[Run Around] Hema Issues a Promissory Note to Rahul

question 8

Multiple Choice

[Run Around] Hema issues a promissory note to Rahul. Rahul endorses the note and transfers it to Anne. Anne endorses the note and transfers it to Floyd. Floyd presents the note to Hema for payment. When Floyd presents the note to Hema, she asks him for reasonable identification. He did not have any identification with him and told her that she had no right to dishonor the instrument. Hema continued to insist, so finally, on the same day, Rahul obtained clear identification and presented it to her. Nevertheless, even with proper identification, Hema refused to pay the note, claiming that she lacked the funds with which to do so. After properly providing notification of dishonor to both Anne and Rahul, Floyd requested that Anne pay the note, but she told him that he would have to get his money from Rahul. Floyd has been trying to call Rahul for 35 days, but Rahul did not return his telephone calls. Floyd is exasperated; and within 40 days of when Hema refuses payment, he notifies Hema, Rahul, and Anne that the promissory note has been dishonored by Hema and that he is asserting liability on the note against all of them. Hema calls him up and says that she never dishonored the note, she simply lacks the funds with which to immediately pay and thinks that he should seek recovery elsewhere.
-Which of the following is the likely result if Floyd sues Anne, Rahul, and Hema?

• A) The judge is likely to rule that Floyd can recover from Anne, Rahul, or Hema; but in the event Anne pays Floyd, she can recover from Rahul or Hema; and in the event that Rahul pays Floyd, he can recover from Hema.
• B) The judge is likely to rule that Floyd's only option of recovery is against Hema.
• C) The judge is likely to rule that Floyd's only option of recovery is against Anne because she provided the note to him, but that Anne can recover from either Rahul or Hema and that if Rahul pays Anne, he can recover from Hema.
• D) The judge is likely to rule that Floyd can recover against Rahul and that Rahul may recover against Hema, but Floyd cannot recover directly from Anne because she is too far removed from the maker.
• E) The judge is likely to rule that Floyd's only option for recovery is against Rahul who may then recover against Hema.

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Definitions:

ROE

Return on Equity (ROE) is a financial ratio that measures the profitability of a company in relation to shareholders' equity, indicating how well the company uses investments to generate earnings growth.

Total Assets Turnover

A financial metric that measures the efficiency of a company's use of its assets in generating sales revenue.

Equity Multiplier

A measure of a company's financial leverage, calculated as total assets divided by total equity.

Net Income

Net Income is the total earnings of a company after deducting all expenses, taxes, and costs, representing the profit earned during a specific period.