The Brown family owns several companies, including the J. H. Stevedoring Company and Penn Warehousing and Distribution, Inc. Many aspects of the companies' operations and management are intertwined. Dennis Bishop worked for J. H. and Penn for more than ten years before he became the financial controller at J. H. His responsibilities included approving invoices for payment and reconciling the corporate checkbook. In December of the following year, Bishop began stealing from Penn and J. H. by writing checks on the corporate accounts and using the funds for his own benefit (committing the crime of embezzlement). Several members of the Brown family signed the checks for Bishop without hesitation because he was a longtime, trusted employee. Over the next two years, Bishop embezzled more than $\$ 1.2$ million. He used $\$700,000$ to buy horses from the Fasig-Tipton Company and Fasig-Tipton Midlantic, Inc., with Penn and J. H. checks made payable to those firms. When Bishop's fraud was revealed, J. H. and Penn filed a suit in a federal district court against the Fasig-Tipton firms (the defendants) to recover the amounts of the checks made payable to them. Using the information presented in the chapter, answer the following questions.

In whose favor should the court rule, and why?

What method was most likely used to negotiate the instruments described here?

Suppose that all of the checks issued to the defendants were made payable to “Fasig-Tipton Co., Fasig-Tipton Midlantic, Inc.” Under the Uniform Commercial Code, were the instruments payable jointly or in the alternative? Why is this significant?

Bertram writes a check for $200 payable to “cash.” He puts the check in his pocket and drives to the bank to cash the check. As he gets out of his car in the bank’s parking lot, the check slips out of his pocket and falls to the pavement. Jerrod walks by moments later, picks up the check, and later that day delivers it to Amber, to whom he owes$200. Amber indorses the check “For deposit only, [signed] Amber Dowel” and deposits it into her checking account. In light of these circumstances, answer the following questions:

(c) What type of indorsement did Amber make?

Transfer by Negotiation. Thao Thi Duong signed a note in the amount of $\$ 200,000$ in favor of Country Home Loans, Inc., to obtain a loan to buy a house in Marrero, Louisiana. The note was indorsed "PAY TO THE ORDER OF [blank space] WITHOUT RECOURSE COUNTRY HOME LOANS, INC." Almost five years later, Duong defaulted on the payments. The Federal National Mortgage Association (Fannie Mae) had come into possession of the note. Fannie Mae wanted to foreclose on the house and sell it to recover the balance due. Duong argued that the words "to the order of [blank space]" in the indorsement made the note an incomplete order instrument and that Fannie Mae thus could not enforce it. What is Fannie Mae's best response to this argument?

Negotiation. Bertram writes a check for $\$ 200$ payable to "cash." He puts the check in his pocket and drives to the bank to cash the check. As he gets out of his car in the bank's parking lot, the check slips out of his pocket and falls to the pavement. Jerrod walks by moments later, picks up the check, and later that day delivers it to Amber, to whom he owes $\$ 200$. Amber indorses the check "For deposit only, [signed] Amber Dowel" and deposits it into her checking account. In light of these circumstances, answer the following questions:

(a) Is the check a bearer instrument or an order instrument?

(b) Did Jerrod's delivery of the check to Amber constitute a valid negotiation? Why or why not?

(c) What type of indorsement did Amber make?

(d) Does Bertram have a right to recover the $\$ 200$ from Amber? Explain. (See Negotiation.)

Bertram writes a check for $200 payable to “cash.” He puts the check in his pocket and drives to the bank to cash the check. As he gets out of his car in the bank’s parking lot, the check slips out of his pocket and falls to the pavement. Jerrod walks by moments later, picks up the check, and later that day delivers it to Amber, to whom he owes$200. Amber indorses the check “For deposit only, [signed] Amber Dowel” and deposits it into her checking account. In light of these circumstances, answer the following questions:

(d) Does Bertram have a right to recover the $200 from Amber? Explain.

