Deck 20: Creation and Transfer of Negotiable Instruments

Question 1

Negotiable instruments are also known as commercial paper.

Answer 1

True

Question 2

Negotiable instruments often serve as record-keeping devices.

Answer 2

True

Question 3

If requirements established by Article 3 of the Uniform Commercial Code are met,a transferee who qualifies as a holder in due course takes the instrument free of many defenses that can be asserted against the original payee.

Answer 3

True

Question 4

One of the common functions of negotiable instruments is as a substitute for money.

Question 5

The concept of negotiation is unimportant to the law of negotiable instruments.

Question 6

An instrument can be a sight draft or a demand draft but cannot be both.

Question 7

The UCC recognizes five types of negotiable instruments.

Question 8

A promissory note is an unconditional written order by one party (the drawer)that orders a second party (the drawee)to pay money to a third party (the payee).

Question 9

A drawee is not liable to pay a draft until the drawee has accepted it.

Question 10

The drawee must be obligated to pay the drawer money before the drawer can order the drawee to pay the money to a third party.

Question 11

Some forms of negotiable instruments extend credit from one party to another.

Question 12

A time draft is payable on sight.

Question 13

Once created,a negotiable instrument can be transferred to subsequent parties by
arbitrage.

Question 14

For the drawee to be liable on a draft,the drawee must accept the drawer's written order to pay it.

Question 15

The term "instrument" means "negotiable instrument."

Question 16

All checks are three-party instruments,but not all three-party instruments are checks.

Question 17

A sight draft or time draft are both payable on demand.

Question 18

A negotiable instrument is negotiated when it is first issued as well as each time it transfers from party to party.

Question 19

A time draft is payable at a designated future date.

Question 20

Examples of negotiable instruments include checks and promissory notes.

Question 21

A promissory note is a conditional,written promise by one party to pay money to another party.

Question 22

A certificate of deposit is a special form of note.

Question 23

A promissory note is a two-party instrument.

Question 24

A party who makes a promise to pay is the drawer of a note.

Question 25

The financial institution upon which a check is written is the accommodation party.

Question 26

Security for the repayment of a note is called collateral.

Question 27

Regarding a certificate of deposit,the depositor is the maker of the instrument.

Question 28

A check is a specific form of draft that involves a bank.

Question 29

Regarding a trade acceptance,the seller is both the drawer and the payee.

Question 30

A promissory note is an order to pay.

Question 31

Promissory notes can be made payable to a named payee or to bearer.

Question 32

Drafts can be negotiated from party to party; however,a promissory note,if used as an extension of credit,cannot be freely negotiated.

Question 33

A customer who has a checking account and writes a check is the maker.

Question 34

Promissory notes that are secured by real estate are called collateral notes,and notes that are secured by personal property are called mortgage notes.

Question 35

A check is an order to pay.

Question 36

The "maker" is a party to a note,but is not a party to a draft.

Question 37

Both a note and a draft may be payable at a designated future time or on demand.

Question 38

A promissory note is a negotiable instrument that the payee can freely transfer to other parties.

Question 39

A trade acceptance is a sight draft that arises when credit is extended with the sale of goods.

Question 40

A certificate of deposit is a two-party instrument.

Question 41

An I.O.U.is another form of note that is considered to be a promise to pay.

Question 42

If sufficient credible witnesses are brought forth,an oral statement can be held to be a valid negotiable instrument.

Question 43

Grandma has sent you a properly-completed check which states that it is payable for $500.00 upon your graduation from college.This would be a negotiable instrument if signed properly.

Question 44

All negotiable instruments must be payable to order or to bearer.

Question 45

The essence of the fixed amount requirement is that a holder of an instrument can calculate the payment required from the face of the instrument.

Question 46

Stanley Smith is an agent of the XYZ Company and signs a check as an authorized agent of the company.If he signs the check,"Stanley Smith,Agent",he will have no liability and XYZ will have full liability if the check were dishonored.

Question 47

A negotiable instrument may be a conditional promise or order to pay.

Question 48

A bearer instrument is payable to anyone in physical possession of the instrument who presents it for payment when it is due.

Question 49

A note that requires the performance of services is negotiable so long as there is also a requirement for payment of a fixed amount of money.

Question 50

A writing must be on paper in order to qualify as a negotiable instrument.

Question 51

An agent of a corporation who signs a negotiable instrument on behalf of a corporation is always personally liable.

Question 52

In terms of an order to pay a draft or a check,the language of the order may be general,and need not contain the word "pay."

Question 53

If an instrument provides for interest but the amount of interest cannot be determined from the description,interest is payable at the judgment rate in effect at the place of payment of the instrument.

Question 54

To be a negotiable instrument under the requirements of UCC 3-104,a writing must contain either an unconditional order to pay or an unconditional promise to pay a fixed amount of money on demand or at a definite time.

Question 55

The mere acknowledgement of a debt is sufficient to constitute a negotiable instrument.

Question 56

To be unconditional,a promise to pay cannot refer to another writing.

Question 57

The signature on a negotiable instrument must be handwritten and in ink.

Question 58

A negotiable instrument can be handwritten.

Question 59

An instrument does not have to be payable with interest,but if it is,the amount of interest being charged must be expressed as either a "prime" or a "sub-prime" rate.

Question 60

The signature of the drawer or maker of a negotiable instrument can appear anywhere on the face of the document.

Question 61

If an indorsement names a payee,this person is called the indorsee.

Question 62

Substantial risk is associated with the loss or theft of bearer paper

Question 63

An instrument that is nonnegotiable is unenforceable.

Question 64

An instrument that is bearer paper can be changed to order paper by a later indorsement.

Question 65

Even if an instrument proves to be nonnegotiable,it is still subject to UCC Article 3 provisions regarding transfer.

Question 66

If a promise or an order to pay does not meet one of the requirements of negotiability,it is subject to the "default" provisions of UCC Article 2.

Question 67

Instruments that are payable at a definite time are called demand instruments.

Question 68

Under the UCC,a negotiable instrument may provide that it is payable in foreign money.

Question 69

A bearer instrument requires both an endorsement and delivery for the instrument to be transferred.

Question 70

If the maker or drawer of a nonnegotiable contract fails to pay it,the holder of the contract can sue the non-performing party for breach of contract.

Question 71

An acceleration clause does not affect negotiability however an extension clause will render an instrument nonnegotiable.

Question 72

Because an indorsement is not required on bearer paper to deliver it,the indorsement has no legal effect.

Question 73

An instrument that is payable to a specific payee or indorsed to a specific indorsee is order paper.

Question 74

In negotiable instruments,negotiation refers to the process of reaching agreement on the terms of a negotiable instrument.

Question 75

An indorsement is the signature of the maker,drawer,or an acceptor.

Question 76

Negotiation is the transfer of commercial paper by a person other than the issuer.

Question 77

Regardless of whether the instrument involved is order paper or bearer paper,the proper method of negotiation is the same.

Question 78

In an assignment,the assignee cannot receive greater rights than those held by the assignor.

Question 79

When proper negotiation occurs,it is possible for the new holder to get better rights than the person that transferred the instrument to them.

Question 80

If you run out of room on the back of an instrument for indorsements,the instrument may no longer be negotiated and must be cashed.