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Exam 17: Negotiable Instruments: Negotiability and Transferability

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Question 1

True/False

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A payee may not be a holder in due course.

A) True
B) False

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Question 2

Multiple Choice

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Reference - Banking Problems. Constance and Blair are both loan officers at ABC Bank. Constance, being somewhat dishonest, tells Henry, a customer of the bank who is wealthy and rarely checks the status of outstanding loans and balances, that she is collecting money for a local animal shelter. She asks him to sign a pledge that he will contribute $50 to the animal shelter. In fact, she had him sign a promissory note made out to her for $5,000, which she later endorsed to Richard. Henry proceeds back to one of his businesses, a used car dealership. Taylor comes in to purchase a used car. He and Henry agree that Taylor will purchase a used car for $3,000. Martha also comes in, and she and Henry agree that she will purchase a used car for $4,000. Both Taylor and Martha make out promissory notes payable to Henry. At the end of the day, Henry is looking through the notes and decides that Taylor's was mistakenly made out for $3,000. Henry mistakenly, but honestly, believed that the deal was for $3,500. Therefore, he changes the note to reflect that Taylor owed $3,500. Henry, on the other hand, simply did not like Martha. He decided that $4,000 was not enough for the car. Accordingly, he changed the note to $4,500. Which of the following is true regarding Martha's liability to Henry?

A) Because of the fraudulent alteration, Martha is not liable to Henry for any amounts under the promissory note although she may be liable under some other theory.
B) Martha's obligation will be enforced only in the amount of $4,000.
C) Martha's obligation will be enforced in the amount of $4,500 unless she has a writing signed by Henry to the effect that the deal was for 4,000. No other evidence would be allowed.
D) Unless Martha has a written document from Henry to the effect that the agreement was for $4,000 only, Martha and Henry will be legally required to split the remainder with Martha being held responsible for $4,250.
E) Unless Martha either has a written document from Henry showing that the agreement was for $4,000 or unless she can get Henry to admit that the agreement was for $4,000, then Martha will be required to pay $4,500 because the obligation was upon Martha to obtain confirmation of the terms of the original agreement.

F) B) and D)
G) B) and E)

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Question 3

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Reference - Run Around. Millie issues a note to Bob. Bob endorses the note and transfers it to Anne. Anne endorses the note and transfers it to Henry. In a timely fashion, Henry endorses the note and presents it to Millie for payment. When Henry presents the note to Millie, she asks him for reasonable identification. He did not have any identification with him and told her that she had no right to dishonor the instrument. Millie, however, refused to provide him the funds until he returned with proper identification. Nevertheless, when he returned with proper identification, Millie refused to pay the note, claiming that she lacked the funds with which to do so. Henry proceeded immediately to request that Anne pay the note, but she told him that he would have to get his money from Bob, who cannot be found. Which of the following is true regarding when, and if, the note was dishonored?

Reference - Check Cashing Business. Susan owns and operates a check cashing business. A customer, Bob, claiming to be Sam, comes in and cashes a $2,000 check issued by ABC Trucking to Sam. The day after Susan cashed the check, she received a notice from ABC Trucking that some checks had been stolen. It was later discovered that the customer had forged Sam's name on the check issued by ABC Trucking. At the time she took the ABC Trucking check, Susan was very busy with several customers in line. She simply glanced at the check and cashed it. A reasonable examination would have revealed that the check had been materially altered and changed from the amount of $200 to $2,000. Susan decided that she needed to hire some people to help her because she also had a problem with another check. On the same day that she took the ABC Trucking check, she took a check from another customer, Maurice. It was later discovered that the check from Maurice, which was four months old, was the subject of a dispute between Maurice and the issuer of the check for whom Maurice had done some work. The issuer claimed that the work was improperly done. Both ABC Trucking and the issuer of the check to Maurice stopped payment on the checks. Susan claims that she was entitled to the status of holder in due course and was entitled to payment on both checks. What is the effect of Susan receiving notice the day after she cashed the check for Bob that the check had been stolen?

Which of the following occurs when a former holder of an instrument has the instrument transferred back to him by negotiation or other means?

Which of the following is a person who signs an instrument to restrict payment of it, negotiate it, or incur liability?

According to the UCC, a signature can be any name, word, mark, or symbol used by a party to authenticate a writing.

Which of the following is true regarding negotiable instruments in England?

After initially receiving notice of dishonor, when must parties other than a collecting bank give notice of dishonor to a secondarily liable party?

