Question 1

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 fact that the check is made payable to "Replay Stadium" indicates that it is an order instrument, as it is payable to a specific person or entity. It is not a bearer instrument, as it is not payable to whoever holds the check. It is also not invalid or nonnegotiable on its face.

Question 2

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

A negotiable instrument only requires the signature of the person obligated to pay, which in this case is Uri. Option A is incorrect because a witness signature is not required for negotiability. Option B is incorrect because the signature of Tuna or Tuna's realtor is not necessary for negotiability since they are not obligated to pay. Option D is incorrect because the signature of Verity's chief financial officer is not required for negotiability.

Question 3

Rita owes $6,000 in unpaid taxes. In the sand of Seaside Beach, she executes an instrument for that amount that otherwise meets the requirements 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

In order for an instrument to be negotiable, it must meet certain requirements, one of which is that it must be sufficiently permanent. Sand is not considered to be permanent enough to meet this requirement, so the instrument would be nonnegotiable.

Question 4

Fact Pattern 24-1A
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

The answer of Fact Pattern 24-1A
Flik draws a check payable...

Question 5

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, which is exactly what Elmo executed in favor of Flynn to obtain office supplies for Doctors Medical Clinic.

Question 6

Kelly signs an instrument in favor of Leo that states it is "subject to a certain agreement between Kelly and Mona." This instrument 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 transferability of the instrument is limited to the terms of the separate agreement between Kelly and Mona.

Question 7

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, as set forth in the Uniform Commercial Code (UCC). The other options mentioned, such as being conditional or stating consideration, do not impact negotiability under the UCC. While a signature is required on a negotiable instrument, it must be made by the person promising or ordering payment, not the payee.

Question 8

Fact Pattern 24-1A
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 9

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 does not include an express promise to pay. It only acknowledges a debt owed.

Question 10

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

In order to be negotiable, an instrument such as a promissory note must not contain any conditions, as conditions would make it uncertain and non-uniform. Therefore, the best choice is D, no conditions.

Question 11

Fact Pattern 24-2A
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 one issuing the draft and ordering Resource Purchasing to pay a certain amount within a certain timeframe.

Question 12

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 symbol for a signature and is considered valid for negotiable instruments. It shows intention and identifies the signer.

Question 13

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 dollars." This check is payable in the amount of
A) $0.
B) $100.
C) $1,000.
D) $1,100.

Accepted Answer

The answer of Locke signs a check payable to 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 determined from the face of the instrument.

Accepted Answer

The answer of Rainey signs a promissory note for $10,000...

Question 15

Hayley signs an instrument payable to the order of InstaCredit, Inc., that allows a holder to demand payment of the entire amount due, with interest, 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 determined from the face of the instrument.

Accepted Answer

The instrument is negotiable as it meets all requirements of negotiability, including being payable to the order of a specified party (InstaCredit) and containing an unqualified promise to pay a certain amount of money. The provision allowing the holder to demand payment if Hayley fails to make a payment is a collateral condition and does not affect the negotiability of the instrument.

Question 16

Fact Pattern 24-2A
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

This instrument is a trade acceptance because it is drawn by a seller ordering a buyer to pay a certain amount at a future date for goods received. It is not a promissory note because it is not an unconditional promise to pay a certain amount of money at a future date. It is not a banker's acceptance because it is not a draft that is accepted by a bank. It is also not a nonnegotiable instrument because it can be transferred to a third party through endorsement.

Question 17

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 despite being postdated because it meets all the requirements of a negotiable instrument: it is in writing, signed by the drawer, contains an unconditional promise to pay, and is payable on demand or at a specific future time. The fact that it is payable to a corporation does not affect its negotiability.

Question 18

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 authorized 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 answer of On behalf of Digital Cable Company, Elvin...

Question 19

Shad signs a promissory note payable to Theresa "with interest" on which he conspicuously notes that it is "nonnegotiable." This instrument 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 determined from the face of the instrument.

Accepted Answer

The notation "nonnegotiable" on the promissory note makes it nonnegotiable, regardless of whether there is a specified interest rate or determinable amount payable.

Question 20

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 instrument 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...

Quiz 24: The Function Creation of Negotiable Instruments

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

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

Rita owes $6,000 in unpaid taxes. In the sand of Seaside Beach, she executes an instrument for that amount that otherwise meets the requirements for negotiability. This instrument is likely

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

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

Kelly signs an instrument in favor of Leo that states it is "subject to a certain agreement between Kelly and Mona." This instrument is

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

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

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

Ryan signs an instrument using an "R" with a circle around it. With this mark for a signature, the instrument 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 dollars." This check is payable in the amount of

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

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

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

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