SECTION II—THINK CRITICALLY ABOUT LEGAL CONCEPTS
Directions:ȱInȱtheȱAnswersȱcolumnȱatȱtheȱrightȱofȱeachȱstatement,ȱwriteȱtheȱletterȱthatȱ
representsȱtheȱword,ȱorȱgroupȱofȱwords,ȱthatȱcorrectlyȱcompletesȱtheȱstatement.ȱ
ȱ
ȱȱ Answers
11.ȱUnconditionalȱwrittenȱordersȱorȱpromisesȱtoȱpayȱmoneyȱareȱ
collectivelyȱdefinedȱasȱ(a)ȱchecks,ȱ(b)ȱcommercialȱpaper,ȱ(c)ȱ
drafts,ȱ(d)ȱIOUsȱ
11.______ȱ
12.ȱAnȱunconditionalȱwrittenȱorderȱbyȱoneȱpersonȱthatȱdirectsȱanȬ
otherȱpersonȱtoȱpayȱmoneyȱtoȱaȱthirdȱisȱcalledȱ(a)ȱaȱCD,ȱ(b)ȱaȱ
draft,ȱ(c)ȱanȱIOU,ȱ(d)ȱaȱnoteȱ
12._______ȱ
ȱ13.ȱAȱdraftȱthatȱisȱdueȱandȱpayableȱatȱtheȱtimeȱitȱisȱpresentedȱtoȱtheȱ
draweeȱbyȱtheȱpersonȱholdingȱitȱisȱ(a)ȱaȱdemandȱdraft,ȱ(b)ȱaȱ
promissoryȱdraft,ȱ(c)ȱaȱsightȱdraft,ȱ(d)ȱaȱtimeȱdraftȱ
13._______ȱ
14.ȱAȱtypeȱofȱdraftȱbyȱwhichȱaȱbankȱdepositorȱordersȱtheȱbankȱtoȱ
payȱmoney,ȱusuallyȱtoȱaȱthirdȱpartyȱisȱ(a)ȱaȱcheck,ȱ(b)ȱaȱdemandȱ
draft,ȱ(c)ȱaȱnote,ȱ(d)ȱaȱmoneyȱorderȱ
14._______ȱ
15.ȱAȱpersonȱwhoȱexecutesȱaȱpromissoryȱnoteȱisȱtheȱ(a)ȱdrawee,ȱȱȱ
(b)ȱdrawer,ȱ(c)ȱhonoree,ȱ(d)ȱmakerȱ
15._______ȱ
16.ȱWhenȱpersonalȱpropertyȱisȱofferedȱasȱsecurityȱandȱisȱsoȱidentiȬ
fiedȱonȱtheȱfactȱofȱtheȱnote,ȱtheȱpaperȱisȱa(n)ȱ(a)ȱcollateralȱnote,ȱ
(b)ȱmortgageȱnote,ȱ(c)ȱpromissoryȱnote,ȱ(d)ȱIOUȱ
16._______ȱ
17.ȱAȱcheckȱthatȱaȱbankȱdrawsȱonȱitselfȱisȱa(n)ȱ(a)ȱcashier’sȱcheck,ȱ
(b)ȱcertifiedȱcheck,ȱ(c)ȱteller’sȱcheck,ȱ(d)ȱtraveler’sȱcheckȱ
17._______ȱ
18.ȱȱ AȱdraftȱdrawnȱbyȱaȱbankȱonȱfundsȱthatȱitȱhasȱonȱdepositȱatȱanȬ
otherȱbankȱisȱa(n)ȱ(a)ȱcashier’sȱcheck,ȱ(b)ȱcertifiedȱcheck,ȱȱȱȱȱȱȱȱȱ(c)ȱ
teller’sȱcheck,ȱ(d)ȱtraveler’sȱcheckȱ
18._______ȱ
19.ȱSpecializedȱtypesȱofȱcommercialȱpaperȱusedȱinȱinternationalȱ
transactionsȱareȱ(a)ȱlettersȱofȱcredit,ȱ(b)ȱmoneyȱorders,ȱ(c)ȱtravȬ
eler’sȱchecks,ȱ(d)ȱteller’sȱchecksȱ
19._______ȱ
20.ȱChecksȱmayȱbeȱwrittenȱonȱ(a)ȱblankȱpaper,ȱ(b)ȱrawhide,ȱ(c)ȱspeȬ
cialȱformsȱthatȱareȱmagneticallyȱencoded,ȱ(d)ȱallȱofȱtheseȱ
20._______ȱ
SECTION III—APPLY LEGAL PRACTICES
21.ȱTedȱwouldn’tȱgetȱpaidȱuntilȱMonday.ȱHeȱjustȱhadȱenoughȱmoneyȱinȱhisȱaccountȱ
