Question 1

Fact Pattern 24-1A (Questions A1-A2 apply)
Flik draws a check payable to "DeliMart" to buy groceries.
-Refer to Fact Pattern 24-1A.Flik's check is most likely
A)a certificate of deposit.
B)an order to pay.
C)a promise to pay.
D)a promissory note.

Accepted Answer

A check is an order to pay, instructing the bank to pay the specified amount to the payee.

Question 2

Bagels n' Coffee Café issues an instrument in favor of Eatery Supplies,Inc.For the instrument to be negotiable,it must
A)be a conditional promise or order to pay.
B)be payable on demand or at a specific time.
C)be signed by the payee.
D)recite the consideration given in exchange for it.

Accepted Answer

For an instrument to be negotiable, it must be payable on demand or at a specific time. The other options do not apply universally to negotiable instruments.

Question 3

Quincy draws a check payable to "Replay Stadium" to buy two season tickets to the next year's State College football games.This instrument is
A)a bearer instrument.
B)an order instrument.
C)valid but nonnegotiable.
D)void.

Accepted Answer

The check made out to "Replay Stadium" is an order instrument because it directs the bank to pay the designated payee, Replay Stadium. A bearer instrument would be made payable to the holder, while a non-negotiable instrument would have a restriction on its transferability. The check is valid as long as Quincy has sufficient funds in their account, and it is not void.

Question 4

Karen writes on a piece of paper,"I owe you $600," signs it,and gives it to Lou.This instrument is
A)negotiable.
B)nonnegotiable,because it does not include an express promise to pay.
C)nonnegotiable,because it does not recite any consideration.
D)nonnegotiable,because it does not state any conditions to payment.

Accepted Answer

The instrument is nonnegotiable because it lacks an express promise to pay, which is an essential feature of a negotiable instrument.

Question 5

Jack signs an instrument that states it is being executed "as per a contract for the sale of three magic beans dated June 1." This instru?ment is
A)negotiable.
B)nonnegotiable,because banks cannot easily process commodities.
C)nonnegotiable,because it includes the specific date of a contract.
D)nonnegotiable,because it refers to an express contract.

Accepted Answer

The answer of Jack signs an instrument that states it...

Question 6

Locke signs a check payable to the order of Metro Bank,filling in the blanks for the amount with the figures "$100" and "One thousand and 00/100 dol?lars." This check is payable in the amount of
A)$0.
B)$100.
C)$1,000.
D)$1,100.

Accepted Answer

When there is a discrepancy between the numerical and written amounts on a check, the written amount is considered the legal amount. Therefore, the check is payable for "One thousand and 00/100 dollars," which is $1,000.

Question 7

To finance the purchase of a car from Giant Auto Sales,Hoppy signs an instrument promising to pay to "Ideal Credit Union" $18,000 with interest in installments with the final payment due May 15,2014.To be negotiable,this instrument must include on its face
A)any conditions on the sale of the car.
B)any conditions to the disbursement of the funds.
C)any conditions to the repayment of the loan.
D)no conditions.

Accepted Answer

To be negotiable, the instrument must not include any conditions.

Question 8

Hayley signs an instrument payable to the order of InstaCredit,Inc.,that allows a holder to demand payment of the entire amount due,with inter?est,if Hayley fails to make a payment.This instrument is
A)negotiable.
B)nonnegotiable,because a holder can move up the payment date.
C)nonnegotiable,because moving up the payment date is conditional.
D)nonnegotiable,because the exact payment date cannot be deter?mined from the face of the instrument.

Accepted Answer

The instrument described in the scenario allows a holder (i.e. someone who possesses and presents the instrument) to demand payment of the entire amount due with interest if Hayley fails to make a payment. This means that the instrument is negotiable according to the definition of negotiability, which requires that the instrument be payable to order or bearer and include an unconditional promise or order to pay. The fact that the instrument allows for acceleration (i.e. demanding payment of the full amount due before the original payment date) does not affect its negotiability, since acceleration is a common feature of many negotiable instruments.

Question 9

Fact Pattern 24-2A (Questions A3-A4 apply)
Commodity Sales Corporation and Resource Purchasing Company enter a contract for a sale of unprocessed silver.Commodity Sales draws a draft unconditionally ordering Resource Purchasing to pay $50,000 to Commodity Sales's order in sixty days.Resource Purchasing signs and dates the draft.
-Refer to Fact Pattern 24-2A.On this instrument,Commodity Sales is
A)the banker.
B)the drawer.
C)the maker.
D)the trader.

