Deck 17: Negotiable Instruments: Negotiability and Transferability

Question 1

The Uniform Commercial Code defines a negotiable instrument as a written document that is signed by the maker or drawer with an unconditional promise or order to pay a sum certain in money on demand or at a time certain to bearer or to order.

Answer 1

True
Explanation: The Uniform Commercial Code requires that for an instrument to be negotiable,the instrument must satisfy the six requirements in the following definition: A negotiable instrument is a written document that is signed by the maker or drawer with an unconditional promise or order to pay a sum certain in money on demand or at a time certain to bearer or to order.

Question 2

Instruments payable to "cash" are considered bearer instruments.

Answer 2

True
Explanation: Instruments payable to no one,to "X," or to "cash" are considered bearer instruments.

Question 3

If an instrument is silent as to the time of payment,the Uniform Commercial Code presumes that it is a demand instrument.

Answer 3

True
Explanation: If an instrument is silent as to the time of payment,the Uniform Commercial Code presumes that it is a demand instrument; thus,it retains its negotiable status.

Question 4

With a demand instrument,payment can be made only at a specific time designated in the future.

Question 5

In order to satisfy the negotiable instrument writing requirement of the Uniform Commercial Code,a written document must have two characteristics: relative permanence and movability.

Question 6

A draft is an order by a drawer to a drawee to pay a payee.

Question 7

An ordinary IOU satisfies the "unconditional promise or order to pay" requirement for a negotiable instrument.

Question 8

The person creating the endorsement is the delegator,and the person receiving the endorsement is the delegatee.

Question 9

The law recognizes an oral negotiable instrument if the facts demonstrate the intent of the maker or drawer to create a negotiable instrument through words alone.

Question 10

An order instrument is payable to a specific,named payee.

Question 11

The Uniform Commercial Code requires an "instrument payable at a definite time" to have a time easily determined from the document itself.

Question 12

Negotiation is the transfer of possession to a third party,who becomes the holder of the negotiable instrument.

Question 13

An automated signature satisfies the Uniform Commercial Code signature requirement for negotiable instruments.

Question 14

Order paper must be endorsed as well as delivered to be negotiated.

Question 15

A note is a promise by the maker of the note to pay a drawee.

Question 16

A negotiable instrument is not a substitute for cash.

Question 17

A negotiable instrument may be oral if the parties agree.

Question 18

Uniform Commercial Code Article 3 labels commercial paper as negotiable instruments.

Question 19

A promise to pay in shares of stock satisfies the "sum certain" requirement for a negotiable instrument.

Question 20

If an instrument fails to qualify as a negotiable instrument,it means that the instrument fails to be an enforceable contract.

Question 21

In a sales contract,how can the buyer make payment?

A)Cash and negotiable instruments
B)Credit arrangements and negotiable instruments
C)Cash and credit arrangements
D)Negotiable instruments and cash
E)Cash,credit arrangements,and negotiable instruments

Question 22

When a depositary bank receives a check,it must present the check at the payor bank and cannot send it through intermediary banks to reach the payor bank.

Question 23

A written document containing the signature of the creator that makes an unconditional promise or order to pay a sum certain in money at either a time certain or on demand is called a ________.

A)negated instrument
B)promised instrument
C)negotiable instrument
D)promissory agreement
E)negotiable agreement

Question 24

An instrument "payable on demand" is one that ________.

A)states that it is payable on demand or at sight,or otherwise indicates that it is payable at the will of the holder
B)does not state any time of payment
C)is payable within ten days after presentment
D)states that it is payable on demand or at sight,or otherwise indicates that it is payable at the will of the holder; or does not state any time of payment
E)states that it is payable on demand or at sight,or otherwise indicates that it is payable at the will of the holder; does not state any time of payment; or is payable within ten days after presentment

Question 25

Which of the following is an incorrect statement regarding the requirements for an instrument to be negotiable?

A)The instrument must be a written document.
B)The instrument must be payable at a fixed future time,not on demand.
C)The instrument must have an unconditional promise or order to pay.
D)The amount to be paid in the instrument must be a sum certain in money.
E)The document must contain either the words of negotiability-"to the order of"-or words indicating that it is a bearer instrument.

Question 26

Check 21 allows banks to forgo sending original checks as part of the collection or return process and instead send a truncated version.

