Quiz 24: The Function and Creation of Negotiable Instruments
Business
Q 1Q 1
In its opinion, the court pointed out that "the duty to act in good faith does not apply to lenders seeking payment on demand notes." Why not
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Payable on Demand: In the case of Reger Development, LLC v. National City Bank , 592 F.3d 759 (2010) the District Court dismissed the breach of contract claim filed by Reger. The Court of Appeals affirmed. Where it is generally held that good faith is implied into every contract absent express disavowal, the duty to act in good faith does not apply to lenders seeking payment on demand notes. Good faith does not apply to demand instruments whose nature permits call at any time with or without reason.
Q 2Q 2
Negotiable Instruments Sabrina Runyan writes the following note on a sheet of paper: "I, the undersigned, do hereby acknowledge that 1 owe Leo Woo one thousand dollars, with interest, payable out of the proceeds of the sale of my horse, Lightning, next month. Payment is to be made on or before six months from date." Discuss specifically why this is not a negotiable instrument.
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Negotiable Instruments: It is a document consisting of unconditional promise and guaranteeing of payment of a certain amount of money on demand or predetermined date or time. Examples of some of the negotiable instruments are as follows: Promissory note Bills of exchange and Demand draft The requirements of the negotiable instrument are as follows: 1. Be in written format. 2. Be signed by the maker. 3. Be an unconditional promise to order to pay. 4. State a fixed amount of money for payment. 5. Payable on demand or at a definite time. 6. Payable to order or to bearer. In this case, of Mr. W and Mr. R, the instrument is non-negotiable because it does not meet the necessary elements of the negotiability. In specific to the case the note does not meet the following requirements is as follows: 1. The note is not signed, nor does it entitle the name of the maker. 2. The note is conditional upon the sale of a horse. 3. The note does not state a fixed amount of money (interest is not specified, nor an method for calculation) 4. The note is not payable at a definite time or on demand. Therefore, it is not a negotiable instrument, as the paper does not satisfy the requirements of the negotiable instruments.
Q 3Q 3
If National City had demanded "payment of the line" instead of just indicating that there was a possibility it might do so in the future, would the outcome of this case have been any different Explain.
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Payment of the Line: In the case of Reger Development, LLC v. National City Bank , 592 F.3d 759 (2010) the District Court dismissed the breach of contract claim filed by Reger. The Court of Appeals affirmed. If National City had demanded payment of the line instead of indicating that there was a possibility it might do so in the future, then that would have imposed a unilateral change on the agreement and could not call the line of credit unless Reger was in default. Because Reger was not in default, National City would not have been able to call the line of credit according to the terms of their agreement.
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QUESTION WITH SAMPLE ANSWER: Negotiability.
Juan Sanchez writes the following note on the back of an envelope: "I, Juan Sanchez, promise to pay Kathy Martin or bearer $500 on demand." Is this a negotiable instrument Discuss fully.
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Q 5Q 5
Promissory Notes A college student, Austin Keynes, wished to purchase a new entertainment system from Friedman Electronics, Inc. Because Keynes did not have the cash to pay for the entertainment system, he offered to sign a note promising to pay $150 per month for the next six months. Friedman Electronics, eager to sell the system to Keynes, agreed to accept the promissory note, which read, "I, Austin Keynes, promise to pay to Friedman Electronics or its order the sum of $150 per month for the next six months." The note was signed by Austin Keynes. About a week later, Friedman Electronics, which was badly in need of cash, signed the back of the note and sold it to the First National Bank of Halston. Give the specific designation of each of the three parties on this note.
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Q 6Q 6
Bearer Instruments Adam's checks are imprinted with the words "Pay to the order of" followed by a blank. Adam fills in an amount on one of the checks and signs it, but he does not write anything in the blank following the "Pay to the order of" language. Adam gives this check to Beth. On another check, Adam writes in the blank "Carl or bearer." Which, if either, of these checks is a bearer instrument, and why
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Q 7Q 7
Negotiabili In October 1998, Somerset Valley Bank notified Alfred Hauser, president of Hauser Co., that the bank had begun to receive what appeared to be Hauser Co. payroll checks. None of the payees were Hauser Co. employees, however, and Hauser had not written the checks or authorized anyone to sign them on his behalf. Automatic Data Processing, Inc., provided payroll services for Hauser Co. and used a facsimile signature on all its payroll checks. Hauser told the bank not to cash the checks. In early 1999, Robert Triffin, who deals in negotiable instruments, bought eighteen of the checks, totaling more than $8,800, from various check-cashing agencies. The agencies stated that they had cashed the checks expecting the bank to pay them. Each check was payable to a bearer for a fixed amount, on demand, and did not state any undertaking by the person promising payment other than the payment of money. Each check bore a facsimile drawer's signature stamp identical to Hauser Co.'s authorized stamp. Each check had been returned to an agency marked "stolen check" and stamped "do not present again." When the bank refused to cash the checks, Triffin filed a suit in a New Jersey state court against Hauser Co. Were the checks negotiable instruments Why or why not [ Triffin v. Somerset Valley Bank, 343 N.J.Super. 73, 777 A.2d 993 (2001)]
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Q 8Q 8
