Question 1

Fact Pattern 25-1B (Questions B5-B6 apply)
Thalia signs an instrument unconditionally promising to pay to "Union Bank" $7500 with interest in installments with the final payment due June 1, 2017.
-Refer to Fact Pattern 25-1B. The instrument that Thalia signed is most likely
A) a certificate of deposit.
B) a draft.
C) an order to pay.
D) a promissory note.

Accepted Answer

The instrument Thalia signed is an unconditional promise to pay, which is a characteristic of a promissory note.

Question 2

Eden signs a promissory note payable to the order of First Mortgage 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 is payable to the order of First Mortgage Company and does not include any non-negotiable terms. The fact that it states "with interest at the legal rate" is not a non-negotiable term, as the legal rate can be easily determined by referring to the applicable law.

Question 3

To borrow money to finance the start-up of his business, Rollo executes an instrument in favor of Security 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

According to the Uniform Commercial Code (UCC), the signature can be anywhere on the instrument for it to be negotiable.

Question 4

Northwest Energy Corporation signs an instrument that states it is being exe?cuted "as per contract for a purchase of 4,000 barrels of oil dated September 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 Northwest Energy Corporation signs an instrument that...

Question 5

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
A) negotiable.
B) nonnegotiable, because it does not indicate a specific payee.
C) nonnegotiable, because it may be a joke.
D) nonnegotiable, because Laura does not own a stuffed cow.

Accepted Answer

The check is negotiable because it meets all the requirements for negotiability, including being payable to a specific person or bearer, being in writing, and signed by the drawer. Whether or not Laura actually owns a stuffed cow is irrelevant.

Question 6

InterComp normally sells $50,000 worth of software to Power Source, a retail elec?tronics store, each summer on terms requiring payment in sixty days. One year, InterComp wants cash, but Power Source wants the usual sixty days. To meet both needs, the parties can arrange
A) a certificate of deposit.
B) a bearer bond.
C) a trade acceptance.
D) an international letter of credit.

Accepted Answer

A trade acceptance is a time draft, similar to a check, that is drawn by the seller (InterComp) and accepted by the buyer (Power Source) for payment at a future date. In this case, InterComp can create a trade acceptance with a maturity date of sixty days, which Power Source can then accept as payment. This allows Power Source to maintain their usual payment terms while providing InterComp with cash now. Certificate of deposit and bearer bond are not suitable in this scenario, and while an international letter of credit could work, it is more complex and costly than a trade acceptance.

Question 7

Trixie signs a $1,500 note payable, at 4.25 percent interest, on October 1 to Urban 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" on the face of the note makes it nonnegotiable, regardless of the date or the inclusion of interest.

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. This is
A) a certificate of deposit.
B) a cashier's check.
C) none of the choices.
D) a draft.

Accepted Answer

This is a certificate of deposit (CD), which is a time deposit with a fixed interest rate and maturity date. The depositor agrees to leave the money in the CD until the maturity date, at which point they can withdraw the funds plus any accrued interest.

Question 9

Evermore Bank is both the drawer and the drawee with regard to a draft issued to Fernando. The draft is
A) a certificate of deposit.
B) a cashier's check.
C) a nonnegotiable instrument.
D) a promissory note.

Accepted Answer

A cashier's check is a draft where the bank is both the drawer and the drawee, guaranteeing the payment.

Question 10

Efron borrows money to pay his tuition and signs a note payable to First Citizens Bank. The bank assigns the note to Guaranty Bank. The assignment
A) does not affect Efron's obligation to pay the note as promised.
B) frees Efron of the obligation to pay the note.
C) results in Guaranty Bank's co-liability on the note with Efron.
D) results in Guaranty Bank's co-liability on the note with First Citizens Bank.

Accepted Answer

The assignment of the note from First Citizens Bank to Guaranty Bank does not affect Efron's obligation to pay the note as promised. Efron is still responsible for paying the debt to the new holder of the note (Guaranty Bank) as per the terms of the original agreement. Assigning the note simply transfers the right to collect payment from the original holder (First Citizens Bank) to the new holder (Guaranty Bank).

Question 11

Brie wants one of Cari's purebred Dalmations. Brie signs an instrument in which she promises to pay Jasmine for a puppy. The instrument will be negotiable if it is payable in
A) goods of equal market value.
B) money.
C) any of the choices.
D) shares of stock.

Accepted Answer

A negotiable instrument refers to a written agreement that can be transferred from one party to another. It is only considered negotiable if it meets specific criteria, one of which is being payable in money. Therefore, option B is the correct choice, as only money can make an instrument negotiable.

Question 12

Cricket signs a check payable to the order of Discount Warehouse, 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

The check is negotiable, as it is payable to the order of Discount Warehouse, Inc. and is signed by Cricket. Although it does not include a date, this does not affect its negotiability.

Question 13

Payday Loans, Inc., signs an instrument payable to the order of Qiana that states, "The maker of this note at the date of maturity, April 1, 2016, 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. The extension clause does not affect its negotiability. However, the absence of a definite maturity date makes it impossible to determine the time of payment, which is a requirement for negotiability. Additionally, the fact that it is payable to a specific payee rather than "to order" (i.e., "payable to the order of Qiana") is not relevant to its negotiability.

