Question 1

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...

Question 2

Fact Pattern 24-1B 
Dominion Sales Ltd. in Canada and Eagle Buying Company in the United States enter a contract for a sale of forestry products. Dominion draws a draft unconditionally ordering Great Federal Bank, Eagle's bank, to pay $60,000 to Dominion's order in sixty days. Eagle signs and dates the draft.
-Refer to Fact Pattern 24-1B. This instrument is
A) a banker's acceptance.
B) a nonnegotiable instrument.
C) a promissory note.
D) a trade acceptance.

Accepted Answer

This instrument is a banker's acceptance because it is a draft drawn on a bank (Great Federal Bank) and signed by the purchaser (Eagle Buying Company) indicating acceptance and willingness to pay in the future. The bank, as the drawee, promises to pay the draft once it matures.

Question 3

Dino, the chief executive officer of Electrician Services, Inc., signs an in?strument by plac?ing his thumbprint on it. This instru?ment is
A) negotiable.
B) nonnegotiable, because a thumbprint does not state the signer's name.
C) nonnegotiable, because a thumbprint implies a lack of binding intent.
D) nonnegotiable, because a thumbprint is not a signature.

Accepted Answer

A thumbprint can be considered a valid signature if it is intended to authenticate the instrument, making it negotiable.

Question 4

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, 2040. 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

To be negotiable, the instrument must include the signature of the person who promises to pay (in this case, Uri). A non-party witness signature is not required for negotiability, and the signatures of Tuna, Tuna's realtor, or Verity's chief financial officer are not necessary for the note to be negotiable.

Question 5

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

Accepted Answer

Quantity Sales is the drawer because they drew up the draft, which is a type of negotiable instrument. Resources Purchasing is the drawee, as they are the party being ordered to pay the amount specified on the draft.

Question 6

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

Accepted Answer

GrocMart is the payee, as they are the intended recipient of the funds being transferred by the check. The drawee would be the bank that GrocMart deposits the check into, the drawer would be Flik (the person who wrote the check), and the maker would be the bank that printed the check.

Question 7

Fact Pattern 24-2B 
Ewa signs an instrument unconditionally promising to pay to "First State Bank" $5,000 with interest in installments with the final payment due June 1, 2012.
-Refer to Fact Pattern 24-2B. The instrument that Ewa signed is most likely
A) a certificate of deposit.
B) a draft.
C) an order to pay.
D) a promissory note.

Accepted Answer

The fact pattern states that Ewa signed an instrument "unconditionally promising to pay" a specific amount with interest in installments, which is indicative of a promissory note. The other options listed (certificate of deposit, draft, order to pay) do not align with the description given in the fact pattern.

Question 8

USA Oil Corporation signs an instrument that states it is being exe?cuted "in accord with a contract for the purchase of 4,000 barrels of oil dated May 1." This instrument is
A) negotiable.
B) nonnegotiable, because information about the sale must be ob?tained from another source.
C) nonnegotiable, because it states an express condition to payment.
D) nonnegotiable, because the terms of the sale are not clear.

Accepted Answer

The answer of USA Oil Corporation signs an instrument that...

Question 9

Fact Pattern 24-1A 
Flik draws a check payable to "GrocMart" to buy groceries.
-Refer to Fact Pattern 24-1A. Flik's check is most likely
A) a certificate of deposit.
B) a negotiable instrument.
C) a promise to pay.
D) a promissory note.

Accepted Answer

The fact pattern describes a check, which is a type of negotiable instrument. Option A, certificate of deposit, is a type of investment product issued by a bank. Option C, promise to pay, is a general term that could apply to various types of contracts or legal agreements. Option D, promissory note, is a type of negotiable instrument, but the fact pattern specifically identifies the instrument as a check.

Question 10

To borrow money to finance the start-up of his business, Buck executes an instrument in favor of City Bank. For the instru?ment to be negotiable, the signature must be
A) anywhere on the instrument.
B) anywhere on the lower half of the instrument only.
C) in the lower left-hand corner of the instrument only.
D) in the lower right-hand corner of the instrument only.

Accepted Answer

The negotiability of an instrument is determined by the Uniform Commercial Code (UCC), which states that a signature can be located anywhere on the instrument. Therefore, Buck's signature can be anywhere on the instrument for it to be negotiable.

Question 11

Beck draws a check payable to "County Farm Supply" to buy a quantity of fertilizer to deposit in Beck's field. This check is
A) a certificate of deposit.
B) a draft.
C) a promise to pay.
D) a promissory note.

Accepted Answer

A check is a type of draft, which is a negotiable instrument that orders someone to pay a certain amount of money to another party. In this case, Beck is ordering their bank to pay County Farm Supply for the fertilizer. Thus, the correct answer is B) a draft. The other options (A, C, and D) do not accurately describe what a check is.

Question 12

Fact Pattern 24-2A 
Quantity Sales Corporation and Resources Purchasing Company enter a contract for a sale of processed silver. Quantity Sales draws a draft unconditionally ordering Resources Purchasing to pay $50,000 to Quantity Sales's order in sixty days. Resources 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

This instrument is a trade acceptance because it is drawn by the seller (Quantity Sales) on the buyer (Resources Purchasing) and is used to finance the sale of goods. The draft is a type of negotiable instrument and becomes a banker's acceptance when accepted by the buyer (Resources Purchasing).