Reference - Angry employee. Martin is in charge of payroll and other expenses for ABC, Inc. He becomes very angry with his boss Adam because Adam started dating Martin's girlfriend Stacy. Martin decided to quit but not before he got some extra money from ABC, Inc. Martin wrote five checks from the account of ABC, Inc. to pay off the five credit card companies that Martin owed money. The credit card companies took the checks without reason to be suspicious as to the source of payment. The checks to the credit card companies in total amounted to $30,000, and each check was in an amount under $10,000. Martin also made out ten checks on the account of ABC to twenty alleged employees who did not really exist. Each of these checks was in the amount of $5,000. Martin took the checks, endorsed and cashed the checks in the names of the various fake employees, and kept the cash. Finally, Martin discovers through office gossip that Adam has been looking for another job with XYZ, Inc. located in a neighboring state and that Adam is supposed to go there for an in person interview in a few weeks. Martin sets up an interview with XYZ, Inc. pretends to be Adam, and induces XYZ, Inc. to give him, posing as Adam, a check for $5,000 as a signing bonus. Martin immediately endorses the check pretending to be Adam and pockets the cash. Finally, Martin leaves town heading for the Caribbean. Is XYZ, Inc. entitled to a refund from its bank for the check the bank paid to Martin posing as Adam?

Bruce, who works for Laura's used car dealership, forges Laura's name to two checks, cashes the checks, and deposits the funds into his own bank account. Later, Bruce's conscience starts to bother him and he confesses to Laura. Bruce promises to repay her if she will only give him some time. Laura wants to keep Bruce as an employee because he is great with sales, so she agrees to give him some time in which to repay her. Ten months later, Bruce gets angry with Laura because he thinks she cheated him on a commission and leaves town without ever reimbursing her for the checks. Laura tells the bank that she wants her account credited. The bank asks your advice. What would you tell the bank and why?

Students may not electronically sign student loans.

Which of the following gives legal force to digital signatures and online contracts in financial, business, consumer, personal, and government contexts?

What are the conditions for a drawer or endorser to become liable?

Which of the following is true?

Which of the following is a party who must pay the stated amount of an instrument when it is initially presented for payment?

Reference - Banking Problems. Constance and Blair are both loan officers at ABC Bank. Constance, being somewhat dishonest, tells Henry, a customer of the bank who is wealthy and rarely checks the status of outstanding loans and balances, that she is collecting money for a local animal shelter. She asks him to sign a pledge that he will contribute $50 to the animal shelter. In fact, she had him sign a promissory note made out to her for $5,000, which she later endorsed to Richard. Henry proceeds back to one of his businesses, a used car dealership. Taylor comes in to purchase a used car. He and Henry agree that Taylor will purchase a used car for $3,000. Martha also comes in, and she and Henry agree that she will purchase a used car for $4,000. Both Taylor and Martha make out promissory notes payable to Henry. At the end of the day, Henry is looking through the notes and decides that Taylor's was mistakenly made out for $3,000. Henry mistakenly, but honestly, believed that the deal was for $3,500. Therefore, he changes the note to reflect that Taylor owed $3,500. Henry, on the other hand, simply did not like Martha. He decided that $4,000 was not enough for the car. Accordingly, he changed the note to $4,500. Which of the following is the most likely result if Henry refuses payment on the promissory note that was endorsed to Richard claiming that he never signed it?

Which of the following was the result in Halliburton Energy Services, Inc. v. Fleet National Bank, the case in the text in which an unknown person stole a check drawn on a Halliburton account, inserted a fictitious name as the payee, and managed to obtain funds through forging the name of the fictitious payee and depositing the cheek with Fleet, a brokerage fund, which then obtained the funds from the payor bank?

Reference - Run Around. Millie issues a note to Bob. Bob endorses the note and transfers it to Anne. Anne endorses the note and transfers it to Henry. In a timely fashion, Henry endorses the note and presents it to Millie for payment. When Henry presents the note to Millie, she asks him for reasonable identification. He did not have any identification with him and told her that she had no right to dishonor the instrument. Millie, however, refused to provide him the funds until he returned with proper identification. Nevertheless, when he returned with proper identification, Millie refused to pay the note, claiming that she lacked the funds with which to do so. Henry proceeded immediately to request that Anne pay the note, but she told him that he would have to get his money from Bob, who cannot be found. Which of the following is true regarding Anne's statement to Henry that he must seek recovery from Bob?

Set forth the requirements a party must meet in order to be considered a holder in due course.