business law chp 38
Under the law of negotiable instruments, an assignee can take an instrument free of many of the risks if two conditions are met: ________. (Check two correct answers)
The person who acquires the instrument qualifies as a holder in due course The contract for the payment of money meets the formal requirements to qualify as a negotiable instrument
The attribute of negotiability refers to commercial paper that _____. (Check all that apply)
can be accepted as a substitute for money is readily transferable
A bank taking an assignment of a contract involves the assumption of _____.
certain risks
A _____ is a note given by a bank when a deposit of money is made.
certificate of deposit
Many banks no longer issue _____ in paper form but rather maintain an electronic statement indicating the amount of the principal, the maturity date, and the _____.
certificates of deposit; interest rate
A(n) _____ is an order directed to a bank to pay money from a person's account to a third person.
check
The most widely used form of commercial paper is the _____.
check
The issuer of a _____ orders the _____ at which she maintains an account to pay a specified person a _____ from the account.
check; bank; fixed amount of money
A _____ is a draft payable on demand and drawn on a bank, which is called the _____.
check; drawee
The most common example of a draft is a _____, which has _____ parties to it.
check; three (3)
As commerce and trade developed, people began to use ______ as a substitute for money.
commercial paper
The term negotiable instrument is used to refer to a special kind of _____ that can pass readily through our financial system and is often accepted in place of money.
commercial paper
Basically, a(n) _____ is a contract for the payment of _____ and may serve as a substitute for money payable immediately.
commercial paper; services
If a debtor defaults, a(n) _____ clause authorizes the creditor to go into court to have a judgment entered against the debtor.
confession of judgment
If an instrument is an order to pay, such as a check or a draft, it must _____.
contain an unconditional order
Generally, a promissory note is a _____ instrument; it is used in a wide variety of transactions in which _____ is extended.
credit; credit
An instrument with a fixed time for payment is negotiable even though it has a(n) _____ clause.
acceleration
If an instrument is a promissory note, it must contain _____ or it cannot be negotiable.
an unconditional promise to pay
One of the requirements for negotiability is that the instrument must not state _____, although the instrument may contain a confession of judgment.
any other undertaking by the promisor
Banks encourage customers to use electronic money transfers instead of commercial paper because ______. (Check all that apply)
electronic transfers are more cost-effective electronic transfers expedite payment
If an instrument contains conflicting terms, _____ terms prevail over _____ terms.
handwritten; typewritten
A(n) _____ of a negotiable instrument takes the instrument free of all defenses and claims to the instrument except those that concern its validity.
holder in due course
The purpose of determining negotiability is to ascertain whether a possessor of the instrument can become a(n) _____.
holder in due course
A check payable to the order of a specific person is _____ and can be negotiated _____.
order paper; only by indorsement
A promissory note dated June 1, 2020 that is payable "30 days after date" is _____.
payable at a definite time
A check sent with the payee line blank is _____ and payable to the _____.
negotiable; bearer
The object of a ________ instrument is to have it accepted readily as a substitute for ________.
negotiable; money
A promissory note that states that "payment is subject to the terms of a contract dated June 1, 2020"is _____.
not negotiable
An instrument that promises to pay $10,000 "when my son passes the CPA licensing exam" is _____.
not negotiable
Normally an instrument that is payable on demand is _____.
not payable before the date of the instrument
The most common forms of a promise or an order being payable to bearer use the words _____. (Check all that apply)
payable to the order of cash payable to the order of bearer payable to bearer
Under Revised Article 3 of the Uniform Commercial Code (UCC), a payor bank may pay a _____ before the stated date on the check unless the ______ of postdating pursuant to a procedure set out in the UCC.
postdated check; drawer has notified the bank
A reference to another document for a statement of rights with respect to _____ does not destroy the negotiability of a note. (Check all that apply)
prepayment collateral acceleration
The two (2) basic types of negotiable instruments are _____. (Check the two correct answers)
promises to pay money orders to pay money
Promissory notes and certificates of deposit issued by banks are _____.
promises to pay someone money
A(n) _____ is the simplest form of commercial paper and is simply a promise to pay money.
promissory note
When a person goes to a bank and signs a(n) _____ to pay back $10,000 she is executing a form of _____.
promissory note; negotiable commercial paper
The term "commercial paper" refers to substitutes for money that include _____ (Check all that apply)
promissory notes checks certificates of deposit
A signature on an instrument can be _____ as long as there is the intention of validating it. (Check all that apply)
signed by an agent a symbol a name
Even a holder in due course is subject to the defense of infancy to the extent other law would permit infancy as a defense to a(n) _____ contract.
simple
If an instrument, such as a check, does not meet the formal requirements of a negotiable instrument, then it is treated as a(n) _____, not as a negotiable instrument.
simple contract
The reason for payment at a _____ is so that the time when the instrument is payable can be determined with some certainty.
specified time Reason: Making a note payable when a specific event occurs can destroy negotiability if it is not general knowledge when that occurs.
The law of commercial paper is covered in _____ (Negotiable Instruments) and _____ (Bank Deposits and Collections) of the Uniform Commercial Code (UCC).
Article 3; Article 4
The electronic fund transfer (EFT) systems utilized by consumers include all but which of the following?
