What Responsibility Does a Holder Have

in Negotiating Commercial Paper?

FACTS Marcus Moore and David Arnold are subcon$-$

tractors specializing in the installation of electrical wiring

for commercial office space. They have incorporated their

business as Moore & Arnold, Inc. Over the past two years,

their business has been extremely slow. Recently, they

obtained an offer to install wiring for a general contractor,

Barnes & Sons, which was in charge of renovating an office

to be occupied by three major tenants. The job was substan$-$

tial and would pay $$135,000.$

Marcus and David disagreed on whether to accept the

job. Marcus was concerned about the business reputation of

Barnes & Sons. For years the business had been reputably

operated by Tom Barnes, the original owner, but problems

began when his son, John, assumed control of operations.

The partnership was recently sued for negligence in connec$-$

tion with a major construction project in a mall. It is well

known that John is a gambler, and the business has gained

the reputation of being slow to pay creditors.

Marcus and David finally decided to accept the job.

Upon their completing the work, John Barnes handed Mar$-$

cus a negotiable promissory note drawn by John Major, one

of three different names Barnes & Sons has been trading

under during the past year. The note was payable to Moore

& Arnold, Inc., one month from date.

Marcus is instinctively nervous about accepting the note.

$He$ is aware of the cash flow problems and the litigation

pending against Barnes & Sons and has become increasingly

suspicious because of the different trade names the contrac$-$

tor uses. David, who is more trusting, wants to accept the

note and negotiate it to Wire Ways, Inc., one of their major

suppliers of electrical wiring. Marcus wants to demand cash

and, if Barnes refuses, to refer the account to a collection

agency.

Social, Policy, and Ethical Considerations

Would it be ethical for Marcus and David to accept the

note and negotiate it to Wire Ways, Inc.? Why?

What ethical responsibilities does one have to review the

business reputations of prospective clients or customers

and to refuse to do business with disreputable persons?

What risks did Moore & Arnold, Inc., assume in accept$-$

ing the business? Was the risk limited to the failure to

obtain payment?

Could Marcus and David have structured the business

transaction in any way to insulate Moore & Arnold,

Inc., from the risks it assumed?