Question 1

Ewa signs an instrument unconditionally promising to pay to "First State Bank" $5,000 with interest in installments with the final payment due June 1,2014.The instrument that Ewa signed is most likely

Accepted Answer

The details given about Ewa's promise to pay a specific amount with interest in installments until a specified date matches the characteristics of a promissory note. A certificate of deposit is a type of savings instrument, a draft is an order for payment from one person to another, and an order to pay is a directive for someone else to make a payment.

Question 2

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 meets all the requirements of negotiability, as it promises to pay a certain amount of money to a specified party (Payday Loan Company), on demand or at a fixed date with interest at the legal rate. The fact that it only specifies the legal rate of interest is sufficient for negotiability, as the legal rate can be easily determined by reference to statutory law.

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 the bank is both the drawer (payer) and the drawee (payee), then the instrument is a cashier's check. A cashier's check is a type of check where the bank (or credit union) serves as both the drawer and the drawee. The bank withdraws the funds from the account of the purchaser of the cashier's check and guarantees payment to the recipient of the check.

Question 4

Gail owes $5,000 in unpaid taxes.Using the back of an old t-shirt,she exe?cutes an instrument for $5,000 that otherwise meets the re?quire?ments for negotiability.This instrument is likely

Accepted Answer

As long as the instrument meets the requirements for negotiability, such as being in writing and signed by the debtor, the fact that it is on the back of a t-shirt should not make it non-negotiable. The negotiability of the instrument would not be affected by the choice of medium used to create it.

Question 5

EZ Credit Company signs an instrument payable to the order of Flem that states,"The maker of this note at the date of maturity,May 1,2015,can extend the time of pay?ment,but for no more than a rea?sonable time." This instrument is

Accepted Answer

The instrument is nonnegotiable because it is not payable within a definite time. The extension clause allows the maker to extend the payment time, which means the exact time of payment is uncertain, violating the requirement for negotiability that an instrument must be payable at a definite time.

Question 6

A negotiable instrument

Accepted Answer

A negotiable instrument must state a fixed amount of money in order for it to be considered valid. Options A, B, and D are incorrect because a negotiable instrument is usually in writing, it should be fair to all parties, and it must be signed by the maker or drawer to be considered valid.

Question 7

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

Accepted Answer

A time draft is a type of bill of exchange, which is a written order for one party to pay a fixed amount of money to another party at a future date. In this situation, Richard is writing a draft payable to Phil on May 1, which means that he is issuing a bill of exchange that will become payable at a future time. Therefore, the correct answer is B - time draft.

Question 8

To finance the purchase of a house from Tuna,Uri signs an instrument promising to pay to "Verity Mortgage Service" $160,000 with interest in installments with the final payment due July 10,2040.To be negotiable,this instrument must include the signature of

Accepted Answer

Since Uri is the one promising to pay and is the payer, his signature is necessary for negotiability. The other options are not relevant for the negotiability of this instrument.

Question 9

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

A negotiable instrument can be transferred from one person to another through endorsement, which requires a valid signature. The Uniform Commercial Code, which governs negotiable instruments in the United States, does not specify a specific location for the signature on the instrument. Therefore, as long as the signature is valid and authentic, it can be located anywhere on the instrument.

Question 10

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

Negotiable instruments are typically payable in money, making B the best choice. Goods of equal market value may not be easily tradable as negotiable instruments, whereas government bonds and shares in stock are also not commonly used as forms of payment for goods or services.

Question 11

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, he can use this money to make a lump sum payment towards the instrument. Therefore, he can complete his $10,000 payment before August 1 by making the remaining payments in a lump sum.

Question 12

USA Gasoline Corporation signs an instrument that states it is being exe?cuted "in accord with a contract for the sale of 4,000 barrels of oil dated May 1." This instrument is

Accepted Answer

The answer of USA Gasoline Corporation signs an instrument that...

Question 13

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 symbol for a registered trademark, but it can also be used as a signature. As long as the mark clearly indicates the intention of the signer to authenticate the document, it is considered a valid signature for negotiable instruments.

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, specified interest rate, and can be issued in any denomination. The holder of a CD is entitled to withdraw the principal plus interest when the CD, or term deposit, matures. Therefore, a CD matches the characteristics of the scenario described, making it the best choice. Options B,C, and D do not match the characteristics of the scenario provided.

Question 15

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 make a payment. In this case, Alpha Company is issuing the trade acceptance to Beta Company as a promise to accept payment for goods or services. Therefore, the correct answer is A) a draft.

Question 16

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 subject to a separate agreement. The fact that it is subject to a separate agreement means that there are conditions that must be met before it can be transferred, making it nonnegotiable.

Question 17

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 does not include an express promise to pay, making it nonnegotiable.

Question 18

Mary is buying a house.She issues a promissory note for the unpaid balance on the house that is secured by a mortgage on the house.The promissory note is called a(n)

Accepted Answer

Mary is issuing a promissory note for the unpaid balance on the house that is secured by a mortgage on the house, which is known as a mortgage note. A certificate of deposit is a savings instrument issued by a bank, a cashier's check is a check drawn on a bank's account, and an installment note is a type of loan that involves paying back the borrowed amount in regular installments.

Question 19

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 is payable to the order of National Loans, Inc. and does not contain any language restricting negotiability. The inclusion of "on or before" June 15 allows for the payment to be made anytime before that date, but does not prevent it from being negotiated before that date.

Question 20

Quincy draws a check payable to "Replay Stadium" to buy two season tickets to the next year's State College football games.This instrument is

Accepted Answer

The check is an order instrument, as Quincy is instructing the bank to pay Replay Stadium a specific amount for the purchase of season tickets.

Quiz 23: The Essentials of Negotiability