Question 1

International Properties,Inc.(IPI),signs an instrument in favor of Financial Investments Corporation that includes the statement "IPI plans to pay this debt from the proceeds of the sale of the IPI Office Building in Montreal." This instrument is
A)negotiable.
B)nonnegotiable,because banks cannot easily process office buildings.
C)nonnegotiable,because it refers to a separate sale.
D)nonnegotiable,because Montreal is in Canada,not the United States.

Accepted Answer

The answer of International Properties,Inc.(IPI),signs an instrument in favor of...

Question 2

USA Oil Corporation signs an instrument that states it is being exe?cuted "as per contract for a 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 contract are not clear on the face of the instrument.

Accepted Answer

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

Question 3

Daria signs an instrument payable to the order of Employees Credit Union "on or before" June 15.This instrument is
A)negotiable.
B)nonnegotiable,because the maker can move up the payment date.
C)nonnegotiable,because moving up the payment date is optional.
D)nonnegotiable,because the exact payment date cannot be deter?mined from the face of the instrument.

Accepted Answer

The instrument is negotiable because it meets all the requirements of a negotiable instrument, including the promise to pay a sum certain, the order to pay the credit union, and the absence of any conditions other than payment on or before a specific date. The fact that the payment date is stated as "on or before" does not render the instrument non-negotiable.

Question 4

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

The check drawn by Beck is a draft, as it is an order by him to his bank to pay a certain amount of money to County Farm Supply.

Question 5

EZ Credit Company signs an instrument payable to the order of Fraser that states,"The maker of this note at the date of maturity,May 1,2013,can extend the time of pay?ment,but for no more than a rea?sonable time." This instrument is
A)negotiable.
B)nonnegotiable,because it includes an extension clause.
C)nonnegotiable,because it is not payable within a definite time.
D)nonnegotiable,because it is payable to a specific payee.

Accepted Answer

The instrument is nonnegotiable because it is not payable within a definite time, as the extension clause allows the maker to extend the payment time, making it uncertain.

Question 6

Wilbur signs a note that includes a clause under which the note's holder can delay the date of its payment indefinitely.This is
A)an acceleration clause.
B)an extension clause.
C)an immaturity clause.
D)a stop-payment clause.

Accepted Answer

The clause that allows for the delay of payment is an extension clause. The other choices are not relevant to the situation described.

Question 7

Julie signs a check payable to the order of Kwik Mart Stores,Inc. ,that does not include a date.This check is
A)negotiable.
B)nonnegotiable,because it does not include a date.
C)nonnegotiable,because it is payable to a corporation.
D)nonnegotiable,because it is signed by the drawer.

Accepted Answer

A check is negotiable as long as it contains the necessary elements, which include the payee's name, the drawer's signature, and the amount payable in words and figures. Although a date is recommended, it is not required for the check to be negotiable. Therefore, the lack of a date does not affect the negotiability of the check.

Question 8

On behalf of Equity Capital,Inc. ,Flip signs an instrument promis?ing to pay $5,000 in gold to Growth Investments,Inc. ,on May 15.This in?strument is
A)negotiable.
B)nonnegotiable,because gold is not a medium of exchange author?ized or adopted by a government as currency.
C)nonnegotiable,because it does not recite any consideration.
D)nonnegotiable,because it is for an amount of $500 or more.

Accepted Answer

The instrument is nonnegotiable because it promises payment in gold, which is not a recognized medium of exchange as currency by a government.

Question 9

Olena signs a promissory note payable to the order of Payday Loan Company.The note states that it is payable "with interest at the legal rate." This note is
A)negotiable.
B)nonnegotiable,because it does not specify a rate of interest.
C)nonnegotiable,because it is payable with interest.
D)nonnegotiable,because the exact amount payable cannot be deter?mined from the face of the instrument.

Accepted Answer

The promissory note is negotiable because it meets all the requirements of negotiability, including being payable to the order of a specific payee, containing a promise to pay a specific amount of money, and having no other conditions or limitations on payment. The fact that it specifies interest at the legal rate does not affect its negotiability.

Question 10

Rye signs a $1,000 note payable,at 6 percent interest,on May 1 to Suburban Bank and writes on its face that it is "nonnegotiable." This note is
A)negotiable.
B)nonnegotiable,because it is dated.
C)nonnegotiable,because it is payable with interest.
D)nonnegotiable,because it includes the notation "nonnegotiable."

Accepted Answer

The notation "nonnegotiable" makes the note nonnegotiable, regardless of the other details of the note.

Question 11

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 ones who will receive the payment from Great Federal Bank.

Question 12

Fact Pattern 24-2B 
Ewa signs an instrument unconditionally promising to pay to "Sunny State Bank" $5,000 with interest in installments with the final payment due June 1,2013.
-Refer to Fact Pattern 24-2B.With respect to this instrument,Sunny States Bank is
A)the drawee.
B)the drawer.
C)the maker.
D)the payee.

