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Commercial Paper

University of Akron School of Law Professor Lavoie -


SAMPLE EXAMINATION Time: 3 Hours

1. Unless a question specifies to the contrary, you should assume all fact patterns take place in the hypothetical
state of Ohvania (a new state in the United States of America) and that the Ohvania legislature has enacted
Articles 1, 3, 4 and 4A of the UCC in their entirety with all currently proposed amendments (i.e., as the text
appears in the Code volume we used in class).
2. This is a 180 point examination composed in two parts: Part I consists of a combination of True-False and
Multiple Choice questions (27 questions worth 81 points; suggested time: 80 minutes) and Part II consists of
eight short answer type questions (99 points; suggested time: 100 minutes). You will likely be pressed for
time, so you are advised to try to adhere to the suggested times as closely as possible. Generally, for bluebook
answers it is better to leave a question only partially answered, perhaps providing an outline of the end of your
answer, when you are running short on time so that you can have time to attempt the other questions.
REMEMBER, no credit can be given if a question is not even attempted. There is NO PENALTY for guessing
on the questions in Part I; therefore you should select an answer for all those questions.
3. In Part I, if a question is ambiguous, you should pick the best answer given the perceived ambiguity. In Part
II, if the facts relating to a particular issue are ambiguous, it would be wise for your answer to address the
ambiguity and indicate how it would impact the analysis in the alternative. Purely computational errors are of
little consequence as long as your logic can be clearly seen from your answer. However, a failure to address or
appropriately treat one or more issues will be a serious omission.
4. ONLY WRITE ON ONE SIDE OF EACH PAGE IN YOUR BLUEBOOKS! Write legibly. No credit
will be given for answers that cannot be read. Write your student ID number on each bluebook, on the
scantron sheet and on each page of this examination paper. This examination paper must be turned in with
your completed bluebooks upon the completion of the exam. If multiple bluebooks are used, they should be
labeled sequentially (e.g., 1 of 3, 2 of 3, 3 of 3).
5. Laptop computers can be used to take the exam. No extra time will be granted for computer printing and
saving problems. Should you have problems, switch to using bluebooks for the remaining questions.
6. This is an open book examination. You may bring the UCC Code volume, Textbook, any material distributed
in class or via TWEN, your notes and any outlines or other materials prepared by you or a member of your
study group who is also taking this class this semester (either Day or Evening). NO PUBLISHED OUTLINES
OR OTHER MATERIALS ARE PERMITTED IN THE EXAMINATION. You may bring and use a calculator
in the exam although one should not be required.
7. Think before you write any essay answer. A premium is placed on concise, thoughtful and well-organized
analysis, not on the quantity of your response. It is not necessary to restate the question in your answer.
Although this examination is open book, pinpoint statutory and case citations are not required and you are
urged not to spend time looking up or verifying such references. The better answers will include a through
analysis of the issues presented and of any competing concerns involved, rather than a string of citations.
Indeed, even if particular statutory provisions or cases are cited, you should still state the rules contained
therein and explain their significance in the context of the question.
8. There are 11 pages in this examination, including these instructions. Make sure you have a complete exam.
The words END OF EXAMINATION appear after the last question.
9. HONOR CODE: Please reproduce, and sign with your student ID number, the following honor
code statement at the beginning or end of your essay answers: No unpermitted aid given,
witnessed, or received.

Sample Examination Professor Lavoie Commercial Paper


PAGE 1 of 11 STUDENT ID NUMBER _________________
PART I: True/False and Multiple Choice. (33 questions, 99 points total, suggested time 100 minutes)

NOTE: True = A and False = B

Paving Inc. (Paving) is a road building company in Ohvania. It is owned by Rick Rock. Paving has a
contract with the state of Ohvania to do a major paving job on the states turnpike. The total contract
price is $1 million, which was to be paid in four equal installments over the year long project. The first
installment was paid by the state by a check drawn on the states account at the Bank of Akron (B of A)
which check was delivered to Pavings job site foreman, Ted Tanned. Instead of delivering the check to
Rick, Ted forged Pavings name and then deposited the check into his personal account at the Bank of
Columbus (B of C) without any further indorsement.

