Exam 30: Liability of the Parties Under Negotiable Instruments

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

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

Drawers are secondary parties on a note.

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 holder through a holder in due course is subject to limited defenses.

An instrument may be negotiated even though:

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.

Economic duress,in the form of a reluctance to enter into a financially demanding instrument,is a universal defense.

Ordinarily the maker's lack of capacity may be raised as a defense against a holder in due course.

Mabel issues a negotiable promissory note to the order of Rachel.Rachel endorses the note to Batton,who takes it as a holder in due course.Batton gives the note to his brother,Albert,as a gift.In this situation:

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.

A holder is a party in possession of an instrument that "runs" to him. An instrument runs to a party if it is:

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

Which of the following is not a universal defense available against all holders?

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.

A holder who is neither a holder in due course nor a holder through a holder in due course is subject to every defense,just as though the instrument were not negotiable.

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

Generally defenses that could be raised in a breach of contact claim cannot be raised against a holder in due course.

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