Deck 20: Creation and Transfer of Negotiable Instruments

Question 1

Roger,a certified lawyer,borrows money from Jax to start a business.He executes a promissory note stating that he will pay the money back within the next five years.However,Roger also requests for a specific clause to be added that will allow faster repayment of the loan if he inherits any money within the five years.In this scenario,Roger is requesting for a(n)________ clause.

A) prepayment
B) acceleration
C) extension
D) forestallment

Answer 1

B

Question 2

Which of the following is true of a bearer paper?

A) It is payable to a specific person who is named in the instrument.
B) It is payable to the person in possession of the instrument.
C) It is a promise to pay a specific sum of money to a specific payee.
D) It is promise to pay an additional undertaking other than money.

Answer 2

B

Question 3

________ of the UCC establishes rules for the creation of,transfer of,enforcement of,and liability on negotiable instruments.

A) Article 5
B) Article 3
C) Article 2
D) Article 2A

Answer 3

B

Question 4

In the context of a draft,a drawee is the party who ________.

A) writes an order to a second party
B) pays the money stated in the draft
C) writes an order for the draft
D) receives the money from the draft

Question 5

The ________ requirement of negotiable instruments says that negotiable instruments must be able to be easily transported between areas.

A) portability
B) permanency
C) signature
D) transparency

Question 6

A primary function of a negotiable instrument is that it acts as a substitute for ________.

A) money
B) goods sold
C) services rendered
D) the assets held by the drawer

Question 7

Mike borrows $25,000 from Jill,and executes a promissory note stating that he will repay the money in one year.Mike also requests for a clause that allows him to repay the loan prior to the due date to which Jill agrees.In this scenario,Mike is requesting for a(n)________ clause.

A) prepayment
B) acceleration
C) extension
D) forestallment

Question 8

One of the fundamental requirements for a negotiable instrument is that it must be ________.

A) supplemented with interest upon payment
B) secured with collateral
C) a three-party instrument
D) written on an ordinary paper

Question 9

Which of the following statements is true of a negotiable instrument?

A) It should be signed by the payee.
B) It can be either written or oral.
C) It should not require any undertaking other than the payment of money.
D) It need not state a fixed amount of money and can include a service that needs to be rendered.

Question 10

A ________ is a special form of contract that satisfies the requirements established by Revised Article 3 of the UCC.

A) rental agreement
B) negotiable instrument
C) lease agreement
D) nonnegotiable contract

Question 11

A promise or order is only considered negotiable if ________.

A) the promise or order to pay is unconditional
B) it is subject to or governed by another writing
C) the rights to the promise or order are stated in another writing
D) an express condition to payment is mentioned

Question 12

A(n)________ allows a payee or holder to quicken payment of the principal amount of an instrument,plus accrued interest,upon the occurrence of an event.

A) acceleration clause
B) prepayment clause
C) extension clause
D) forestallment clause

Question 13

A ________ is a three-party instrument that is an unconditional written order by one party that orders a second party to pay money to a third party.

A) draft
B) promissory note
C) certificate of deposit
D) lease

Question 14

Karen has a checking account at First Bank.Karen writes a check to Bonanza Apartments for her rent.Which of the following is true of this situation?

A) Karen is the drawer, First Bank is the drawee, and Bonanza is the payee.
B) Karen is the drawee, First Banks is the drawer, and Bonanza is the payee.
C) Karen is the payee, First Bank is the drawee, and Bonanza is the drawer.
D) Karen is the payee, First Bank is the drawer, and Bonanza is the drawee.

Question 15

A(n)________ permits the maker to pay the amount due prior to the due date of the instrument.

A) prepayment clause
B) acceleration clause
C) extension clause
D) forestallment clause

Question 16

Harry orally promises to pay $7,543 that he owes to Rob.The next day,Rob wants the promise to be written on paper.In this scenario,Rob wants the ________ requirement to be fulfilled in order for the note to be binding.

A) portability
B) signatory
C) permanency
D) transparency

Question 17

Emily executes a promissory note in the name of Sonia but does not specify a time for repayment.This promissory note is an example of a(n)________ instrument.

A) order
B) time
C) demand
D) indorsed

Question 18

The signature requirement indicates that a negotiable instrument must be signed by ________.

A) a witness
B) the maker
C) a drawee
D) the payee

Question 19

Shawn draws a bearer check that is payable on January 2,2014.This check is an example of a(n)________ instrument.

A) order
B) time
C) demand
D) indorsed

Question 20

A(n)________ is a type of instrument that is payable to anyone in physical possession of the instrument and presents it for payment when it is due.

A) certificate of deposit
B) order instrument
C) bearer instrument
D) check

Question 21

A ________ is a distinct form of draft drawn on a financial institution and payable on demand.