Ted deposited the check at B of C on Tuesday, January 2, 2008 at 8 a.m. B of C gave Ted credit for the
full $250,000 on January 4 and Ted withdrew $200,000 of the funds on January 4, leaving only $50,000 in
the account. The check was collected through the Ohvania branch of the Federal Reserve Bank (Local
Fed) which held accounts for both B of A and B of C. On January 2 at 8 p.m., the Local Fed gave a
provisional credit to B of C and a provisional debit to B of A on its books and sent the check to B of A by
courier. The check arrived at B of A on January 3 at 8 a.m. and it was immediately posted to the States
account, which had sufficient funds.

At 10 a.m. on January 4, Rick discovered, and informed the state, that Ted had received the check but not
delivered it to him. An appropriate representative of Ohvania informed B of A of the correct check
number and amount at 1 p.m. on January 4 and orally instructed B of A to stop payment on the check. B
of A dishonored the check and returned it by courier to B of C at 8 a.m. on January 5. B of C received the
returned check at noon on January 5.

1. True or False: B of C has violated Reg. CC by failing to give Ted credit for the full amount of
the check prior to January 4.

2. True or False: Since B of A missed the midnight deadline imposed by Article 4 (i.e., midnight
of January 4), it is obligated to pay B of C $250,000.

3. True or False: Ohvanias stop payment order is invalid because it failed to provide B of A with
the name of the listed Payee.

4. True or False: Under UCC 4-303 the check had priority over Ohvanias stop payment order
and therefore the check should have been paid by B of A.

5. Assuming Ted cannot be located, the $200,000 loss from Teds fraud will most likely be borne
by:

A. Ohvania, because B of C is a holder in due course


B. Paving, because it was negligent in supervising Ted under UCC 3-405
C. B of A, because it missed its midnight deadline
D. B of C, because it breached its presentment warranties
E. Local Fed, because it insures against frauds in the banking system

****************

Sample Examination Professor Lavoie Commercial Paper


PAGE 2 of 11 STUDENT ID NUMBER _________________
Mr. Burger King operates a fast food hamburger restaurant. On September 15, 2007, King contracted to
buy a gas flame grill unit from ABC Corporation, for $5000. On October 1, ABC delivered to King the
grill and a bill for $5000 payable in 30 days. On October 30, King still did not have the money to pay the
bill and notified ABC of his situation. ABC agreed to accept a six-month note due May 1, 2008 for the
$5000 obligation plus interest for such period calculated using the prime interest rate announced by
Citibank, N.A. (a nationally recognized financial institution), but only if two responsible people would
guarantee Kings performance. Kings brother-in-law Ronald McDonald, who knew about the purchase
of the grill and that King would use a negotiable note to pay for it, but was otherwise not involved in
Kings business, agreed to help King out. King and McDonald both signed, in the area reserved for
makers, a negotiable promissory note dated November 1, 2007, and payable on May 1, 2008, naming
ABC as payee. King then got his former boss, Wendy, to indorse the note in blank. Wendy added the
words collection guaranteed to her signature. King then delivered the note to ABC Corporation. The
grill did not work properly and all of the sandwiches prepared at Kings shop were greasy as a result.
King paid $500 to place the grill in working order. On May 1, 2008 no payment is made on the note. As
a result, ABC begins to purse the payment on the note.

6. On May 2, 2008 ABC can demand immediate payment only from:

A. McDonald
B. Either Wendy or McDonald
C. Either King or McDonald
D. Either King, Wendy or McDonald
E. ABC is entitled to no payment on the note from anyone since the grill was defective.

7. Wendys signature on the note is best described as:

A. A blank indorsement
B. A special indorsement
C. A restrictive indorsement
D. An anomalous indorsement
E. All of the above except response B are appropriate characterizations of Wendys signature.

