Exam 25: Creating A Negotiable Instrument

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 alien 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:

Personal and real defenses are valid against an ordinary holder,only real defenses can be used against a holder in due course.

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 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 can:

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 a:

A possessor of non-negotiable paper has the same rights as the person who made the original contract.

With non-negotiable commercial paper,a transferee's rights are conditional.

The section of the UCC that governs negotiable instruments is:

Which of the following would be notice of an overdue instrument?

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.

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:

In June,The Seascape Gallery sells an oil painting to Collegiate Systems,Inc.Collegiate promises to pay for the painting in three months.The gallery prepares a draft ordering Collegiate Systems to pay $3,000 to First Bank on September 15.Collegiate Systems signs the draft.The draft is a:

There are three parties on a promise instrument: the maker,the drawee,and the payee.

The term "issuer":

An instrument is negotiable if it satisfies six standards.Which of the following is a standard of negotiability?

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.

Sonny has a negotiable instrument which he gives to Cheryl as a birthday present.Sonny is a holder in due course on the instrument.As it turns out,Cheryl can only collect on the instrument if she has holder in due course status.If Cheryl sues to collect this instrument,what will be the result?

To be negotiable,a check must be in writing.Under the UCC,a check:

Hammer bought a tool set from Weekend Projects,Inc.and signed a consumer credit contract promising to pay for the tool set in 12 monthly installments.Weekend promptly negotiated the instrument to its affiliate Easy Finance Co.in exchange for a discounted payment.Easy Finance gave value for the instrument,in good faith,and without knowledge of any defects or claims against the instrument.The tool set was defective and therefore Hammer stopped making the monthly payments.Easy Finance sues Hammer for the balance due on the instrument.Can Hammer raise this personal defense (breach of implied warranty of merchantability)against Easy Finance? Discuss.

Under the UCC,a holder in due course is a holder who has given value for the instrument.Which of the following holders have given value for the instrument?

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.