Exam 30: Liability of the Parties Under Negotiable Instruments

A holder through a holder in due course:

Jones issued a check to Smith in return for Smith's promise to do work. Smith never did the promised work, but offered to buy goods from Gomez by endorsing the check to Gomez. Gomez had had no prior dealings with Jones or Smith, but accepted the check in payment. Gomez:

A limited defense will not defeat a holder in due course but will defeat an ordinary holder.

If a negotiable instrument is endorsed to a specific person but never delivered to that person:

Which of the following parties will recover in a lawsuit if no defense is raised?

The primary party on a note or certificate of deposit is the drawer.

In general, transferees who are aware of facts that would make a reasonable person ask questions are deemed to know what they would have learned if they had asked questions.

To have the status of a holder in due course, a person must first be a holder.

An instrument may be negotiated even though:

Illegality is a universal defense regardless of whether the illegality voids an instrument.

Manuel sued Patricia on a promissory note. Patricia admitted signing the note, but raised the defense that Manuel was not a holder in due course. Can Manuel recover without proving that he is a holder in due course?

The FTC rule, which provides that a notice provision must be included in all consumer credit contracts, requires that the notice:

The FTC rule concerning holders in due course is confined to consumer credit transactions.

Isidro issued a negotiable promissory note to his attorney in return for the attorney's promise to perform legal services. The attorney never rendered the legal services but quickly negotiated the note to Anna, a holder in due course. Anna and Mark were involved in business negotiations and Anna offered to purchase a car from Mark. She offered as part payment for the car the note issued by Isidro. By coincidence, Mark knew both Isidro and the attorney and the facts concerning the note and the unperformed legal services. Despite this, Mark accepted a negotiation of the note from Anna. Isidro refused to pay the note and Mark eventually sued Isidro to collect. What is the probable outcome?

A negotiable promissory note was issued by Gold. It was properly issued in all ways. Nevertheless, the payee managed to alter the note and raise the amount from $500 to $5,000. A holder in due course presented the note for payment to Gold who discovered the alteration. In this case:

If the finance company to which a seller of goods on credit assigns the buyer's promissory note is more than half-owned by the seller, the finance company will likely be held a participating transferee and, as a result, will be denied the status of a holder in due course.

A holder having the rights of a holder in due course is subject to the defense of fraud in the inducement.

Fraud as to the nature or essential terms of an instrument is a limited defense not available against a holder in due course.

Which of the following will not be considered value in connection with determining holder in due course status?

Incapacity of the maker or drawer is a limited defense not available against a holder in due course.