8. Assume ABC demands payment from McDonald only on May 2, 2008. McDonald

A. Can insist that ABC pursue King first


B. Can refuse to pay the note due to the defect in the grill
C. Can assert a claim for recoupment equal to the $500 spent to fix the grill as an offset to the
$5000 owed
D. Both A and B are correct statements
E. None of the above are correct statements.

Sample Examination Professor Lavoie Commercial Paper


PAGE 3 of 11 STUDENT ID NUMBER _________________
9. Assume that ABC is ultimately successful in recovering $5000 from McDonald despite any
defenses that McDonald attempted to assert. McDonald:

A. Can pursue King for full payment on a claim for reimbursement.


B. Can pursue King for payment based on having rights to enforce the note.
C. Can pursue King for half the payment on a claim for contribution.
D. Both B and C are correct statements.
E. Both A and B are correct statements.

10. Assume instead that ABC properly negotiated the note on April 1, 2008 to Finance Company
for full value and that Finance Company became a holder in due course on that date. When
the note comes due, King pays only $4500 plus interest thereon, but refuses to pay the
remaining $500 and associated interest. The most likely analysis on the above facts, is that:

A. Finance Company is properly owed, and King is obligated to pay, the remaining $500 plus
interest.
B. Finance Company will be unable to collect the remaining $500 plus interest from King, but
can pursue either Wendy or McDonald for that amount.
C. Finance Company will be unable to collect the remaining $500 plus interest from King, but
can pursue ABC for that amount.
D. Finance Company will be unable to collect the remaining $500 plus interest from King,
and cannot pursue anyone else for that amount.
E. It is not possible to determine the most likely result from the facts given.

****************

Grandma Gullible loved to watch gymnastics and everyone in town knew that. Bad Bill, who owed lots
of money to Fred Financier, dreamed up a scheme to get some easy money to repay his debt. Bill called
on Grandma and claimed to represent the OSU Gymnastics team. He told Grandma that if they did not
raise $5000 they would not be able to compete in the NCAA National Championship events this year.
Grandma was very sympathetic and agreed to contribute a $5000 check drawn on her bank, Best Bank.
Bill told Grandma to give him a check made payable to OSU Gymnasts, Inc., an entity which in reality
did not exist. Bill indorsed the back of the check OSU Gymnasts and then he delivered the check to
Fred to pay off his debt. That same day, Fred indorsed in blank and transferred the check to Stacy, an
antiques dealer with no prior dealings with Fred, Bill or Grandma, who took the check in good faith in
exchange for a valuable antique clock Fred had had his eye on for many months. Stacy misplaced the
check and did not find it for four months. Upon finding the check, without indorsing it, Stacy gave the
check to her daughter Krissy for Krissys birthday. Krissy immediately indorsed and presented the check
to Best Bank for payment over the counter. Even though Grandma had sufficient funds in her account,
Best Bank refused to pay, because a week after Grandma wrote the check she phoned Best Bank and
orally ordered payment on the check stopped because she learned that OSU had terminated its entire
Gymnastic program a month earlier due to a severe budget crisis precipitated by Ohvania passing a law
that prohibited the state from ever collecting tax revenues greater than the aggregate amount it collected in
2007.

Sample Examination Professor Lavoie Commercial Paper


PAGE 4 of 11 STUDENT ID NUMBER _________________
11. True or false: Grandmas oral stop payment order was valid and effective on the date Krissy
presented the check for payment.

12. True or false: Krissy has a valid cause of action for wrongful dishonor against Best Bank for
failing to honor the check when presented.

13. True or false: Grandma has a valid cause of action for wrongful dishonor against Best Bank
for failing to honor the check when it was presented.

14. Regarding Bills signing the check using the name OSU Gymnasts, this indorsement

A. Constitutes a forged indorsement.


B. Is valid and effective under the imposter rule.
C. Is valid and effective under the double forgery rule.
D. Is valid and effective under the fictitious payee rule.
E. Would have been valid and effective if Bill had included the Inc. but as written is not a
proper indorsement.