A) promissory note
B) check
C) deed
D) letter of credit

Question 22

A special form of note created when a person deposits money at a financial institution in exchange for the institution's promise to pay back the amount of the deposit plus an agreed-upon rate of interest upon the expiration of a set time period agreed upon by the parties is known as a ________.

A) collateral note
B) check
C) certificate of deposit
D) bill of exchange

Question 23

Which of the following is true about a promissory note?

A) It is always a three-party transaction.
B) It is a promise to pay.
C) The party who makes the promise is the lender.
D) The payee cannot transfer the note to a third party.

Question 24

Which of the following is true about a draft?

A) It is always a two-party transaction.
B) It is an unconditional written promise to pay.
C) It is a note created after payment of money.
D) It is payable on demand.

Question 25

Which of the following can be claimed by merely having possession of the instrument?

A) a certificate of deposit
B) an allonge
C) an order instrument
D) a bearer instrument

Question 26

An instrument that is not payable to a specific payee or indorsee is known as a(n)________.

A) order paper
B) bearer paper
C) allonge
D) draft

Question 27

Roger,a certified lawyer,borrows money from Jax to start a business.He executes a promissory note stating that he will repay the money within the next five years if he inherits any money from his parents.Which of the following is true of the negotiability of the promissory note executed by Roger?

A) It is negotiable for the next five years.
B) It is invalid.
C) It is a nonnegotiable instrument.
D) It is a negotiable instrument if Jax accepts it.

Question 28

Which of the following is true of a certificate of deposit?

A) It is a promise to pay.
B) It is used to extend credit to a buyer.
C) It is a three-party instrument.
D) It is a savings account passbook.

Question 29

A ________ is an example of an order to pay.

A) lease
B) certificate of deposit
C) promissory note
D) check

Question 30

Who is the drawee of a check?

A) The drawer of the check is also its drawee.
B) The financial institution where the drawer has an account.
C) The party to whom a check is written and who has a checking account with the same financial institution as the drawer.
D) The party who signs the check.

Question 31

Deborah executes an unconditional written agreement to pay $5,000 to Bill on or before February 15,2015.In this scenario,Deborah has drawn a ________.

A) promissory note
B) draft
C) check
D) money order

Question 32

Which of the following is true of a promissory note?

A) It is an evidence of repayment of debt.
B) It is a note denying the credit.
C) It is an evidence of extension of credit.
D) It is a note of acknowledgement of debt.

Question 33

A(n)________ is an instrument that is payable to a specific payee or indorsed to a specific indorsee.

A) bearer bond
B) bearer paper
C) allonge
D) order paper

Question 34

In order to be negotiable,a promissory note must contain an unconditional ________.

A) acknowledgement of debt with or without a promise to pay
B) order to a drawee to pay a payee
C) written promise to pay
D) acknowledgement of debt with a conditional promise to pay

Question 35

A ________ is a two-party negotiable instrument that is an unconditional written pledge by one party to pay money to another party.

A) bill of exchange
B) check
C) certificate of deposit
D) promissory note

Question 36

A(n)________ is necessary for a bearer paper to be negotiable.

A) acceleration clause
B) indorsement
C) delivery
D) specific payee or indorsee

Question 37

Which of the following is a distinct characteristic of a check?

A) It always draws its money from a financial institute.
B) It is created when credit is extended to a buyer by a seller.
C) It is a two-party instrument.
D) It is an unconditional written promise to pay.

Question 38

A ________ is an example of a promise to pay.

A) lease
B) certificate of deposit
C) draft
D) check

Question 39

A security that is posted for the repayment of a promissory note is known as a(n)________.

A) collateral
B) mortgage
C) deposit
D) installment

Question 40

The transfer of a negotiable instrument by a person other than the issuer is known as ________.

A) negotiation
B) assignment
C) indorsement
D) insurance

Question 41

A(n)________ is negotiated by delivery,with the necessary indorsement.

A) bearer paper
B) order paper
C) promissory note
D) check

Question 42

Which of the following is true of a special indorsement?

A) It is only considered valid if it includes words of negotiation.
B) It requires the signature of an indorser to be valid.
C) It can be negotiated by delivery.
D) It is considered a bearer instrument.

Question 43

A separate piece of paper in which an indorsement is written when there is no room in an instrument is known as a(n)________.

A) bill of exchange
B) allonge
C) supplement
D) appendage

Question 44

The holder of an instrument wants the instrument to be paid to a specific person,ensure that the amount mentioned on the instrument is deposited in that person's account.The holder does not want to be liable to that person in the event that the instrument is not paid.In this scenario,the holder should most likely execute a ________.

A) blank, qualified, restrictive indorsement
B) special, qualified, restrictive indorsement
C) special, qualified, unrestrictive indorsement
D) blank, qualified, unrestrictive indorsement

Question 45

Martha is about to indorse an instrument for transfer.However,she finds that there is not enough room on the instrument for her to indorse.In this situation,Martha should use a(n)________ for the indorsement.

