STUDENT _______________________________________ CLASS _______________________ DATE _________
ȱLESSONȱ30—2ȱPRACTICEȱACTIVITYȱ
Readȱtheȱfollowingȱcasesȱandȱanswerȱtheȱquestionsȱaboutȱthem.ȱAttachȱaȱpageȱifȱadditionalȱ
spaceȱisȱneededȱforȱanswers.ȱ
ȱ
1.ȱKatherineȱWarnockȱpurchasedȱaȱcashier’sȱcheckȱinȱtheȱamountȱofȱ$53,541.93ȱ
payableȱtoȱherȱorderȱandȱdrawnȱonȱPuebloȱBankȱ&ȱTrust.ȱSheȱindorsedȱherȱnameȱ
onȱtheȱbackȱofȱtheȱcheckȱandȱgaveȱitȱtoȱherȱattorney,ȱJerryȱQuick.ȱUnderȱherȱsigȬ
thatȱtheȱcheckȱshouldȱhaveȱbeenȱplacedȱinȱWarnock’sȱaccount.ȱSinceȱsheȱhadȱnoȱ
accountȱatȱLaJunta,ȱitȱwasȱimproperȱtoȱdepositȱitȱinȱanotherȱaccountȱnotȱbelongȬ
ingȱtoȱher.ȱLaJuntaȱarguedȱthatȱtheȱwritingȱonȱtheȱcheckȱconvertedȱitȱfromȱorderȱ
paperȱtoȱbearerȱpaperȱandȱitȱrightfullyȱdepositedȱitȱtoȱtheȱtrustȱaccount.ȱWhoȱisȱ
right?ȱExplain.ȱ[LaJuntaȱStateȱBankȱv.ȱTravis,ȱ727ȱP.ȱ2dȱ48ȱ(Colo.ȱ1986)]ȱ
ȱ
ȱ
ȱ
ȱ
ȱ
2.ȱBrooksȱandȱSavitchȱwereȱequalȱcoȬownersȱofȱaȱcorporationȱcalledȱSavbrook,ȱInc.ȱ
TheȱDelawareȱTrustȱCompanyȱ(DTC)ȱloanedȱSavbrookȱ$300,000.ȱTheȱloanȱwasȱ
noteȱinȱfull.ȱEightȱyearsȱlaterȱBrooksȱsuedȱSavitchȱforȱhisȱhalf.ȱCanȱheȱcollect?ȱ
Explain.ȱ[Brooksȱv.ȱSavitch,ȱ576ȱA.ȱ2dȱ1329ȱ(Super.ȱCt.ȱDel.ȱ1989)]ȱ
Chapter 30 Negotiability and Negotiation of Commercial Paper 7-21
STUDENT _______________________________________ CLASS _______________________ DATE _________
ȱLESSONȱ30—2ȱRETEACHȱ
Directions:ȱCircleȱtheȱanswerȱtoȱeachȱquestionȱinȱtheȱpuzzleȱbelow.ȱAnswersȱmayȱ
appearȱinȱhorizontalȱorȱverticalȱform.ȱTheyȱmayȱalsoȱbeȱwrittenȱbackwardsȱorȱfromȱ
theȱbottomȱofȱtheȱpuzzleȱtoȱtheȱtop.ȱ
ȱAnswersȱ
1.ȱWhatȱtypeȱofȱindorsementȱdoesȱnotȱcontainȱȱ 1.ȱ________________________ ȱ
theȱwordsȱ“withoutȱrecourse”ȱorȱ“notȱliableȱforȱ
payment”?ȱ
2ȱWhatȱkindȱofȱindorsementȱeliminatesȱtheȱinȬȱ 2.ȱ________________________ ȱ
dorser’sȱsecondaryȱliabilityȱbecauseȱofȱhisȱorȱ
herȱsignatureȱappearingȱonȱtheȱinstrument?ȱ
3.ȱWhatȱkindȱofȱindorsementȱconsistsȱofȱjustȱtheȱȱ 3.ȱ________________________ ȱ