15. Krissy is not a holder in due course because:

A. She gave no value for the check


B. She received the check when it was overdue.
C. Both A and B are correct statements.
D. None of the above are correct statements, but Krissy is still not a holder in due course
because the check was never properly negotiated to her because Stacy neglected to indorse
it.
E. HUH? Krissy IS a holder in due course.

16. When Best Bank dishonored the check, Krissy immediately sued Fred for payment. The most
likely outcome of this suit on these facts is that:

A. Fred has no liability since Krissy is not a holder.


B. Fred has no liability since Krissy is not a holder in due course.
C. Fred is liable to Krissy as a transferor and an indorser
D. Fred has no liability since Krissy waited too long to notify Fred that Best Bank had
dishonored the check.
E. Fred has no liability since Krissy did not present the check for payment to Best Bank
within 30 days of Freds indorsement.

Sample Examination Professor Lavoie Commercial Paper


PAGE 5 of 11 STUDENT ID NUMBER _________________
17. If instead of suing Fred, Krissy sues Grandma directly after Best Bank dishonors the check.
The most likely outcome of this suit on these facts is that:

A. Grandma is not liable on the check since Krissy is not a holder in due course and therefore
Grandma can assert Bills fraud as a defense.
B. Grandma is liable on the check since Krissy is a holder in due course and therefore
Grandma cannot assert Bills fraud as a defense.
C. Grandma is liable on the check since even though Krissy is not a holder in due course she
can assert the rights of a holder in due course and therefore Grandma cannot assert Bills
fraud as a defense.
D. Grandma is not liable on the check since even though Krissy is a holder in due course,
Grandma can still assert Bills fraud as a real defense.
E. Grandma is not liable on the check since it is more than 90 days old.

****************

Amy Anders is the founder and 100% owner of Bluebell Books, Inc., an Ohvania corporation that sells rare
books. Besides Amy, Bluebell has only one employee, Carol Costa, who helps Amy acquire and sell books, and
who also helps out with the companys paperwork, bookkeeping and billing.

On May 1, 2008, Amy signed and gave to Carol a negotiable demand note payable by Bluebell in the amount of
$1,000, to the order of Iris Ingall, as payment for a shipment of books that Iris had sold to Bluebell the previous
week. Amy carefully indicated in her signature that she was signing on behalf of Bluebell as Bluebells president.
Amy put the note in an envelope, told Carol about the note, and asked Carol to give the envelope to Iris Ingalls
assistant Silvia who will come around this morning to pick it up.

Jamie Johnson, who was walking past Bluebells open window, heard that conversation and, though she had (and
has) no connection at all with Iris, walked into Bluebell later that morning introduced herself as Silvia and asked
for the envelope for Iris Ingall, which Carol gave to her. As soon as she left Bluebell, Jamie opened the
envelope, turned the note over, wrote Iris Ingall on the back, walked down the street to the grand opening of
Krolls Cigars, and gave the note to Karl Kroll, the stores owner, in exchange for $1,000 worth of premium
cigars. Cigar shops in the area typically accepted such negotiated notes from their customers (who tended to be
rich and financially sophisticated individuals).

When Iriss real assistant arrived at Bluebells store later that morning, Amy yelled at Carol for giving the note to
the wrong person, and threatened to fire Carol. Carol was so angry at Amy for yelling at her that Carol took out
of the days incoming mail a $15,000 check from a customer, Nelson Nutt, drawn on Yerkes Bank and payable to
Bluebell. Carol wrote on the back of the check: Pay to Carol Costa. She then took an ink pad stamp bearing
the companys name and stamped the check below the words she had written. At noon, Carol took the check to
OPM Savings and Loan, indorsed the check in her own name and deposited it into her account. OPM did not
question the nature of the deposited check. OPM presented the check to Yerkes Bank, which paid it. As soon as
the funds were credited to Carols account by OPM, Carol withdrew the entire balance, closed the account and
left town for parts unknown.

