Question 1

Any instrument that orders the drawee to pay a certain sum of money is a draft.

Accepted Answer

This is because a draft is a written order by one party (the drawer) instructing another party (the drawee) to pay a certain amount of money to a third party (the payee) on a specific date.

Question 2

A trade acceptance is created when, as part of a deal to buy wheat from Moyo, Naruta signs a draft ordering the buyer to pay for the wheat within ninety days.

Accepted Answer

A trade acceptance is a draft or bill of exchange that has been accepted by the drawee (buyer) and has become a legally binding agreement to pay at a future date. In this scenario, Naruta signing a draft ordering the buyer to pay for the wheat within ninety days creates a trade acceptance.

Question 3

Mortgage notes tied to a variable rate of interest-fluctuating in response to market conditions-are not negotiable.

Accepted Answer

Mortgage notes tied to a variable rate of interest can be negotiable, meaning they can be bought and sold on the secondary market.

Question 4

On an instrument, a mere reference to another writing-"As per contract"- does not render the instrument nonnegotiable.

Accepted Answer

A reference to another writing does not affect the negotiability of an instrument as long as the writing does not contain contradictory terms.

Question 5

With an order instrument, the payee must be identified with certainty because the transfer of the instrument requires his or her signature.

Accepted Answer

With an order instrument, the payee must endorse or sign the instrument in order for it to be transferred, so their identification is necessary for the instrument to be validly transferred.

Question 6

If Elin delivers a check payable to her order to First Bank without signing it and receives cash, the transfer is an assignment, not a negotiation.

Accepted Answer

An assignment occurs when a check is transferred without being negotiated, meaning it is not signed by the payee. In this scenario, Elin did not sign the check and simply received cash from the bank, therefore it is an assignment.

Question 7

A note made in exchange for funds that contains an acceleration clause is not negotiable because the exact value of the note cannot be ascertained.

Accepted Answer

A note made in exchange for funds that contains an acceleration clause is negotiable even if it has an acceleration clause. The acceleration clause simply allows the lender to demand payment of the entire amount due immediately if the borrower fails to meet certain conditions. The value of the note can still be ascertained, so it remains negotiable.

Question 8

When a note is lost, impaired, or destroyed, the owner loses the right to be paid its value, even if its existence can be proved with a copy.

Accepted Answer

The Uniform Commercial Code (UCC) allows for the enforcement of lost, stolen, or destroyed negotiable instruments, such as notes, provided that the owner can prove the instrument's terms and their right to enforce it. This means the owner does not lose the right to be paid its value if they can prove its existence and their ownership.

Question 9

For a negotiable instrument to operate practically as a substitute for cash, it must be easily transferable and uncollectible.

Accepted Answer

For a negotiable instrument to operate practically as a substitute for cash, it must be easily transferable and collectible, not uncollectible.

Question 10

To determine the value of an instrument, it is necessary to know when the maker, drawer, or acceptor is required to pay.

Accepted Answer

Knowing the payment terms is an essential factor in determining the value of an instrument. It helps to calculate the future cash flow and discount it to present value to determine the instrument's worth.

Question 11

If the numerical and written amounts on a check differ, the check is payable in the written amount.

Accepted Answer

This is known as the "legal amount" and takes precedence over the numerical amount.

Question 12

Negotiating bearer instruments requires both indorsement and delivery because the use of bearer instruments involves more risk through loss or theft.

Accepted Answer

Negotiating bearer instruments requires only delivery because they are payable to the holder or bearer, not requiring an indorsement for transfer.

Question 13

A person can sign an instrument as an authorized agent of the drawer, but the instrument is not negotiable unless the drawer also signs it.

Accepted Answer

An instrument can be negotiable when signed by an authorized agent on behalf of the drawer; the drawer's signature is not required if the agent is duly authorized.

Question 14

An instrument is not negotiable unless it is "payable to order or to bearer" at the time it is issued or first comes into the possession of a holder.

Accepted Answer

This is stated in Section 3-104 of the Uniform Commercial Code (UCC), which governs negotiable instruments in the United States.

Question 15

To be negotiable, if an instrument is not payable on demand, it must be payable at a definite time.

Accepted Answer

According to the rules of negotiability, if an instrument is not payable on demand, then it must be payable at a definite time, whether that be a specific date, at a specific period such as thirty days after the date of the instrument, or upon the occurrence of a certain event.

Question 16

A promise that states an express condition to payment is negotiable if the condition is stated in writing on the instrument.

Accepted Answer

A promise or order is not negotiable if it is conditional upon the fulfillment of an express condition. For an instrument to be negotiable, it must contain an unconditional promise or order to pay a fixed amount of money.

Question 17

To most securely minimize the risk of loss on a loan evidenced by a note, a creditor needs only the debtor's promise that the note will be paid.

Accepted Answer

While the debtor's promise is important, it is not the only factor in minimizing the risk of loss. A creditor would also want to consider the debtor's creditworthiness, collateral, and any potential co-signers or guarantors.

Question 18

The holder of a note who needs the funds owed on it can transfer it for cash to a third party, whom the maker must pay when the note comes due.

Accepted Answer

This is correct, as the holder of a note can sell or transfer it to a third party in exchange for immediate cash, and the maker of the note is then obligated to pay the third party when the note comes due.

Question 19

A check "payable to the order of Bethany" is indorsed in blank if Bethany simply delivers it without signing it.

Accepted Answer

A check is indorsed in blank when the payee signs their name on the back without specifying a new payee, making it payable to the bearer. Simply delivering it without signing does not constitute an indorsement.

Question 20

To avoid the risk of loss from theft, a holder can convert a blank indorsement to a special indorsement by writing, above the signature of the indorser, the name of the indorsee.

Accepted Answer

This is true because a special indorsement restricts the negotiability of the instrument to the indorsee whose name is written above the signature. This makes it difficult for a potential thief to negotiate (cash) the instrument if it is stolen.

Quiz 22: Negotiable Instruments