Question 27

A customer issues a stop-payment order when she has issued a check that has not yet been accepted and she wants the check to be accepted.

Question 28

An order by a drawer to a drawee to pay a payee is known as a ________.

A)note
B)draft
C)novation
D)check
E)certificate of deposit

Question 29

With a(n)________ instrument,payment can be made only at a specific time designated in the future.

A)time
B)demand
C)recourse
D)non-recourse
E)immediate

Question 30

According to the Uniform Commercial Code,money orders are considered promissory notes.

Question 31

The Uniform Commercial Code prohibits bank customers from postdating checks.

Question 32

Which of the following is a substitute for cash?

A)A negated instrument
B)A promised instrument
C)A negotiable instrument
D)A promissory agreement
E)A negotiable oral promise

Question 33

The Uniform Commercial Code requires a bank to certify a check if the customer has sufficient funds in his or her account.

Question 34

A promise made by a bank to pay a payee a certain amount of money at a future time is called a ________.

A)note
B)draft
C)novation
D)check
E)certificate of deposit

Question 35

An accord is an additional piece of paper with endorsements that is firmly attached to the negotiable instrument.

Question 36

Which of the following are examples of negotiable instruments?

A)Checks and oral agreements
B)Drafts and stocks
C)Notes and oral agreements
D)Checks,drafts,and notes
E)Checks and drafts,but not notes

Question 37

According to the Uniform Commercial Code,a check is a special kind of note.

Question 38

In the check collection process,the depositary bank cannot also be the payor bank.

Question 39

With a(n)________ instrument,the payee or subsequent holder can demand actual payment at any time.

A)time
B)demand
C)recourse
D)non-recourse
E)immediate

Question 40

A certificate of deposit is a ________ of the bank.

A)note
B)draft
C)novation
D)check
E)promissory contract

Question 41

Which of the following satisfies the currency requirement for negotiability in the United States?

A)U)S.dollars only
B)U)S.dollars or English pounds
C)U)S.dollars,English pounds,or euros
D)U)S.dollars,English pounds,euros,or Japanese yen
E)U)S.dollars,English pounds,euros,Japanese yen,or gold

Question 42

Which of the following was the result on appeal in Fernando Tatis v.U.S.Bancorp,the case in the textbook in which the plaintiff,a major-league baseball player,asked that the defending bank hold his bank statements and failed to notify the bank within thirty days of forgeries by one of his employees?

A)By agreeing to hold the bank statements,the bank implicitly agreed to waive any timely notice of forgeries.
B)Regardless of when notice was received,the plaintiff-depositor was entitled to the return of funds released based on forgeries.
C)Pursuant to the principle of comparative negligence,the plaintiff-depositor and the bank would be required to split losses on an equal basis because they were both at fault.
D)The plaintiff-depositor could not recover for forgeries made and not reported for more than thirty days after the bank statements were made available.
E)The plaintiff-depositor could not recover because the forgeries were not reported within thirty days of when the bank statements were made available,and by not timely reporting the first forgery,the plaintiff-depositor lost all rights to recover funds lost because of forgeries by the same forger.

Question 43

Which of the following was the result on appeal in New Wave Technologies Inc.v.Legacy Bank of Texas,the case in the textbook involving whether endorsements of both payees were required in order for the bank involved to properly release funds on a check made out to "Maxim Solutions Group/New Wave Technologies" and providing on the back that "Each Payee Must Endorse Exactly As Drawn"?

A)Under the Uniform Commercial Code,the slash meant "and," resulting in the endorsements of both payees being required before the bank could properly release funds on the check.
B)The slash was ambiguous and would therefore be interpreted to mean "and," resulting in the endorsements of both payees being required before the bank could properly release funds on the check.
C)The slash was ambiguous and would therefore be interpreted to mean "or," resulting in the endorsement of only one payee being required before the bank could properly release funds on the check.
D)The slash was ambiguous,resulting in the check being non-negotiable regardless of how many signatures were on it.
E)While the check would normally be interpreted to require only one payee,the statement on the back that "Each Payee Must Endorse Exactly As Drawn" resulted in the signature of both payees being required before the bank could properly release funds.

Question 44

Which of the following is an incorrect statement regarding the Uniform Commercial Code's signature requirement for a negotiable instrument?