18. True or false: Carols special indorsement is ineffective because she omitted the order of
magic words in the indorsement.

Sample Examination Professor Lavoie Commercial Paper


PAGE 6 of 11 STUDENT ID NUMBER _________________
19. Which of the following parties is most likely to bear the loss resulting from Carols theft of the
$15,000 check?

A. Bluebell
B. Yerkes Bank
C. Nelson Nutt
D. OPM Savings
E. The loss is likely to be allocated between Bluebell and OPM Savings on a comparative
negligence approach.

20. When Karl presents the note to Bluebell for payment, Bluebell

A. Can refuse to pay based on Jamies forged indorsement of Iris Ingalls signature.
B. Must pay the note since the indorsement in Iris Ingalls name will be treated as valid and
effective.
C. Can refuse to pay because promissory notes are not covered by Article 3 of the UCC.
D. Can refuse to pay because Karl failed to exercise ordinary care in accepting the note from
Jamie.
E. Must pay the note, but by so paying Bluebell is discharged of any liability to pay Iris Ingall
the $1000 which it originally owed Iris for the book shipment.

21. True or false: Since Amy is the 100% owner of Bluebell, a holder of the note could enforce it
against her individually despite her purportedly signing the note only as president of Bluebell.

****************

George Griffiths, a new associate at the law firm of Cheatum & Howe, was assisting a partner, Carl
Cheatum, with the closing of a purchase by their client, the Teflon Corporation, of Centex, a business
owned by Susan Salvatorie. The closing was scheduled for Friday, May 4, 2008. On Wednesday May 2,
2008 George took a cashier's check that had been prepared for the closing and left on Cheatums desk.
The check had been purchased earlier that day by Teflon from Bay Bank for $1 million and was made
payable to Susan Salvatorie. George forged the indorsement of Susan Salvatorie and presented the check
at Bay Bank for over the counter payment. Bay Bank questioned whether George was really Susan.
George insisted he was in fact named Susan, a sad joke of his dearly departed father who was an avid
Johnny Cash fan. Despite Georges insistence, Bay Bank refused to honor the check without further proof
of identity and George left with the unpaid check.

On Thursday May 3, Cheatum noticed that the check was missing when he arrived at his office at 8 a.m.
He called Teflon and Bay Bank and informed them that the cashier's check had been lost. At noon on that
day a representative of Teflon appeared at Bay Bank and filled out the banks required written statement
regarding the lost cashiers check.

On Friday May 4 at 4 p.m. George got his girlfriend, Vicky Vixen to pretend to be Susan. George and
Vicky then attempted to cash the check at Bay Bank. To Georges great joy, the cashier, thinking about
the weekend ahead, took the check from Vicky, failed to check the Banks records as he was required to
do under bank procedures (where he would have spotted the notation about this check being lost), and
cashed the check for Vicky thinking her to be Susan. Vicky and George then left town for parts unknown
with the suitcase BayBank had thoughtfully provided Vicky to hold the $1 million in cash.
Sample Examination Professor Lavoie Commercial Paper
PAGE 7 of 11 STUDENT ID NUMBER _________________
22. True or False: Bay Bank is liable to pay damages under 3-411 of the UCC as a result of its
failure to honor the cashiers check when first presented by George.

23. On May 7th, after Teflon learns that Bay Bank paid the cashiers check on the 4th, Teflon
consults you and asks when it can expect to get its $1 million placed back in its bank account.
You advise them that on the above facts the most likely result if the matter is litigated is that

A. Teflon is not entitled to anything from Bay Bank since the cashiers check was paid within
90 days of the date of the check.
B. Teflon is not entitled to anything from BayBank since Teflon is just a remitter and was
never a holder of the check with rights to enforce it.
C. Teflon is not entitled to anything from BayBank since Cheatum was negligent in leaving
the check on his desk.
D. Teflon is entitled to $1 million from BayBank 90 days after the date of the check.
E. Teflon is entitled to $1 million from BayBank as soon as BayBank paid the check and its
whereabouts became known.

