Deck 24: A: The Function Creation of Negotiable Instruments

Question 1

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

Answer 1

True

Question 2

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

Answer 2

False

Question 3

An extension clause allows the date of maturity of an instrument to be extended into the future.

Answer 3

True

Question 4

A signature on a negotiable instrument must be made manually.

Question 5

An order instrument must identify the payee with certainty.

Question 6

A mere acknowledgment of a debt is not sufficient to create a ne?gotiable instrument.

Question 7

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

Question 8

An order stating "please pay" is too courteous to create a negotia?ble instrument.

Question 9

A sight draft is payable on sight.

Question 10

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

Question 11

A trade acceptance is a promissory note.

Question 12

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

Question 13

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

Question 14

To be negotiable,an instrument must be payable on demand or at a definite time.

Question 15

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

Question 16

An instrument that is "payable on presentment" is payable on demand.

Question 17

A negotiable instrument can function as an extension of credit.

Question 18

A trade name can serve as a valid signature.

Question 19

To be negotiable,an instrument cannot be portable.

Question 20

A conditional promise to pay is not a negotiable instrument.

Question 21

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 22

USA Oil Corporation signs an instrument that states it is being exe?cuted "as per contract for a 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 contract are not clear on the face of the instrument.

Question 23

Daria signs an instrument payable to the order of Employees 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 24

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 25

EZ Credit Company signs an instrument payable to the order of Fraser that states,"The maker of this note at the date of maturity,May 1,2013,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 26

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 27

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 a corporation.
D)nonnegotiable,because it is signed by the drawer.

Question 28

On behalf of Equity Capital,Inc. ,Flip signs an instrument promis?ing to pay $5,000 in gold to Growth Investments,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 29

Olena 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 payable with interest.
D)nonnegotiable,because the exact amount payable cannot be deter?mined from the face of the instrument.

Question 30

Rye signs a $1,000 note payable,at 6 percent interest,on May 1 to Suburban 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 31

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 32

Fact Pattern 24-2B
Ewa signs an instrument unconditionally promising to pay to "Sunny State Bank" $5,000 with interest in installments with the final payment due June 1,2013.
Refer to Fact Pattern 24-2B.With respect to this instrument,Sunny States Bank is

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

Question 33

Rupert owes $5,000 in unpaid taxes.Using the back of an old t-shirt,he 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 34

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

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

Question 35

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

A)negotiable.
B)nonnegotiable,because it does not indicate a specific payee.
C)nonnegotiable,because it is not signed by the payee.
D)nonnegotiable,because "Yves" is not "cash."

Question 36

Fact Pattern 24-2B
Ewa signs an instrument unconditionally promising to pay to "Sunny State Bank" $5,000 with interest in installments with the final payment due June 1,2013.
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 37

Gladys,the chief executive officer of Home Electrical,Inc. ,signs an in?strument by using a rubber stamp with her thumbprint on it.This instru?ment is

A)negotiable.
B)nonnegotiable,because a rubber stamp does not identify the signer.
C)nonnegotiable,because a thumbprint implies a lack of serious intent.
D)nonnegotiable,because a thumbprint is not a signature.

Question 38

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 39

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 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 40

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 41

Donna gets her paycheck from Erstwhile Financial Services,Inc. ,her em?ployer,and attempts to deposit it in her account at First National Bank.Grey,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 Donna's account?

Question 42

On the back of an envelope,Phoebe writes,"I promise to pay Quint or bearer $600 on de?mand.[Signed] Phoebe." What type of instrument is this? Is it nego?tiable? If not,why not?