ch. 25

Question 1

Luc signs a promissory note for $2,500 in favor of Metro College. The note is undated but specifies that it is “payable one month after date.” This note is

Answer 1

nonnegotiable, because the maturity date cannot be determined from the face of the instrument.

Question 2

Mortgage notes tied to a variable rate of interest—fluctuating in response to market conditions—are not negotiable.

Answer 2

False

Question 3

If the numerical and written amounts on a check differ, the check is payable in the written amount.

Answer 3

True

Question 4

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

Answer 4

negotiable.

Question 5

Brownies Inc. signs an instrument that promises to pay Chocolate Company a certain price, with interest, for a shipment of refined cocoa. By the terms of the instrument, it must be paid on its presentment, but no time for payment is specified. This instrument is

Answer 5

negotiable.

Question 6

A promissory note is both a debt and evidence of the debt.

Answer 6

False

Question 7

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

Answer 7

money.

Question 8

Fertile Farm Corporation and Grain Commodities Inc. enter a contract for a sale of soybeans. Fertile draws a draft unconditionally ordering Grain to pay $75,000 to Fertile’s order in ninety days. Grain signs and dates the draft. Before payment is due, Fertile needs cash. The drawer can

Answer 8

sell the draft in the commercial money market.

Question 9

In an international sale of goods, Cielo SA, the buyer, and Drones Inc., the seller, use a banker’s acceptance. Essentially, this instrument

Answer 9

orders the buyer’s bank to pay a specified amount to the seller.

Question 10

Donut Shop signs a promissory note for $50,000 in favor of Enterprise Lending Inc. The note includes an acceleration clause. This note is

Answer 10

negotiable.

Question 11

Jaime signs an instrument using a “J” with a swirl around it. With this mark for a signature, the instrument is

Answer 11

negotiable.

Question 12

An unusual signature clearly increases the marketability of an instrument because it creates distinction and uniqueness.

Answer 12

False

Question 13

An instrument must name a specific payee and be made payable at a definite time to qualify as a promissory note.

Answer 13

False

Question 14

The nature of an instrument, such as a check, may indicate that it is payable on demand.

Answer 14

True

Question 15

Direct Connect Company orders a quantity of wire from Electric Supply Inc. To finance the purchase, Direct signs a note that includes a reference to the parties’ contract, a payment schedule, and a security agreement. This note is

Answer 15

negotiable.

Question 16

Special requirements for the form and content of negotiable instruments are imposed by

Answer 16

the Uniform Commercial Code.

Question 17

A promise that states an express condition to payment is negotiable if the condition is stated in writing on the instrument.

Answer 17

False

Question 18

To be negotiable, if an instrument is not payable on demand, it must be payable at a definite time.

Answer 18

True

Question 19

For a drawee to be obligated to honor an order to pay, the drawee must be obligated to the drawer.

Answer 19

True

Question 20

Fresh Fruit Company accepts a check from Grocers Mart in payment on a shipment of apples, but Harvest Meat LLC will not accept a check for a beef order. Fewer checks are written today because

Answer 20

most transactions are electronic.

Question 21

Edie deposits funds with First National Bank, which issues an instrument that promises to repay the funds, with interest, on a certain date. Before the maturity date, Edie wants to access the funds. Edie can

Answer 21

sell the instrument to a third party.

Question 22

If an instrument does not specify a time for payment and the instrument must be paid on presentment, it is not negotiable.

Answer 22

False

Question 23

Fern has six nieces, ages five to sixteen. She writes an instrument for $50 that states, “Pay to the order of my niece.” The instrument is

Answer 23

nonnegotiable, because there is no specific person identified.

Question 24

Tree Nursery signs an instrument that states with certainty a fixed amount to be paid at the time the instrument is payable. Fixed amount means that the amount must be

Answer 24

ascertainable from the face of the instrument.

Question 25

A promissory note signed to obtain a student loan is a negotiable instrument that functions as an extension of credit.

Answer 25

True

Question 26

Sport Souvenir LLC orders a gross of printed shirts from T-Shirt Company. To finance the purchase, the buyer signs a note to pay the seller from the funds paid to the buyer on the sale of the shirts at a certain event. This note is nonnegotiable because

Answer 26

payment is to be made from a fund that does not yet exist.