A)An "X" will suffice if the party intended that the mark be placed on the instrument and uses that mark to identify himself.
B)A signature may be made by means of a device or machine.
C)A signature may be made manually.
D)The signature of an agent on behalf of the principal binds the principal and satisfies the signature requirement.
E)The Uniform Commercial Code is fairly strict in interpreting what constitutes a signature.

Question 45

For an instrument to be negotiable,the instrument must indicate that it was created for the purpose of being ________.

A)transferred
B)paid
C)withdrawn
D)deposited
E)retained

Question 46

Which of the following is true regarding whether an agent's signature may satisfy the signature requirement for negotiability?

A)An agent's signature on behalf of his or her principal binds the principal and satisfies the signature requirement for negotiability.
B)An agent's signature on behalf of his or her principal cannot bind the principal and does not satisfy the signature requirement for negotiability.
C)An agent's signature on behalf of his or her principal binds the principal and satisfies the signature requirement for negotiability,but only if specific written authorization from the principal allowing the agent to act on the subject transaction is attached to the document.
D)An agent's signature on behalf of his or her principal binds the principal and satisfies the signature requirement for negotiability,but only if the instrument is for an amount over $1,000.
E)An agent's signature on behalf of his or her principal binds the principal and satisfies the signature requirement for negotiability,but only if the instrument is for an amount of $1,000 or less.

Question 47

A party who possesses a negotiable instrument payable to that party or to the bearer of the instrument is a ________ of the instrument.

A)holder
B)assignee
C)delegatee
D)drawee
E)bailee

Question 48

Checks are payable ________.

A)three business days after they are issued
B)three calendar days after they are issued
C)forty-eight hours after they are issued
D)as soon as they are issued
E)at a definite time

Question 49

Which of the following types of commercial paper requires only a delivery of the instrument to the holder by the payee?

A)A bearer instrument
B)An unqualified instrument
C)An order instrument
D)An unconditional instrument
E)A certified instrument

Question 50

A ________ is a specific draft,drawn by the owner of a checking account,ordering the bank to pay the payee from that drawer's account.

A)promissory contract
B)certificate of deposit
C)note
D)check
E)time instrument

Question 51

In order for an instrument to be negotiable,the promise or order to pay must be ________ and not ________.

A)general; expressed
B)specific; implied
C)general; implied
D)specific; expressed
E)equivocal; affirmative

Question 52

Which of the following is a draft with respect to which the drawer and drawee are the same bank or branches of the same bank?

A)Cashier's check
B)Traveler's check
C)Certified check
D)A cashier's check,a traveler's check,or a certified check
E)A cashier's check or a traveler's check,but not a certified check

Question 53

Which of the following was the result on appeal in The Twin City Bank v.Kenneth Isaacs,the case in the textbook in which the bank appealed a judgment against it for significant damages after the bank wrongfully held funds of depositors who had been the victim of check forgery?

A)The bank could not be held liable for damages because it was recouping its own losses.
B)The bank could not be held liable under the common law because of its contractual agreement with the depositors,and the Uniform Commercial Code was inapplicable to the facts of the case.
C)The bank could be held liable,but only up to $1,000.
D)The bank could be held liable for actual damages,but not for mental anguish.
E)The bank could be held liable for financial losses and mental anguish.

Question 54

________ is the transfer of possession of a negotiable instrument to a third party who becomes a holder of the negotiable instrument.

A)Certification
B)Negotiation
C)Acknowledgement
D)Referral
E)Consignment

Question 55

If an instrument is silent as to the time of payment,the Uniform Commercial Code presumes that it is a ________ instrument.

A)demand
B)time
C)void
D)voidable
E)non-negotiable

Question 56

If a negotiable instrument is payable to whomever possesses it,then it is a(n)________ instrument.

A)demand
B)order
C)conditional
D)bearer
E)unqualified

Question 57

The quality of a negotiable instrument that ensures it is mobile and available is called ________.

A)relative permanence
B)movability
C)alteration
D)conditional allotment
E)negotiation

Question 58

The quality of a negotiable instrument that ensures its longevity is known as ________.

A)movability
B)conditional allotment
C)relative permanence
D)negotiation
E)unconditional surrender

Question 59

What characteristics must a written document have in order to satisfy the requirement that a negotiable instrument be in writing?

