Question 1

Entrepreneur Auto Rentals owes Sole Saver Auto Dealership $2,000.Entrepreneur executes a note to Sole Saver as security for the debt.This security

Accepted Answer

The execution of a note as security for a debt satisfies the value requirement for Holder in Due Course (HDC) status because it represents a binding commitment to pay.

Question 2

Jeff's grandmother is the payee of a promissory note for $7,500.Jeff's grandmother gives Jeff the note for his sixteenth birthday.Jeff is

Accepted Answer

Jeff is not a holder in due course (HDC) because he received the note as a gift, which means he did not give value for it, a requirement for HDC status.

Question 3

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

Accepted Answer

An "R" with a circle around it is a recognized form of a signature, known as a "registered mark." As long as the mark was made with the intent to sign the instrument, it is considered a valid signature and renders the instrument negotiable.

Question 4

Muni Investment Company signs a check payable to Enterprise Lenders,Inc.,to buy a promissory note executed by Fallow Corporation. This check

Accepted Answer

The check signed by Muni Investment Company, payable to Enterprise Lenders, Inc., is payment for the promissory note executed by Fallow Corporation. This payment satisfies the value requirement for HDC (holder in due course) status, as it represents the amount owed on the note. Therefore, the answer is D.

Question 5

Jill,in good faith and for value,gets from Kiley a negotiable bearer in-stru-ment.Jill does not know that Kiley stole the instrument.Jill is

Accepted Answer

Jill is an HDC because she acquired the negotiable bearer instrument in good faith and for value, without knowledge of Kiley's theft. As an HDC, Jill takes the instrument free from any prior claims or defenses.

Question 6

To buy a stuffed cow,Ken executes a check "pay to Laura or bearer" and gives it to Laura,who does not own a stuffed cow. This check is

Accepted Answer

The check is negotiable because it is properly payable to Laura or bearer, meaning anyone who possesses the check can cash it. Whether or not Laura owns a stuffed cow does not affect the negotiability of the check.

Question 7

If a bank is both the drawer and the drawee with regard to a draft,then the draft is a

Accepted Answer

If a bank is both the drawer and drawee with regard to a draft, the draft is a cashier's check.

Question 8

Willy deposits $5,000 with Home State Bank on July 1,2012.Home State Bank promises to repay Willy the $5,000 plus 3 percent annual interest on July 1,2017.Home State Bank has issued Willy a

Accepted Answer

A certificate of deposit is a savings account where the customer agrees to keep their money deposited for a specific period of time, in this case, 5 years, in exchange for an agreed-upon interest rate. Upon maturity of the certificate of deposit, the customer receives the original deposit plus interest earned.

Question 9

Maria signs an instrument payable to the order of National Loans,Inc.,"on or before" June 15. This instrument is

Accepted Answer

The use of the phrase "on or before" June 15 allows for flexibility in when the payment can be made, but does not give the maker the option to move up the payment date. Additionally, the instrument is payable to the order of National Loans, Inc., making it negotiable.

Question 10

At 1A.m.,on the sidewalk in front of Ace Credit Corporation,which is closed,Ben buys a $500 promissory note for $50 from Curt.When pre-sented with Ben's demand for payment,Diann,the maker of the note,could successfully claim that Ben

Accepted Answer

Ben bought the promissory note for $50, which is significantly less than the face value of $500. This could indicate that Ben knew or should have known that there was some issue with the note, such as it being overdue or not supported by sufficient collateral. Therefore, he did not acquire the note in good faith, and Diann could successfully claim this as a defense against payment.

Question 11

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

Accepted Answer

The negotiability of an instrument is determined by the presence of certain characteristics, such as being in writing, signed by the maker or drawer, and containing an unconditional promise or order to pay a fixed amount of money. The Uniform Commercial Code (UCC) does not specify where the signature must be placed on the instrument to be negotiable, as long as it is present and attributed to the appropriate party. Therefore, any signature placement or position on the instrument would make it negotiable.

Question 12

Alpha Company issues a trade acceptance with itself and Beta Company as parties. A trade acceptance is

Accepted Answer

A trade acceptance is a type of draft, which is a written order to pay a certain amount of money. It is typically used as a payment method in commercial transactions where parties trust each other but may not have established credit histories.

Question 13

Fred has six nieces,ages five to sixteen.He writes an order instrument for $50 that states,"Pay to the order of my niece." The order instrument is

Accepted Answer

The answer of Fred has six nieces,ages five to sixteen.He...

Question 14

Kris wants one of Jasmine's purebred Persian kittens.Kris signs an instrument in which she promises to pay Jasmine for a kitten.The instrument will be negotiable if it is payable in

Accepted Answer

A negotiable instrument must be payable in money, which means that the promise to pay must be for a specific sum of money. This is what makes the instrument transferable and allows it to be used as a substitute for cash. Goods of equal market value or shares in stock are not considered legal tender and cannot be used to satisfy the payment of a negotiable 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

Accepted Answer

The instrument is made subject to a separate agreement, which means that its terms and conditions are contingent upon the terms and conditions of the separate agreement. This makes the instrument nonnegotiable.

Question 16

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

Accepted Answer

The instrument given by Karen is nonnegotiable because it does not include an express promise to pay. It only acknowledges a debt owed, but does not legally obligate Karen to make payment.

Question 17

Beth,an accountant for Credits & Debits,acquires a negotiable instru-ment from Ellen by promis-ing to pay its face value in thirty days.Beth ac-quires the status of an HDC when she

Accepted Answer

To become a holder in due course (HDC), Beth must give value for the negotiable instrument, which in this context means paying the face value due on the instrument.

Question 18

Elinor performs ten hours of house cleaning for Zack in exchange for a promissory note for $400.At the time that Elinor accepts the note,she is aware that bankruptcy proceedings are being filed against Zack.Elinor

Accepted Answer

The answer of Elinor performs ten hours of house cleaning...

Question 19

Ralph signs an instrument promising to pay a total of $10,000 to Martha in $1,000 monthly installments with the final payment being made on August 1.Ralph unexpectedly inherits $10,000 from his aunt on May 15.Ralph may

Accepted Answer

Since Ralph inherited $10,000 on May 15 and only needs to pay a total of $10,000, he can choose to make a lump sum payment to Martha and fulfill the obligation before August 1. Therefore, he can complete his $10,000 payment before August 1.

Question 20

Efron transfers an instrument to First Citizens Bank.This is not a negotiation unless

Accepted Answer

A negotiation refers to the transfer of a negotiable instrument from one party to another in exchange for something of value. If the instrument is not negotiable, it cannot be subject to negotiation. Therefore, Efron's transfer to First Citizen's Bank is not a negotiation unless the instrument is a negotiable instrument.

Quiz 17: Negotiability, transferability, and Liability