toȱpayȱhisȱcreditȱcardȱbill,ȱwhichȱwasȱdueȱFriday,ȱbutȱheȱstillȱneededȱgroceries.ȱ
HeȱdecidedȱtoȱmailȱaȱcheckȱforȱtheȱcreditȱcardȱpaymentȱonȱThursdayȱsoȱtheȱ
postmarkȱwouldȱindicateȱthatȱtheȱpaymentȱwasȱnotȱlate.ȱThenȱheȱwouldȱuseȱthatȱ
moneyȱinȱtheȱbankȱforȱaȱpersonalȱcheckȱsoȱheȱcouldȱgetȱgroceries.ȱTheȱmailedȱ
checkȱshouldȱnotȱclearȱtheȱbankȱbeforeȱTuesday,ȱandȱbyȱthatȱtimeȱheȱwillȱhaveȱ
beenȱpaidȱandȱmadeȱaȱdeposit.ȱIsȱthisȱlegal?ȱExplainȱyourȱanswer.ȱ
ANSWERS
Lessonȱ29—1ȱ
Quiz
ȱ
Practice Activity
1.ȱNo,ȱKalbe’sȱargumentȱwillȱnotȱpreventȱliabilityȱfromȱattaching.ȱTheȱcourtȱruledȱ
thatȱtheȱbankȱcouldȱpayȱtheȱcheckȱandȱcreateȱanȱoverdraft,ȱandȱifȱitȱdoes,ȱitȱisȱ
2.ȱYes,ȱGeorgeȱbeatȱtheȱhouseȱandȱdidȱnotȱhaveȱtoȱpay.ȱAfterȱseveralȱappealsȱonȱ
Reteach
Enrichment Activity
7-12 Chapter 30 Negotiability and Negotiation of Commercial Paper
Lessonȱ29—2ȱ
Quiz
ȱ
10.ȱDustinȱwouldȱprobablyȱfindȱeitherȱaȱmoneyȱorderȱorȱaȱcashier’sȱcheckȱtoȱbeȱtheȱ
11.ȱFirstȱFederalȱwillȱlikelyȱuseȱaȱteller’sȱcheckȱtoȱdrawȱtheȱ$150,000ȱfromȱtheȱLaurelȱ
Bank.ȱ
Practice Activity
1.ȱNo,ȱBoatmen’sȱwillȱnotȱbeȱliableȱforȱtheȱchargeback.ȱEQRȱarguedȱthatȱbecauseȱaȱ
cashier’sȱcheckȱissuedȱbyȱaȱbankȱisȱtheȱequivalentȱofȱcashȱand,ȱtherefore,ȱfinalȱ
2.ȱYes,ȱThomasȱCookȱisȱliableȱtoȱAshfordȱforȱtheȱchecks,ȱevenȱthoughȱtheyȱwereȱnotȱ
signed.ȱTheȱcourtȱheldȱthatȱAshfordȱacquiredȱtheȱchecksȱinȱgoodȱfaithȱandȱwithȬ
Reteach
Chapter 30 Negotiability and Negotiation of Commercial Paper 7-13
Enrichment Activity
ANSWERS TO TEST QUESTIONS
ȱ
SECTIONȱIȱ
ȱ
SECTIONȱIIȱ
ȱ
SECTIONȱIIIȱ
21.ȱNo.ȱAȱpersonȱwhoȱdeliberatelyȱissuesȱaȱcheckȱknowingȱthatȱthereȱareȱinsufficientȱ
fundsȱinȱtheȱaccountȱtoȱpayȱtheȱcheckȱwhenȱitȱisȱpresentedȱatȱtheȱdraweeȱbankȱisȱ
7-14 Chapter 30 Negotiability and Negotiation of Commercial Paper
STUDENT _______________________________________ CLASS _______________________ DATE _________
ȱLESSONȱ30—1ȱQUIZȱ
LegalȱConceptsȱ
