Quiz 28: Kinds of Instruments, Parties, and Negotiability
Business
Q 1Q 1
A company has in its possession the following instrument:
This instrument is:
a. Not negotiable until December 1, 1987
b. A negotiable bearer note
c. A negotiable time draft
d. A nonnegotiable note because it states that it is secured by a conditional sales contract
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True False
(a) The given instrument is negotiable on the day the paper is written, but not just on the due date. Hence, the given statement is False. (b) The payment is in "Cash". It would mean that anyone who holds the note can receive the payment. Hence, it is a bearer note. Hence, the given statement is True. (c) A draft requires a third party, such as bank. However, there are only two parties in this note, the bearer, and the payer. Hence, the given statement is False. (d) The source that secures the note does not make the note non-negotiable. Hence, the given statement is False.
Q 2Q 2
Harold H. Heidingsfelder signed a credit agreement as vice president of J. O. H. Construction Co. for a line of credit with Pelican Plumbing Co. The credit agreement contained the following language:
In consideration of an open account privilege, I hereby understand and agree to the above terms. Should it become necessary to place this account for collection I shall personally obligate myself and my corporation, if any, to pay the entire amount due including service charges (as outlined above terms) thirty-three and one-third (331/3%) attorney's fees, and all costs of collection, including court costs.
Signed [Harold H. Heidingsfelder] Company J. O. H. Construction Co., Inc.
When J. O. H. Construction failed to make payment, Pelican, claiming it was a holder of a negotiable instrument, sued Heidingsfelder to hold him personally liable for his failure to indicate a representative capacity on the credit agreement. He claims that a credit application is not a negotiable instrument and that he could not be held personally liable. Is he right [Pelican Plumbing Supply, Inc. v J. O. H. Construction Co., Inc. 653 So2d 699 (La)]
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Essay
Refer to the case Pelican Plumbing Supply v J.O.H Construction (653 So2d 699) to answer the question as below: Case Issue: The issue is whether the credit application signed by the defendant's company executive is a negotiable instrument, and whether the executive is personally liable for payment on it to the plaintiff. Trial court held for the executive, plaintiff appealed the decision. Relevant Terms, Laws, and Cases: UCC 3-104 - defines what provisions for something to be a negotiable instrument. It must be signed by the maker, payable to bearer or to order with a certain sum, at a definite time, and has no conditional statements on how and when payments will be made. Opinion: Higher court affirmed the decision. First the court noted that, the credit application was not a negotiable instrument , there was a lack of definite time, and wasn't payable to order or bearer. Hence, the credit application fell under contract law, and the court looked at whether the executive was liable under surety-ship, a third party guarantor to pay in a contract. The court argued in order for there to be surety-ship, it must be expressed and in writing, however, the court found no evidence of this intent; the executive is not personally liable.
Q 3Q 3
The instrument shown here is a:
a. Draft
b. Postdated check
c. Trade acceptance
d. Promissory note
Free
True False
(a) Drafts have three parties, a drawer, drawee, and payee. The parties in this instrument are the drawer, the drawee (a bank), and the payee. Hence, the given statement is true. (b) Checks are payable on demand. That is when a check is written, it can be deposited regardless of date written on the check. However, the given paper is payable on a later date so it is not a check. (c) For a trade acceptance, there should be a transfer of goods between parties. However, there is no transfer of goods in the given case. Hence, it is not a trade acceptance. Hence, the given statement is False. (d) Promissory note will have only two parties, payer and payee. Hence, the given statement is False.
Q 4Q 4
Abby Novel signed a note with the following on it: "Glen Gallwitz 1-8-2002 loaned me $5,000 at 6% interest a total of $10,000.00." The note did not contain a payment schedule or a time for repayment.