A) addendum
B) exhibit
C) allonge
D) codicil

Question 46

Which of the following is an example of an order paper?

A) a check indorsed "pay to Josh"
B) a check payable to the order of Josh and indorsed in blank
C) a note payable to Josh and indorsed in blank
D) a note payable to bearer

Question 47

Which of the following is a similarity between a bearer paper and an order paper?

A) both require a specific payee to be named
B) both require indorsements to be considered negotiable
C) both require delivery to be considered negotiable
D) both can be claimed by whoever presents the instrument for payment

Question 48

________ is a legitimate method to convert an order paper to a bearer paper.

A) Indorsing
B) Adding the term "pay to the order of"
C) Delivering the order paper
D) Specifying a payee

Question 49

A(n)________ is a signature and other directions written by or on behalf of the holder somewhere on an instrument.

A) recommendation
B) assignment
C) indorsement
D) reference

Question 50

A(n)________ is required to negotiate order paper,but not to negotiate bearer paper.

A) security
B) collateral
C) indorsement
D) warranty

Question 51

A ________ indorsement disclaims or limits liability on an indorsement.

A) blank
B) restrictive
C) special
D) qualified

Question 52

Which of the following is true of an unqualified indorsement?

A) The order and liability of the indorsers is presumed to be the order in which they indorse the instrument, unless otherwise agreed.
B) The first indorser is presumed to be liable for the full amount in the instrument, unless otherwise specifically agreed.
C) It guarantees payment of the instrument if the maker defaults.
D) It protects subsequent indorsees from liability.

Question 53

When an indorser includes some specific instruction in an indorsement,it is known as a(n)________ indorsement.

A) blank
B) institutional
C) restrictive
D) qualified

Question 54

When an indorser indorses an instrument in blank,it changes a(n)________.

A) order instrument into a bearer instrument
B) bearer instrument into an order instrument
C) negotiable instrument into a nonnegotiable instrument
D) valid instrument into an invalid instrument

Question 55

A(n)________ makes negotiable instruments transferable to a third party.

A) insurance
B) indorsement
C) accommodation
D) trade acceptance

Question 56

An indorsement that does not specify a particular indorsee is known as a ________.

A) blank indorsement
B) special indorsement
C) qualified indorsement
D) restrictive indorsement

Question 57

An indorsement that contains the signature of an indorser and specifies a person to whom the indorser intends the instrument to be payable is known as a(n)________.

A) qualified indorsement
B) unqualified indorsement
C) blank indorsement
D) special indorsement

Question 58

Which of the following is true when an indorsee's name is misspelled in a negotiable instrument?

A) The instrument can be indorsed.
B) The instrument becomes invalid.
C) The instrument cannot be indorsed and must be executed again.
D) The instrument becomes nonnegotiable.

Question 59

Which of the following is true about an allonge?

A) It must contain the name of a payee to be valid.
B) It must be accepted by the payee to be valid.
C) It must be affixed to the indorsement.
D) It must be provided only on demand.

Question 60

A promise by an indorser to pay the holder or any subsequent indorser the amount of the instrument if the maker,drawer,or acceptor defaults on it is known as a(n)________ indorsement.

A) competent
B) promissory
C) unqualified
D) qualified

Question 61

An unconditional promise to pay a definite amount makes an instrument nonnegotiable.

Question 62

The party to whom a check is written is the payee of the check.

Question 63

The maker or drawer of an instrument is considered liable even if there is no signature on the instrument.

Question 64

To be negotiable,an instrument must contain a promise or an order to pay a fixed amount of money.

Question 65

The portability requirement is intended to ensure free transfer of an instrument.

Question 66

One of the benefits of a negotiable instrument is that it can be used as a substitute for the assets owned by the drawer of the instrument.

Question 67

A customer who has a checking account at a financial institution,and writes a check,is the drawee of the check.

Question 68

The permanency requirement of negotiable instruments says that they must be written or printed on ordinary paper.

Question 69

The drawee is also called the acceptor of the draft.

Question 70

A promise to pay engraved on a rock fulfills the permanency requirement of negotiable instruments and is considered as a valid instrument.

Question 71

An instrument that contains an unconditional order to pay is considered as a negotiable instrument.

Question 72

A negotiable instrument is subject to normal contract law.

Question 73

The UCC requires that negotiable instruments be either payable to order or payable to bearer.

Question 74

A check is a promise to pay.

Question 75

A promissory note is an unconditional written promise by one party to pay money to another party.

Question 76

A check is drawn on a financial institution and is payable on demand.

Question 77

Transfer to subsequent parties by negotiation is accomplished by placing an indorsement on the instrument.

Question 78

Agreements in the form of tape recordings and video recordings are considered negotiable instruments.

Question 79

A draft is a two-party instrument that is a conditional written order by one party to pay money to the other party.

Question 80

Typewritten,handwritten,or other tangible agreements fulfill the writing requirement of a negotiable instrument.