Negotiability In October 1996, Robert Hildebrandt contracted with Harvey and Nancy Anderson to find a tenant for the Andersons' used-car lot. The Andersons agreed to pay Hildebrandt "a commission equal in amount to five percent up to first three years of lease." On December 12, Paramount Automotive, Inc., agreed to lease the premises for three years at $7,500 per month, and the Andersons signed a promissory note, which stated that they would pay Hildebrandt $13,500, plus interest, in consecutive monthly installments of $485 until the total sum was paid. The note contained an acceleration clause. In a separate agreement, Paramount promised to pay $485 of its monthly rent directly to Hildebrandt. Less than a year later, Paramount stopped making payments to all parties. To enforce the note, Hildebrandt filed a suit in an Oregon state court against the Andersons. One issue in the case was whether the note was a negotiable instrument. The Andersons claimed that it was not, because it was not "unconditional," arguing that their obligation to make payments on the note was conditioned on their receipt of rent from Paramount. Are the Andersons correct Explain. [ Hildebrandt v. Anderson, 180 Or.App. 192, 42 P.3d 355 (2002)]
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Q 9Q 9
Cashier's Checks In July 1981, Southeast Bank in Miami Florida, issued five cashier's checks, totaling $450,000, to five payees, including Roberto Sanchez. Two months later, in Colombia, South America, Sanchez gave the checks to Juan Diaz. In 1991, Southeast failed. Under federal law, notice must be mailed to a failed bank's depositors, who then have eighteen months to file a claim for their funds. Under an "Assistance Agreement," First Union National Bank agreed to assume Southeast's liability for outstanding cashier's checks and other items. First Union received funds to pay these items but was required to return the funds if, within eighteen months after Southeast's closing, payment for any item had not been claimed. In 1996, in Colombia, Diaz gave the five cashier's checks that he had received from Sanchez to John Acevedo in payment of a debt. In 2001, Acevedo tendered these checks to First Union for payment. Docs First Union have to pay Would it make any difference if the required notice had not been mailed Why or why not [ Acevedo v. First Union National Bank, 357 F.3d 1244 (11th Cir. 2004)]
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Q 10Q 10
CASE PROBLEM WITH SAMPLE ANSWER: Negotiability.
In September 2001, Cory Babcock and Honest Air Conditioning Heating, Inc., bought a new 2001 Chevrolet Corvette from Cox Chevrolet in Sarasota, Florida. Their retail installment sales contract (RISC) required monthly payments until $52,516.20 was paid. The RISC imposed many other conditions on the buyers and seller with respect to the payment for, and handling of, the Corvette. Cox assigned the RISC to General Motors Acceptance Corp. (GMAC). In August 2002, the buyers sold the car to Florida Auto Brokers, which agreed to pay the balance due on the RISC. The check to GMAC for this amount was dishonored for insufficient funds, however, after the vehicle's title had been forwarded. GMAC filed a suit in a Florida state court against Honest Air and Babcock, seeking $35,815.26 as damages for breach of contract. The defendants argued that the RISC was a negotiable instrument. A ruling in their favor on this point would reduce any damages due GMAC to less than the Corvette's current value. What are the requirements for an instrument to be negotiable Does the RISC qualify Explain. [ General Motors Acceptance Corp. v. Honest Air Conditioning Heating, Inc., 933 So.2d 34 (Fla.App. 2 Dist. 2006)]
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Q 11Q 11
A QUESTION OF ETHICS: Promissory Notes.
In November 2000, Monay Jones signed a promissory note in favor of a mortgage company in the amount of $261,250, using the deed to her home in Denver, Colorado, as collateral. Fifth Third Bank soon became the holder of the note. After Jones defaulted on the payment, in September 2001 she and the bank agreed to raise the note's balance to $280,231.23. She again defaulted. In November, the bank received a check from a third party as payment on Jones's note. It. was the bank's policy to refuse personal checks in payoff of large debts. The bank representative who worked on Jones's account noted receipt of the check in the bank's records and forwarded it to the "payoff department." A week later, the bank discovered that the check had been lost without having been posted to Jones's account or submitted for payment. The bank notified Jones, and both parties searched, without success, for a copy of the check or evidence of the identity of its maker, the drawee bank, or the amount. In late 2002, the bank filed a suit in a Colorado state court to foreclose on Jones's home. She insisted that the note had been paid in full by a cashier's check issued by an Arkansas bank at the request of her deceased aunt. [ Fifth Third Bank v. Jones, 168 P.3d 1 (Colo.App. 2007)]
(a) What evidence supports a finding that Jones gave the bank a check Does it seem more likely that the check was a cashier's check or a personal check Would it be fair for a court to find that the check had paid the note in full
(b) Under UCC 3-310, if a cashier's check or other certified check "is taken for an obligation, the obligation is discharged." The bank argued that it had not "taken [Jones's check] for an obligation" because the bank's internal administrative actions were still pending when the check was lost. Would it be fair for the court to rule in the bank's favor based on this argument Why or why not
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Q 12Q 12
VIDEO QUESTION: Negotiable Instruments.
Go to this text's Web site at www.cengage.com/blaw/darkson and select "Chapter 24." Click on "Video Questions" and view the video titled Negotiable Instruments. Then answer the following questions.
(a) Who is the maker of the promissory note discussed in the video
(b) Is the note in the video payable on demand or at a definite time
(c) Does the note contain an unconditional promise or order to pay
(d) If the note does not meet the requirements of negotiability, can Onyx assign the note (assignment was discussed in Chapter 16) to the bank in exchange for cash
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