Bertram writes a check for $200 payable to “cash.” He puts the check in his pocket and drives to the bank to cash the check. As he gets out of his car in the bank’s parking lot, the check slips out of his pocket and falls to the pavement. Jerrod walks by moments later, picks up the check, and later that day delivers it to Amber, to whom he owes$200. Amber indorses the check “For deposit only, [signed] Amber Dowel” and deposits it into her checking account. In light of these circumstances, answer the following questions:

(a) Is the check a bearer instrument or an order instrument?

Indorsements. A check drawn by Cullen for $\$ 500$ is made payable to the order of Jordan and issued to Jordan. Jordan owes his landlord $\$ 500$ in rent and transfers the check to his landlord with the following indorsement: "For rent paid, [signed] Jordan." Jordan's landlord has contracted to have Deborah do some landscaping on the property. When Deborah insists on immediate payment, the landlord transfers the check to Deborah without indorsement. Later, to pay for some palm trees purchased from Better-Garden Nursery, Deborah transfers the check with the following indorsement: "Pay to Better-Garden Nursery, without recourse, [signed] Deborah." Better-Garden Nursery sends the check to its bank indorsed "For deposit only, [signed] Better-Garden Nursery." (See Indorsements.)

(a) Classify each of these indorsements.

(b) Was the transfer from Jordan's landlord to Deborah, without indorsement, an assignment or a negotiation? Explain.

A check drawn by Cullen for $\$500$ is made payable to the order of Jordan and issued to Jordan. Jordan owes his landlord $\$500$ in rent and transfers the check to his landlord with the following indorsement: “For rent paid, [signed] Jordan.” Jordan’s landlord has contracted to have Deborah do some landscaping on the property. When Deborah insists on immediate payment, the landlord transfers the check to Deborah without indorsement. Later, to pay for some palm trees purchased from Better-Garden Nursery, Deborah transfers the check with the following indorsement: “Pay to Better-Garden Nursery, without recourse, [signed] Deborah.” Better-Garden Nursery sends the check to its bank indorsed “For deposit only, [signed] Better-Garden Nursery.” (See Indorsements.)

(a) Classify each of these indorsements.

Robert Durbin, a student, borrowed funds from a bank for his education and signed a promissory note for their repayment. The bank lent the funds under a federal program designed to assist students at postsecondary institutions. Under this program, repayment ordinarily begins nine to twelve months after the student borrower fails to carry at least onehalf of the normal full-time course load at his or her school. The federal government guarantees that the note will be fully repaid. If the student defaults on the repayment, the lender presents the current balance-principal, interest, and costs-to the government. When the government pays the balance, it becomes the lender, and the borrower owes the government directly. Durbin defaulted on his note, and the government paid the lender the balance due and took possession of the note. Durbin then refused to pay the government, claiming that the government was not the holder of the note. The government filed a suit in a federal district court against Durbin to collect the amount due. Using the information presented in the chapter, answer the question.

Suppose that the note did not state a specific interest rate but instead referred to a statute that established the maximum interest rate for government-guaranteed school loans. Would the note fail to meet the requirements for negotiability in that situation? Why or why not?

26-4. *Business Case Problem with Sample AnswerNegotiation. Sandra Ford signed a note and a mortgage on her home in Westwood, New Jersey, to borrow $\$ 403,750$ from Argent Mortgage Co. Argent transferred the note and mortgage to Wells Fargo Bank, N.A., without indorsement. The following spring, Ford stopped making payments on the note. Wells Fargo filed a suit in a New Jersey state court against Ford to foreclose on the mortgage. Ford asserted that Argent had committed fraud in connection with the note by providing misleading information and charging excessive fees. Ford contended that Wells Fargo was subject to these defenses because the bank was not a holder in due course of the note. Was the transfer of the note from Argent to Wells Fargo a negotiation or an assignment? What difference does that make? If Argent indorsed the note to Wells Fargo now, would the bank's status change? Discuss

Using the categories discussed in the chapter, what type of negotiable instrument was the note that Durbin signed (an order to pay or a promise to pay)? Explain.

Suppose that the note did not state a specific interest rate but instead referred to a statute that established the maximum interest rate for government-guaranteed school loans. Would the note fail to meet the requirements for negotiability in that situation? Why or why not?