Question 1

Karen writes on a piece of paper, "I owe you $600," signs it, and gives it to Lou. This instrument is
A) negotiable.
B) nonnegotiable, because it does not include an express promise to pay.
C) nonnegotiable, because it does not recite any consideration.
D) nonnegotiable, because it does not state any conditions to payment.

Accepted Answer

The instrument does not include an express promise to pay, which is a necessary element for negotiability. The fact that it is signed and contains a specific amount owed does not make it negotiable.

Question 2

Ray signs a promissory note for $10,000 in favor of State University (SU). The note does not specify the date of its payment. Ray defaults. In SU's suit to collect on the note, the court will most likely rule in favor of
A) Ray, because SU assumed the risk that the note would not be paid.
B) Ray, because the note is not payable at a definite time or on demand.
C) SU, because the note is an unconditional promise to pay the holder.
D) SU, because there is a uniform "default time" for repayment when a date is not specified.

Accepted Answer

The answer of Ray signs a promissory note for $10,000...

Question 3

International Properties, Inc. (IPI), signs an instrument in favor of Financial Investments Corporation that includes the statement "IPI plans to pay this debt from the proceeds of the sale of the IPI Office Building in Montreal." This instrument is
A) negotiable.
B) nonnegotiable, because banks cannot easily process office buildings.
C) nonnegotiable, because it refers to a separate sale.
D) nonnegotiable, because Montreal is in Canada, not the United States.

Accepted Answer

The answer of International Properties, Inc. (IPI), signs an instrument...

Question 4

Will signs a check payable to "X" and gives it to Yves. This check is
A) negotiable.
B) nonnegotiable, because it does not indicate a specific payee.
C) nonnegotiable, because obviously it was executed as a joke.
D) nonnegotiable, because "Yves" is not "X."

Accepted Answer

The check is negotiable because it is payable to "X," which can be interpreted as a blank or bearer check, meaning it can be negotiated by anyone who possesses it.

Question 5

Lucy signs a $1,000 note payable, at 6 percent interest, on May 1 to Metro Bank and writes on its face that it is "nonnegotiable." This note is
A) negotiable.
B) nonnegotiable, because it does not include an acceleration clause.
C) nonnegotiable, because it is payable with interest.
D) nonnegotiable, because its maker conspicuously wrote this on its face.

Accepted Answer

The note is nonnegotiable because the maker conspicuously wrote "nonnegotiable" on its face.

Question 6

Julie signs a check payable to the order of Kwik Mart Stores, 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 Kwik-Mart.
D) nonnegotiable, because it is signed by Julie.

Accepted Answer

A check that does not include a date is still negotiable. The Uniform Commercial Code (UCC) states that if a check does not have a date, it is considered to be dated as of the day it is presented for payment. Therefore, as long as Kwik Mart Stores, Inc. is the named payee and the check is properly signed by Julie, it is a negotiable instrument.

Question 7

Bill signs a check payable to the order of City 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
A) $0.
B) $100.
C) $1,000.
D) $1,100.

Accepted Answer

The amount written in words ("One thousand and 00/100 dollars") takes precedence over the numerical amount ($100). Therefore, the check is payable in the amount of $1,000.

Question 8

Pam signs an instrument payable to the order of Quick Credit, Inc., that allows a holder to demand payment of the entire amount due, with inter?est, if Pam fails to make a payment. This instrument is
A) negotiable.
B) nonnegotiable, because a holder can move up the payment date.
C) nonnegotiable, because moving up the payment date is conditional.
D) nonnegotiable, because the exact payment date cannot be deter?mined from the face of the instrument.

Accepted Answer

This instrument is negotiable because it meets all the requirements of a negotiable instrument, including being payable to order, containing an unconditional promise to pay, and allowing for payment of a fixed amount. The provision allowing for demand payment in case of default does not affect its negotiability.

Question 9

Jack signs an instrument that states it is being executed "in accord with a contract for the sale of three magic beans dated June 1." This instru?ment is
A) negotiable.
B) nonnegotiable, because banks cannot easily process commodities.
C) nonnegotiable, because it includes the specific date of a contract.
D) nonnegotiable, because it refers to an express contract.

Accepted Answer

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

Question 10

Maria signs an instrument payable to the order of National Loans, Inc., "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 meets all the requirements of negotiability, such as being payable to order, having a fixed amount, and being unconditional except for the "on or before" date. Even though the payment date is not a fixed date, it is still a determinable one and does not affect the negotiability of the instrument.

Question 11

Tyrone draws a check payable to "Cash" and presents it to United Bank for payment. This instrument is
A) a bearer instrument.
B) an order instrument.
C) valid but nonnegotiable.
D) void.

Accepted Answer

The check payable to "Cash" is a bearer instrument because it does not specify a particular payee and can be negotiated by anyone who possesses it.

Question 12

Sid signs a promissory note payable to Tony on which Sid conspicuously notes that it is "not negotiable" and gives the note to Toney. This instru?ment is
A) negotiable.
B) nonnegotiable, because it includes the notation "not negotiable."
C) nonnegotiable, because it is a promissory note.
D) nonnegotiable, because it was given to Bob.

Accepted Answer

The notation "not negotiable" on the promissory note makes it nonnegotiable, even though it is still a promissory note. Therefore, option B is the correct answer. Options A, C, and D are incorrect.

