Exam 25: Creating a Negotiable Instrument

TriColor purchased an industrial stamping machine from Vicy,Inc.TriColor paid for the machine with a negotiable note.The note was payable to the order of Vicy,Inc.Vicy,Inc.indorsed the note and gave it to CCLoans to satisfy a debt.CCLoans knew nothing about the contract between TriColor and Vicy,Inc.CCLoans indorsed the note and gave it to Great River Youth Club as a charitable donation.When Great River Youth Club presented the note for payment on its due date,TriColor refused to pay,claiming that the stamping machine was defective. (A)Is Great River Youth Club a holder in due course? (B)Will TriColor be able to avoid liability to Great River Youth Club on the basis that the machine was defective?

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(Essay)

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Question 1

Correct Answer:

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(A)Great River Youth Club is not a holder in due course.A requirement of a holder in due course is that the holder must give value for the instrument.Great River Youth Club did not give value for the note.It was a gift to the organization.
(B)TriColor will not be able to successfully raise the defense that the machine was defective.Even though Great River Youth Club is not a holder in due course,it is a holder with the rights of a holder in due course.CCLoans was a holder in due course and since Great River Youth Club took the note through CCLoans,Great River Youth Club is a holder with the rights of a holder in due course under the shelter rule.Consequently,TriColor can only raise real defenses to payment on the note.The defense that the machine was defective,a breach of contract,is a personal defense.TriColor will have to pay the amount of the note to Great River Youth Club.

Sprock is a holder in due course on an instrument issued by Klingon.Which of the following defenses could be successfully raised by Klingon?

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Question 2

Correct Answer:

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Discuss the effect on an instrument of: (a)contradictory amounts between the numerals and amount written in words on a check;(b)the interest rate left blank on a promissory note;and (c)contradictory terms that are typed or printed onto a promissory note and terms that are handwritten.

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Question 3

Correct Answer:

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Rather than invalidating the defective documents,the UCC favors negotiability and provides rules to resolve uncertainty and supply missing terms.In situation (a),where terms in a negotiable instrument contradict each other,words take precedence over numbers.In situation (b),the UCC provides that the judgment rate applies.The judgment rate is the rate that courts use on court-ordered judgments.In situation (c),handwritten terms prevail over typed and printed terms.

Charlene Brown has possession of a check made out to the order of Charlene Brown (herself)which she received in payment for writing a manuscript for her publisher.Charlene is a holder in due course and the publisher cannot claim any "real" defenses to payment.Charlene has an unconditional right to be paid for the check.

(True/False)

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Question 4

Maia wrote a check which said,"Pay to the order of Kevin Mathews $10.97." The next line of the check stated,"One thousand ninety-seven Dollars." In applying the rules of interpretation,how much should the drawee pay?

(Multiple Choice)

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Question 5

Hayden owes Luther $5000.Hayden will only be able to pay this debt if he is able to sell his one-year-old Harley motorcycle,valued at $20,000.Hayden writes a check to Luther that reads,"Payable to the order of Luther the sum of $5000 as soon as my Harley motorcycle sells for a reasonable amount." This check is

(Multiple Choice)

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Question 6

George's Wholesaling agrees to purchase 1000 pounds of bananas from Chickadee Exports at 39 cents per pound.George's does not have the money for the bananas now,but promises to pay in two months.Chickadee Exports wants George's business but needs the money now.Chickadee (as drawer)prepares an instrument ordering George's (as drawee)to pay $390 to Primary Bank (the payee).This is an example of

(Multiple Choice)

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Question 7

A "holder" of order paper can be described as

(Multiple Choice)

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Question 8

It was payday.Navidida decided to run some errands and then deposit her check in the bank over her lunch hour.So that she wouldn't have to spend too long at the bank,Navidida indorsed the back of the paycheck as follows,"Navidida Jones," before leaving work.While window shopping,Navidida lost the check.Roger finds Navidida's paycheck. (A)Will Roger be able to cash Navidida's check? (B)How could have Navidida indorsed the check so that she would not have to be concerned about losing the check?

(Essay)

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Question 9

Felicia,an elderly woman,does not speak or read English well.Felicia is a recent immigrant to this country.A dishonest immigration officer tells Felicia to sign several documents as being necessary to maintain her legal immigration status.Unknown to Felicia,she signs a promissory note.The immigration officer thereafter sells the note to Neighborhood Bank,a holder in due course,who goes after Felicia for payment of the note.Felicia's defense to the Neighborhood Bank is

(Multiple Choice)

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Question 10

A & D,Inc.wrote a negotiable note payable to Vicy,Inc.for the purchase of some satellite receivers.A & D left the amount of the note blank because it was uncertain as to amount of the applicable tax.Vicy completed the note for $3,000 more than A & D actually owed for the receivers it purchased.The note was negotiated to a holder in due course.A & D will not have to honor the note as this constituted fraud in the execution.

