Deck 20: Nature of Negotiable Instruments

Question 1

Bryce Erickson hired attorney William Bagley to represent him in a Chapter 11 bankruptcy. After the bankruptcy court dismissed his Chapter 11 proceeding, Erickson asked Bagley to represent him in a Chapter 12 bankruptcy. Bagley agreed, provided Erickson signed a promissory note payable to Sirius LC, a company co-owned by Bagley and his wife, in the amount of $29,173.38, secured by a mortgage on real property owned by Erickson. Erickson executed to Sirius a promissory note which stated, "For value received, the undersigned Bryce H. Erickson promises to pay to SIRIUS LC... the sum of Twenty Nine Thousand One Hundred Seventy Three Dollars and Thirty Eight Cents ($29,173.38)" and executed the mortgage. Sirius sued to foreclose on Erickson's real estate after he refused to pay the note when due. The court had to decide whether the note was negotiable. Was it?

Answer 1

Yes , the note was negotiable.The note issued by Company E was under the hold of Company S and it was negotiable as Company B's conduct with Company E does not matter with the note. Company S was the holder in due course and the promised amount was to be cleared as written on the note.Hence, Company S can make the claim as the note was legally negotiable.

Question 2

Since all the states have adopted the Uniform Commercial Code, is the law the same in every state?

Answer 2

Uniform Commercial Code Laws:
While all of the states have adopted the Uniform Commercial Code (UCC), they have all tailored the UCC through minor changes that do not affect the impact of the law. Each state determines legal issues through the same law but with their small changes of wording.
Therefore, the law is the same in each state with minor changes that do not alter the impact of the law.

Question 3

Cynthia Dudley was a student at Southern Virginia University (SVU). Dudley obtained a loan from Nellie Mae, which included a note by which Dudley agreed to repay the money loaned to the order of Nellie Mae. SVU sued Dudley to collect on the note, but failed to produce the note in court, claiming that it had been lost or destroyed. Dudley responded that if SVU could not produce the note, it could not prove negotiation from Nellie Mae to SVU, and SVU could not collect. Could SVU simply claim the note had been lost or destroyed?

Answer 3

Promissory notes
Promissory note refers to the promise generally in writing for repayment of the debt. There exists contractual obligation on the part of the promissory or maker of the note towards the promise or lender. The promissory note details the timing and repayment amount and the recourse the lender can undertake in case of non- payment of loan on its maturity.
In this case, unlike other type of secured mortgages and loans, promissory note does not provide lender with an active interest in the property of the borrower. Thus there exists contractual obligation on the part of the promisor or maker of the note to make the repayment as per the schedule mentioned in the note. Since, S asked for the loaned amount from C and he refused to make the payment, thus S sued C in the court for payment against the promissory note. However, he fails to produce the note which is being agreed upon between C and N. Since, in the absence of note or it being lost or destroyed the negotiation between the two parties does not have any evidence, hence, it is ascertained that the suit filed by S would not prevail as it is not supported by proof of negotiation which represents that C has taken loan from N.

Question 4

How does the owner negotiate a negotiable instrument?

Question 5

By phone, Patricia Sanford bought fitness tapes. The call center operator read Sanford a script saying that for buying the tapes, MemberWorks Inc. (Member) was sending membership in a program called ESSENTIALS. The program had a thirty-day free trial and if not cancelled in that time, cost $6 per month, which was billed in advance to the credit card used to purchase the tapes. Sanford did not remember hearing the script, agreeing to the membership, or receiving a membership kit. She did not cancel, so her credit card was charged $72 the next month and $84 the next year. She sued, alleging, among other things, violation of the EFTA. Had the transaction violated that act?

Question 6

What is the difference between order and bearer paper?

Question 7

Gary and Clara Delffs signed a note to Joe Waldron that read "_____ after date _____ promise to pay to the order of." After the word "of" was a long blank line on which was handwritten, "one hundred and fifty-three thousand and four hundred and forty dollars." Following this was printed, "Dollars." The parties agreed the document was not order paper. A lawsuit ensued, and the court had to decide whether the note was bearer paper. Decide the case.

Question 8

What is a demand instrument?

Question 9

Cathy and Ray Vigneri authorized Nationwide Credit Inc., a debt collector, to withdraw $100 per month from their checking account to pay a debt to American Express. For four months, Nationwide initiated $100 debits on the Vigneris's account at U.S. Bank National Association. Nationwide initiated the transfers by depositing a paper draft at its bank. The drafts contained the bank's routing number, the bank's stamp, and other coding and symbols indicating they had been processed through the Federal Reserve. In August, Nationwide told the Vigneris that American Express wanted the debt paid off and without the Vigneris's consent withdrew $1,075. As it had done previously, this withdrawal was done by means of a paper draft. The Vigneris sued U.S. Bank, alleging it had violated the EFTA by making an unauthorized withdrawal from their account. Had U.S. Bank violated the EFTA?

Question 10

Who is a holder?

Question 11

Dan Reade obtained a loan to purchase his home from ABN AMRO Mortgage Group, Inc. (AMRO). As part of the transaction, Reade executed a promissory note to AMRO. Over the course of time, AMRO merged with CitiMortgage, Inc. (CitiMortgage), with CitiMortgage as the surviving entity. Reade made some payments on the note, but he defaulted. When CitiMortgage tried to collect, Reade demanded that CitiMortgage produce evidence that the note had been negotiated to CitiMortgage. Did CitiMortgage have to show negotiation in order to collect on the note?

Question 12

What rights are given to parties subsequent to the original payee when the instrument is transferred by assignment? What if the instrument is transferred by negotiation? Explain.

Question 13

How does a customer limit liability for an unauthorized EFT?

Question 14

What does it mean to a customer when a bank uses a system of check truncation?

Question 15

Jeremy Cobb submitted an apartment rental application to Common Properties Management Cooperative (Common) over the phone. Cobb authorized Common to debit his checking account for the $37.95 application fee. However, the debit was returned by Cobb's bank as unpaid, and Cobb was assessed a Non-Sufficient Funds (NSF) fee of $35.00 by Cobb's bank, along with a $25.00 "returned fee" by PayLease, LLC (PayLease), Common's financial institution. Cobb sued under the EFTA, alleging that the $25.00 "returned fee" had not been authorized. Was the $25.00 returned fee to Pay-Lease covered by the EFTA?

Question 16

What are the benefits of a preauthorized credit to both the payor and payee?

Question 17

What is a negotiable instrument?