Question 13

On behalf of Digital Cable Company, Ed signs an instrument in which he promises to deliver 1,000 feet of optic fiber cable to First Internet Bank on March 1. This instrument is
A) negotiable.
B) nonnegotiable, because cable is not a medium of exchange author?ized or adopted by a government as currency.
C) nonnegotiable, because it does not indicate a specific type of cable.
D) nonnegotiable, because it does not recite any consideration.

Accepted Answer

The instrument is nonnegotiable because it involves the delivery of goods (optic fiber cable) rather than a promise to pay a fixed amount of money, which is required for negotiability under the Uniform Commercial Code (UCC).

Question 14

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
A) negotiable.
B) nonnegotiable, because it is made subject to a separate agreement.
C) nonnegotiable, because it refers to a separate agreement.
D) nonnegotiable, because Kelly and Mona are not the same persons.

Accepted Answer

A nonnegotiable instrument is one that is subject to certain conditions or limitations. In this case, the instrument is made subject to a separate agreement, which makes it nonnegotiable.

Question 15

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, 2011, 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 due to the extension clause that allows the maker to extend the payment time, making the maturity date uncertain.

Question 16

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
A) negotiable.
B) nonnegotiable, because it does not specify a rate of interest.
C) nonnegotiable, because it is a promissory note.
D) nonnegotiable, because it is payable only with interest.

Accepted Answer

The note is negotiable because it meets all the requirements of a negotiable instrument, including the promise to pay a specific amount to a specific payee, the absence of any conditions for payment, and the promise to pay with interest (even if the specific rate is not specified).

Question 17

On behalf of First-Rate Capital, Inc., Greg signs an instrument promis?ing to pay $5,000 in gold to Hot Funds, Inc., on May 15. This in?strument is
A) negotiable.
B) nonnegotiable, because gold is not a medium of exchange author?ized or adopted by a government as currency.
C) nonnegotiable, because it does not recite any consideration.
D) nonnegotiable, because it is for an amount of $500 or more.

Accepted Answer

The instrument is nonnegotiable because it promises to pay in gold, which is not a medium of exchange authorized or adopted by a government as currency.

Question 18

Wilbur signs a note that includes a clause under which the note's holder can delay the date of its payment indefinitely. This is
A) an acceleration clause.
B) an extension clause.
C) an immaturity clause.
D) a stop-payment clause.

Accepted Answer

The clause described in the scenario is an extension clause, as it allows the holder of the note to delay the payment date beyond its original maturity date. A stop-payment clause would allow the maker of the note to stop payment on it, while an acceleration clause would typically require the maker to pay the note's full amount immediately if certain conditions are met. An immaturity clause is not a commonly used term in finance or lending.

Question 19

On May 1, Doug signs a check that is payable to the order of Excel Credit Corporation and that is dated July 1. This check is
A) negotiable.
B) nonnegotiable, because it is payable to Excel Credit Card Corporation.
C) nonnegotiable, because it is postdated.
D) nonnegotiable, because it is signed by Doug.

Accepted Answer

The check is negotiable because it meets the requirements of being payable to a specific payee (Excel Credit Corporation) and containing an unconditional promise to pay a specific amount of money. The fact that it is postdated does not affect its negotiability.

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
A) a bearer instrument.
B) an order instrument.
C) valid but nonnegotiable.
D) void.

Accepted Answer

The check that Quincy drew is an order instrument because it is payable to a specific payee, Replay Stadium. A bearer instrument, on the other hand, does not specify a payee and can be transferred simply by possession. The instrument is valid because it meets the requirements of a negotiable instrument, such as being in writing and containing an unconditional promise or order to pay a certain amount of money. It is also negotiable because it is payable to a specific payee, which makes it transferable by endorsement. Therefore, the correct answer is B.

Quiz 24: The Function Creation of Negotiable Instruments

Karen writes on a piece of paper, "I owe you $600," signs it, and gives it to Lou. This instrument is

Ray signs a promissory note for $10,000 in favor of State University (SU) . The note does not specify the date of its payment. Ray defaults. In SU's suit to collect on the note, the court will most likely rule in favor of

International Properties, Inc. (IPI) , signs an instrument in favor of Financial Investments Corporation that includes the statement "IPI plans to pay this debt from the proceeds of the sale of the IPI Office Building in Montreal." This instrument is

Will signs a check payable to "X" and gives it to Yves. This check is

Lucy signs a $1,000 note payable, at 6 percent interest, on May 1 to Metro Bank and writes on its face that it is "nonnegotiable." This note is

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

Bill signs a check payable to the order of City 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

Pam signs an instrument payable to the order of Quick Credit, Inc., that allows a holder to demand payment of the entire amount due, with inter?est, if Pam fails to make a payment. This instrument is

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

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

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

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

On behalf of Digital Cable Company, Ed signs an instrument in which he promises to deliver 1,000 feet of optic fiber cable to First Internet Bank on March 1. This instrument is

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

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, 2011, can extend the time of pay?ment, but for no more than a rea?sonable time." This instrument is

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

On behalf of First-Rate Capital, Inc., Greg signs an instrument promis?ing to pay $5,000 in gold to Hot Funds, Inc., on May 15. This in?strument is

Wilbur signs a note that includes a clause under which the note's holder can delay the date of its payment indefinitely. This is

On May 1, Doug signs a check that is payable to the order of Excel Credit Corporation and that is dated July 1. This check is

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