A)A signature by both parties and an allonge
B)An allonge and movability
C)Relative permanence and a signature by both parties
D)Movability and a signature by both parties
E)Relative permanence and movability

Question 60

When a specific payee is named in an instrument,this is known as a(n)________ instrument.

A)demand
B)order
C)conditional
D)bearer
E)qualified

Question 61

An instrument that reads "Pay to the order of Jones or Green" is payable to ________ payees.

A)joint
B)concurrent
C)consecutive
D)alternative
E)mutually exclusive

Question 62

A(n)________ check is a check that is accepted at the bank at which it is drawn.

A)cashier's
B)certified
C)qualified
D)unqualified
E)third-party

Question 63

Which of the following is the payee's or last endorsee's signature and nothing else?

A)A special endorsement
B)An allonge
C)A blank endorsement
D)A qualified endorsement
E)A restricted endorsement

Question 64

According to the Uniform Commercial Code,which of the following are considered banks?

A)Savings and loans
B)Credit unions
C)Trust companies
D)Savings and loans,trust companies,and credit unions
E)Savings and loans and credit unions,but not trust companies

Question 65

In the event of a misspelled name,how may the holder endorse the document?

A)Only with the misspelled name.
B)Only with the holder's actual name.
C)With the holder's actual name or the misspelled name,or both.
D)With the holder's actual name or the misspelled name,but not both.
E)With the misspelled name and a written statement attached to the document indicating to any later holder what the correct spelling should have been.

Question 66

A(n)________ is a person receiving an endorsement.

A)bailor
B)transferor
C)transferee
D)endorser
E)endorsee

Question 67

Which of the following is a check for which both the drawer and the drawee are the same bank,and the payee of the check is a specific person?

A)Certified
B)Unqualified
C)Qualified
D)Cashier's
E)Third-party

Question 68

The party giving the order to pay on a draft is the ________.

A)drawer
B)drawee
C)payee
D)assignor
E)assignee

Question 69

Instruments bearing joint payees require the endorsement of ________ before the instrument may be negotiated.

A)any one of the listed payees
B)a majority of the listed payees
C)the most senior (i.e.,the oldest)payee
D)all listed payees
E)the drawee bank

Question 70

An instrument that reads "Pay to the order of Jones and Green" establishes ________ payees.

A)joint
B)concurrent
C)consecutive
D)alternative
E)alternate

Question 71

When you write a check at the grocery store,you are the ________,your bank is the ________,and the grocery store is the ________.

A)payee; drawer; drawee
B)drawee; drawer; payee
C)drawer; drawee; payee
D)payee; drawee; drawer
E)drawee; payee; drawer

Question 72

Which of the following are types of unqualified endorsements?

A)Blank and special
B)Conditional and special
C)Restrictive and blank
D)Qualified and blank
E)Qualified and special

Question 73

The party ordered to pay on a draft is the ________.

A)drawer
B)drawee
C)payee
D)assignor
E)assignee

Question 74

If there is no room on an instrument for an endorsement,or if all the room has been taken by previous endorsements,a(n)________ may be attached.

A)acknowledgement
B)blank endorsement
C)special endorsement
D)allonge
E)accord

Question 75

What is the effect of a blank endorsement?

A)It turns previous order paper into bearer paper.
B)It turns previous bearer paper into order paper.
C)It turns a blank endorsement into a special endorsement.
D)It turns an allonge into an endorsement.
E)It turns an endorsement into an allonge.

Question 76

A person who creates an endorsement is called a(n)________.

A)assignor
B)transferor
C)transferee
D)endorser
E)endorsee

Question 77

The party receiving the money from the draft is the ________.

A)drawer
B)drawee
C)payee
D)assignor
E)assignee

Question 78

In the United States,of all the negotiable instruments regulated by the Uniform Commercial Code,which are the most common type used?

A)Money orders
B)Certificates of deposit
C)Notes
D)Demand instruments
E)Checks

Question 79

Who may endorse an instrument made payable to a legal entity such as a partnership?

A)The president
B)The chief executive officer
C)The chief financial officer
D)The treasurer
E)Any authorized representative

Question 80

Which of the following types of paper requires delivery and an endorsement by the holder?

A)A bearer instrument
B)A qualified instrument
C)An order instrument
D)A conditional instrument
E)A certified instrument