Question

BUSINESS LAW

1. Sabrina owes $600 to Yale, who asks Sabrina to sign an instrument for the debt. If written on the instrument by Sabrina, which of the following would prevent its negotiability: “I.O.U. $600,” “I promise to pay $600,” or an instruction to the bank stating, “I wish you would pay $600 to Yale”? Why?

2. Muriel Evans writes the following on the back of an envelope: “I, Muriel Evans, promise to pay Karen Marvin or bearer $100 on demand.” Is this a negotiable instrument? Discuss fully.

3. Lyn writes a check for $900 to Mac, who indorses the check in blank and transfers it to Jan. She then presents the check to Omega Bank, the drawee bank, for payment. Omega does not honor the check. Is Lyn liable to Jan? Could Lyn be subject to criminal prosecution? Why or why not?

Answer 1

1.

A statement that “I.O.U.” money (or anything else) or an instruction to a bank stating, “I wish you would pay,” would render any instrument nonnegotiable. To be negotiable, an instrument must contain an express promise to pay. An I.O.U. is only an acknowledgment of indebtedness. An order stating, “I wish you would pay,” is not sufficiently precise.

2.

According to the UCC, in order for an instrument to operate as a negotiable instrument, it must meet the following criteria: 1. Be in writing, 2. Be signed by the maker or the drawer, 3. Be an unconditional promise or order to pay, 4. State a fixed amount of money, 5. Be payable on demand or at a definite time, and 6. Be payable to order or to bearer, unless it is a check. The note that Muriel Evans made to Karen Marvin meets all six of these criteria. In this particular case, the type of negotiable instrument that Muriel Evans used was a promissory note. A promissory note is a written promise made by one person (the maker) to pay a fixed amount of money to another person (the payee or a subsequent holder) on demand or on a specified date.

So, Yes, the note that Muriel Evans made on the back of the envelope concerning a promise to pay $100 on demand to Karen Marvin or bearer is a negotiable instrument.

3.

Yes, Lyn is liable towards Jan because in cases of civil suits, the drawer( Lyn) is liable to payee(Jan) to any holder of the check which is not honoured.

And yes, Lyn could be subjected to criminal prosecution but only if his intention to cause fraud for issuing a bad check can be proved in the court of law.