Question 1

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 has inherited $10,000 before the final payment date of August 1, he can fulfill the promise to pay Martha in full before the due date. Therefore, option B is the correct choice. Options C and D are not applicable since Ralph has already agreed to pay $1,000 each month, and he cannot unilaterally change the terms of the agreement. Option A is also incorrect since Ralph has sufficient funds to make the full payment before the due date.

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

The answer of Jeff's grandmother is the payee of a...

Question 3

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 the drawee with regard to a draft, then the draft is a cashier's check. This is because a cashier's check is a type of draft where the funds are drawn on the bank itself, making the bank the drawer and drawee.

Question 4

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 negotiable instrument. It is a written order from one party to another to pay a certain amount of money. In the case of a trade acceptance, the order is being issued by one party to themselves and another party, with the promise to pay at a later date.

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 (holder in due course) because she acquired the instrument in good faith and for value, without knowledge of Kiley's defect in title. The fact that the instrument is a negotiable bearer instrument does not affect Jill's HDC status.

Question 6

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 is nonnegotiable because it does not include an express promise to pay. It is merely an acknowledgment of a debt. To be negotiable, the instrument must contain an express promise or order to pay a certain amount of money.

Question 7

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 8

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

Accepted Answer

In order to qualify for HDC (holder in due course) status, the holder must give value for the instrument. The check that Muni Investment Company signed to purchase the promissory note from Fallow Corporation satisfies the value requirement for HDC status, as it represents payment in exchange for the note. Therefore, choice D is the correct answer.

Question 9

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...

Question 10

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 nonnegotiable because it is made subject to a separate agreement. This means that it cannot be transferred to another party without the fulfillment of the condition stated in the agreement between Kelly and Mona.

Question 11

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

According to the question, Kris promises to pay Jasmine for a kitten, which implies a monetary transaction. Hence, the instrument will be negotiable only if it is payable in money. Option A is incorrect because goods cannot be used as negotiable instruments. Option C is incorrect because it includes Option A, which is wrong. Option D is incorrect because shares in stock may be volatile and may not have a fixed value at the time of payment.

Question 12

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 did not acquire the instrument in good faith as he bought the promissory note for a significantly lower price than its face value from Curt, who may have acquired it through illegitimate means. As a result, Diann, the maker of the note, could successfully claim that Ben did not acquire it in good faith, and thus, cannot enforce its payment.

Question 13

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

Anywhere on the instrument. A negotiable instrument only requires a signature, regardless of its location on the instrument.

Question 14

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 (CD) is a savings certificate with a fixed maturity date and a specific interest rate, offered by banks and credit unions. In this scenario, Willy deposited money with Home State Bank and was promised a specific interest rate and a maturity date for the CD, which is the definition of a CD. A cashier's check is a check drawn on the bank's own funds, which Willy did not receive. A trade acceptance is a type of financial instrument used in international trade, which is not mentioned in the scenario. A draft is an order to pay money, usually used in commercial transactions, but also not mentioned in the scenario. Therefore, the best choice is A) certificate of deposit.

Question 15

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 16

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 payable to Laura or bearer, meaning anyone who holds the check can cash it. The fact that Laura does not own a stuffed cow does not affect the negotiability of the check.

Question 17

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

Accepted Answer

The instrument is negotiable because it meets all the requirements of negotiability, including being payable to order and not containing any conditions that would make payment dependent on a particular event. The fact that the payment date is "on or before" June 15 does not affect negotiability, as it provides a clear date by which payment must be made.

Question 18

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 answer of Entrepreneur Auto Rentals owes Sole Saver Auto...

Question 19

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

Accepted Answer

A negotiation of an instrument occurs when it is transferred in a way that makes the transferee a holder with rights to enforce the instrument. For this to happen, the instrument must be a negotiable instrument as defined by law. Therefore, since the question states that the instrument transferred by Efron is not a negotiation, it can be inferred that the instrument is not a negotiable instrument. This eliminates options A, B, and D as they all depend on the instrument being negotiable or involve bargaining or an assignment. Only option C - the instrument being a negotiable instrument - is not necessary for the transfer to be a negotiation.

Question 20

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

Accepted Answer

The "R" with a circle around it indicates that Ron intends for his mark to be a signature. As long as the mark is consistently used as a signature, it is valid and the instrument is negotiable.

Quiz 13: Negotiable Instruments