Question 27

Juice Company signs an instrument that states it is being executed “as per a contract for the sale of a case of oranges dated May 1.” This instrument is

Answer 27

negotiable.

Question 28

Special requirements for the form and content of negotiable instruments are imposed by

Answer 28

the Uniform Commercial Code.

Question 29

A promise that states an express condition to payment is negotiable if the condition is stated in writing on the instrument.

Answer 29

False

Question 30

Businesses use the commercial money market for short-term borrowing.

Answer 30

True

Question 31

Motor Sales Inc. signs an instrument that promises to pay National Parts Company a certain price, with interest, for a shipment of auto parts. It is necessary to know when the instrument is due in order to

Answer 31

all of the choices.

Question 32

Bon signs a promissory note for $12,500 in favor of Car Loans Inc. The note specifies payment by a certain date and includes an option to pay early. This note is

Answer 32

nonnegotiable, because the note need not be paid until the specified date.

Question 33

Fern has six nieces, ages five to sixteen. She writes an instrument for $50 that states, “Pay to the order of my niece.” The instrument is

Answer 33

nonnegotiable, because there is no specific person identified.

Question 34

On behalf of Bubble Tea Company, Corey signs an instrument in which she promises to deliver 100 cases of tea as payment to Deli Inc. on April 1. This instrument is

Answer 34

nonnegotiable, because tea is not a medium of exchange authorized or adopted by a government as currency.

Question 35

When a note is lost, impaired, or destroyed, the owner loses the right to be paid its value, even if its existence can be proved with a copy.

Answer 35

False

Question 36

In an international sale of goods, Cielo SA, the buyer, and Drones Inc., the seller, use a banker’s acceptance. Essentially, this instrument

Answer 36

orders the buyer’s bank to pay a specified amount to the seller.

Question 37

For a negotiable instrument to operate practically as a substitute for cash, it must be easily transferable and uncollectible.

Answer 37

False

Question 38

Tree Nursery signs an instrument that states with certainty a fixed amount to be paid at the time the instrument is payable. Fixed amount means that the amount must be

Answer 38

ascertainable from the face of the instrument.

Question 39

If an instrument is payable within a definite period of time after being presented for payment, the maker or drawee is under no obligation to pay until that time.

Answer 39

True

Question 40

Because negotiable instruments were originally paper documents, they are sometimes referred to as a commercial paper.

Answer 40

True

Question 41

The nature of an instrument, such as a check, may indicate that it is payable on demand.

Answer 41

True

Question 42

A certificate of deposit (CD) is issued when Lo-Risk Invest LLC deposits funds with Money Bank on the bank’s promise to repay the funds, with interest, on a certain date. Lo-Risk cannot withdraw the funds before the date of maturity because

Answer 42

a CD is a time deposit.

Question 43

In response to an order for flour from Good Eating LLC, Harvest Mill creates a draft ordering Good to pay Harvest for the flour within sixty days and sends it with the delivery to Good. On receipt, the buyer signs the draft. On this instrument, Harvest is

Answer 43

both the drawer and the payee.

Question 44

Jaime signs an instrument using a “J” with a swirl around it. With this mark for a signature, the instrument is

Answer 44

negotiable.

Question 45

A promissory note signed to obtain a student loan is a negotiable instrument that functions as an extension of credit.

Answer 45

True

Question 46

The payee of a certificate of deposit is not allowed to withdraw the funds before the date of maturity, because the instrument is a time deposit.

Answer 46

True

Question 47

Brownies Inc. signs an instrument that promises to pay Chocolate Company a certain price, with interest, for a shipment of refined cocoa. By the terms of the instrument, it must be paid on its presentment, but no time for payment is specified. This instrument is

Answer 47

negotiable.

Question 48

Veggie Bowl Café signs an instrument in favor of Whole Wheat Company that states it is “subject to a certain agreement between buyer and seller.” This instrument is

Answer 48

nonnegotiable, because it is made subject to a separate agreement.

Question 49

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

Answer 49

money.

Question 50

Commonly used in international trade, a draft that orders a buyer’s bank to pay is a cashier’s check.

Answer 50

False