Directions:ȱFillȱinȱtheȱblank(s)ȱwithȱtheȱmostȱappropriateȱtermȱorȱphraseȱtoȱcompleteȱ
theȱsentence.ȱ
ȱ
Answersȱ
1.ȱA(n)ȱȱȱȱȱȱȱȱȱ?ȱȱȱȱȱȱȱȱȱinstrumentȱwasȱdatedȱlaterȱȱ 1.ȱ________________________ ȱ
thanȱtheȱdateȱofȱissuance.ȱ
2.ȱ ȱȱȱȱȱȱȱȱ?ȱȱȱȱȱȱȱȱȱmeansȱtheȱproperȱtransferȱofȱnegoȬȱ 2.ȱ________________________ ȱ
tiableȱinstruments.ȱ
3.ȱ ȱȱȱȱȱȱȱȱ?ȱȱȱȱȱȱȱȱȱmeansȱthatȱtheȱcommercialȱpaperȱisȱȱ 3.ȱ________________________ ȱ
writtenȱpayableȱonȱorȱbeforeȱanȱidentifiedȱcalȬ
endarȱdate.ȱ
4.ȱAnȱinstrumentȱthatȱisȱdatedȱearlierȱthanȱtheȱȱ 4.ȱ________________________ ȱ
dateȱofȱissuanceȱisȱsaidȱtoȱbeȱȱȱȱȱȱȱȱȱ?ȱȱȱȱȱȱȱȱ.ȱ
5.ȱ ȱȱȱȱȱȱȱȱ?ȱȱȱȱȱȱȱȱȱmeansȱthatȱanȱorderȱtoȱpayȱmoneyȱȱ 5.ȱ________________________ ȱ
mustȱbeȱinȱwriting,ȱcontainȱanȱunconditionalȱ
promiseȱorȱorderȱpayableȱinȱaȱsumȱcertain,ȱbeȱ
payableȱonȱdemand,ȱandȱbeȱpayableȱtoȱtheȱbearer.ȱ
6.ȱ ȱȱȱȱȱȱȱȱ?ȱȱȱȱȱȱȱȱȱpaperȱisȱoneȱthatȱisȱcollectibleȱȱ 6.ȱ________________________ ȱ
byȱtheȱpartyȱinȱpossessionȱofȱit.ȱ
7.ȱA(n)ȱȱȱȱȱȱȱȱȱ?ȱȱȱȱȱȱȱȱȱmakesȱtheȱentireȱbalanceȱdueȱȱ 7.ȱ________________________ ȱ
andȱpayableȱuponȱtheȱhappeningȱofȱaȱcertainȱ
event.ȱ
8.ȱCommercialȱpaperȱisȱalsoȱcalledȱa(n)ȱȱ 8.ȱ________________________ ȱ
ȱȱȱȱȱȱȱȱ?ȱȱȱȱȱȱȱȱ.ȱ
9.ȱ ȱȱȱȱȱȱȱȱ?ȱȱȱȱȱȱȱȱȱmeansȱthatȱtheȱcommercialȱpaperȱisȱȱ 9.ȱ________________________ ȱ
writtenȱsoȱasȱtoȱbeȱpayableȱimmediatelyȱuponȱ
presentmentȱorȱatȱsight.ȱ
10.ȱ ȱȱȱȱȱȱȱȱ?ȱȱȱȱȱȱȱȱȱisȱanyȱofficialȱcurrencyȱorȱcoinȱacȬȱ 10.ȱ________________________ ȱ
ceptableȱasȱaȱmediumȱofȱexchangeȱeitherȱinȱtheȱ
UnitedȱStatesȱorȱinȱanyȱforeignȱcountryȱatȱtheȱ
timeȱtheȱcommercialȱpaperȱisȱwritten.ȱ
11.ȱWhenȱcommercialȱpaperȱisȱmadeȱpayableȱtoȱȱ 11.ȱ________________________ ȱ
theȱorderȱofȱaȱspecifiedȱpayee,ȱitȱisȱcalledȱ
ȱȱȱȱȱȱȱȱ?ȱȱȱȱȱȱȱȱȱpaper.ȱ
LegalȱApplicationȱ
12.ȱRubenȱSuarezȱisȱtheȱpresidentȱofȱaȱsmallȱlumberȱcompany.ȱHeȱnormallyȱsignsȱ
theȱcompany’sȱpayrollȱchecksȱinȱink.ȱOneȱdayȱheȱabsentmindedlyȱsignedȱtwoȱ
checksȱwithȱaȱpencil.ȱAreȱtheseȱtwoȱchecksȱnegotiable?ȱExplainȱyourȱanswer.ȱ
7-16 Chapter 30 Negotiability and Negotiation of Commercial Paper
