Deck 23: The Essentials of Negotiability

Question 1

A personal check cannot be a negotiable instrument.

Answer 1

False

Question 2

To be negotiable,an instrument must be payable in a certain amount.

Answer 2

True

Question 3

A check is a draft drawn by a drawer ordering the drawee bank or financial institution to pay a certain amount of money to the holder on demand.

Answer 3

True

Question 4

An instrument does not need to be portable to be negotiable.

Question 5

Stating on an instrument the underlying terms of an agreement renders the instrument nonnego?tiable.

Question 6

Rubber stamp signatures can be legally binding signatures.

Question 7

For a certificate of deposit to be negotiable,it must be signed by the maker.

Question 8

An instrument that states simply "I.O.U." is NOT negotiable.

Question 9

The transfer of a negotiable instrument from one person to another is governed by Article 2 of the Uniform Commercial Code.

Question 10

A demand instrument is payable immediately after it is issued.

Question 11

On a trade acceptance,the drawer is also the payee.

Question 12

A certificate of deposit is a type of promissory note.

Question 13

A time draft is payable on sight.

Question 14

A conditional promise to pay is a negotiable instrument.

Question 15

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

Question 16

A signature must be the full name of a party.

Question 17

A promissory note can be a negotiable instrument.

Question 18

For an instrument to be negotiable,it must be in writing.

Question 19

The writing evidencing a negotiable instrument must be on material that lends itself to permanence.

Question 20

On a promissory note,the party that promises to pay is the maker of the note.

Question 21

A check is not negotiable if it is payable on demand or at a definite time.

Question 22

Once a negotiable instrument is issued,it can be transferred by assignment.

Question 23

Instruments that say nothing about when payment is due are payable on demand.

Question 24

A special indorsement names the indorsee.

Question 25

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

Question 26

With an interest-bearing instrument,it is necessary to know the exact interval during which the interest will accrue.

Question 27

Jared writes Lisa a check for $500.Because the check does not specify a time of payment,it is considered a

A)certificate of deposit.
B)demand instrument.
C)nonnegotiable instrument.
D)promissory note.

Question 28

A transfer by negotiation can make it possible for a holder to receive more rights in the instrument than its prior possessor had.

Question 29

An instrument "payable to bearer" is negotiated by delivery.

Question 30

A bearer instrument is an instrument that does not designate a specific payee.

Question 31

An instrument payable "with ten hours of services" is negotiable.

Question 32

The recipient of a negotiable instrument becomes a holder regardless of the form of the transfer.

Question 33

InterComp normally sells $50,000 worth of software to Power Source,a retail elec?tronics store,each summer on terms requiring payment in sixty days. One year,InterComp wants cash,but Power Source wants the usual sixty days. To meet both needs,the parties can arrange

A)a certificate of deposit.
B)a bearer bond.
C)a trade acceptance.
D)an international letter of credit.

Question 34

An instrument payable "with interest" must specify a particular rate to be negotiable.

Question 35

Sarah has a checking account at Secure Bank.Sarah buys her roommate Sophie's two tickets to a Broadway musical for $200.Sarah writes Sophie a check for the tickets.In this situation,Secure Bank is the

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

Question 36

A maker of an instrument that is payable at a definite time may NOT pay early.

Question 37

To obtain office supplies for All-Care Medical Clinic,Britney executes a draft in favor of Chris.A draft is

A)a conditional promise to pay money.
B)an unconditional written order to pay money.
C)a qualified promise to set aside a sum of money.
D)a restricted promise to deliver goods at a future date.

Question 38

An instrument "payable to bearer" is transferable but not negotiable.

Question 39

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

Question 40

To obtain a business license,Bess writes a check to a certain state agency.Bess is

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

Question 41

Ewa signs an instrument unconditionally promising to pay to "First State Bank" $5,000 with interest in installments with the final payment due June 1,2014.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 42

Opal 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 a promissory note.
D)nonnegotiable,because it is payable only with interest.

Question 43

If a bank is both the drawer and the drawee with regard to a draft,then the draft is a

A)certificate of deposit.
B)cashier's check.
C)nonnegotiable instrument.
D)promissory note.

Question 44

Gail owes $5,000 in unpaid taxes.Using the back of an old t-shirt,she exe?cutes an instrument for $5,000 that otherwise meets the re?quire?ments for negotiability.This instrument is 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 45

EZ Credit Company signs an instrument payable to the order of Flem that states,"The maker of this note at the date of maturity,May 1,2015,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 46

A negotiable instrument

A)need not be in writing.
B)must be fair to all parties.
C)must state a fixed amount of money.
D)need not be signed by the maker or drawer.

Question 47

On April 1 Richard arranges to buy a sixteen-speed bike from his neighbor Phil for $500.Phil agrees to deliver the bike on May 1.Richard writes a draft for $500 payable to Phil on May 1.In this situation,the draft is a

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

Question 48

To finance the purchase of a house from Tuna,Uri signs an instrument promising to pay to "Verity Mortgage Service" $160,000 with interest in installments with the final payment due July 10,2040.To be negotiable,this instrument must include the signature of

A)a non-party witness.
B)Tuna or Tuna's realtor.
C)Uri.
D)Verity's chief financial officer.

Question 49

To borrow money to finance the start-up of his business,Bob 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 50

Kris wants one of Jasmine's purebred Persian kittens.Kris signs an instrument in which she promises to pay Jasmine for a kitten.The instrument will be negotiable if it is payable in

A)goods of equal market value.
B)money.
C)government bonds.
D)shares in stock.