indorser’sȱsignature?ȱ
4.ȱWhatȱpartyȱsignsȱonȱtheȱreverseȱsideȱofȱcomȬȱ 4.ȱ________________________ ȱ
mercialȱpaper?ȱ
5.ȱWhatȱkindȱofȱindorsementȱmakesȱtheȱpaperȱȱ 5.ȱ________________________ ȱ
payableȱtoȱtheȱorderȱofȱaȱdesignatedȱparty?ȱ
6.ȱWhatȱisȱaȱsignatureȱonȱtheȱbackȱofȱanȱinstruȬȱ 6.ȱ________________________ ȱ
mentȱthatȱtransfersȱtheȱpaperȱcalled?ȱ
7.ȱWhichȱtypeȱofȱindorsementȱdirectsȱtheȱuseȱofȱȱ 7.ȱ________________________ ȱ
theȱproceedsȱfromȱtheȱinstrumentȱorȱimposesȱaȱ
conditionȱuponȱpaymentȱofȱtheȱinstrumentȱbyȱ
theȱindorser?ȱ
8.ȱWhatȱtermȱrefersȱtoȱaȱcosignerȱwhoȱisȱknownȱȱ 8.ȱ________________________ ȱ
andȱhasȱaȱgoodȱcreditȱrating?ȱ
9.ȱWhatȱpartyȱhasȱphysicalȱpossessionȱofȱcomȬȱ 9.ȱ________________________ ȱ
mercialȱpaperȱthatȱisȱpayableȱtoȱhisȱorȱherȱorȬ
der?ȱ
ȱȱ10.ȱToȱwhomȱisȱaȱpaperȱindorsed?ȱ10.ȱ________________________ ȱ
ȱ
QȱOȱRȱDȱNȱIȱBȱTȱSȱEȱRȱDȱLȱOȱHȱ
UȱDȱEȱIȱFȱIȱLȱAȱUȱQȱNȱUȱSȱCȱOȱ
7-22 Chapter 30 Negotiability and Negotiation of Commercial Paper
STUDENT _______________________________________ CLASS _______________________ DATE _________
ȱLESSONȱ30—2ȱENRICHMENTȱ
Properȱindorsementȱandȱnegotiationȱofȱcommercialȱpaperȱisȱtheȱmainȱfocusȱofȱthisȱ
lesson.ȱCommercialȱpaperȱisȱusuallyȱtransferredȱbyȱnegotiation.ȱIfȱtheȱinstrumentȱisȱ
payableȱtoȱtheȱorderȱofȱaȱnamedȱperson,ȱtheȱnamedȱpersonȱ(orȱherȱorȱhisȱagent)ȱ
mustȱsignȱtheȱpaperȱonȱitsȱreverseȱside.ȱThenȱtheȱpaperȱmustȱbeȱdeliveredȱtoȱmakeȱ
theȱnegotiationȱcompleteȱandȱproper.ȱTheȱsignatureȱonȱtheȱbackȱofȱanȱinstrumentȱtoȱ
transferȱtheȱpaperȱisȱtermedȱanȱindorsement.ȱContactȱsomeoneȱatȱaȱfinancialȱinstituȬ
tionȱwhoȱworksȱwithȱtransfersȱofȱcommercialȱpaper.ȱAskȱifȱtheȱindividualȱwillȱshowȱ
youȱaȱsampleȱofȱanȱindorsedȱcommercialȱpaper.ȱThenȱanswerȱtheȱfollowingȱquesȬ
tions.ȱ
ȱ
1.ȱWhoȱisȱtheȱindorser?ȱ
ȱ
ȱ
ȱ
ȱ
ȱ
2.ȱWhoȱisȱtheȱindorsee?ȱ
ȱ
ȱ
ȱ
ȱ
ȱ
3.ȱWhoȱisȱtheȱholder?ȱ
ȱ
ȱ
ȱ
ȱ
ȱ
4.ȱWhatȱtypeȱofȱindorsementȱisȱthis:ȱaȱblankȱindorsement,ȱaȱspecialȱindorsement,ȱaȱ