STUDENT _______________________________________ CLASS _______________________ DATE _________
ȱLESSONȱ30—1ȱPRACTICEȱACTIVITYȱ
Readȱtheȱfollowingȱcasesȱandȱanswerȱtheȱquestionsȱaboutȱthem.ȱAttachȱaȱpageȱifȱadditionalȱ
spaceȱisȱneededȱforȱanswers.ȱ
ȱ
1.ȱSamȱwroteȱaȱcheckȱtoȱLeeȱdrawnȱonȱtheȱCȬMȱNationalȱBank.ȱLeeȱindorsedȱtheȱ
checkȱandȱgaveȱitȱtoȱLeland.ȱLelandȱindorsedȱtheȱcheckȱ“PayȱtoȱtheȱorderȱofȱCityȱ
Bank”ȱandȱdepositedȱtheȱcheckȱintoȱhisȱaccountȱatȱCityȱBank.ȱTheȱcheckȱwasȱ
theȱcheckȱandȱcashedȱitȱatȱtheȱCȬMȱBank.ȱTheȱtellerȱwhoȱcashedȱtheȱcheckȱdidȱ
notȱrequireȱanȱindorsementȱbyȱtheȱpersonȱwhoȱpresentedȱit.ȱWasȱtheȱcheckȱconȬ
sideredȱbearerȱpaper,ȱi.e.,ȱpayableȱbyȱtheȱbankȱwithoutȱliability,ȱorȱorderȱpaper,ȱ
inȱwhichȱcaseȱtheȱbankȱwouldȱbeȱliableȱbecauseȱitȱcouldȱonlyȱbeȱnegotiatedȱbyȱ
theȱwrittenȱindorsementȱofȱtheȱlastȱindorsee?ȱExplain.ȱ[Coltharpȱv.ȱCalcasieuȬ
ȱ
ȱ
ȱ
ȱ
ȱ
2.ȱProductionȱSupplyȱCompanyȱ(PSC)ȱwasȱaȱcreditorȱofȱEquipmentȱCompanyȱofȱ
Americaȱ(ECA),ȱwhoȱwasȱinȱbankruptcy.ȱWhenȱECAȱfiledȱforȱChapterȱ11ȱbankȬ
ruptcyȱprotection,ȱPSCȱwasȱholdingȱfifteenȱpostȬdatedȱchecksȱtotalingȱ$59,206.40ȱ
ECAȱwouldȱnotȱbeȱableȱtoȱvoidȱtheȱchecks.ȱWhatȱeffectȱdoesȱtheȱpostȬdatingȱ
haveȱonȱtheȱcheckȱandȱliabilityȱforȱit?ȱExplain.ȱ[EquipmentȱCompanyȱofȱAmericaȱv.ȱ
ProductionȱSupplyȱCompany,ȱ135ȱB.R.ȱ169ȱ(S.D.ȱFla.ȱ1991)]ȱ
Chapter 30 Negotiability and Negotiation of Commercial Paper 7-17
STUDENT _______________________________________ CLASS _______________________ DATE _________
ȱLESSONȱ30—1ȱRETEACHȱ
ȱ
Directions:ȱUnscrambleȱtheȱlettersȱfollowingȱeachȱquestionȱandȱwriteȱtheȱanswerȱinȱ
theȱblankȱprovided.ȱ
ȱ
Answersȱ
1.ȱWhatȱtermȱmeansȱtheȱproperȱtransferȱofȱnegoȬȱ 1.ȱ________________________ ȱ
2.ȱWhatȱtermȱmeansȱthatȱanȱinstrumentȱisȱdatedȱȱ 2.ȱ________________________ ȱ
3.ȱWhatȱkindȱofȱinstrumentȱwasȱdatedȱlaterȱthanȱȱ 3.ȱ________________________ ȱ
4.ȱWhatȱtermȱmeansȱthatȱanȱorderȱtoȱpayȱmoneyȱȱ 4.ȱ________________________ ȱ