Abby used the $10,000 as start-up money for her business and says that she orally agreed to repay the loan out of the proceeds from her first 1,000-product sales. Abby did not make any payments. Glen passed away and his son, as executor of his estate, demanded that Abby repay the $10,000 plus 6% interest for a total of $14,958 (the amount due as of April 2010). The trial court granted judgment for the estate. Abby has appealed, alleging that she repaid the note through the care she gave for Glen. The estate maintains that the instrument was a negotiable promissory note and that it is entitled to collect the amount due in cash. Who is correct and why [ Gallwitz v. Novel, 2011 WL 303253 (Ohio App.)]
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Essay
Q 5Q 5
Under the commercial paper article of the UCC, for an instrument to be negotiable, it must:
a. Be payable to order or to bearer
b. Be signed to the payee
c. Contain references to all agreements between the parties
d. Contain necessary conditions of payment
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True False
Q 6Q 6
Charter Bank of Gainesville had in its possession a note containing the following provision: "This note with interest is secured by a mortgage on real estate, of even date herewith, made by the maker hereof in favor of said payee.... The terms of said mortgage are by this reference made a part hereof." When the bank sued on the note, it said it was a holder of a negotiable instrument. Is this instrument negotiable [Holly Hill Acres, Ltd. v Charter Bank of Gainesville 314 So2d 209 (Fla App)]
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Essay
Q 7Q 7
An instrument reads as follows:
Which of the following statements correctly describes this instrument
a. The instrument is nonnegotiable because it is not payable at a definite time.
b. The instrument is nonnegotiable because it is secured by the proceeds of the sale of the ring.
c. The instrument is a negotiable promissory note.
d. The instrument is a negotiable sight draft payable on demand.
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True False
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Essay
Q 9Q 9
Which of the following instruments is subject to the provisions of the Negotiable Instruments Article of the UCC
a. A bill of lading
b. A warehouse receipt
c. A certificate of deposit
d. An investment security
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True False
Q 10Q 10
The state of Alaska was a tenant in a large office building owned by Univentures, a partnership. The state made a lease payment of $28,143.47 to Univentures with state treasury warrant No. 21045102. Charles LeViege, the managing partner of Univentures, assigned the warrant to Lee Garcia. A dispute then arose among the Univentures partners, and the company notified the state that it should no longer pay LeViege the rent. The state placed a stop payment order on the warrant. Garcia claimed that he was a holder of a negotiable instrument and that the state owed him the money. The state claimed that a warrant did not qualify as a negotiable instrument. The warrant was in writing, was signed by the governor of the state, provided a definite sum of $28,143.47, and stated that "it will be deemed paid unless redeemed within two years after the date of issue." The warrant stated that it was "payable to the order of Univentures." Does the warrant meet the requirements for a negotiable instrument [National Bank v Univentures 824 P2d 1377 (Alaska)]
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Essay
Q 11Q 11
Under the Negotiable Instruments Article of the UCC, which of the following statements is correct regarding a check
A) A check is a promise to pay money.
B) A check is an order to pay money.
C) A check does not need to be payable on demand.
D) A check does not need to be drawn on a bank.