****************

REFCO, a New York foreign exchange dealer, entered into a contract on May 1, 2008 to sell 7 million
U.S. dollars to MEBCO, a Swiss bank, for 6.3 million Euros. The contract required that MEBCO receive
the dollars, and that REFCO receive the Euros on or before May 4, 2008. On May 2, REFCO instructed
Citibank in New York to transfer the $7 million to MEBCO's account at Morgan Guaranty Bank in New
York (Morgan) on May 4. The agreement between REFCO and MEBCO provided that after MEBCO
received confirmation from Morgan that the transfer was complete, MEBCO would transfer the 6.3
million Euros to REFCOs bank account with Deutsche Bank (DB), a German bank located in Frankfurt,
Germany.

On May 4 at 10:30 a.m. New York time, Citibank sent the dollars through the CHIPS system to Morgan.
Citibank had correctly identified MEBCO as the stated beneficiary of its payment order, but through an
error of a Citibank employee the payment order mistakenly listed the account number of MISCO, another
depositor at Morgan. Coincidentally, MISCO was also a foreign exchange dealer that had dealings with
REFCO. On May 5 REFCO owed MISCO approximately $2 million as payment for a prior transaction.
Morgan processes all incoming CHIPS transfers automatically by computer and relies only on the account
number contained in the payment order. After receiving the payment order Morgan credited MISCO's
account with the $7 million at 10:32 a.m.

Since MEBCO never received the $7 million on May 4, it never transferred the Euros to REFCOs DB
account. By the time the wire transfer errors were discovered on Monday May 7th, the relative prices of
Euros and Dollars had changed dramatically and MEBCO refused to complete the transaction as
originally negotiated. Had the transaction occurred as planned, the 6.3 million Euros REFCO would have
received would have been worth $10 million on May 7th.

24. True or False: REFCO is entitled to an immediate return of the $7 million it paid Citibank for
the wire transfer.

25. True or False: Morgan is liable to return $ 7 million to Citibank since Morgan was negligent
in not verifying that the account number matched the beneficiarys name.

Sample Examination Professor Lavoie Commercial Paper


PAGE 8 of 11 STUDENT ID NUMBER _________________
26. Irrespective of your prior answers, assume that Citibank is in fact liable to REFCO for $7
million and cannot require Morgan to return the $7 million Citibank paid. When Citibank
attempts to recover the $7 million from MISCO, on the above facts the most likely result if the
matter is litigated is that

A. MISCO will need to return the $7 million.


B. Assuming it has changed its position in reliance, MISCO will be able to successfully defeat
Citibanks claim in most jurisdictions on the theory that it was actually owed money by
REFCO.
C. In most jurisdictions MISCO will be able to avoid repaying $2 million of the $7 million
payment
D. Since wire transfers are cheap, fast, and above all final, MISCO has no liability to Citibank
to the return the amount of the wire transfer.
E. Who cares. I just hope the essay questions are easier.

27. True or False: If REFCO sues Citibank for damages relating to the Citibanks error in placing
the wire transfer, then REFCO will most likely be able to recover its $2 million lost profit on
the transaction from Citibank.

Sample Examination Professor Lavoie Commercial Paper


PAGE 9 of 11 STUDENT ID NUMBER _________________
PART II: ESSAY QUESTIONS (8 questions, 99 total points, suggested time: 100 minutes: Note: I
suggest spending approximately one minute for each point in a question.)

