Exam 30: Liability of the Parties Under Negotiable Instruments

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?

Parties with rights in a negotiable instrument can be assignees or holders.

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

Under the __________doctrine,the 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 primary party on a note or certificate of deposit is the drawer.

Illegality,such as a note for gambling,is a universal defense.

Universal defenses work against:

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

An altered instrument can be enforced according to its original terms.

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:

A person cannot become a holder through a holder in due course unless that person satisfies the requirements for holder in due course status.

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

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.