Question 13

Diners Restaurant issues an instrument in favor of Eatery Supplies, Inc. For the instrument to be negotiable, it need not
A) be an unconditional promise or order to pay.
B) be payable on demand or at a specific time.
C) be signed by Diner's Restaurant.
D) recite the consideration given in exchange for a promise to pay.

Accepted Answer

While various requirements need to be met for an instrument to be negotiable, reciting the consideration given in exchange for a promise to pay is not one of them. The other three requirements mentioned in the options are necessary for an instrument to be negotiable. Therefore, option D is the correct answer.

Question 14

Fact Pattern 24-2B 
Ewa signs an instrument unconditionally promising to pay to "First State Bank" $5,000 with interest in installments with the final payment due June 1, 2012.
-Refer to Fact Pattern 24-2B. With respect to this instrument, First States Bank is
A) the drawee.
B) the drawer.
C) the maker.
D) the payee.

Accepted Answer

First State Bank is the payee because it is the entity to whom the payment is promised in the instrument signed by Ewa.

Question 15

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, an instrument must contain no conditions on the face of the document. Any conditions should be stated in a separate agreement or contract.

Question 16

Ross 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 an initial is not a signature.
D) nonnegotiable, because a simple initial implies a lack of binding intent.

Accepted Answer

The "R" with a circle around it is considered a valid signature and is therefore negotiable. This mark is commonly referred to as a "Ruling" or "Registered" signature and is often used by individuals with special signing authority or who are authorized signatories for an organization.

Question 17

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 where one party (the drawer) orders another party (the drawee) to pay a third party (the payee).

Question 18

Gail owes $5,000 in unpaid taxes. Using the back of an old t-shirt, she exe?cutes an instrument for $5,000 that otherwise meets the re?quire?ments for negotiability. This instrument is most likely
A) negotiable.
B) nonnegotiable, because an instrument must be on paper.
C) nonnegotiable, because a t-shirt is not sufficiently permanent.
D) nonnegotiable, because the government does not appreciate it.

Accepted Answer

An instrument is negotiable as long as it meets the requirements of negotiability, such as being in writing, signed by the issuer, containing an unconditional promise or order to pay a specific amount of money, and being payable to order or bearer. There is no requirement that the instrument must be on paper, and a t-shirt can be considered a writing. As long as the instrument meets these requirements, it is negotiable.

Question 19

Kevin, the owner of Livestock Ranch Corporation, signs an instrument that includes the phrase "payment for this note will be made from the pro?ceeds of next year's stock sale." This instrument is
A) negotiable.
B) nonnegotiable, because information about the sale must be ob?tained from another source.
C) nonnegotiable, because it states an express condition to payment.
D) nonnegotiable, because the reasons for the note are not clear.

Accepted Answer

The answer of Kevin, the owner of Livestock Ranch Corporation,...

Question 20

Fact Pattern 24-1B 
Dominion Sales Ltd. in Canada and Eagle Buying Company in the United States enter a contract for a sale of forestry products. Dominion draws a draft unconditionally ordering Great Federal Bank, Eagle's bank, to pay $60,000 to Dominion's order in sixty days. Eagle signs and dates the draft.
-Refer to Fact Pattern 24-1B. With respect to this instrument, Dominion is
A) the banker.
B) the maker.
C) the payee.
D) the trader.

Accepted Answer

Dominion is the payee because they are the recipient of the $60,000 payment from Eagle's bank. They drafted the order for payment and Eagle signed it, making Dominion the payee.

Quiz 24: The Function Creation of Negotiable Instruments

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

Dino, the chief executive officer of Electrician Services, Inc., signs an in?strument by plac?ing his thumbprint on it. 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, 2040. To be negotiable, this instrument must include the signature of

Fact Pattern 24-1A Flik draws a check payable to "GrocMart" to buy groceries. -Refer to Fact Pattern 24-1A. With respect to Flik's check, GrocMart is

Fact Pattern 24-2B Ewa signs an instrument unconditionally promising to pay to "First State Bank" $5,000 with interest in installments with the final payment due June 1, 2012. -Refer to Fact Pattern 24-2B. The instrument that Ewa signed is most likely

USA Oil Corporation signs an instrument that states it is being exe?cuted "in accord with a contract for the purchase of 4,000 barrels of oil dated May 1." This instrument is

Fact Pattern 24-1A Flik draws a check payable to "GrocMart" to buy groceries. -Refer to Fact Pattern 24-1A. Flik's check is most likely

To borrow money to finance the start-up of his business, Buck executes an instrument in favor of City Bank. For the instru?ment to be negotiable, the signature must be

Beck draws a check payable to "County Farm Supply" to buy a quantity of fertilizer to deposit in Beck's field. This check is

Diners Restaurant issues an instrument in favor of Eatery Supplies, Inc. For the instrument to be negotiable, it need not

Fact Pattern 24-2B Ewa signs an instrument unconditionally promising to pay to "First State Bank" $5,000 with interest in installments with the final payment due June 1, 2012. -Refer to Fact Pattern 24-2B. With respect to this instrument, First States Bank is

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

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

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

Gail owes $5,000 in unpaid taxes. Using the back of an old t-shirt, she exe?cutes an instrument for $5,000 that otherwise meets the re?quire?ments for negotiability. This instrument is most likely

Kevin, the owner of Livestock Ranch Corporation, signs an instrument that includes the phrase "payment for this note will be made from the pro?ceeds of next year's stock sale." This instrument is