Accepted Answer

Commodity Sales is the drawer, as they are the party who created and issued the draft ordering Resource Purchasing to pay the specified amount.

Question 10

On behalf of Digital Cable Company,Elvin signs an instrument in which he promises to deliver 1,000 feet of optic fiber cable to Financiers eBank on March 1.This instrument is
A)negotiable.
B)nonnegotiable,because cable is not a medium of exchange author?ized or adopted by a government as currency.
C)nonnegotiable,because it does not indicate a specific type of cable.
D)nonnegotiable,because it does not recite any consideration.

Accepted Answer

The instrument is nonnegotiable because cable is not a medium of exchange authorized or adopted by a government as currency.

Question 11

To obtain office supplies for Doctors Medical Clinic,Elmo executes a draft in favor of Flynn.A draft is
A)a conditional promise to pay money.
B)an unconditional written order to pay money.
C)a qualified promise to set aside a sum of money.
D)a restricted promise to deliver goods at a future date.

Accepted Answer

A draft is an unconditional written order to pay money, typically used in commercial transactions. In this case, Elmo is using a draft to obtain office supplies for Doctors Medical Clinic and is directing the payment to be made to Flynn.

Question 12

On May 1,Doug signs a check that is payable to the order of Employees Credit Corporation and that is dated July 1.This check is
A)negotiable.
B)nonnegotiable,because it is payable to a corporation.
C)nonnegotiable,because it is postdated.
D)nonnegotiable,because it is signed by the drawer.

Accepted Answer

The check is negotiable because it is payable to the order of Employees Credit Corporation and is not restricted in any way. The fact that it is postdated does not affect its negotiability.

Question 13

Rita owes $6,000 in unpaid taxes.In the sand of Seaside Beach,she exe?cutes an instrument for that amount that otherwise meets the re?quire?ments for negotiability.This instrument is likely
A)negotiable.
B)nonnegotiable,because an instrument must be on paper.
C)nonnegotiable,because sand is not sufficiently permanent.
D)nonnegotiable,because the government does not appreciate it.

Accepted Answer

The answer of Rita owes $6,000 in unpaid taxes.In the...

Question 14

Rainey signs a promissory note for $10,000 in favor of State University (SU).The note is undated but specifies that it is "payable one month after date." This note is
A)negotiable.
B)nonnegotiable,because one month is not a reasonable time.
C)nonnegotiable,because there is no option to pay early.
D)nonnegotiable,because the maturity date cannot be deter?mined from the face of the instrument.

Accepted Answer

The note is nonnegotiable because it lacks a specific date, making it impossible to determine the maturity date from the face of the instrument.

Question 15

Kelly signs an instrument in favor of Leo that states it is "subject to a cer?tain agreement between Kelly and Mona." This instru?ment is
A)negotiable.
B)nonnegotiable,because it is made subject to a separate agreement.
C)nonnegotiable,because it refers to a separate agreement.
D)nonnegotiable,because Kelly and Mona are not the same persons.

Accepted Answer

The instrument is nonnegotiable because it is made subject to a separate agreement. This means that the rights and obligations under the instrument are dependent on the terms of the separate agreement between Kelly and Mona. As a result, the instrument cannot be freely transferred or assigned to another party, which is a key characteristic of negotiable instruments.

Question 16

Ryan signs an instrument using an "R" with a circle around it.With this mark for a signature,the instrument is
A)negotiable.
B)nonnegotiable,because an initial does not state the signer's name.
C)nonnegotiable,because this mark is a symbol,not a signature.
D)nonnegotiable,because a simple mark implies a lack of serious intent.

Accepted Answer

The "R" with a circle around it is a recognized form of signature, also known as a "registered" symbol. This symbol is sufficient to show the intention of the signer to sign the instrument and make it negotiable.

Question 17

Shad signs a promissory note payable to Theresa "with interest" on which he conspicuously notes that it is "nonnegotiable." This instru?ment is
A)negotiable.
B)nonnegotiable,because it includes the notation "nonnegotiable."
C)nonnegotiable,because it does not specify a rate of interest.
D)nonnegotiable,because the exact amount payable cannot be deter?mined from the face of the instrument.

Accepted Answer

The notation "nonnegotiable" makes the instrument nonnegotiable, regardless of the presence or absence of an interest rate or the ability to determine the exact amount payable from the face of the instrument.