Question 14

Sarah has a checking account at Secure Bank. Sarah buys her roommate Sophie's two tickets to a Broadway musical for $200. Sarah writes Sophie a check for the tickets. In this situation, Secure Bank is
A) the drawee.
B) the indorser.
C) the payee.
D) the drawer.

Accepted Answer

Secure Bank is the drawee because it is the bank that is directed to pay the amount specified on the check from Sarah's account.

Question 15

Fact Pattern 25-1B (Questions B5-B6 apply)
Thalia signs an instrument unconditionally promising to pay to "Union Bank" $7500 with interest in installments with the final payment due June 1, 2017.
-Refer to Fact Pattern 25-1B. With respect to this instrument, Union Bank is
A) the drawee.
B) the indorser.
C) the maker.
D) the payee.

Accepted Answer

Union Bank is the payee because it is the entity to whom the payment is promised in the instrument signed by Thalia.

Question 16

To obtain a business license, Bess writes a check to a certain state agency. Bess is
A) the drawee.
B) the drawer.
C) the indorser.
D) the payee.

Accepted Answer

The person who writes a check is called the drawer, as they are drawing from their own account to make a payment. The agency that receives the check would be the payee. The drawee would be the bank that the check is written on and the indorser would be anyone who endorses or signs the back of the check to transfer it to someone else.

Question 17

Grace signs an instrument payable to the order of Hillside 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 is payable to the order of Hillside Credit Union and contains an unconditional promise to pay a fixed amount of money on or before a specific date. The fact that the payment date is specific and indicated as "on or before" does not make it non-negotiable.

Question 18

On April 1 Richard arranges to buy a sixteen-speed bike from his neighbor Phil for $500. Phil agrees to deliver the bike on May 1. Richard writes a draft for $500 payable to Phil on May 1. In this situation, the draft is
A) a certificate of deposit.
B) a time draft.
C) a sight draft.
D) a promissory note.

Accepted Answer

The draft is a time draft because it is payable on a specific date in the future, which is May 1. It is not a certificate of deposit because that refers to a type of savings account. It is not a sight draft because a sight draft is payable upon presentation, whereas this draft is payable on a future date. It is also not a promissory note because a promissory note is a written promise to pay a certain amount of money, whereas this draft is an order to pay a certain amount of money on a specific date.

Question 19

Merry draws a check payable to "Cash" and presents it to National 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, which means it can be transferred by delivery and can be freely negotiated by whoever has possession of the instrument. It is not an order instrument because it does not identify a specific payee. It is also not necessarily nonnegotiable, as negotiability depends on other factors such as the wording and terms of the instrument. It is valid as long as it meets the requirements for a check, but it may be subject to certain limitations or restrictions depending on the circumstances. It is not void unless there is a defect or irregularity that renders it ineffective as a negotiable instrument.

Question 20

Bart, the owner of Clear Cut Corporation, signs an instrument that includes the phrase "payment for this note will be made from the pro?ceeds of next year's timber 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 Bart, the owner of Clear Cut Corporation,...

Quiz 25: The Function Creation of Negotiable Instruments

Fact Pattern 25-1B (Questions B5-B6 apply) Thalia signs an instrument unconditionally promising to pay to "Union Bank" $7500 with interest in installments with the final payment due June 1, 2017. -Refer to Fact Pattern 25-1B. The instrument that Thalia signed is most likely

Eden signs a promissory note payable to the order of First Mortgage Company. The note states that it is payable "with interest at the legal rate." This note is

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

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

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

InterComp normally sells $50,000 worth of software to Power Source, a retail elec?tronics store, each summer on terms requiring payment in sixty days. One year, InterComp wants cash, but Power Source wants the usual sixty days. To meet both needs, the parties can arrange

Trixie signs a $1,500 note payable, at 4.25 percent interest, on October 1 to Urban Bank and writes on its face that it is "nonnegotiable." This note is

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. This is

Evermore Bank is both the drawer and the drawee with regard to a draft issued to Fernando. The draft is

Efron borrows money to pay his tuition and signs a note payable to First Citizens Bank. The bank assigns the note to Guaranty Bank. The assignment

Brie wants one of Cari's purebred Dalmations. Brie signs an instrument in which she promises to pay Jasmine for a puppy. The instrument will be negotiable if it is payable in

Cricket signs a check payable to the order of Discount Warehouse, Inc., that does not include a date. This check is

Payday Loans, Inc., signs an instrument payable to the order of Qiana that states, "The maker of this note at the date of maturity, April 1, 2016, can extend the time of pay?ment, but for no more than a rea?sonable time." This instrument is

Sarah has a checking account at Secure Bank. Sarah buys her roommate Sophie's two tickets to a Broadway musical for $200. Sarah writes Sophie a check for the tickets. In this situation, Secure Bank is

Fact Pattern 25-1B (Questions B5-B6 apply) Thalia signs an instrument unconditionally promising to pay to "Union Bank" $7500 with interest in installments with the final payment due June 1, 2017. -Refer to Fact Pattern 25-1B. With respect to this instrument, Union Bank is

To obtain a business license, Bess writes a check to a certain state agency. Bess is

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

On April 1 Richard arranges to buy a sixteen-speed bike from his neighbor Phil for $500. Phil agrees to deliver the bike on May 1. Richard writes a draft for $500 payable to Phil on May 1. In this situation, the draft is

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

Bart, the owner of Clear Cut Corporation, signs an instrument that includes the phrase "payment for this note will be made from the pro?ceeds of next year's timber sale." This instrument is