mustȱbeȱinȱwriting,ȱcontainȱanȱunconditionalȱ
promise,ȱbeȱpayableȱonȱdemand,ȱandȱbeȱpayȬ
5.ȱWhatȱkindȱofȱclauseȱmakesȱtheȱentireȱbalanceȱȱ 5.ȱ________________________ ȱ
dueȱandȱpayableȱuponȱtheȱhappeningȱofȱaȱcerȬ
6.ȱWhatȱisȱanotherȱnameȱforȱcommercialȱpaper?ȱȱ 6.ȱ________________________ ȱ
7.ȱWhatȱisȱanyȱofficialȱcurrencyȱorȱcoinȱthatȱisȱȱ 7.ȱ________________________ ȱ
universallyȱacceptedȱasȱaȱmediumȱofȱexchangeȱ
8.ȱWhatȱkindȱofȱpaperȱisȱoneȱthatȱisȱcollectibleȱbyȱȱ 8.ȱ________________________ ȱ
9.ȱWhatȱkindȱofȱpaperȱisȱmadeȱpayableȱtoȱtheȱorȬȱ 9.ȱ________________________ ȱ
7-18 Chapter 30 Negotiability and Negotiation of Commercial Paper
STUDENT _______________________________________ CLASS _______________________ DATE _________
ȱLESSONȱ30—1ȱENRICHMENTȱ
InȱtheȱGlobalȱIssuesȱfeature,ȱyouȱreadȱaboutȱhardȱversusȱsoftȱcurrencies.ȱHardȱcurrenȬ
ciesȱserveȱasȱreliableȱstoresȱofȱvalueȱoverȱextendedȱperiodȱofȱtime.ȱOtherȱcurrencies,ȱ
knownȱasȱsoftȱcurrencies,ȱhaveȱtheirȱrelativeȱvalueȱfixedȱonlyȱbyȱtheȱnationȱissuingȱ
them,ȱand,ȱtherefore,ȱhaveȱlittleȱdependableȱvalueȱoutsideȱofȱthoseȱcountries.ȱTheȱ
EuropeanȱEconomicȱandȱMonetaryȱUnionȱ(EMU)ȱintroducedȱitsȱnewȱcurrency,ȱtheȱ
euro,ȱinȱ1999.ȱTheȱEMUȱsubstitutedȱtheȱeuroȱforȱtheȱnationalȱcurrenciesȱofȱparticiȬ
patingȱcountriesȱandȱtransferredȱresponsibilityȱforȱmonetaryȱpolicyȱfromȱindividualȱ
nationalȱcentralȱbanksȱtoȱaȱnewȱEuropeanȱCentralȱBank.ȱFindȱoutȱmoreȱaboutȱtheȱ
euroȱandȱtheȱEuropeanȱEconomicȱandȱMonetaryȱUnionȱbyȱresearchingȱarticlesȱfromȱ
newspapers,ȱperiodicals,ȱorȱInternetȱsites.ȱThenȱanswerȱtheȱquestionsȱbelow.ȱ
ȱ
1.ȱIsȱtheȱeuroȱaȱhardȱcurrency?ȱIfȱso,ȱwhatȱisȱitsȱcurrentȱvalueȱonȱtheȱopenȱmarket?ȱ
ȱ
ȱ
ȱ
ȱ
ȱ
2.ȱWhatȱcountriesȱareȱcurrentlyȱparticipatingȱinȱtheȱEuropeanȱEconomicȱandȱMoneȬ
taryȱUnion?ȱ
ȱ
ȱ
ȱ
ȱ
ȱ
4.ȱWhatȱareȱsomeȱofȱtheȱbenefitsȱtoȱtheȱparticipatingȱcountriesȱinȱusingȱtheȱsingleȱ
currency?ȱ
ȱ
ȱ
ȱ
ȱ
ȱ
5.ȱWhatȱpossibleȱdrawbacksȱmightȱaȱcountryȱexperienceȱinȱusingȱtheȱsingleȱEuroȬ
peanȱcurrencyȱratherȱthanȱitsȱownȱnationalȱcurrency?ȱ