Accepted Answer

Sunny State Bank is the payee because it is the entity to whom the payment is promised.

Question 13

Rupert owes $5,000 in unpaid taxes.Using the back of an old t-shirt,he 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

The negotiability of an instrument does not depend on what material it is written on, but rather on whether it meets the legal requirements for negotiability, such as a promise to pay a sum certain, a signature, and an unconditional promise to pay. As long as the instrument meets these requirements, it can be negotiable regardless of the material used to write it on.

Question 14

Tyrone draws a check payable to "Cash" and presents it to Urban Bank for payment.This instrument is
A)a bearer instrument.
B)an order instrument.
C)valid but nonnegotiable.
D)void.

Accepted Answer

A check payable to "Cash" is a bearer instrument, meaning that whoever possesses the check can cash it.

Question 15

Will signs a check payable to "cash" and gives it to Yves.This check is
A)negotiable.
B)nonnegotiable,because it does not indicate a specific payee.
C)nonnegotiable,because it is not signed by the payee.
D)nonnegotiable,because "Yves" is not "cash."

Accepted Answer

A check payable to "cash" is considered negotiable because it can be cashed by anyone who presents it for payment at the bank.

Question 16

Fact Pattern 24-2B 
Ewa signs an instrument unconditionally promising to pay to "Sunny State Bank" $5,000 with interest in installments with the final payment due June 1,2013.
-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 describes a promise to pay a specified amount with interest in installments, which fits the definition of a promissory note. A certificate of deposit is a type of time deposit, a draft is an order to pay, and an order to pay is typically associated with a letter of credit or a bill of exchange, which do not fit the facts presented in the scenario.

Question 17

Gladys,the chief executive officer of Home Electrical,Inc. ,signs an in?strument by using a rubber stamp with her thumbprint on it.This instru?ment is
A)negotiable.
B)nonnegotiable,because a rubber stamp does not identify the signer.
C)nonnegotiable,because a thumbprint implies a lack of serious intent.
D)nonnegotiable,because a thumbprint is not a signature.

Accepted Answer

A signature can be made in any form, including a rubber stamp or thumbprint, as long as it is intended to authenticate the instrument.

Question 18

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 signature can be anywhere on the instrument for it to be negotiable. There are no specific requirements for the placement of the signature.

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 payment can be made only out of a particular source.
C)nonnegotiable,because it states an express condition to payment.
D)nonnegotiable,because the reasons for the note are not clear on its face.

Accepted Answer

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

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.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 time draft drawn on a bank (Great Federal Bank) and signed by the drawee (Eagle Buying Company). The bank has agreed to pay the draft at maturity, making it a negotiable instrument that can be bought and sold on the secondary market.

Quiz 24: A: The Function Creation of Negotiable Instruments

International Properties,Inc.(IPI) ,signs an instrument in favor of Financial Investments Corporation that includes the statement "IPI plans to pay this debt from the proceeds of the sale of the IPI Office Building in Montreal." This instrument is

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

Daria signs an instrument payable to the order of Employees Credit Union "on or before" June 15.This instrument is

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

EZ Credit Company signs an instrument payable to the order of Fraser that states,"The maker of this note at the date of maturity,May 1,2013,can extend the time of pay?ment,but for no more than a rea?sonable time." This instrument is

Wilbur signs a note that includes a clause under which the note's holder can delay the date of its payment indefinitely.This is

Julie signs a check payable to the order of Kwik Mart Stores,Inc. ,that does not include a date.This check is

On behalf of Equity Capital,Inc. ,Flip signs an instrument promis?ing to pay $5,000 in gold to Growth Investments,Inc. ,on May 15.This in?strument is

Olena signs a promissory note payable to the order of Payday Loan Company.The note states that it is payable "with interest at the legal rate." This note is

Rye signs a $1,000 note payable,at 6 percent interest,on May 1 to Suburban Bank and writes on its face that it is "nonnegotiable." This note is

Fact Pattern 24-2B Ewa signs an instrument unconditionally promising to pay to "Sunny State Bank" $5,000 with interest in installments with the final payment due June 1,2013. -Refer to Fact Pattern 24-2B.With respect to this instrument,Sunny States Bank is

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

Tyrone draws a check payable to "Cash" and presents it to Urban Bank for payment.This instrument is

Will signs a check payable to "cash" and gives it to Yves.This check is

Fact Pattern 24-2B Ewa signs an instrument unconditionally promising to pay to "Sunny State Bank" $5,000 with interest in installments with the final payment due June 1,2013. -Refer to Fact Pattern 24-2B.The instrument that Ewa signed is most likely

Gladys,the chief executive officer of Home Electrical,Inc. ,signs an in?strument by using a rubber stamp with her thumbprint on it.This instru?ment is

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

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