Bank collections
To be negotiable, an instrument must meet various criteria, including which of the following? (Check all that apply)
Be in writing Be signed by the issuer Be payable on demand or at a definite time
In 1990 a Revised Article 3, along with related amendments to Articles 1 and 4, were developed and have now been adopted by all the states except _____.
New York
True or false: Articles 3 and 4 of the Uniform Commercial Code (UCC) govern investment securities and documents of title.
False Reason: No, investment securities and documents of title are governed by Articles 8 and 9 of the UCC.
True or false: It is possible for the assignee of a contract to obtain greater rights than the assignor had at the time of the assignment.
False Reason: No, the assignee of a contract cannot obtain greater rights than the assignor had at the time of the assignment.
A promissory note that states "_____" or "_____" is negotiable. (Check two correct answers)
I promise to pay to Bob Jones or bearer I promise to pay to the order of Bob Jones
If an instrument does not specify a place of payment, which of the following sets out rules for ascertaining where payment is to be made?
Section 3-111 of the Uniform Commercial Code
Which of the following organizations has adopted a regulation that alters the rights of a holder in due course in consumer purchase transactions?
The Federal Trade Commission
If an instrument is negotiable, the law of negotiable instruments in which of the following controls in determining the rights and liabilities of the parties to the instrument?
The Uniform Commercial Code
Generally, if in addition to payment of money, the person ordering payment states any the following, the instrument may still be negotiable. (Check three correct answers)
The authorization to confess judgment or to realize on or dispose of collateral The waiving of legal benefits intended for the protection of a person obligated on the instrument The giving, maintaining, or protecting collateral to secure payment
If a promissory note states, "I promise to pay to the order of Bruce Anderson, at my option, $200 or five bales of hay./S/John Jones," the note is _____.
a valid contract but not a negotiable instrument
Transferring money electronically is done without the need for paper-based negotiable instruments.
True Reason: No paper instrument is necessary. Banks encourage customers to use these mechanisms to expedite the payment of money.
True or false: A negotiable instrument could be created in pencil on a piece of wrapping paper.
True Reason: Yes, 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.
A certificate of deposit is an instrument containing these two elements: _____. (Check the two correct answers)
a promise by the bank to repay the sum of money the bank's acknowledgment that it received a deposit of money
An instrument must _____ to be negotiable.
be in writing
A check made payable "to cash" is known as "_____" and can be negotiated _____.
bearer paper; without indorsement
A promissory note that states "I promise to pay to the order of Bob Bennett $10,000 if he paves my driveway" is not negotiable because it _____.
does not contain an unconditional promise
Generally, if the person ordering payment states any undertakings in addition to the payment of money, the instrument _____.
does not qualify as negotiable
A _____ is a form of commercial paper that involves a(n) _____ rather than a promise to pay money.
draft; order to pay money
The three parties to a draft include the _____, who orders the _____ (usually a bank) to pay a certain sum of money to a certain person called the _____.
drawer; drawee; payee
The term _____ is used to refer to a special kind of commercial paper that can pass readily through our financial system.
negotiable instrument
A promise or order is "payable on demand" if it _____. (Check all that apply)
is payable on demand or on sight does not state any time for payment
A typed or rubber-stamped signature is sufficient if _____.
it was placed on the instrument to validate it
The _____ rate of interest is used if the description of interest in the instrument does not allow the amount of interest to be ascertained.
judgment
For _____ businesses, _____ of funds are commonly used to move large sums of money around the country or around the world.
large; wire transfers
The promissory note is a two-party instrument in which the _______ makes a(n) _________ promise in writing to pay another person (the ________) a certain amount of money at a certain time.
maker, unconditional, payee
To qualify as a negotiable instrument, a note must be signed by the _____ and a draft must be signed by the _____.
maker; drawer
If a _____ creates an instrument that meets all the requirements of negotiability, the instrument is _____ if state law makes _____ a defense to a simple contract.
minor; voidable; infancy
The electronic fund transfer (EFT) systems utilized by consumers include _____. (Check all that apply)
mobile payment applications point-of-sale terminals PayPal payments
The amount specified in a promissory note must be payable in _____.
money
When Joe buys a television set and pays the merchant with a check drawn on his checking account, Joe is using a form of ________.
negotiable commercial paper
One of the primary purposes for strict requirements for negotiability is to ensure that purchasers of instruments, particularly banks, can accept them as a(n) _____.
substitute for money
If an instrument is undated, its "date" is _____.
the date it is issued by the maker or drawer
The essence of negotiability occurs when an instrument states "to the order of Bob Jones" or "to bearer" because _____ (Check two correct answers)
the drawer shows she is not restricting payment of the instrument to just Bob Jones but is willing to pay someone else designated by Bob Jones the drawer shows her intention to issue a negotiable instrument
In a person writes a check but the words and numbers conflict, _____.
the words control the numbers
To be negotiable, a promissory note must promise _____ with or without interest.
to pay a fixed amount of money Reason: It may require payment either at a set time in the future or on demand, but it does not need to be at a set time in the future. Reason: It may require payment either on demand or at a set time in the future, but it does not need to be on demand.
An instrument can meet all the formal requirements for negotiability and thus be negotiable, even though it is _____. (Check all that apply)
uncollectible void voidable
For an instrument to be negotiable, the promise or order must be _____.
unconditional
