Exam 21: Holder in Due Course and Liability of Parties

Any passage of an instrument other than its issuance and presentment for payment is considered a(n):

Billy,a minor,buys a car form Ajax Auto Dealers,signing a $2,000 negotiable installment note in payment.Ajax needs the cash,so it sells the note to Acme Finance Company,for its fair market value,indorsing the note in blank.The owner of Acme,who personally purchased the note,knew that Billy was a minor.Circumstances occur such that Acme can collect the note only if it is a holder in due course.Is Acme a holder in due course with respect to this note?

Forger drafted a promissory note and forged Fred's signature on it.Before he could do anything with it,Thief stole it,and transferred it to Commercial Loan Co.,for value.Commercial usually did not buy commercial paper from people who walk in off the street,but business was slow,so they took it.Commercial had no actual notice of the forgery,but the manager in charge thought the circumstances were suspicious.On the note's due date,Commercial demanded payment from Fred.Obviously,Fred refused to pay.Commercial sues Fred on the note.Assuming the note qualifies as a negotiable instrument in all aspects not mentioned above,discuss the probable outcome of this suit.

The primary purpose of commercial paper is to act as a substitute for money.

In terms of the "good faith" requirement for becoming a holder in due course,"honesty in fact" is an objective test.

On January 10,2000,Jonathan writes a check,payable to Josh in the amount of $500.00,drawn on Jonathan's account with MBNA bank.Josh,on the back of the check,writes,"Pay to the order of Brandi" and leaves the check on his night stand.Brandi comes to visit while Josh isn't home (she has a key)sees the check and takes it believing that it was indorsed to her a repayment of a debt.Brandi,then signs her name to the back of the check and hands it to Lori as a birthday present.Which of the following is a false statement?

In terms of the "good faith" requirement for becoming a holder in due course,the good faith test applies to the transferor of the instrument,as well as the holder.

Which of the following is a real defense?

A holder in due course takes a negotiable instrument free of all claims and most defenses that can be asserted against the transferor of the instrument.

Terry has a business in which he visits with clients' pet cats in the clients' home while the client is out of town.The primary purpose is to prevent the cats from becoming psychotic due to the owner's absence.Terry contracted to visit Valerie's cat daily for a two-week period when Valerie was on vacation.Because Terry charged by the hour,Valerie gave Terry a signed check with the amount blank for Terry to fill in based on $10 per hour.While visiting with Valerie's cat,Terry noticed a check on Valerie's desk that had the amount of $100 filled in,but no payee and no signature.Terry took the check,converted the $100 to $1,000 and signed Valerie's name.Terry then filled out the check that Valerie had given him in the amount of $10,000,rather than the $200 he had earned at $10 per hour.Terry transferred both checks to a holder in due course,who later seeks payment from Valerie.How much must Valerie pay on each of these checks?

If payment is not made on a negotiable instrument when it is due,the holder can use the court system to enforce the instrument.

Contract liability is another term used to refer to signature liability.

Which of the following is personal defense?

Under the Uniform Commercial Code,value has not been given if the holder gives a negotiable instrument as payment.

Don,who owed Dan $1,000 for his share of the cost of a fishing trip they took together two years ago,transferred to Dan a check for $700 that he had just received from a customer.Has Dan given value for holder in due course purposes?

An accommodation party who signs an instrument guaranteeing payment is secondarily liable on the instrument.

Denise endorses a check to you as a birthday present.You are now a holder in due course of that check.

Transfer warranties and presentment warranties are both implied warranties.

What is the consequence of a defense to a negotiable instrument being a personal defense?

What is dishonor in connection with a negotiable instrument?