Exam 30: Liability of the Parties Under Negotiable Instruments

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

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

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

A holder through a holder in due course:

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

Value is similar to consideration..

For a change to constitute an alteration,the person making the change must be a party to the instrument.

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

A taker of a negotiable instrument may be denied the status and protection of a holder in due course where:

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

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.

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

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

In 1976 the Federal Trade Commission adopted a rule that expands the rights of a holder in due course in a consumer credit transaction.

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

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

Bad faith sometimes exists just because a transferee takes an instrument under odd circumstances.

Fraud in factum:

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

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?