qualifiedȱindorsement,ȱorȱaȱrestrictiveȱindorsement?ȱ
ȱ
ȱ
ȱ
ȱ
5.ȱIsȱanȱaccommodationȱpartyȱinvolvedȱinȱthisȱtransaction?ȱ
STUDENT _______________________________________ CLASS _______________________ DATE _________
ȱ
ȱ
TESTȱ
CHAPTERȱ30ȱ
SECTION I—IDENTIFY LEGAL TERMS
Directions:ȱPlaceȱaȱTȱforȱTrueȱorȱanȱFȱforȱFalseȱinȱtheȱAnswersȱcolumnȱtoȱshowȱ
hetherȱeachȱofȱtheȱfollowingȱstatementsȱisȱtrueȱorȱfalse.ȱw
Answers
1
.ȱNegotiableȱinstrumentsȱisȱanotherȱtermȱforȱcommercialȱpaper.ȱ
2.ȱNegotiabilityȱrequiresȱthatȱtheȱinstrumentȱstateȱthatȱsomethingȱofȱ
valueȱhasȱbeenȱgivenȱforȱtheȱpaper.ȱ
3
.ȱCommercialȱpaperȱisȱsubjectȱtoȱtheȱparolȱevidenceȱrule.ȱ
4
.ȱOralȱevidenceȱmayȱbeȱusedȱtoȱshowȱfailureȱofȱconsideration.ȱ
5.ȱToȱbeȱnegotiable,ȱaȱpromissoryȱnoteȱorȱaȱcertificateȱofȱdepositȱmustȱ
containȱaȱconditionalȱpromiseȱtoȱpayȱmoney.ȱ
6.ȱMoneyȱisȱanyȱofficialȱcurrencyȱorȱcoinȱacceptableȱasȱaȱmediumȱofȱ
exchangeȱatȱtheȱtimeȱcommercialȱpaperȱisȱwritten.ȱ
7
.ȱAnȱ“X”ȱmarkȱisȱnoȱlongerȱacceptableȱasȱaȱvalidȱsignature.ȱ
8.ȱBothȱqualifiedȱandȱunqualifiedȱendorsersȱhaveȱtheȱsameȱbroadȱ
warrantyȱliability.ȱ
10.ȱIndorsementȱisȱaȱsignatureȱonȱtheȱfaceȱofȱanȱinstrument.ȱ
ȱ1.ȱȱ ȱ
ȱ2.ȱȱ ȱ
ȱ
ȱ3.ȱȱ ȱ
ȱ4.ȱȱ ȱ
ȱ5.ȱȱ ȱ
ȱ
ȱ6.ȱȱ ȱ
ȱ
ȱ7.ȱȱ ȱ
ȱ8.ȱȱ ȱ
ȱ
ȱ
ȱ10.ȱȱ ȱ
SECTION II—THINK CRITICALLY ABOUT LEGAL CONCEPTS
Directions:ȱInȱtheȱAnswersȱcolumnȱatȱtheȱrightȱofȱeachȱstatement,ȱwriteȱtheȱletterȱthatȱ
representsȱtheȱword,ȱorȱgroupȱofȱwords,ȱthatȱcorrectlyȱcompletesȱtheȱstatement.ȱ
ȱȱ Answers
11.ȱȱ Forȱanȱinstrumentȱtoȱbeȱnegotiable,ȱitȱmustȱ(a)ȱbeȱinȱwritingȱ
andȱsignedȱbyȱtheȱmakerȱorȱdrawer,ȱ(b)ȱcontainȱaȱconditionalȱ
promise,ȱ(c)ȱbothȱaȱandȱb,ȱ(d)ȱbeȱmadeȱoutȱtoȱaȱbankȱ
11._______ȱ
12.ȱȱTheȱabilityȱtoȱnegotiateȱanȱinstrumentȱisȱnotȱaffectedȱbyȱtheȱ
factȱthatȱitȱisȱ(a)ȱantedated,ȱ(b)ȱpostdated,ȱ(c)ȱeitherȱaȱorȱb,ȱ(d)ȱ
neitherȱaȱnorȱbȱ
12._______ȱ
7-24 Chapter 30 Negotiability and Negotiation of Commercial Paper
ȱȱ Answers
13.ȱȱ Ifȱthereȱareȱconflictingȱtermsȱwithinȱtheȱwriting,ȱ(a)ȱamountsȱ
