Reference - Book Payment

question 91

Multiple Choice

Reference - Book Payment. Molly and Pat signed a contract providing that "Pat will furnish the correct used business law book for use in Molly's business law class; and in return on August 15, 2011, Molly promises to pay Pat $50 for the book." Molly took the book and planned to pay Pat. Meanwhile, Pat properly assigned the contract Molly had signed to Jack. When Molly went to class, however, she discovered that the book was the incorrect book. When Jack asked Molly for payment, Molly refused. Molly told Jack that the book was useless to her and that she was not paying either him or Pat anything for it. Jack told Molly that he had an enforceable assignment in the form of a negotiable instrument and that he could collect regardless of whether the book was useless. Molly did not believe him. Continuing with her attempt to save money on books, Molly agreed to buy Tim's U.S. history book for $40. She had an oral agreement with Tim that he would give her the book and that she would pay him in three days. This time Molly got the right book. Tim, in writing, properly assigned the right to the $40 payment to Richard. Richard asked Molly for the money. Molly admitted her agreement with Tim but told Richard that she was not going to pay him because he did not have a negotiable instrument. Molly also purchased a communications book from Sam promising in writing to give him in return the next day, to his order, a used DVD player she owned. Which of the following is true regarding Jack's claim that he had a negotiable instrument and could collect from Molly?

• A) Jack is correct.
• B) The document is not negotiable because it does not contain words of negotiability or words indicating it is a bearer instrument.
• C) The document is not negotiable because the book was the wrong book.
• D) The document is not negotiable because Jack was not a party to the original contract.
• E) The document is not negotiable because it does not contain words of negotiability or words indicating it is a bearer instrument, and also because Molly received the wrong book.

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Definitions:

Default Risk

The likelihood that a borrower will fail to meet the obligations of a debt agreement.

Financing Lease

A lease in which the lessee effectively acquires ownership of the leased asset. Also called a capital lease. Accounted for by showing the leased asset on the balance sheet offset by a liability representing the obligation to make future lease payments. Compare with Operating lease.

Balance Sheet

An accounting report displaying the financial condition of a business, including what it owns, owes, and the equity held by shareholders on a given date.

Leases

A contractual arrangement where a lessee (user) pays the lessor (owner) for the use of an asset for a specified period of time.