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Exam 25: Negotiable Instruments

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Question 21

Multiple Choice

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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

A) negotiable.
B) nonnegotiable, because tea is not a medium of exchange authorized or adopted by a government as currency.
C) nonnegotiable, because it does not indicate a specific brand of tea.
D) nonnegotiable, because it does not recite any consideration.

E) None of the above
F) C) and D)

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Question 22

Multiple Choice

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

A) negotiable.
B) nonnegotiable, because the maker can move up the payment date.
C) nonnegotiable, because payment can be demanded early if a specified event occurs.
D) nonnegotiable, because the maturity may be extended into the future.

E) A) and B)
F) B) and D)

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Question 23

True/False

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When a bank is both the drawer and drawee, a check functions the same as cash because the bank has committed itself to paying the item on demand.

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

To determine the value of an instrument, it is necessary to know when the obligations of secondary parties, such as indorsers, will arise.

Stating with certainty a fixed amount of money to be paid at the time an instrument is payable ensures that the value of the item can be determined with clarity.

Bogart presents a sight draft to Commerce Bank for payment. A bank employee writes accepted across the face of the instrument, and adds the date and the bank's signature. The draft is

LNG LLC and Mainline Corporation enter a contract for a sale of liquefied natural gas. LNG draws a draft unconditionally ordering Mainline to pay $50,000 to LNG's order in sixty days. Mainline signs and dates the draft. LNG can sell the draft to

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.

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

A note made in exchange for funds that contains an acceleration clause is not negotiable because the exact value of the note cannot be ascertained.

An instrument is negotiable even if the payment is to be made from a fund that does not yet exist.

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

To operate practically as a substitute for cash or a credit device, a negotiable instrument must be

Oda 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

With an order instrument, the payee must be identified with certainty because the transfer of the instrument requires his or her signature.

In payment for a shipment of fittings, Retool LLC offers Supply Company a cashier's check. A cashier's check functions the same as cash because

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

The first delivery of an instrument by the maker or drawer for the purpose of giving rights in the instrument to any person is referred to as its demand .

Rico agrees to buy a bicycle from Salvatore for $250. Salvatore agrees to deliver the bike on September 1. Rico writes a draft for $250 payable to Salvatore on September 1. This is