Question 51

Ralph signs an instrument promising to pay a total of $10,000 to Martha in $1,000 monthly installments with the final payment being made on August 1.Ralph unexpectedly inherits $10,000 from his aunt on May 15.Ralph may

A)not complete his $10,000 payment before August 1.
B)complete his $10,000 payment before August 1.
C)increase his monthly payments by five percent,but not more.
D)increase his monthly payments by ten percent,but not more.

Question 52

USA Gasoline Corporation signs an instrument that states it is being exe?cuted "in accord with a contract for the sale 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 sale are not clear.

Question 53

Ron signs an instrument using an "R" with a circle around it.With this mark for a signature,the instrument is

A)negotiable.
B)nonnegotiable,because an initial does not state the signer's name.
C)nonnegotiable,because an initial is not a signature.
D)nonnegotiable,because a simple initial implies a lack of binding intent.

Question 54

Willy deposits $5,000 with Home State Bank on July 1,2012.Home State Bank promises to repay Willy the $5,000 plus 3 percent annual interest on July 1,2017.Home State Bank has issued Willy a

A)certificate of deposit.
B)cashier's check.
C)nonnegotiable instrument.
D)mortgage note.

Question 55

Alpha Company issues a trade acceptance with itself and Beta Company as parties. A trade acceptance is

A)a draft.
B)an order to accept delivery of money.
C)a promise to accept delivery of goods.
D)a promise to deliver goods.

Question 56

Kelly signs an instrument in favor of Leo that states it is "subject to a cer?tain agreement between Kelly and Mona." This instru?ment is

A)negotiable.
B)nonnegotiable,because it is made subject to a separate agreement.
C)nonnegotiable,because it refers to a separate agreement.
D)nonnegotiable,because Kelly and Mona are not the same persons.

Question 57

Karen writes on a piece of paper,"I owe you $600," signs it,and gives it to Lou.This instrument is

A)negotiable.
B)nonnegotiable,because it does not include an express promise to pay.
C)nonnegotiable,because it does not recite any consideration.
D)nonnegotiable,because it does not state any conditions to payment.

Question 58

Mary is buying a house.She issues a promissory note for the unpaid balance on the house that is secured by a mortgage on the house.The promissory note is called a(n)

A)certificate of deposit.
B)cashier's check.
C)installment note.
D)mortgage note.

Question 59

Maria signs an instrument payable to the order of National Loans,Inc.,"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 60

Quincy draws a check payable to "Replay Stadium" to buy two season tickets to the next year's State College football games.This instrument is

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

Question 61

To buy a stuffed cow,Ken executes a check "pay to Laura or bearer" and gives it to Laura,who does not own a stuffed cow. This check is

A)negotiable.
B)nonnegotiable,because it does not indicate a specific payee.
C)nonnegotiable,because it may be a joke.
D)nonnegotiable,because Laura does not own a stuffed cow.

Question 62

Petra signs a check payable to Quincy,who in?dorses the back,gives it to Regional Credit Union,and receives cash.The transfer of the check from Quincy to the credit union is

A)an assignment.
B)a negotiation.
C)a payment.
D)a sale.

Question 63

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?

Question 64

Vladimir negotiates a bearer instrument to Wendy by

A)assignment.
B)delivery.
C)presenting it in response to a demand by Wendy.
D)promising to pay.

Question 65

On the back of a check payable to Nero,he writes "Pay to Odell,without recourse" and signs it.This

A)does not effect the check's negotiability or any party's liability.
B)relieves Nero of liability on the check.
C)relieves Odell of liability on the check.
D)renders the check nonnegotiable.

Question 66

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

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

Question 67

Todd indorses a check,"Pay to Interstate Trucking if they deliver the lumber by May 1,2016." This is

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

Question 68

Fred has six nieces,ages five to sixteen.He writes an order instrument for $50 that states "Pay to the order of my niece." The order instrument is

A)negotiable.
B)nonnegotiable,because the amount of money is less than $500.
C)nonnegotiable,because it is illegal to write an order instrument payable to a relative.
D)nonnegotiable,because there is no specific person identified.

Question 69

Efron transfers an instrument to First Citizens Bank.This is not a negotiation unless

A)the parties bargained over the amount paid for the instrument.
B)the transfer is an assignment.
C)the instrument is a negotiable instrument.
D)the transfer includes rights under a contract.

Question 70

Ollie negotiates an order instrument to Phil by

A)assignment of its rights under a contract.
B)delivery with any necessary indorsement.
C)making an unconditional promise to pay.
D)presenting it in response to a demand by B.

Question 71

On a sheet of paper,Elle writes,without her signature,"I acknowledge that I owe Frank $600,payable out of the proceeds of the sale of my car,a 1995 Honda Civic,which I promise to advertise 'For Sale' next week.Payment is to be made on or before six months from today." What type of instrument is this? Is it nego?tiable? If not,why not?

Question 72

To pay for a previous order of apples,oranges and pears,Bella signs a check that is payable to 'Sweet Fruit Co.or order.' This check is

A)negotiable.
B)nonnegotiable,because it is not payable to a specific person.
C)nonnegotiable,because it is not payable 'to the order of Sweet Fruit Co.'.
D)nonnegotiable,because it is issued to pay for a previous order.