Exam 21: Holder in Due Course and Liability of Parties

Which kind(s)of liability can be imposed only if a party has signed an instrument?

ABC Corporation,a large corporation,calls Joe's Plumbing Service to do a large amount of plumbing work.Joe does the work but before he can collect the money,Jane,a disgruntled employee of ABC Corporation,goes to the bookkeeper at ABC Corporation and says that her company did the work and that she should be paid.She does not represent herself as an agent of Joe's but claimed that her own company was involved in doing the work.The bookkeeper gives Jane a check for the full amount.Jane leaves,cashes the check at Community Bank,and is never heard from again.Who is ultimately liable for this loss,assuming Jane cannot be found?

In terms of the requirements for becoming a holder in due course,notice of a defect is given when the holder has actual knowledge of the defect,has received a notice or notification of the defect,or has reason to know from the facts and circumstances that the defect exists.

Under the Uniform Commercial Code,value has been given if the holder takes the instrument in payment of or as security for an antecedent claim.

Where an indorsement on an instrument has been forged or is unauthorized,the general rule is that the loss falls on the party who first takes the forged instrument after the forgery.

Betty issues a note payable to the order of John for $2,000.John properly indorses the note,but raises the amount to $20,000,and negotiates it to Mary.On the due date,Mary attempts to collect $20,000 from Betty.Betty refuses to pay.Assuming that Mary is a holder in due course,which parties can Mary recover from in a lawsuit?

Even though an unperformed promise qualifies as consideration,an unperformed promise does not meet the value requirement for qualifying as a holder in due course.

Which of the following is not required in order for someone to be a holder in due course of a negotiable instrument?

A holder who does not qualify as a holder in due course in his or her own right becomes a holder in due course if he or she acquires the instrument through a holder in due course.This is called the ________ principle.

One with notice of dishonor of an instrument cannot qualify as a holder in due course.

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

In terms of the Uniform Commercial Code "good faith" requirement,honesty in fact is a(n)________ test

Warranties are made when the negotiable instrument is originally issued.

When a person transfers a negotiable instrument,to whom does this transferor make transfer warranties?

Zelda,the bookkeeper for Travel Unlimited,Inc.,is responsible for issuing payroll checks.Zelda is tired of her job and wants to move to another state.She issues a large check to a fictitious person,Ann Zonk.Zelda takes the check issued to Ann Zonk,forges the name of Ann Zonk,and cashes the check at a local check cashing service.Zelda then leaves town.Assuming Zelda cannot be fund,who will bear the loss in this situation and why?

Only personal defenses,and not universal defenses,may be asserted against a holder in due course.

A maker's discharge in bankruptcy is considered to be a real defense.

The last holder of a forged instrument bears the loss caused by the forged signature.

Sally has a note from Alice for $1,000 for the sale of a personal watercraft that Alice did not pay when due.Alice told Sally that she did not plan to pay at all because the watercraft has never worked right and that she has been stranded more than once in the middle of the lake.Alice accused Sally of intentionally misrepresenting the condition of the watercraft.Sally talks Bill into buying the note for $800.Sally tells Bill that Alice did not pay when the note was due and about her other complaints.Sally tells Bill that,nevertheless,he should not be concerned because Alice cannot assert any defenses against him.Is Sally right,and why or why not?

An accommodation party may sign an instrument guaranteeing collection rather than payment of an instrument.In this situation,the accommodation indorser is primarily liable on the instrument.