Question 1

A statement in an instrument that payment can be made only out of a particular fund renders it nonnegotiable.

Accepted Answer

A) True 
 B)False

Question 2

To finance the purchase of an electric guitar, Milos signs an instrument promising to pay to "National Lenders" $1,800 with interest in installments with the final payment due August 15, 2018. To be negotiable, this instrument must include on its face

Accepted Answer

A)  ​any conditions on the sale of the goods. 
B)  ​any conditions to the disbursement of the funds. 
C)  ​any conditions to the repayment of the loan. 
D)  ​no conditions. 
A)  ​any conditions on the sale of the goods. 
B)  ​any conditions to the disbursement of the funds. 
C)  ​any conditions to the repayment of the loan. 
D)  ​no conditions.

Question 3

Oliver signs an instrument that states it is being executed "as per a contract for the sale of a case of apples dated May 1." This instrument is

Accepted Answer

A)  ​negotiable. 
B)  ​not negotiable, because banks cannot easily process commodities. 
C)  ​not negotiable, because it includes the specific date of a contract. 
D)  ​not negotiable, because it refers to an express contract. 
A)  ​negotiable. 
B)  ​not negotiable, because banks cannot easily process commodities. 
C)  ​not negotiable, because it includes the specific date of a contract. 
D)  ​not negotiable, because it refers to an express contract.

Question 4

​Consumer Loans LLC signs an instrument payable to the order of Diana that states, "The maker of this note at the date of maturity, April 1, 2019, can extend the time of payment, but for no more than a reasonable time." This instrument is

Accepted Answer

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. 
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.

Question 5

To be negotiable, an instrument must be payable in a certain amount.

Accepted Answer

A) True 
 B)False

Question 6

Fact Pattern 25-1
Erin draws a check payable to "Foodland" to buy groceries.
-Refer to Fact Pattern 25-1. Erin's check is most likely​

Accepted Answer

A)  ​a certificate of deposit. 
B)  ​an order to pay. 
C)  ​a promise to pay. 
D)  ​a promissory note. 
A)  ​a certificate of deposit. 
B)  ​an order to pay. 
C)  ​a promise to pay. 
D)  ​a promissory note.

Question 7

A promissory note can be a negotiable instrument.

Accepted Answer

A) True 
 B)False

Question 8

Fact Pattern 25-3
To borrow the funds to pay tuition at Alpha College, Bea signs an instrument unconditionally promising to pay to "Country Loan Corporation" $7,500 with interest in installments with the final payment due June 1, 2030.
-Refer to Fact Pattern 25-3. With respect to this instrument, Country Bank is

Accepted Answer

A)  ​the drawee. 
B)  ​the indorser. 
C)  ​the maker. 
D)  ​the payee. 
A)  ​the drawee. 
B)  ​the indorser. 
C)  ​the maker. 
D)  ​the payee.

Question 9

With an interest-bearing instrument, it is necessary to know the exact interval during which the interest will accrue.

Accepted Answer

A) True 
 B)False

Question 10

Bart, the owner of Clear Cut Corporation, signs an instrument that includes the phrase "payment for this note will be made from the proceeds of next year's timber sale." This instrument is

Accepted Answer

A)  ​negotiable. 
B)  ​nonnegotiable, because payment can be made only out of a particular source. 
C)  ​nonnegotiable, because it states an express condition to payment. 
D)  ​nonnegotiable, because the reasons for the note are not clear on its face. 
A)  ​negotiable. 
B)  ​nonnegotiable, because payment can be made only out of a particular source. 
C)  ​nonnegotiable, because it states an express condition to payment. 
D)  ​nonnegotiable, because the reasons for the note are not clear on its face.

Question 11

Fact Pattern 25-2
LNG Corporation and Mid-state Utility Company enter a contract for a sale of liquefied natural gas. LNG draws a draft unconditionally ordering Mid-state Utility to pay $50,000 to LNG's order in sixty days. Mid-state Utility signs and dates the draft.
-Refer to Fact Pattern 25-2. This instrument is

Accepted Answer

A)  ​a banker's acceptance. 
B)  ​a nonnegotiable instrument. 
C)  ​a promissory note. 
D)  ​a trade acceptance. 
A)  ​a banker's acceptance. 
B)  ​a nonnegotiable instrument. 
C)  ​a promissory note. 
D)  ​a trade acceptance.

Question 12

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

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

Exam 25: Negotiable Instruments

A statement in an instrument that payment can be made only out of a particular fund renders it nonnegotiable.

To finance the purchase of an electric guitar, Milos signs an instrument promising to pay to "National Lenders" $1,800 with interest in installments with the final payment due August 15, 2018. To be negotiable, this instrument must include on its face

Oliver signs an instrument that states it is being executed "as per a contract for the sale of a case of apples dated May 1." This instrument is

​Consumer Loans LLC signs an instrument payable to the order of Diana that states, "The maker of this note at the date of maturity, April 1, 2019, can extend the time of payment, but for no more than a reasonable time." This instrument is

To be negotiable, an instrument must be payable in a certain amount.

Fact Pattern 25-1 Erin draws a check payable to "Foodland" to buy groceries. -Refer to Fact Pattern 25-1. Erin's check is most likely​

A promissory note can be a negotiable instrument.

With an interest-bearing instrument, it is necessary to know the exact interval during which the interest will accrue.

Bart, the owner of Clear Cut Corporation, signs an instrument that includes the phrase "payment for this note will be made from the proceeds of next year's timber sale." This instrument 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

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Consumer Loans LLC signs an instrument payable to the order of Diana that states, "The maker of this note at the date of maturity, April 1, 2019, can extend the time of payment, but for no more than a reasonable time." This instrument is

Fact Pattern 25-1 Erin draws a check payable to "Foodland" to buy groceries. -Refer to Fact Pattern 25-1. Erin's check is most likely