Question 1

A promise or order is "payable on demand" if:

Accepted Answer

A promise or order is "payable on demand" if (1)it states that it is payable on "demand" or "sight" (or otherwise at the will of the holder of the instrument)or (2)it does not state any time for payment.For example,if the maker forgets to state when a note is payable,it is payable immediately at the request of the holder of the note.

Question 2

A negotiable instrument:

Accepted Answer

An instrument such as a check or a note must meet certain formal requirements to be a negotiable instrument.If the instrument does not meet these requirements,it is nonnegotiable; that is,it is treated as a simple contract,not as a negotiable instrument.One of the basic requirements for an instrument to be negotiable is it must be payable "to order" or "to bearer."

Question 3

Which of the following will destroy the negotiability of an instrument?

Accepted Answer

If an instrument is an order to pay,such as a check or a draft,it must contain an unconditional order.An instrument is not negotiable unless the promise or order is unconditional.For example,a note that provides,"I promise to pay to the order of Karl Adams $1,000 if he replaces the roof on my garage," is not negotiable because it is payable on a condition.

Question 4

A draft is a:

Accepted Answer

A draft has three parties to it: one person (known as the drawer)orders a second person (the drawee)to pay a certain sum of money to a third person (the payee),to a person specified by that person,or to bearer.A draft is a form of commercial paper that involves an order to pay money rather than a promise to pay money.

Question 5

Ricardo borrowed $1,000 from his friend,John Wilfred.Ricardo signed a handwritten note stating,"I promise to pay $1,000 to John Wilfred on or before August 1,2001." Under these circumstances:

Accepted Answer

An instrument such as a check or a note must meet certain formal requirements to be a negotiable instrument.If the instrument does not meet these requirements,it is nonnegotiable; that is,it is treated as a simple contract,not as a negotiable instrument.Under the above given circumstances the note is not negotiable because it is not payable to order or to bearer.

Question 6

If an instrument satisfies the formal requirements of writing,signature,unconditional order to pay,and pay ability on demand:

Accepted Answer

An instrument that meets all of the formal requirements is a negotiable instrument even though it is void,voidable,unenforceable,or uncollectible for other reasons.Negotiability is a matter of form and nothing else.An instrument that is negotiable in form is a negotiable instrument even though it is issued by a minor.

Question 7

A note which contains the statement,"I owe you $500":

Accepted Answer

If an instrument is promissory in nature,such as a note or a certificate of deposit,it must contain an unconditional promise to pay or it cannot be negotiable.Merely acknowledging a debt is not sufficient.For example,the statement "I owe you $100" does not constitute a promise to pay.An IOU in this form is not a negotiable instrument.

Question 8

Which of the following statements will satisfy the basic requirement of a negotiable instrument to be in writing?

Accepted Answer

To be negotiable,an instrument must be in writing.An instrument that is handwritten,typed,or printed is considered to be in writing.The writing does not have to be on any particular material; all that is required is that the instrument be in writing.A person could create a negotiable instrument in pencil on a piece of wrapping paper.It would be poor business practice to do so,but the instrument would meet the statutory requirement that it be in writing.

Question 9

Which of the following would qualify as a "check" under the terms of the Code?

Accepted Answer

A check is a draft payable on demand and drawn on a bank.Checks are the most widely used form of commercial paper.The issuer of a check orders the bank at which she maintains an account to pay a specified person,or someone designated by that person,a fixed amount of money from the account.An instrument may qualify as a check and be governed by Article 3 even though it is described on its face by another term such as "money order."

Question 10

A note in which the maker promises to pay to the order of James Brown $1,000 or a seven-string Martin guitar:

Accepted Answer

The amount specified in the instrument must be payable in money."Money" is a medium of exchange authorized or adopted by a domestic or foreign government and includes a monetary unit of account established by an intergovernmental organization or by agreement between two or more nations.If the person obligated to pay off an instrument can do something other than pay money,the instrument is not negotiable.