expressedȱinȱfiguresȱprevailȱoverȱamountsȱexpressedȱinȱwords,ȱ
(b)ȱhandwrittenȱtermsȱprevailȱoverȱtypewrittenȱterms,ȱ(c)ȱ
printedȱformȱtermsȱprevailȱoverȱtypewrittenȱterms,ȱ(d)ȱprintedȱ
formȱtermsȱprevailȱoverȱhandwrittenȱtermsȱ
13._______ȱ
14.ȱNegotiabilityȱrequiresȱthatȱanȱinstrumentȱbeȱpayableȱ(a)ȱatȱaȱ
definiteȱtime,ȱ(b)ȱonȱdemand,ȱ(c)ȱtoȱbearerȱorȱtoȱaȱspecifiedȱperȬ
son’sȱorder,ȱ(d)ȱallȱofȱtheseȱ
14._______ȱ
15.ȱAnȱinstrumentȱisȱnotȱnegotiableȱifȱitȱrequiresȱthatȱtheȱamountȱ
15._______ȱ
16.ȱTheȱmostȱcommonȱtypeȱofȱindorsementȱthatȱautomaticallyȱ
transfersȱorderȱpaperȱintoȱbearerȱpaperȱisȱ(a)ȱblankȱindorseȬ
ment,ȱ(b)ȱqualifiedȱindorsement,ȱ(b)ȱrestrictiveȱindorsement,ȱ
(d)ȱspecialȱindorsementȱ
16._______ȱ
17.ȱToȱmakeȱtheȱpaperȱpayableȱtoȱtheȱorderȱofȱaȱdesignatedȱparty,ȱ
oneȱmustȱuseȱ(a)ȱaȱblankȱindorsement,ȱ(b)ȱaȱqualifiedȱindorseȬ
ment,ȱ(b)ȱaȱrestrictiveȱindorsement,ȱ(d)ȱaȱspecialȱindorsementȱ
17._______ȱ
18.ȱAnȱindorsementȱsuchȱasȱ“ForȱDepositȱOnly”ȱisȱ(a)ȱaȱblankȱinȬ
dorsement,ȱ(b)ȱaȱqualifiedȱindorsement,ȱ(b)ȱaȱrestrictiveȱinȬ
dorsement,ȱ(d)ȱaȱspecialȱindorsementȱ
18._______ȱ
19.ȱAȱqualifiedȱindorsementȱ(a)ȱdoesȱnotȱpermitȱtheȱindorserȱtoȱbeȱ
aȱminor,ȱ(b)ȱrequiresȱminorsȱtoȱhaveȱcoȬsigners,ȱ(c)ȱeliminatesȱ
theȱindorser’sȱsecondaryȱliability,ȱ(d)ȱnoneȱofȱtheseȱ
19._______ȱ
20.ȱȱ Anȱaccommodationȱpartyȱisȱoneȱwhoȱ(a)ȱbecomesȱprimarilyȱ
liableȱasȱaȱcosigner,ȱ(b)ȱcanȱseekȱcompensationȱfromȱtheȱacȬ
commodatedȱpartyȱifȱcollectedȱagainst,ȱ(c)ȱlendsȱhisȱorȱherȱ
goodȱcreditȱstandingȱtoȱtheȱinstrument,ȱ(d)ȱallȱofȱtheseȱ
20._______ȱ
Chapter 30 Negotiability and Negotiation of Commercial Paper 7-25
SECTION III—APPLY LEGAL PRACTICES
21.ȱTheȱLogȱCabin,ȱaȱlittleȱcountryȱstore,ȱoftenȱacceptsȱchecksȱforȱgasolineȱandȱgroȬ
ceries.ȱLateȱMondayȱnight,ȱSeanȱdeliberatelyȱwroteȱaȱNSFȱcheckȱforȱ$50ȱtoȱtheȱ
store.ȱEarlyȱTuesdayȱmorningȱwhenȱtheȱbakeryȱtruckȱdeliveredȱgoodsȱtoȱTheȱ
LogȱCabin,ȱtheȱownerȱofȱtheȱstoreȱdiscoveredȱthatȱheȱwasȱoutȱofȱchecksȱtoȱpayȱ
