Question 1

Oren signs an instrument payable to the order of Pay-Out Loans, Inc., "on or before" June 15. This instrument is

Accepted Answer

The instrument is negotiable because it meets all the requirements for negotiability, including being payable to a named payee, containing an unconditional promise to pay a specific amount of money, and having a fixed or determinable payment date (which is "on or before" June 15). The fact that the payment date is not a specific calendar date does not affect negotiability.

Question 2

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 order instrument is nonnegotiable because it does not specify a particular person to whom the payment is to be made. "My niece" is not a specific individual, and negotiable instruments require a specific payee.

Question 3

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

Accepted Answer

The instrument is non-negotiable because it is made subject to a separate agreement, as stated in the instrument itself. The fact that it refers to another agreement does not render it non-negotiable as long as it is not specifically made subject to that agreement. The identities of Kelly and Mona are not relevant to the negotiability of the instrument.

Question 4

Commerce LLC owes Data Analysis Company $2,000. Commerce executes a note to Data 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, which is considered value under the Uniform Commercial Code (UCC).

Question 5

Oliver signs an instrument that states it is being executed "as per a contract for the sale of a case of apples dated May 1." This instrument is

Accepted Answer

The answer of Oliver signs an instrument that states it...

Question 6

At 1 A.M., in front of EZ Credit Corporation, which is closed, Frank buys a $500 promissory note for $50 from Greg. When presented with Frank's demand for payment, Diane, the maker of the note, could successfully claim that Frank

Accepted Answer

According to the Uniform Commercial Code (UCC), a purchaser of a negotiable instrument must acquire it in good faith and for value in order to have rights to it. Here, Frank purchased the promissory note for a significantly lower price than its face value, indicating that he may have known that it was either overdue or in default. Therefore, Diane could successfully claim that Frank did not acquire the instrument in good faith.

Question 7

Rick negotiates a bearer instrument to Shane by delivery

Accepted Answer

According to the statement, the negotiable instrument is negotiated to Shane by delivery. As per the rules of negotiable instruments, the negotiation of a bearer instrument is complete by mere delivery. Therefore, no additional steps such as assignment, indorsement or formal presentment are required.

Question 8

Brie signs an instrument in which she promises to pay Carmen a certain price for her Dodge Dart. The instrument will be negotiable if it meets all of the requirements for negotiability, including that it is payable in

Accepted Answer

Negotiable instruments are payable in money. Therefore, B is the correct answer as it is the only option that mentions money.

Question 9

Ben signs a promissory note for $1,500 in favor of Community College. The note is undated but specifies that it is "payable one month after date." This note is

Accepted Answer

The note is nonnegotiable because it lacks a specific date, making it impossible to determine the maturity date from the face of the instrument.

Question 10

Beth, an accountant for Credits & Debits, acquires a negotiable instrument from Ellen by promising to pay its face value in thirty days. Beth acquires 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 11

Emily writes and signs a check payable to "Festival Cinema." Georg, Festival's manager, indorses the check "For deposit only." This is

Accepted Answer

The indorsement "For deposit only" is a restrictive indorsement because it limits the use of the check to only be deposited into a specific account, in this case Festival Cinema's account.

Question 12

On behalf of Bubbly Drinks Company, Calvin signs an instrument in which he promises to deliver 100 cases of soda as payment to Dispatch & Delivery, Inc., on April 1. This instrument is

Accepted Answer

The instrument is nonnegotiable because it promises to deliver goods (soda) rather than a medium of exchange (money), which is required for negotiability.

Question 13

Edna is the payee of a bearer instrument-a promissory note in the amount of $10,000. Flem offers to irrigate Edna's ranch next week in exchange for the note. She agrees and delivers the note to Flem. Flem is

Accepted Answer

Flem is not an HDC because he did not yet give value for the instrument. Value is defined as consideration such as money, goods, services, or a right or benefit that the party is not already entitled to. Flem's promise to irrigate Edna's ranch next week is not considered value for the purposes of becoming an HDC.

Question 14

Opal 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

Accepted Answer

The note is negotiable because it is payable to the order of Payday Loan Company and does not contain any non-negotiable language. The statement that it is payable with interest at the legal rate is sufficient to determine the rate of interest payable.

Question 15

Coki receives a payroll check from Data Solutions Inc. and indorses it by signing her name on the back of the check. This is

Accepted Answer

Coki's indorsement by simply signing her name on the back of the check is a blank indorsement.

Question 16

On the back of a check payable to Nero, he writes "Pay to Odell, without recourse" and signs it. This

Accepted Answer

By writing "without recourse" on the check, Nero is indicating that he does not want to be held liable if the check bounces or is not paid for some other reason. This phrase shifts the risk of non-payment to Odell, the party receiving the check. However, it does not affect the check's negotiability, meaning that it can still be cashed or deposited by Odell or any subsequent holder.

Question 17

Ana signs a check payable to Boz, who indorses the back, gives it to Credit Union, and receives cash. The transfer of the check from Boz to Credit Union is

Accepted Answer

When Boz indorses the back of the check and gives it to Credit Union, it is considered a negotiation. A negotiation is defined as the transfer of an instrument in such a manner as to constitute the transferee the holder of the instrument. In this case, Credit Union becomes the holder of the check and is able to receive cash from it.

Question 18

Muni Investment Company signs a check payable to Notes & Loans, Inc., to buy a promissory note executed by Omni Corporation. This check

Accepted Answer

The check signed by Muni Investment Company constitutes sufficient value to satisfy the value requirement for HDC status. HDC status requires that the holder give value for the negotiable instrument, and the value can be in the form of consideration, such as payment or exchange for property, goods, or services. In this case, Muni's payment of the check to acquire the promissory note executed by Omni Corporation satisfies the value requirement for HDC status.

Question 19

Len makes a gift of a check to Millie who takes it in good faith and without notice of any claim, defense, or defect. With respect to this check, Millie is

Accepted Answer

The answer of Len makes a gift of a check...

Question 20

Ryan negotiates an order instrument to Selina by delivery

Accepted Answer

An order instrument requires delivery and any necessary indorsement to be negotiated properly.

Quiz 22: Negotiable Instruments