Chapter 26. Form and Content
1. A substitute check created under Check 21 is the legal equivalent of the original check and contains all the
information contained on the original check.
a. True
b. False
2. Notes and certificates of deposit are orders to pay money to a third person.
a. True
b. False
3. A maker must sign in the lower, right-hand corner of the instrument.
a. True
b. False
4. A draft involves only two parties: a drawer and a payee.
a. True
b. False
5. Negotiability invests commercial paper with a high degree of marketability and commercial utility by allowing it to be
freely transferable and enforceable by a holder in due course.
a. True
b. False
6. A promissory note is an instrument that involves three parties in three capacities.
a. True
b. False
7. A check is a draft payable on demand.
a. True
b. False
8. Paper payable “on demand” fails the test of negotiability in that it does not contain a specific time.
a. True
b. False
9. Handwritten words supersede inconsistent typewritten words contained in negotiable instruments.
a. True
b. False
10. Where both words and numerals are used to describe the amount payable, the numerals will be used to resolve any
differences.
a. True
b. False
11. Only a bank may serve as the maker of a certificate of a deposit.
a. True
b. False
12. A cashier’s check is drawn by a bank upon itself to the order of a named payee.
a. True
b. False
13. To be negotiable, an instrument must be in writing.
a. True
b. False
14. Under the law of assignments, the assignee stands in the shoes of the assignor.
a. True
b. False
15. A written and signed promise by Miller to Baker to deliver 1,000 pounds of flour in 30 days is an example of a
negotiable instrument.
a. True
b. False
16. Under Revised Article 3, a promise to pay only out of a particular fund will destroy the negotiability of an instrument.
a. True
b. False
17. A time draft is one payable upon demand (at the time it is presented to the drawee).
a. True
b. False
18. A form of time draft known as a trade acceptance is used as a credit device in commercial transactions.
a. True
b. False
19. Negotiability is wholly a matter of form.
a. True
b. False
20. Time paper is payable at a definite time.
a. True
b. False
21. An incomplete instrument is non-negotiable. However, when it is completed, it may become negotiable.
a. True
b. False
22. A reference to another writing makes a promise or order conditional.
a. True
b. False
23. Jones signed a 90–day note promising to pay $1,000 plus interest. The note states interest is to be based on a variable
published rate external to the note. The sum the borrower must repay is uncertain; therefore, under Revised Article
3, the note is not negotiable.
a. True
b. False
24. An “X” or a thumbprint could constitute a signature under the Code.
a. True
b. False
25. An “I.O.U.” is not considered a negotiable instrument.
a. True
b. False
26. Postdating an instrument will destroy its negotiability.
a. True
b. False
27. Bearer paper is negotiable.
a. True
b. False
28. An instrument paying a fixed amount in Japanese yen is not negotiable; the instrument must be payable in money
authorized or adopted by the U.S. as part of its currency.
a. True
b. False
29. The person who signs a note and promises to pay it is the maker.
a. True
b. False
30. The drawee is the individual who signs a check and promises to pay.
a. True
b. False
31. An instrument which is ambiguous as to whether it is a draft or note, such as, “To A: On demand I promise to pay
$200 to the order of B. Signed, C” must be treated as a note and be presented to C for payment.
a. True
b. False
32. An instrument payable at a fixed time subject to acceleration by the holder is not negotiable.
a. True
b. False
33. Under Revised Article 3, a check which meets all the requirements of being a negotiable instrument except that it is
not payable to bearer or order is nevertheless a negotiable instrument.
a. True
b. False
34. Which of the following is not a negotiable instrument?
a. A check
b. A draft
c. A certificate of deposit
d. A stock certificate
35. If Sam writes a check drawn on his account at First Bank to Towers University to pay his tuition:
a. Sam is the drawer.
b. the university is the drawee.
c. the bank is the payee.
d. Sam is the maker.
36. A certificate of deposit differs from a promissory note in that, with a certificate of deposit:
a. the maker is always a bank.
b. there are three parties to the transaction.
c. the payee of a CD must be paid on demand.
d. a writing is required.
37. To be negotiable, the instrument must satisfy all except which one of the following requirements?
a. It must contain a promise or order to pay.
b. It must be for a fixed amount.
c. It must be written on paper.
d. It must be signed.
38. June purchases $8,000 of goods from Will on thirty days’ credit, and Will assigns the account to Mark. If June finds
the goods defective and only worth $6,000:
a. she has no defense against full payment since the account was assigned.
b. she only needs to pay Mark $6,000 if Mark had notified her of the assignment.
c. Mark is entitled to the full $8,000 since he acquires rights greater than those of Will, who assigned the
contractual rights to payment.
d. she must pay $6,000 directly to Will regardless of whether Mark notified her of the assignment.
39. Carol buys some items at Friendly Drugstore and writes a check to the store on her account at First Bank. Who is
the drawee?
a. Carol
b. Friendly Drugstore
c. First Bank
d. There is none.