STUDENT _______________________________________ CLASS _______________________ DATE _________
ȱLESSONȱ30—2ȱQUIZȱ
Directions:ȱInȱtheȱAnswersȱcolumn,ȱwriteȱtheȱletterȱfromȱColumnȱ1ȱthatȱrepresentsȱ
theȱwordȱorȱphraseȱthatȱmatchesȱtheȱstatementȱinȱColumnȱ2.ȱ
ȱColumnȱ1ȱȱColumnȱ2ȱAnswersȱ
ȱȱ 1.ȱOwnerȱofȱcommercialȱpaperȱwhoȱsignsȱȱ 1. _______ ȱ
onȱitsȱreverseȱsideȱ
ȱȱ 2.ȱSignatureȱonȱtheȱbackȱofȱanȱinstrumentȱȱ 2. _______ ȱ
thatȱtransfersȱtheȱpaperȱ
ȱȱ 3.ȱIndorsementȱthatȱmakesȱtheȱpaperȱȱ 3. _______ ȱ
payableȱtoȱtheȱorderȱofȱaȱdesignatedȱpartyȱ
ȱȱ 4.ȱIndorsementȱthatȱdirectsȱtheȱuseȱofȱtheȱȱ 4. _______ ȱ
proceedsȱfromȱtheȱinstrumentȱorȱimposesȱaȱ
conditionȱuponȱpaymentȱofȱtheȱinstrumentȱ
byȱtheȱindorserȱ
ȱȱ 5.ȱPartyȱtoȱwhomȱaȱpaperȱisȱindorsedȱ5. _______ ȱ
ȱȱ 6.ȱPartyȱwhoȱhasȱphysicalȱpossessionȱofȱȱ 6. _______ ȱ
commercialȱpaperȱthatȱisȱpayableȱtoȱhisȱorȱ
herȱorderȱ
ȱȱ 7.ȱIndorsementȱthatȱconsistsȱofȱjustȱtheȱȱ 7. _______ ȱ
indorser’sȱsignatureȱ
ȱȱ 8.ȱIndorsementȱthatȱeliminatesȱtheȱinȬȱ 8. _______ ȱ
dorser’sȱsecondaryȱliabilityȱbecauseȱofȱhisȱ
orȱherȱsignature’sȱappearingȱonȱtheȱinȬ
strumentȱ
A.ȱindorserȱ
B.ȱspecialȱ
ȱindorsementȱ
C.ȱqualifiedȱ
ȱindorsementȱ
D.ȱindorsementȱ
E.ȱunqualifiedȱ
ȱindorsementȱ
F.ȱrestrictiveȱȱ
ȱindorsementȱ
G.ȱindorseeȱ
H.ȱaccommodationȱȱ
ȱpartyȱ
I.ȱholderȱ
J
.ȱblankȱȱ
ȱindorsementȱ
ȱȱ 9.ȱCosignorȱwhoȱisȱknownȱandȱhasȱaȱgoodȱȱ 9. _______ ȱ
creditȱratingȱ
ȱȱ 10.ȱIndorsementȱthatȱdoesȱnotȱcontainȱtheȱȱ 10._______ ȱ
wordsȱ“withoutȱrecourse”ȱorȱ“notȱliableȱȱ
forȱpayment”ȱ
LegalȱApplicationsȱ
11.ȱOpalȱEvansȱisȱanȱelderlyȱladyȱwhoȱisȱnoȱlongerȱableȱtoȱmakeȱtripsȱtoȱherȱbankȱtoȱ
cashȱchecks.ȱPamȱStudtȱisȱOpal’sȱpersonalȱcareȱattendant.ȱOpalȱindorsesȱherȱsoȬ
cialȱsecurityȱcheckȱeachȱmonthȱandȱgivesȱitȱtoȱPamȱasȱpaymentȱforȱthatȱmonth.ȱ
Pamȱisȱconcernedȱthatȱtheȱindorsedȱcheckȱmayȱbeȱstolenȱbeforeȱsheȱcanȱgetȱtoȱ
herȱbank.ȱWhatȱadviceȱwouldȱyouȱgiveȱtoȱPam?ȱ
7-20 Chapter 30 Negotiability and Negotiation of Commercial Paper