Chapter 25- negotiable instruments

Question 1

Types of negotiable instruments

Answer 1

1) Drafts
2) checks
3) notes
4) CDs

Question 2

Orders to pay

Answer 2

Drafts and checks

Question 3

Promises to pay

Answer 3

notes and CDs

Question 4

Demand instrument

Answer 4

payable on demand or on sight, or indicates it is payable at the will of the holder, or it does not state any time of payment. Checks

Question 5

Time instrument

Answer 5

Payable at future date

Question 6

Draft

Answer 6

unconditional written order that involves three parties
(order to pay)

Question 7

parties involved in a draft

Answer 7

1) Party creating draft (drawer)
2) Drawee (bank)
3) payee

Question 8

Time draft vs Sight draft

Answer 8

Time draft: payable at a future time
Sight draft: payable on sight
A draft can be both sight and time (payable x days after presentation)

Question 9

Trade acceptance

Answer 9

type of draft where the seller is a drawer and payee by extending credit to the buyer.
buyer of goods is drawee and pays at a future date

Question 10

Cashier’s checks

Answer 10

Bank is a drawer and drawee

Question 11

Promissory note

Answer 11

1) A promise to pay a specified sum,
2) can be specific or payable to bearer, can be payable at a specific time or on demand
3) not a debt, only evidence of a debt

Question 12

CDs

Answer 12

1) type of promissory note
2) is issued when a party deposits funds with a bank, and bank promises to repay funds with interest
3) bank is the maker, depositor is payee

Question 13

Requirements for negotiability

Answer 13

1) be in writing
2) be signed by maker or drawer
3) be an unconditional promise or order to pay
4) State a fixed amount of money
5) be payable on demand or at a definite time
6) be payable to order or bearer

Question 14

Writing requirement for negotiability

Answer 14

1) writing must be on permeant material
2) be portable
3) may be evidenced by electronic record

Question 15

Be signed by maker or drawer requirement

Answer 15

1) Almost anything can qualify as a signature; symbol, stamp
2) Location of signature doesn’t matter
3) hand written testimony can count as signature

Question 16

Unconditional promise to pay requirement

Answer 16

1) terms of promise must be on face of instrument
2) must contain express promise or order to pay

Question 17

a promise or order to pay is conditional if any of the following

Answer 17

1) an express condition to payment
2) the promise or order is subject to another writing
3) the rights or obligations with respect to the promise or order are stated in another writing
(a reference to another writing does not make it conditional)

Question 18

State a fixed amount of money requirement

Answer 18

1) must be ascertainable from the face of instrument
2) must be in currency adopted by government (no bitcoin or gold)

Question 19

An instrument is payable at a definite time if any of the following

Answer 19

1) payable at a specific date
2) payable within a definite time frame after being presented for payment
3) payable at a date ascertainable at the time the promise is issued (not some conditional or far away date)

Question 20

Acceleration clause

Answer 20

Allows a payee or other holder of an instrument to demand payment of the entire amount due with interest if a specific event occurs. (remains negotiable)

Question 21

Extension clause

Answer 21

allows the date of maturity to be extended;
1) to keep the instrument negotiable, the time interval must be specified if the right to extend is given to the maker
2) if the holder has the right to extend the time, specific date need not be stated

Question 22

Instrument is a bearer instrument if any of the following

Answer 22

1) payable to the order of bearer
2) payable to bearer
3) pay cash
4) pay to the order of cash
5) payable to a fake person or organization

Question 23

Factors that do NOT affect Negotiability

Answer 23

1) Omission of date
2) Postdating or antedating
3) Handwritten terms always outweigh typewritten terms
4) A check is always negotiable, even if it says “non-negotiable” on it