters of Revised Article 3 created a new and significant exception to the requirement that to be negotiable, an instrument must be payable to order or to bearer. What is it?