Question 1

Ida executes an instrument in favor of Joy that states,"The holder of this note at the date of maturity,July 1,2010,can extend the time of pay?ment indefinitely,if the holder so desires." After July 1,2010,this in?strument is

Accepted Answer

The instrument is a demand instrument because it is payable at any time after July 1, 2010, at the option of the holder.

Question 2

Kelly signs an instrument in favor of Len 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. The fact that it refers to another agreement does not necessarily make it nonnegotiable, but the condition of being subject to another agreement does. The identity of the parties is not relevant to the negotiability of an instrument.

Question 3

Ivan signs a promissory note payable to Jade on which Ivan conspicuously notes that it is "not negotiable" and gives the note to Jade.This instru?ment is

Accepted Answer

The notation "not negotiable" makes the instrument nonnegotiable, regardless of the fact that it is a promissory note and was given to Jade.

Question 4

Lucy is the maker of a $1,000 promissory note in favor of Milo.Milo indorses the note to Nim who,in turn,indorses it to Opie,the present holder.If the note is dishonored,the party entitled to re?cover pay?ment from Nim is

Accepted Answer

When a promissory note is indorsed to a new holder, the new holder becomes the "holder in due course" and has the right to demand payment from the previous indorsers (assuming the note is dishonored). In this case, Opie is the current holder of the note and therefore has the right to demand payment from Nim. Lucy and Milo are no longer involved in the transaction since they have already indorsed the note to the next holder.

Question 5

Paco signs an instrument payable in installments to the order of Quik Cash,Inc. ,that allows a holder to demand payment of the entire amount due,with inter?est,if Paco fails to make a payment.This instrument is

Accepted Answer

The instrument is negotiable because it is payable to the order of Quik Cash, Inc. and allows a holder to demand payment of the entire amount due. The inclusion of an interest provision and a condition for failure to make a payment do not affect negotiability.

Question 6

Reel Time Film Production Company issues a promissory note as a demand instrument with a due date of October 5.Syncopated Loan Company accepts the note.Syncopated has notice that the note is overdue if the firm takes the note

Accepted Answer

A demand instrument can be presented for payment at any time, but it is considered overdue if it is not paid within a reasonable time after demand. In this case, the due date is October 5, but because it is a demand instrument, it can be presented for payment at any time after that date. However, if Syncopated Loan Company takes the note an unreasonable amount of time after October 5, it could be considered to have notice that the note is overdue. Therefore, the best choice is A.

Question 7

On January 1,Klancy issues a note payable to Lorena on May 1.On April 29,Klancy dies.In this situation

Accepted Answer

The required presentment is excused because Klancy's death makes it impossible to present the note to him for payment.

Question 8

Edie signs a check payable to the order of First Federal Bank,filling in the blanks for the amount with the figures "$100" and "One thousand and 00/100 dol?lars." This check is payable in the amount of

Accepted Answer

The amount written on the check is "$100 One Thousand and 00/100 dollars", which when simplified is $1,000. Therefore, the check is payable in the amount of $1,000.

Question 9

Ilsa wants to negotiate a bearer instrument in her possession to Jia for an order instrument in Jia's possession.Indorsements are required to negotiate

Accepted Answer

Bearer instruments can be negotiated by delivery alone, while order instruments require an indorsement for negotiation.

Question 10

Ebony possesses an instrument that is "payable to bearer." She loses it.Fyodor finds it.On this instrument,Fyodor may

Accepted Answer

A "payable to bearer" instrument means that whoever has physical possession of the instrument can collect payment on it. In this case, Fyodor found the instrument and now has physical possession of it, therefore he can collect payment on it.

Question 11

Joey,in good faith and for value,gets from Kit a negotiable bearer in?stru?ment.Joey does not know that Kit stole the instrument.Joey is

Accepted Answer

Joey is an HDC (holder in due course) because he received the instrument in good faith and for value, without knowledge of any defects in the title. It doesn't matter that the instrument was stolen by Kit, as long as Joey had no reason to know this. The fact that the instrument is a bearer instrument does not affect Joey's status as HDC.

Question 12

Jack signs an instrument that states it is being executed "in accord with a contract for the sale of three magic beans dated July 1." This instru?ment is

Accepted Answer

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

Question 13

Gina writes and signs a check payable to "Happy Market." Irma,Happy's manager,indorses the check "For deposit only." This is

Accepted Answer

This is a restrictive indorsement because it limits the use of the check to deposit only, preventing anyone from cashing the check.

Question 14

On behalf of Platinum Assets,Inc. ,Quigley signs an instrument promising to pay $5,000 in gold to Resources Exchange,Inc. ,on September 10.This in?strument is

Accepted Answer

The instrument is nonnegotiable because it promises to pay in gold, which is not considered a medium of exchange authorized or adopted by a government as part of its currency. Negotiable instruments must promise payment in money, which is defined as a medium of exchange authorized or adopted by a government.

Question 15

Valley Properties,Inc.(VPI),signs an instrument in favor of Wellspring Finance Corporation that includes the statement "VPI plans to pay this debt from the proceeds of the sale of the VPI Office Building in Xibalba,Mexico." This instrument is

Accepted Answer

The answer of Valley Properties,Inc.(VPI),signs an instrument in favor of...

Question 16

On behalf of Medical Imaging Company,Nonny signs an instrument in which she promises to deliver an MRI scanner to Openheart Cardia Clinic on June 1.This instrument is

Accepted Answer

The instrument is nonnegotiable because an MRI scanner is not considered a medium of exchange authorized or adopted by a domestic or foreign government as part of its currency. The other options (C and D) are not relevant to the negotiability of the instrument.

Question 17

Patch-It Roofing Company receives a check from Quik Mart for fixing its roof,and indorses the check to Repair Supplies,Inc.(RSI).Sam,RSI's owner,gives the check to Todd as a gift.In this situation,the party who is not an HDC of the check but who acquires HDC rights under the shelter principle is

Accepted Answer

Todd is the party who is not an HDC but acquires HDC rights under the shelter principle because he received the check as a gift from RSI, who acquired HDC rights by indorsing the check from Patch-It Roofing. The check was originally issued to Patch-It Roofing and the indorsement from Patch-It Roofing to RSI was valid, which means that RSI became an HDC. Since Todd received the check from RSI, he has the same rights and protections as an HDC under the shelter principle.

Question 18

Wyatt inherits a promissory note from Xena,his aunt.Wyatt has no no?tice that the note has been dishon?ored or is over?due.Wyatt has the rights of

Accepted Answer

Since Wyatt has no notice of the dishonor or overdue status of the note, he can only be considered a holder and not an HDC. In order to be an HDC, the holder must have taken the note in good faith and for value, and also not have notice of any defenses or claims against the note.

Question 19

Julie's Juice Bar receives daily shipments of dairy products from Kelso Dairy,Inc.The price is $900 per month.Julie's pays six months in ad?vance with a note for $5,400.One month later,Kelso sells the note to Littleton Bank for $5,100.At the time the note is sold,Kelso is

Accepted Answer

The answer of Julie's Juice Bar receives daily shipments of...

Question 20

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

Accepted Answer

The check is negotiable because it is properly signed and payable to a specific party, even though it does not include a date. A date is not required for a check to be negotiable.

Quiz 18: Negotiability, transferability, and Liability