Deck 28: Kinds of Instruments, Parties, and Negotiability

Question 1

The payee has no rights in an instrument until the drawer or the maker has delivered it to the payee.

Answer 1

True

Question 2

When the drawee of a draft has indicated by writing or record a willingness to pay the amount specified in the draft, the drawee has accepted liability and is called the acceptor.

Answer 2

True

Question 3

When a drawee has signified in writing on a draft the willingness to make a specified payment, the drawee is called the acceptor.

Answer 3

True

Question 4

Instruments are always negotiable.

Question 5

The maker is the person who writes out and creates a promissory note.

Question 6

Both drafts and promissory notes may have the quality of negotiability.

Question 7

Once a draft is delivered to the payee, the drawee becomes liable.

Question 8

Negotiability is the characteristic that distinguishes commercial paper and instruments from ordinary contracts.

Question 9

A drawee on a draft has no responsibility under the draft until it has accepted that instrument.

Question 10

The drawee on a check is a bank.

Question 11

The person on whom the order to pay a draft is made is called a drawer.

Question 12

Revised UCC Article 3 refers to drawers, indorsers, and accommodation parties as "secondary obligors."

Question 13

A negotiable instrument may be partly printed and partly typewritten.

Question 14

Negotiation of commercial paper results in lesser rights to transferees than those rights afforded assignees of contracts under contract law.

Question 15

A payee is not liable on an instrument until the payee transfers the instrument to someone else.

Question 16

Instruments are transferable, written, signed promises or orders to pay a specified sum of money.

Question 17

If an instrument is negotiable, it is governed by Article 2 of the UCC.

Question 18

Instruments are negotiable when they contain the terms required by contract law.

Question 19

When a party who is not originally named in an instrument allows her name to be added to it for the benefit of another party in order to add strength to the collectability of the instrument, that party becomes a secondary obligor and assumes a liability role.

Question 20

If an instrument is nonnegotiable, the rights of the parties are governed by the general principles of contract law.

Question 21

If a check is made payable to Paolo, and Paolo signs on the back of the check, Paolo is:

A) the payee and the indorser.
B) the drawee and the indorser.
C) the payee and the endorsee.
D) only the indorser.

Question 22

A person who becomes a party to an instrument to add strength to the instrument for the benefit of another party to the instrument is called a:

A) benefactor.
B) secondary obligor.
C) collateral obligor.
D) contingent beneficiary.

Question 23

An unconditional written promise made by one person to another, signed by the maker, that promises to pay on demand a specific sum of money to the bearer is a:

A) negotiable draft.
B) bill of exchange.
C) promissory note.
D) certificate of deposit.

Question 24

The party who writes or creates a promissory note is called the:

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

Question 25

Omitting a date of execution affects an instrument's negotiability.

Question 26

A promissory note that is payable "on the date of my marriage" is nonnegotiable even if the maker of the note marries.

Question 27

The requirement of a sum certain in money is fulfilled even though the interest rate changes at maturity.

Question 28

If an order or promise is not for money, the instrument is not negotiable.

Question 29

The person to whom the order in a draft is addressed is known as the:

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

Question 30

Revised UCC Article 3 refers to which of the following parties as secondary obligors?

A) drawers
B) indorsers
C) accommodation parties
D) all of the above

Question 31

A payee has no rights in an instrument until:

A) the drawer or the maker has delivered the instrument to the payee.
B) an acceptor has been established.
C) an accommodation party has signed the instrument.
D) a guarantor has signed the instrument.

Question 32

If an instrument states no time for payment, the note is payable on demand.

Question 33

In a negotiable instrument, the promise or order to pay must be unconditional.

Question 34

Once an instrument is negotiable, it can be:

A) paid.
B) cancelled.
C) assigned.
D) transferred by negotiation.

Question 35

The parties to a negotiable promissory note are the:

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

Question 36

An authorized agent signing an instrument will not be liable on the instrument if the agent discloses on the paper either the identity of the principal or the fact that the agent has signed in a representative capacity.

Question 37

An instrument is order paper when by its terms it is payable to the order of any person described in it, or to a person or order.

Question 38

Antedating an instrument affects an instrument's negotiability.

Question 39

A(n) __________ instrument's terms are enforceable, but the instrument is treated simply as a contract governed by contract law.

A) nonnegotiable
B) negotiable
C) accommodation
D) secondary

Question 40

The signature on an instrument must appear at the lower right-hand corner of the face of the instrument.

Question 41

An instrument is conditional if:

A) it contains an order for the payment of money out of a particular fund.
B) it is to be paid from the assets of an existing trust.
C) it is to be paid from the assets of an existing estate.
D) none of the above.

Question 42

An instrument will be considered payable to order if:

A) it is payable to bearer or the order of bearer.
B) it is payable to cash.
C) the last or only indorsement is a blank indorsement.
D) none of the above

Question 43

Which of the following factors is irrelevant in determining whether an instrument is negotiable?

A) the fact that it is in writing
B) the fact that it is notarized
C) the fact that it is unconditional
D) the fact that it calls for payment of a definite sum of money

Question 44

Which of the following terms would make an instrument nonnegotiable?

A) It specifies collateral as security for a debt.
B) It is undated.
C) It is payable in foreign money.
D) It gives the holder the right to receive goods or money.

Question 45

George was the maker of a written promissory note that stated that $500 would be paid on the sale of George's automobile. George initialed the note instead of writing his full name. The promissory note stated that it would be payable six months from the date. The promissory note was not dated. You now have come into possession of this note. Is this note negotiable? Discuss the elements of negotiability and whether each one has been met.

Question 46

Which of the following factors do not affect negotiability of an instrument?

A) a provision specifying the collateral that secures the debt
B) the antedating of the instrument
C) the omission of a date of execution
D) none of the above affect negotiability

Question 47

To be negotiable, an instrument must:

A) be in writing.
B) be signed by the maker or the drawer.
C) contain a promise or order to pay.
D) all of the above.

Question 48

An endorsement that does not name the person to whom the paper is negotiated is called a(n):

A) incomplete endorsement.
B) empty endorsement.
C) unnamed endorsement.
D) blank endorsement.

Question 49

An instrument is payable at a definite time if it is payable:

A) on or before a stated date.
B) at a fixed period after a stated date.
C) at a fixed period after sight.
D) all of the above.

Question 50

The signature requirement, as an element of negotiability, can be met by:

A) the use of initials.
B) a mark.
C) a trade name.
D) all of the above.

Question 51

Conville signed a note as an officer of the Hughesville Manufacturing Corporation, but she did not name the corporation in the note or indicate that she was acting as an officer for it. Later, she was sued by the Grange National Bank, the holder of the note. She raised the defense that the corporation was liable on the note. Who was liable?

Question 52

Article 3 of the UCC establishes a __________-year statute of limitations for most actions involving negotiable instruments.

A) one
B) two
C) three
D) four