forȱtheȱdeliveryȱsoȱheȱindorsesȱtheȱchecksȱinȱhisȱcashȱdrawerȱtoȱpayȱforȱtheȱbakȬ
eryȱgoods.ȱTheȱdriverȱacceptedȱtheȱindorsedȱchecksȱasȱpaymentȱandȱturnedȱ
themȱinȱtoȱtheȱcompany.ȱWhenȱtheȱNSFȱisȱdiscovered,ȱwhoȱwillȱhaveȱtoȱpay?ȱ
Chapter 30 Negotiability and Negotiation of Commercial Paper
7-26
ANSWERS
Lessonȱ30—1ȱ
Quiz
tion.ȱ
Practice Activity
1.ȱTheȱcheckȱwasȱorderȱpaperȱrequiringȱaȱsignature.ȱBecauseȱtheȱbankȱdidȱnotȱacȬ
quireȱaȱsignature,ȱitȱisȱliable.ȱTheȱcourtȱheldȱthatȱinȱthisȱcase,ȱtheȱbankȱisȱinȱtheȱ
2.ȱTheȱcourtȱruledȱthatȱpostȬdatedȱchecksȱareȱbyȱtheirȱnatureȱnotȱintendedȱtoȱbeȱ
contemporaneousȱexchanges.ȱRather,ȱitȱisȱaȱpromiseȱtoȱpayȱinȱtheȱfuture.ȱAsȱtoȱ
theȱsecondȱpoint,ȱhowever,ȱtheȱcourtȱfoundȱthatȱtheȱlawȱrequiredȱitȱtoȱexamineȱ
ȱ
Chapter 30 Negotiability and Negotiation of Commercial Paper 7-27
Reteach
3.ȱpostdatedȱ
4.ȱnegotiableȱ
mentȱ
7.ȱmoneyȱ
Enrichment Activity
Lessonȱ30—2ȱ
Quiz
ȱ
11.ȱPamȱshouldȱwriteȱtheȱwordsȱ“PayȱtoȱtheȱorderȱofȱPamȱStudt”ȱaboveȱOpal’sȱinȬ
Practice Activity
1.ȱLaJuntaȱisȱright.ȱTheȱcourtȱfoundȱthatȱWarnockȱhadȱindorsedȱtheȱcheckȱinȱblankȱ
andȱthatȱtheȱcheckȱbecameȱbearerȱpaperȱuponȱherȱindorsement.ȱTheȱcheck,ȱ
therefore,ȱwasȱnegotiableȱbyȱdeliveryȱalone.ȱTheȱcourtȱalsoȱfoundȱthatȱtheȱbankȱ
2.ȱNo,ȱBrooksȱwillȱnotȱbeȱableȱtoȱcollectȱbecauseȱtheȱdebtȱwasȱdischarged.ȱBrooksȱ
wouldȱbeȱentitledȱtoȱrecoupȱoneȱhalfȱofȱtheȱmoneyȱfromȱSavitchȱifȱBrooksȱwasȱanȱ
accommodationȱpartyȱonȱtheȱnoteȱforȱSavitch.ȱUnderȱthoseȱcircumstances,ȱtheȱ
Chapter 30 Negotiability and Negotiation of Commercial Paper
7-28
Reteach
AȱNȱSȱBȱLȱAȱAȱKȱSȱEȱRȱQȱTȱAȱLȱ
LȱOȱRȱMȱEȱRȱNȱSȱOȱNȱIȱUȱPȱNȱDȱ
IȱDȱOȱLȱDȱKȱKȱEȱRȱDȱNȱAȱOȱCȱAȱ
IȱNȱDȱOȱRȱSȱEȱEȱAȱHȱOȱLȱDȱEȱRȱ
Enrichment Activity
Chapter 30 Negotiability and Negotiation of Commercial Paper 7-29
ANSWERS TO TEST QUESTIONS
SECTIONȱIȱ
ȱ
SECTIONȱIIȱ
ȱ
SECTIONȱIIIȱ
ȱ
21.ȱTheȱbakeryȱwillȱrecoverȱfromȱtheȱdriverȱbecauseȱtheȱdriverȱacceptedȱtheȱcheckȱasȱ
ȱ
7-30 Chapter 30 Negotiability and Negotiation of Commercial Paper
ȱ