Exam 22: 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:

Verified

(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.

A & D,Inc.wrote a negotiable note payable to Vicy,Inc.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 products 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.

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(True/False)

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Question 2

Correct Answer:

Verified

False

Commercial paper is a contract to pay money.

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(True/False)

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Question 3

Correct Answer:

Verified

True

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 4

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

(True/False)

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Question 5

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?

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Question 6

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:

(Multiple Choice)

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Question 7

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 8

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 onto a promissory note and terms that are preprinted on the note form.

(Essay)

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Question 9

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 10

The Scott v.Mayflower Home Improvement Corp.case applied:

(Multiple Choice)

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Question 11

Commercial paper is only used as a substitute for money.

(True/False)

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Question 12

The section of the UCC that governs negotiable instruments is:

(Multiple Choice)

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Question 13

On March 1 Donna wrote a check for $296 to Sun Services.When will the check be overdue? What is the effect of the check's being overdue? What is the effect if the check is stamped "Insufficient Funds" by Donna's bank?

(Essay)

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Question 14

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 15

Francenie has a checking account at Corner Bank.She wants tickets to an upcoming concert.She writes a check to Ticketmaster for the cost of two tickets.In this scenario:

(Multiple Choice)

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Question 16

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?

(Multiple Choice)

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Question 17

Sophie issues a promissory note made "payable to the order of Molly." Molly indorses the note by signing her name and gives the note to Dana.Which of the following is correct?

(Multiple Choice)

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Question 18

There are three kinds of commercial paper: negotiable,non-negotiable and promissory.

(True/False)

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Question 19

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:

(Multiple Choice)

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Question 20

Showing 1 - 20 of 46

Exam 22: Creating a Negotiable Instrument

Commercial paper is a contract to pay money.

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

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?

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 onto a promissory note and terms that are preprinted on the note form.

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.

The Scott v.Mayflower Home Improvement Corp.case applied:

Commercial paper is only used as a substitute for money.

The section of the UCC that governs negotiable instruments is:

On March 1 Donna wrote a check for $296 to Sun Services.When will the check be overdue? What is the effect of the check's being overdue? What is the effect if the check is stamped "Insufficient Funds" by Donna's bank?

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:

Francenie has a checking account at Corner Bank.She wants tickets to an upcoming concert.She writes a check to Ticketmaster for the cost of two tickets.In this scenario:

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?

Sophie issues a promissory note made "payable to the order of Molly." Molly indorses the note by signing her name and gives the note to Dana.Which of the following is correct?

There are three kinds of commercial paper: negotiable,non-negotiable and promissory.

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