(True/False)

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Question 11

Tim buys a high-powered tool from Binford Tools to use on the construction of his own garage.Binford Tools provides a full warranty on the tool for the first six months.To pay for the tool,Tim signs a negotiable promissory note which contains the FTC Consumer Credit Notice.Binford properly negotiates the note to First Finance.Within three weeks,the tool stops working and Binford refuses to repair or replace it.In the meantime,First Finance demands payment from Tim.Under the Federal Trade Commission rules,this consumer credit situation means First Finance

(Multiple Choice)

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Question 12

Lucky loses in a high-stakes poker game to Fat Chance.To pay his debt,Lucky writes a check to Fat Chance,who negotiates the check to Convenient,who then tries to cash the check at Lucky's bank.Lucky has already stopped payment on the check,so the check is not honored by her bank.Convenient then tries to collect the check by suing Lucky.High-stakes poker games are illegal in this state.Which statement is correct?

(Multiple Choice)

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Question 13

Generally,Rita signs her name using an infinity symbol rather than her legal name.Rita signed an instrument using this symbol.Which statement is correct?

(Multiple Choice)

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Question 14

Tim wrote a negotiable note.Subsequently,Tim's debts were discharged in bankruptcy.If a holder in due course presents the note for payment,Tim does not have to pay.

(True/False)

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Question 15

In good faith,Clinton gave Jane $500 for a negotiable promissory note made out to Jane for $550.She needed some money before the due date on the note,and Clinton had no notice of outstanding claims or other defects of the note.Clinton

(Multiple Choice)

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Question 16

Margo is in possession of a check issued to her by Felix.The check states,"Pay to the order of Margo." If Margo wishes to transfer the check to Pete to pay a debt she owes him,all she needs to do is strike out her name on the front of the check,write in Felix's name and give it to him.

(True/False)

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Question 17

Tyron purchased a $2900 promissory note from Jared for the discounted amount of $2500.Tyron paid value,in good faith and without notice of any outstanding claims against this promissory note that read,"Pay to the order of Jared $2900 on July 1,2009,for the purchase of a 2001 Ford Taurus provided no major problems with the car arise prior to said payment date." Tyron is a holder in due course of a negotiable note.

(True/False)

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Question 18

Trisha loaned Brian $600 evidenced by a promissory note.When Brian paid off the loan,he did not ask Trisha for the note.She sold it to Carin,a holder in due course.Brian does not have to pay Carin since he already paid Trisha the full $600.

(True/False)

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Question 19

Kent Weston wrote a check for $500 payable to the order of Chester Jones.Chester indorsed the back of the check as follows: "Chester Jones." The check is now

(Multiple Choice)

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Question 20

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Exam 25: Creating a Negotiable Instrument

Sprock is a holder in due course on an instrument issued by Klingon.Which of the following defenses could be successfully raised by Klingon?

Discuss the effect on an instrument of: (a)contradictory amounts between the numerals and amount written in words on a check;(b)the interest rate left blank on a promissory note;and (c)contradictory terms that are typed or printed onto a promissory note and terms that are handwritten.

Maia wrote a check which said,"Pay to the order of Kevin Mathews $10.97." The next line of the check stated,"One thousand ninety-seven Dollars." In applying the rules of interpretation,how much should the drawee pay?

A "holder" of order paper can be described as

Generally,Rita signs her name using an infinity symbol rather than her legal name.Rita signed an instrument using this symbol.Which statement is correct?

Tim wrote a negotiable note.Subsequently,Tim's debts were discharged in bankruptcy.If a holder in due course presents the note for payment,Tim does not have to pay.

In good faith,Clinton gave Jane $500 for a negotiable promissory note made out to Jane for $550.She needed some money before the due date on the note,and Clinton had no notice of outstanding claims or other defects of the note.Clinton

Margo is in possession of a check issued to her by Felix.The check states,"Pay to the order of Margo." If Margo wishes to transfer the check to Pete to pay a debt she owes him,all she needs to do is strike out her name on the front of the check,write in Felix's name and give it to him.

Trisha loaned Brian $600 evidenced by a promissory note.When Brian paid off the loan,he did not ask Trisha for the note.She sold it to Carin,a holder in due course.Brian does not have to pay Carin since he already paid Trisha the full $600.

Kent Weston wrote a check for $500 payable to the order of Chester Jones.Chester indorsed the back of the check as follows: "Chester Jones." The check is now

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