Contracts - UCC Art 3 - Intro to Negotiable Instruments & Negotiability

Question 1

Give an example of language that results in order paper.

Answer 1

“Pay to the order of Jane Downs.”

Question 2

Define “order payer.”

Answer 2

Instrument made payable to individual or entity; transferred by indorsement and delivery.

Question 3

Define a “demand instrument.”

Answer 3

Those that are payable immediately upon issue, such as “payable at sight” or “payable upon presentation,” or those for which no time period is specified.

Question 4

Define “accommodation party.”

Answer 4

A “person” who signs an instrument in any capacity for the purpose of lending his or her name as credit to another party on the instrument.

Question 5

List the types of drafts that can be used to pay money.

Answer 5

1. Sight Draft (on demand);
2. Time draft;
3. Trade acceptance.

Question 6

Give an example of language on an instrument that would affect negotiability.

Answer 6

Language that makes the date of payment uncertain (Payable when I pass the CPA Exam).
Language that affects the certainty of the sum due (Payable at a rate to be determined later).

Question 7

Define “negotiation.”

Answer 7

The transfer of possession of a negotiable instrument to a party who becomes a holder.

Question 8

List the parties to a note or certificate of deposit (CD).

Answer 8

1. Maker;
2. Payee.

(Note: there is no maker of a check, only notes and CDs; liability of these parties is different so use terms carefully.)

Question 9

Define “bearer of paper.”

Answer 9

Instrument made payable in blank, to bearer, or to cash; transferred by delivery only.

Question 10

Describe the writing requirement of a negotiable instrument.

Answer 10

Must have be on something with a degree of permanence and be readily transferable.

Question 11

Give an example of language that results in bearer paper.

Answer 11

“Pay to cash” or “Pay to the order of cash” or “Pay to Jane Downs or bearer.”

Question 12

Describe the various types of checks that can be used to pay money.

Answer 12

1. Cashier’s check (bank is drawer and drawee);
2. Teller’s check (draft drawn by one bank on another bank);
3. Traveler’s check (draft payable on a bank that requires a counter signature);
4. Certified check (check accepted by a drawee bank; obliges drawee bank to pay);
5. Money order (is a check if drawn on a bank and payable on demand).

Question 13

List the requirements of a negotiable instrument.

Answer 13

1. In writing;
2. Signed by Maker or Drawer;
3. Contain an unconditional promise or order to pay;
4. State a sum Certain in Money;
5. Be payable on demand or at a definite time;
6. Be payable to order or bearer (words of negotiability).

Question 14

Define “indorsement.”

Answer 14

Signature by payee for purposes of negotiation.

Question 15

List the parties to a draft or a check.

Answer 15

1. Drawer;
2. Drawee;
3. Payee.

Question 16

List the parties who draft negotiable instruments.

Answer 16

1. Drawers - for checks or drafts;

2. Makers - for notes and Certificates of Deposits

Question 17

List some examples of nonnegotiable instruments.

Answer 17

1. Letters of Credit;
2. Warehouse Receipts;
3. Bills of Lading;
4. Stocks and Bonds;
5. Contracts.

Question 18

List the two types of negotiable instruments.

Answer 18

1. Orders to Pay (checks and drafts);

2. Promises to Pay (notes and CDs).