Question: Instructions:

Written Assignment #2: Recall that Kyle and his family own a successful produce business near Whitehouse, AL, close to Hamilton. Their produce (fresh and canned vegetables, fruits, etc.) is sold under their own label, Alabama Sunshine. Kyle likes the small town environment of Fayette where business is usually done with a phone call or a handshake. Unfortunately, Kyle is a bit too trusting, assuming that all people are as honest as he is, or tries to be.

Having received the $20,000 deposit from Alabama Best Foods (recall WA1), Kyle decided that the family's roadside market needed something to draw attention to it, like a scene painted on the front wall. Kyle saw an ad by Pai Casso, a local painter and contacted Pai about painting the scene. Pai agreed to do the painting for $5,000. Unfortunately, Pai, who never intended to paint the market but only intended to take Kyle's money, had a reputation for not starting painting commissions or starting the work but never finishing as he had done this to several other businesses in nearby Winston County. Pai even got his friend, James Bama, to talk with Kyle about how competent Pai was, and to explain that Kyle should not be concerned about paying Pai a commission in advance. Upon his advice, Kyle wrote Pai a $3,000 check one week before he was to start the job. Pai transferred the check to Clyde Caldwell in exchange for Clyde's 1995 Ford Windstar van, which was worth $2,800. Before Clyde had a chance to deposit the check, the local Winfield newspaper ran several news stories about Pai and the fraud that he had committed. Clyde transferred the check to Bama, who then transferred it to Sal Dali. Bama gave Clyde value for the check, and Dali gave Bama value. Kyle was unaware of these transactions and had not read the stories about Pai in the local paper.

Putting any problems with Pai out of his mind, Kyle liked the idea of upgrading the family market and decided to purchase some computer equipment from Floppy Computer Services (FCS). Kyle worked out the details with FCS; however, when the FCS' technician arrived to install the equipment, Kyle realized that he was out of checks, having written the last one to Pai. He needed to pay for the equipment and installation so he found a check that was drawn "payable to Kyle, in trust for Nancy." Nancy is Kyle's minor niece who periodically receives disbursements from a trust fund and Kyle is her guardian. Kyle, wanting to get the equipment installed, indorsed the check to FCS in payment for the computer equipment and installation costs. FCS accepted the check as indorsed and completed the installation.

Kyle knew that his computer skills were lacking and that installation of the new computer system can have glitches and would involve a learning curve, especially for Kyle and his family to get up-to-speed. Egbert has a business in which he consults with small businesses. Kyle contracted with Egbert to daily stop by and check on the new system, answering any questions about its operation. Since Egbert charges by the hour and since Kyle intends to take a few days off back down at Gulf Shores, AL (to celebrate his contract with Alabama Best Food.), Kyle gave Egbert a signed check with the amount blank for Egbert to fill in based on $100/hour. Actually, Kyle left the check on top of the computer just before he headed to Gulf Shores. Kyle also had a check on top of the computer that had the amount of $500 filled in, but no payee and no signature. Egbert got greedy and took the check, converting the $500 to $5,000 and signed Kyle's name. Then Egbert filled out the check that Kyle had given him in the amount of $4,000, rather than the $200 he had earned at $100/hour. Egbert transferred both checks to Freddy, a holder in due course, who is now seeking payment from Kyle.

Three months have passed since Kyle wrote Pai Casso the $3,000 advance check and, as of yet, no paint has been applied to the roadside market. Kyle is aware of the transfer of his check from Pai to Clyde to Bama and then to Dali. He is also concerned about the check that he gave FCS. And, now he is being contacted by Freddy. Since Kyle knows that you are knowledgeable in the finer points of negotiable instruments, he comes to you for guidance on these situations.