Chapter 30: Negotiability and Negotiation of Commercial
Paper
1. Negotiable instruments is another term for commercial paper.
2. Negotiability requires that the instrument state that something of value has been given for the paper.
3. Commercial paper is subject to the parol evidence rule.
4. To be negotiable, a promissory note or a certificate of deposit must contain a conditional promise to pay
money.
5. Money is any official currency or coin acceptable as a medium of exchange at the time commercial paper is
written.
6. An “X” mark is no longer acceptable as a valid signature.
7. Checks, other than those issued by the government, stating that payment is to come from a particular account
“only” are still negotiable.
8. An acceleration clause could make the entire balance due and payable upon the happening of a particular
event.
9. Indorsement is a signature on the face of an instrument.
10. A bearer of commercial paper can also be classified as a holder.
11. For an instrument to be negotiable, it must, among other requirements
C. both a and b.
D. none of these.
12. The ability to negotiate an instrument is not affected by the fact that it is
A. antedated.
B. postdated.
13. If there are conflicting terms within the writing,
C. printed form terms prevail over typewritten terms.
D. printed form terms prevail over handwritten terms.
14. An instrument can still be negotiable even if it is made payable
A. at a definite time.
B. on demand.
15. An instrument is not negotiable if it requires that the amount be paid
C. with costs of collection.
D. with interest or a discount.
16. The most common type of indorsement that automatically transfers order paper into bearer paper is
C. restrictive indorsement.
D. special indorsement.
17. To make the paper payable to the order of a designated party, one must use
A. a blank indorsement.
B. a qualified indorsement.
18. An indorsement such as “For Deposit Only” is
A. a blank indorsement.
B. a qualified indorsement.
19. A qualified indorsement
A. is invalid if the indorser is a minor.
B. requires minors to have co-signers.
20. An accommodation party is one who
A. becomes primarily liable as a cosigner.
B. can seek compensation from the accommodated party if collected against.
21. Which of the following is not a factor in determining the negotiability of an instrument?
A. It must be payable in a sum certain in money.
B. It must be payable on demand or at a definite time.
22. The parol evidence rule is important in negotiable instruments because it
C. allows for trade names in negotiable instruments.
D. none of these.
23. Which of the following appearing on the face of the instrument would affect the negotiability of commercial
paper?
A. notice of a fee to be added on to the amount due for changing one national currency for another to pay the
instrument
B. notice of a penalty to be added on if the instrument is past due
24. The party who has physical possession of bearer paper is known as the
A. bearer.
B. drawer.
25. If an instrument is transferred without being negotiated, it is considered to have been only
C. arraigned.
D. none of these.
26. In the case of assignment of an instrument, the parties’ rights are governed by ____________________ law
rather than the law of negotiable instruments.
27. According to the UCC, whether or not an instrument is negotiable is determined by what appears on its
____________________ at the time it is issued.
28. An instrument dated earlier than the date of issuance has been ____________________.
29. Because it must be in writing, commercial paper is subject to the ____________________ rule when its
terms are challenged at law.
30. The location of the signature is generally immaterial as long as it appears on the ____________________ of
the instrument.
31. ____________________, under commercial paper law, is any official currency or coin acceptable as a
medium of exchange either in the United States or in any foreign country at the time the commercial paper is
written.
32. A(n) ____________________ makes the entire balance of an instrument due and payable upon the
happening of a certain event.
33. When commercial paper is made payable to the order of a specified payee, it is called
____________________ paper.
34. A signature on the back of an instrument to transfer the paper is termed a(n) ____________________.
35. A(n) ____________________ indorsement makes the paper payable to the order of a designated party.
36. A(n) ____________________ indorsement eliminates potential secondary liability based on signature.
37. A(n) ____________________ indorsement directs the use of the proceeds from the instrument or imposes a
condition upon payment of the instrument by the indorser.
38. A person with a good credit rating may be asked to join in signing commercial paper. Such a cosigner is
known as a(n) ____________________ party
39. Even a finder or a thief may negotiate an instrument with a(n) ____________________ indorsement.
40. Payable on ____________________ means that the commercial paper is written so as to be payable
immediately upon presentment or at sight.
41. What is negotiation of commercial paper and why is it important for the party issuing the paper to make sure
it is negotiable?
Negotiation of commercial paper means the proper transfer of a negotiable instrument so that the transferee
42. Nell met with David in order to execute a promissory note in the amount of $780. Because Nell had recently
broken both of her hands, she was unable to sign her name. As a consequence, she placed an “X” in the place
for her signature. Underneath the “X” her brother printed Nell’s name for her and signed his own as a witness.
Nell received the $780 from David but, when he sold the note to a bank, refused to pay it off when it came due.
She contends the promissory note is non-negotiable because she did not actually sign it and, therefore, she is not
obligated to pay the note much less pay the bank instead of David. Furthermore, the promissory note is not
dated. Nell further contends that the lack of date also makes the note non-negotiable. Is Nell correct in any of
her positions? Why or why not?
Nell is incorrect in her contentions. The UCC provides that “a trade or assumed name may be used in signing if