Question 18

To finance the purchase of a house from Tuna,Uri signs an instrument promising to pay to "Verity Mortgage Service" $160,000 with interest in installments with the final payment due July 10,2042.To be negotiable,this instrument must include the signature of
A)a non-party witness.
B)Tuna or Tuna's realtor.
C)Uri.
D)Verity's chief financial officer.

Accepted Answer

The negotiability of the instrument comes from Uri's promise to pay and his signature on the instrument. Therefore, his signature is the only one required for negotiability. The other parties mentioned may be involved in the transaction but are not necessary for the instrument to be negotiable.

Question 19

Fact Pattern 24-1A (Questions A1-A2 apply)
Flik draws a check payable to "DeliMart" to buy groceries.
-Refer to Fact Pattern 24-1A.With respect to Flik's check,DeliMart is
A)the drawee.
B)the drawer.
C)the maker.
D)the payee.

Accepted Answer

DeliMart is the payee on Flik's check as they are the entity to whom the check is payable.

Question 20

Fact Pattern 24-2A (Questions A3-A4 apply)
Commodity Sales Corporation and Resource Purchasing Company enter a contract for a sale of unprocessed silver.Commodity Sales draws a draft unconditionally ordering Resource Purchasing to pay $50,000 to Commodity Sales's order in sixty days.Resource Purchasing signs and dates the draft.
-Refer to Fact Pattern 24-2A.This instrument is
A)a banker's acceptance.
B)a nonnegotiable instrument.
C)a promissory note.
D)a trade acceptance.

Accepted Answer

The instrument described in the fact pattern is a trade acceptance, which is a type of bill of exchange used in commercial transactions where the seller draws a draft on the buyer, who accepts it by signing and dating it. In this case, Commodity Sales drew the draft on Resource Purchasing, who signed and dated it, thereby accepting the obligation to pay $50,000 to Commodity Sales in sixty days.

Quiz 24: The Function Creation of Negotiable Instruments

Fact Pattern 24-1A (Questions A1-A2 apply) Flik draws a check payable to "DeliMart" to buy groceries. -Refer to Fact Pattern 24-1A.Flik's check is most likely

Bagels n' Coffee Café issues an instrument in favor of Eatery Supplies,Inc.For the instrument to be negotiable,it must

Quincy draws a check payable to "Replay Stadium" to buy two season tickets to the next year's State College football games.This instrument is

Karen writes on a piece of paper,"I owe you $600," signs it,and gives it to Lou.This instrument is

Jack signs an instrument that states it is being executed "as per a contract for the sale of three magic beans dated June 1." This instru?ment is

Locke signs a check payable to the order of Metro Bank,filling in the blanks for the amount with the figures "$100" and "One thousand and 00/100 dol?lars." This check is payable in the amount of

To finance the purchase of a car from Giant Auto Sales,Hoppy signs an instrument promising to pay to "Ideal Credit Union" $18,000 with interest in installments with the final payment due May 15,2014.To be negotiable,this instrument must include on its face

Hayley signs an instrument payable to the order of InstaCredit,Inc.,that allows a holder to demand payment of the entire amount due,with inter?est,if Hayley fails to make a payment.This instrument is

On behalf of Digital Cable Company,Elvin signs an instrument in which he promises to deliver 1,000 feet of optic fiber cable to Financiers eBank on March 1.This instrument is

To obtain office supplies for Doctors Medical Clinic,Elmo executes a draft in favor of Flynn.A draft is

On May 1,Doug signs a check that is payable to the order of Employees Credit Corporation and that is dated July 1.This check is

Rita owes $6,000 in unpaid taxes.In the sand of Seaside Beach,she exe?cutes an instrument for that amount that otherwise meets the re?quire?ments for negotiability.This instrument is likely

Rainey signs a promissory note for $10,000 in favor of State University (SU) .The note is undated but specifies that it is "payable one month after date." This note is

Kelly signs an instrument in favor of Leo that states it is "subject to a cer?tain agreement between Kelly and Mona." This instru?ment is

Ryan signs an instrument using an "R" with a circle around it.With this mark for a signature,the instrument is

Shad signs a promissory note payable to Theresa "with interest" on which he conspicuously notes that it is "nonnegotiable." This instru?ment is

To finance the purchase of a house from Tuna,Uri signs an instrument promising to pay to "Verity Mortgage Service" $160,000 with interest in installments with the final payment due July 10,2042.To be negotiable,this instrument must include the signature of

Fact Pattern 24-1A (Questions A1-A2 apply) Flik draws a check payable to "DeliMart" to buy groceries. -Refer to Fact Pattern 24-1A.With respect to Flik's check,DeliMart is