St. Mary's University, Texas



Commercial Paper LW7394B SAMPLE EXAMINATION

Professor Faye M. Bracey

ST. MARY’S UNIVERSITY SCHOOL OF LAW

1. This examination consists of two (2) pages, including this page as the first.

2. Place your exam number on the exam and on the blue book(s).

3. St. Mary’s Law School prohibits the disclosure of information that might aid a professor in identifying the author of an examination. Any attempt by a student to identify himself or herself in an examination is a violation of this policy and of the Code of Student Conduct.

4. Do not begin until the proctor says to start.

5. This is a closed book exam. You may not use any outside written materials.

Students typing their exam must use Exam Soft software to block the hard drive.

If you are writing in a blue book, please write on every other line.

6. You have one hour (1 hour) to complete the exam. The exam consists of one essay question. The exam is worth one hundred (100) points towards your final grade.

7. Return the exam with your blue books or typed answer. A failure to do so will automatically result in a failing grade.

8. The proctor is not in charge of the instructions or the exam itself. They cannot answer any questions. The exam is self-explanatory.

9. After reading the oath, place your exam number in the space below. If you are prevented by the oath from placing your exam number in the space below, notify the proctor of your reason when you turn in the examination.

I HAVE NEITHER GIVEN NOR RECEIVED UNAUTHORIZED AID IN TAKING THIS EXAMINATION, NOR HAVE I SEEN ANYONE ELSE DO SO.

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Kathy gave Scott a promissory note for $1,250.00 for a big screen television, which, unknown to Kathy, did not work correctly. The note was undated, did not mention any interest rate, and read, “I promise to pay to the order of Scott the sum of one thousand two hundred and fifty dollars ($1,250.00). /s/ Kathy.”

Scott, intending to give the promissory note to his daughter, who was home from college for the summer, as a gift, indorsed it in blank, “/s/ Scott.” When his daughter received the note, she traded it with her friend, Peggy, for a Prada handbag. The daughter got caught up in an identity theft scam and filed bankruptcy. Peggy tried to get Kathy to pay the note, but was unsuccessful.

In an effort to resolve the mess, Scott gave Peggy a check for $1,250. The check had been written to Dewey Cheatum, Attorney at law. Scott, a client of Dewey’s took the check and signed the back: Pay to the order of Scott, signing the name of Dewey Cheatum. Scott then indorsed the check to Peggy. Peggy went to her bank, which was also the bank on which the check had been drawn, and using the automatic teller deposited the check into her personal account. Within 36 hours, Peggy debited the entire amount out of her account.

Dewey Cheatum had been in trial and, therefore, had not reconciled his bank statement in months. Not finding a deposit in his checking account for $1,250.00, he sent the client a new bill for legal services. The client quickly responded she had already paid that bill and enclosed a copy of the cancelled check. The check had been paid from client’s bank account more than 60 days earlier.

Please answer the following questions, by applying the law of commercial paper to the facts set forth above. You can assume that the Note signed by Kathy was a negotiable instrument.

1. Against whom, if anyone, can Peggy collect on the note? Explain fully.

2. What claims or defenses, if any, can Kathy assert against Scott and/or Peggy? Explain fully.

3. What liability, if any, does Scott’s daughter have to any party to this transaction? Explain fully.

4. Did bank properly pay Peggy on the check?

5. Is Attorney Cheatum’s client entitled to a recredit and if so, on what theories?

6. Does Attorney Cheatum have any recourse? How can he get the money he was paid with the check?

7. Does Scott have any liability on the check? If so, explain the basis for this liability.

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