Chapter 13 Negotiable Instruments and Credit
A balloon note has one large payment up front then a series of smaller payments over time.
False
A negotiable instrument is a promise by one party to pay a undefined sum of money to another party. There are two parties: the maker and the payee. While the amount to be paid may vary, the date of payment must be set at a specific time in the future.
False
A note involves two parties, the maker and the payee. Payment must be on demand.
False
A suretyship is a guarantee by the debtor that he will repay his loans.
False
Certificates of deposit are not negotiable because they are specific contracts between banks and payees.
False
Collateral is the one term in a debt instrument that always must be specified.
False
Negotiable instruments payable "to bearer" are considered the safest form.
False
Orders to pay include notes and certificates of deposit.
False
Promises to pay include drafts and checks.
False
The drawer owes money to the drawee in a negotiable instrument.
False
The party who agrees to make a payment to another party, based on a document presented to it, such as a bank, is called the drawer.
False
The party who issues or creates a document that requests payment, probably from a bank, is called the drawee.
False
To attach a security interest, the agreement must be signed by the debtor.
False
Under Article 3 of the UCC, a draft is a conditional promise to pay that involves three parties in distinct capacities: drawer, drawee, and payee.
False
When real estate is used to back up a note, it is called a collateral note.
False
When the maker of a note promises to repay the note in specific installments over time, it is a balloon note.
False
A cashier's check is a form of check in which the bank is both the drawer and the drawee.
True
A check is a draft drawn on a bank and payable on demand.
True
A guarantor is the same as a surety.
True
A negotiable instrument may be transferred in two basic ways. If the instrument is made "to the order" of the payee, the payee must (1) endorse the instrument and (2) deliver the instrument to a third party. If the instrument is made "to bearer," the party in possession of the instrument is required only to deliver it to transfer it.
True
Although commercial paper may be negotiable or non-negotiable, a dispute could be resolved differently depending on whether the instrument is categorized as negotiable or non-negotiable.
True
For a check, the bank is the drawee.
True
If a draft is sold to another party before it comes due, it is discounted.
True
If you sign a personal promissory note to cover debts owed by your business and the business fails, you will be held personally liable on the debt.
True
In a draft, the drawee is the party ordered to pay a certain sum of money to a third party.
True
In a suretyship arrangement, the person borrowing the money is known as the principal.
True
Negotiable instruments are important to business because they allow for the orderly creation and transfer of rights to the payment of money.
True
Negotiable instruments began many years ago as a written promise or order to pay a certain sum of money.
True
Not all promises to pay are negotiable instruments.
True
Once issued, a negotiable instrument can be transferred by assignment or by negotiation to another party.
True
One of the most common defenses a surety may raise is that material changes were made to the debt contract, thus releasing the surety.
True
Orders to pay include drafts and checks.
True
Promises to pay include notes and certificates of deposit.
True
The amount of money owed in a debt is called the principal.
True
The drawee owes money to the drawer in a negotiable instrument.
True
The maker or the drawer may create a bearer instrument by using the following language: "to bearer" or "to the order of bearer."
True
The party to receive a payment from a negotiable instrument is called the payee.
True
The party who agrees to make a payment to another party, based on a document presented to it, such as a bank, is called the drawee.
True
The party who borrows money (gets credit) is called the creditor.
True
The party who issues or creates a document that requests payment, probably from a bank, is called the drawer.
True
Under Article 3 of the UCC, a check is an unconditional written order to pay that involves three parties in distinct capacities: drawer, drawee, and payee. The drawee must be a bank. Payment must be "on demand."
True
Under Article 3 of the UCC, a note is a promise by one party to pay a certain sum of money to another party. Two parties are involved: the maker and the payee. Payment may be set at some time in the future.
True
When personal property is used to back up a note, it is called a collateral note.
True
When the maker of a note promises to repay the note at specific dates over time, it is called an installment note.
True
