Exam 30: Liability of the Parties Under Negotiable Instruments

A person who acquires a negotiable instrument with notice or knowledge that any party might have a defense or that there is any adverse claim to the ownership of the instrument:

Under the "close-connection" doctrine, a holder has taken so many instruments from its transferor or is so closely connected with the transferor that any knowledge the transferor has is deemed transferred to the holder, preventing holder in due course status.

A holder of a negotiable instrument cannot be a holder in due course when the holder learns of a defense to payment after the acquisition of the instrument.

For the purposes of determining holder in due course status, the requirement of value is similar to consideration.

A person who buys a note from a holder in due course knowing that the maker has a defense will not be a holder through a holder in due course.

The fact that a person signs a negotiable instrument because he or she is fraudulently deceived regarding its nature or essential terms is a defense available against all holders.

An ordinary contract defense is a limited defense not available against a holder in due course.

Instruments may not be negotiated if they have been dishonored by non-acceptance.

A(n) __________ is an unauthorized change or completion of a negotiable instrument designed to modify the obligation of a party to the instrument.

A universal defense will defeat a holder in due course and a holder through a holder in due course.

Universal defenses work against:

Bill decided that it was time to remodel his home. Among the features that Bill had included in his remodeling plan was the addition of several very large picture windows. Because of the great expense of the windows, Bill financed the cost through the issuance of a promissory note. The manufacturer of the windows sold the promissory note to a bank. Just after the promissory note matured, the windows began to leak badly. Bill refused to pay on his promissory note and brought action against the manufacturer for breach of contract. Will the bank recover on the promissory note?

A taker of an instrument who is a holder in due course at the time of the transfer but who thereafter learns of a defense:

Fraud in the inducement is a:

The primary party on a draft is the drawee, assuming that the drawee has accepted the draft.

A holder can recover from any of the parties who are liable on the instrument, regardless of the order of the signatures on the instrument.

A holder in due course must meet all of the following conditions except:

A holder through a holder in due course is subject to all defenses.

The law gives certain holders of a negotiable instrument a preferred standing by protecting them from all defenses when they sue to collect payment.

The defense that a signature was forged or signed without authority cannot be raised against any holder if the person whose name was signed has ratified it.