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Multiple Choice
Q 12Q 12
Nation-Wide Check Corp. sold money orders through local agents. A customer would purchase a money order by paying an agent the amount of the desired money order plus a fee. The customer would then sign the money order as the remitter or sender and would fill in the name of the person who was to receive the money following the printed words "Payable to." In a lawsuit between Nation-Wide and Banks, a payee on some of these orders, the question was raised as to whether these money orders were checks and could be negotiable even though not payable to order or to bearer. Are the money orders negotiable instruments [Nation-Wide Check Corp. v Banks 260 A2d 367 (DC)]
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Q 13Q 13
George S. Avery signed a letter regarding the unpaid balance on a $20,000 promissory note owed to Jim Whitworth in the form of a letter addressed to Whitworth stating: "This is your note for $45,000.00, secured individually and by our Company for your security, due February 7, 1984." The letter was signed: "Your friend, George S. Avery." It was typed on stationery with the name of Avery's employer, V L Manufacturing Co., Inc., printed at the bottom and the words "George Avery, President" printed at the top. Avery says he is not personally liable on the note. The court granted summary judgment for Whitworth and Avery appealed. Who is liable [Avery v Whitworth 414 SE2d 725 (Ga App)]
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Q 14Q 14
Bellino made a promissory note that was payable in installments and contained the provision that on default of the payment of any installment, the holder had the option to declare the entire balance due and payable on demand. The note was negotiated to Cassiani, who sued Bellino for the full debt when there was a default on the installment. Is a note with an acceleration clause still negotiable [Cassiani v Bellino 157 NE2d 409 (Mass)]
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Essay
Q 15Q 15
Atlas Capital, LLC's sole member and manager was Weston Wade Sleater. Mr. Sleater signed two promissory notes totaling $4,000,000 as the maker of the notes. The signature blocks of the notes read, "Weston Wade Sleater Atlas Marketing Group, L.C.," but the signature was only that of Mr. Sleater. Mr. Sleater is referred to as the maker of the note. Mr. Sleater failed to pay the notes and a bankruptcy trustee brought suit to collect the remaining amount due. Mr. Sleater maintains that the notes are not his, but those of Atlas Capital. Is he correct Is Mr. Sleater liable on the notes Discuss the ambiguity issues as well as the way the notes were signed. [ In re Bedrock Marketing, LLC, 404 B.R. 929 (D. Utah)]
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Q 16Q 16
Lloyd and Mario Spaulding entered into a contract to purchase property from Richard and Robert Krajcir. The two Spaulding brothers signed a promissory note to the Krajcir brothers with the following language: "The amount of $10,000 [is] to be paid sellers at the time of the initial closing [delivery of the deed]; plus, the principal amount payable to sellers at the time of the final indorsement of the subject H.U.D. loan." In litigation over the note, the Spauldings said it was not a negotiable instrument. The lower court found it to be a negotiable promissory note and the Spaulding partners appealed. Is the note negotiable [Krajcir v Egid 712 NE2d 917 (Ill App)]
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Essay
Q 17Q 17
Is the following instrument negotiable
I, Richard Bell, hereby promise to pay to the order of Lorry Motors Ten Thousand Dollars ($10,000) upon the receipt of the final distribution from the estate of my deceased aunt, Rita Dorn. This negotiable instrument is given by me as the down payment on my purchase of a 1986 Buick to be delivered in three weeks. Richard Bell (signature).
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Essay
Q 18Q 18
Smith has in his possession the following instrument:
September 1, 2003
I, Selma Ray, hereby promise to pay Helen Savit One Thousand Dollars ($1,000) one year after date. This instrument was given for the purchase of Two Hundred (200) shares of Redding Mining Corporation, Interest 6%. Selma Ray (signature).
What is this instrument Is it negotiable
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Essay
Q 19Q 19
Master Homecraft Co. received a promissory note with a stated face value from Sally and Tom Zimmerman. The note was payment for remodeling their home and contained unused blanks for installment payments but contained no maturity date. When Master Homecraft sued the Zimmermans on the note, the couple argued that they should not be liable on the note because it is impossible to determine from its face the amount due or the date of maturity. Decide. [Master Homecraft Co. v Zimmerman 22 A2d 440 (Pa)]
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Q 20Q 20
A note from Mark Johnson with HealthCo International as payee for $28,979.15 included the following language:
[p]ayable in________ , Successive Monthly Installments of $ Each, and in 11 Successive Monthly Installments of $2,414.92 Each thereafter, and in a final payment of $2,415.03 thereafter. The first installment being payable on the ______day of _______, and the remaining installments on the same date of each month thereafter until paid.
Johnson signed the note. Is it negotiable [Barclays Bank, P.L.C. v Johnson 499 SE2d 769 (NC App)]
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Q 21Q 21
The text of a handwritten note stated simply that "'I Robert Harrison owe Peter Jacob $25,000...,' /s/ Robert Harrison." Peter Jacob sought to use the handwritten note as a negotiable promissory note. Can he [Jacob v Harrison 49 UCC Rep Serv 2d 554 (Del Super)]
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Essay