Joe Sixpack is a well known portrait painter. On May 1, Joe Sixpack visits a Hummer dealership run
jointly by Bud Wiser and Johnny Walker as an unincorporated business venture. After taking a test drive
of a new Hummer H2 with Bud, Joe wishes to buy the vehicle immediately but discovers that he has
forgotten his check book at home. Undeterred, Joe convinces Bud to accept his handwritten draft in
payment. Unable to find a piece of paper, Joe creates the draft by painting the following on a blank 24 x
24 painting canvas:

To: Debby Debutante


Date: May 1, 2008
Please pay to the order of
Bud Wiser/Johnny Walker
the sum of $ 50,000.00
on demand, but without
interest.
Joe Sixpack

Joe gives the draft to Bud in exchange for the keys and title to the Hummer and Joe drives off a happy
man. Debby Debutante is a local celebrity who actually owes Joe the amount of $250,000 for a portrait of
her that Joe had painted for Debby.

Bud is also a coin collector. On May 2, Bud contacts Penny Precious, a local coin dealer, and orders a
rare coin that he wishes Penny to acquire for him. Penny believes she will be able to acquire the coin
from another dealer in New York City for $30,000, however, she charges Bud, and he believes the coin to
be worth, $50,000. To pay Penny for the coin, on May 2 Bud takes the draft, signs his name on the back
of the draft (making no other writing or marking on the draft), and gives it to Penny. Penny intends to
travel to New York next week and decides not to collect on the draft until she returns with the coin.
Consequently, without signing, indorsing or making any other notation on the draft, Penny places the draft
in her triple locked desk until she is ready to take it to Debby for payment.

On May 3, Cadillac Jack, who has no commercial or other relationship with Joe, Bud or Penny, breaks
into Penny's office and into the triple-locked desk and steals the draft. He also changes the draft to make
it payable in the amount of $250,000 rather than $50,000.

On May 4, Jack takes the draft to his friend and relative, Cousin Slick, who takes a careful look at it and
says, "I'll give you $100,000 for it: $50,000 today and $50,000 tomorrow." Jack agrees to the deal, gives
Slick the draft, receives $50,000 from Slick, and tells Slick that he'll be back the next day for the
remaining $50,000.
Sample Examination Professor Lavoie Commercial Paper
PAGE 10 of 11 STUDENT ID NUMBER _________________
On May 5, Slick gives the draft to Debby, who pays Slick $250,000 in cash. Slick then immediately
leaves town for good, without paying Jack the remaining $50,000 that he promised him.

1. Is the draft a negotiable instrument? (8 points)

Assume for the remainder of these essays that the draft is a negotiable instrument.

2. Did Bud properly indorse and negotiate the draft to Penny? At the time of the theft by Jack
was Penny a Holder in Due Course of the draft? (12 points)

Assume for the remainder of these essays that the draft was properly indorsed by Bud and negotiated
to Penny.

3. How much money does Debby owe Joe after these events (i.e., after paying $250,000 to
Slick)? Explain your reasoning. (20 points)

Assume for the remainder of these essays that Debby continues to owe Joe $200,000 even though she
paid out $250,000 to Slick on the draft.

4. Explain whether Slick is a holder in due course. (10 points)

Assume for the remainder of these essays that Slick DOES QUALIFY as a holder in due course.

5. Assume Penny sues Debby and Joe for the $50,000 owed on the draft. What result? Explain
your reasoning. How might Penny have improved her chances of actually obtaining the
$50,000? (12 points)

6. Presuming that she can find them, does Debby have any claim to recover some or all of the
$250,000 she paid from either Jack or Slick? Explain your reasoning? (10 points)

For the remaining questions assume that instead when Slick presented the draft to Debby on May 5,
Debby rejected it and refused to pay it. Slick does not leave town, but does refuse to pay Jack the
remaining $50,000 he owes for the draft.

7. Is Debby liable to anyone for her failure to pay the draft? Explain your reasoning and any
additional facts you might need to know. (12 points)

8. Can Slick pursue Joe, Bud or Jack for some or all of the purported $250,000 owed on the
draft? (15 points)

END OF EXAMINATION Have a wonderful summer!

Sample Examination Professor Lavoie Commercial Paper


PAGE 11 of 11 STUDENT ID NUMBER _________________