J&W’s Fabrication Shop (J&W) sells fabricated parts to General Motors Corporation. General Motors normally
pays on a net 30 day basis (within 30 days of the delivery date). But when the economic slowdown occurred,
GM started paying net 120 days. Based on the last shipment from two weeks ago, GM owes J&W 320
thousand dollars. J&W’s cash flow is thin and they need to borrow money to meet payroll for ninety days.
Regina has been approached by J&W who has offered to sell to Regina, for 250 thousand dollars cash, their
written agreement with GM. The agreement reads in pertinent part that, “GM will pay to J&W all amounts owed
pursuant to a GM purchase order within 90 days of the date of receipt of the goods”. It is signed and dated by
an authorized GM agent.
Regina has come to your law office with a copy of the agreement and wants to understand the risks associated
with this deal.
State the elements of negotiability and answer this question,..Is the agreement between J&W and GM a
negotiable instrument? Explain why or why not. (10 pts.)
Stephen Jones custom builds desktop computers for companies in his home office/garage. Willie Norman
purchased 125 custom built computers from Stephen. To pay for the computers, Willie issued a note, payable
to Steven Jones. The note states in pertinent part that Willie agrees to pay to Steven Jones 75,000 in 10 equal
payments of 7500 each, on the first of each month until paid, beginning on June 1 2016. Willie did not sign his
name in cursive, instead he hand printed his name on the signature line, which is his normal custom. The note
is not dated. Willie made the first payment on June 1 2016, but on June 15 he notified Stephen that he would
not make any further payments because the Intel processor in the computers was not powerful enough and it
was taking the computers too long to perform basic functions. On June 28 Stephen sold the note to James for
50,000. Stephen negotiated the note to James. The only thing Stephen told James about the note was that the
first payment had been made on time and the second payment was due on July 1. James’ girlfriend Diane was
behind on her mortgage payments and facing foreclosure. James indorsed the note and gave the note to Diane
to pay her mortgage. On July 1 Diane presented the note for payment to Willie. Willie refused payment. He told
Diane that he had advised Stephen that he would not honor the note because the computers were defective.
Diane has come to your law firm to understand her rights regarding this note. Answer the following: (Do not
restate the question in your answer. Just put the number of the question at the beginning of your answer to
each question. )
- Is this document a negotiable instrument. Why or why not. (10 pts)
For purposes of the next two questions only, assume that the document is a negotiable Instrument. - Is Diane a mere holder or is she a holder in due course. Explain (state the rule and your reasoning). (10 pts)
- Is Willie going to have to honor the note and pay the money to Diane. Why or why not (state the rule and
your reasoning). (10 pts)
Sample Solution