Exam 30: Liability of the Parties Under Negotiable Instruments

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

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:

Universal defenses work against:

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.

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

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.

An instrument may be negotiated even though:

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:

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?

Drawers are secondary parties on a note.

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.

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

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:

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

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.

Presentment occurs when the primary party refuses to pay an instrument according to its terms.

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

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.

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:

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