REG 11 - UCC Article 3 - Negotiable Instruments 1 Flashcards Preview

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Flashcards in REG 11 - UCC Article 3 - Negotiable Instruments 1 Deck (14)

Y/N: A negotiable instrument can be negotiable even though a payment date is not specified.

Yes. A payment date does not need to be specified so long as the note is payable on demand. To be negotiable, a note must be payable at a definite time or on demand.


Under the Negotiable Instruments Article of the UCC, the proper party to whom a check is presented for payment is
A. The drawer.
B. The maker.
C. The holder.
D. The drawee.

D. A check is a draft drawn on a bank, making the bank the drawee. We go first to the drawee for payment on a draft/check.


Which of the following negotiable instruments is subject to the UCC Negotiable Instruments Article?
A. Corporate bearer bond with a maturity date of January 1, 20x1.
B. Installment note payable on the first day of each month.
C. Warehouse receipt.
D. Bill of lading payable to order.

B. The commercial paper article of the UCC covers only negotiable instruments. More specifically, it covers drafts, checks, notes, and certificates of deposit. An installment note fits this definition.

Article 3 of the UCC governs commercial paper, or negotiable instruments. A negotiable instrument is a writing signed by the maker or drawer giving an unconditional promise or order to pay a sum certain in money on demand or at a definite time payable to order or bearer. A note payable on the first of every month is a negotiable instrument in that it is payable at a definite time.


Which of the following conditions, if present on an otherwise negotiable instrument, would affect the instrument's negotiability?
A. The instrument is payable six months after the death of the maker.
B. The instrument is payable at a definite time subject to an accelerated clause in the event of a default.
C. The instrument is postdated.
D. The instrument contains a promise to provide additional collateral if there is a decrease in value of the existing collateral.

A. To be negotiable, an instrument must be payable at a definite time. This time may be at some future date, so long as that date can be determined with certainty.
For example, a note payable "Six years from Christmas Day, 1999" would be definite, because one can calculate an exact date -- December 25, 2005. However, this note is nonnegotiable because date of death is not a certain date. The maker could die at any time, and so the date of payment is uncertain.


Under the Negotiable Instruments Article of the UCC, an instrument will be precluded from being negotiable if the instrument
A. Fails to state the place of payment.
B. Is made subject to another agreement.
C. Fails to state the underlying consideration.
D. Is undated

B. This is correct because payment made subject to another agreement renders payment of the instrument conditional on the terms of the other agreement.


T/F: A promissory note is a promise made between only two parties. While a draft is an instrument with three parties.



T/F: A draft in which a bank is both the drawer and drawee is called a teller's check.

This would be a cashier's check.

A teller's check is a draft drawn by one bank on another bank.


T/F: An allonge is a form of an installment note for which a chattel mortgage on a boat is given by a debtor.

An allonge is additional paper firmly attached to commercial paper, such as a promissory note, to provide room to write endorsements.

chattel = a personal possession


Y/N: An instrument states that this note "is payable in U.S. Treasury bonds." Since these bonds are guaranteed by the United States government, this note is negotiable as payment in money.

The stated amount of the instrument must be a sum certain (fixed) payable in money.
This would not be negotiable because it is not payable exclusively in money.


T/F: A promissory note signed by the maker which states, "I promise to pay to bearer on demand $1,000 upon my son's graduation from the University of Accounting," is a negotiable instrument.

Son's graduation is not a definate date.


T/F: A teller's check is a bank note.

A teller's check is a DRAFT drawn by one bank on another bank (or payable at or through another bank)


Y/N: A time instrument is rendered nonnegotiable by an acceleration clause that permits a holder to accelerate to full payment an instrument anytime the holder has a headache.

Any acceleration clause would not render an instrument nonnegotiable.


T/F: An instrument payable in cash and securities is nonnegotiable.

Payable in cash and securities would be nonnegotiable instruments because they are not payable exclusively in money.


T/F: A check reads "Pay to Susan Smith." Because the word "order" is missing, this check is nonnegotiable.

This is still a negotiable instrument

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