Question 11

Richard borrowed $100 from his friend,Leonard Smith.Richard signed a handwritten note stating,"I promise to pay $100 to the order of Leonard Smith." Under these circumstances:

Accepted Answer

For an instrument to be negotiable,it must be in writing,be signed by the issuer,contain an unconditional promise or order to pay a fixed amount of money,be payable to order or to bearer,be payable on demand or at a definite time,and not state any other undertaking or instruction by the person promising or ordering to do any act in addition to the payment of money.

Question 12

Emily Henrik residing in the state of North Carolina sent Gustave Franka residing in France a note which read,"Ninety days after date,I promise to pay to the order of Gustave Franka 5,000 euros (signed)Emily Henrik." The note is:

Accepted Answer

The amount specified in the instrument must be payable in money."Money" is a medium of exchange authorized by a domestic or foreign government and includes a monetary unit of account established by an intergovernmental organization.Unless the instrument otherwise provides,an instrument that states the amount payable in foreign money may be paid in the foreign money or in an equivalent dollar amount.An instrument may be antedated or postdated,and normally an instrument payable on demand is not payable before the date of the instrument.

Question 13

A holder in due course takes the instrument free of all:

Accepted Answer

A holder in due course of a negotiable instrument takes the instrument free of all defenses and claims to the instrument except those that concern its validity.For example,a holder in due course of a note given in payment for goods may enforce the obligation in spite of the buyer's claim that the seller breached a warranty.

Question 14

An instrument must be signed to qualify as a negotiable instrument.Which of the following statements is true of this basic requirement?

Accepted Answer

To qualify as a negotiable instrument,an instrument in the form of a note must be signed by the person undertaking to pay (the maker)and an instrument in the form of a draft must be signed by the person giving the instruction to pay (the drawer).An instrument has been signed if the maker or drawer has put a name or other symbol on it with the intention of validating it.

Question 15

Which of the following instruments is negotiable?

Accepted Answer

A reference to another document for a statement of rights with respect to collateral,prepayment,or acceleration does not destroy the negotiability of a note.A note could contain the statement "This note is secured by a mortgage dated August 30,2009," without affecting its negotiability.In this case,the mortgage does not affect rights and duties of the parties to the note.

Question 16

The FTC has adopted a regulation that:

Accepted Answer

The Federal Trade Commission (FTC)has adopted a regulation that alters the rights of a holder in due course in consumer purchase transactions.This regulation allows a consumer who gives a negotiable instrument to use additional defenses (breach of warranty or fraudulent inducement)against payment of the instrument against even a holder in due course.

Question 17

A teller's check:

Accepted Answer

The Code definition of a check includes a "cashier's check" and a "teller's check." A cashier's check is a draft on which the drawer or drawee are the same bank (or branches of the same bank); a teller's check is a draft drawn by a bank (as drawer)on another bank or payable at or through a bank.

Question 18

If an instrument is nonnegotiable:

Accepted Answer

If an instrument is negotiable,the law of negotiable instruments in the Code controls in determining the rights and liabilities of the parties to the instrument.If an instrument is nonnegotiable,the general rules of contract law control.The purpose of determining negotiability is to ascertain whether a possessor of the instrument can become a holder in due course.

Question 19

The promise or order in an instrument must be to pay:

Accepted Answer

The promise or order in an instrument must be to pay a fixed amount of money,with or without interest or other charges described in the promise or order.The requirement of a "fixed amount" applies only to principal,and the amount of any interest payable is that described in the instrument.

Question 20

A traveler's check that requires,as a condition to payment,the countersignature of a person whose specimen signature appears on the draft:

Accepted Answer

Revised Article 3 addresses the negotiability of traveler's checks that commonly require,as a condition to payment,a countersignature of a person whose specimen signature appears on the draft.Under the revision,the condition does not prevent the instrument from meeting the "unconditional promise or order" requirement.However,if the person whose specimen signature appears on the instrument fails to countersign it,the failure to sign becomes a defense to the obligation of the issuer to pay.

Quiz 38: Negotiable Instruments