Exam 18: Holder in Due Course, Liability, and Defenses

Which principle states that if an item is transferred from one person to another,the transferee acquires all the rights that the transferor had in the item?

Set forth the conditions under which a holder may take an instrument for value and,therefore,satisfy the value requirement for becoming a holder in due course.

If an instrument is not an unaccepted draft presented to a drawee,which of the following presentment warranties is applicable?

Which of the following must occur for a drawer to become liable on an instrument?

Should the law recognize holder in due course status and its protections? Explain your response.

Which of the following sections of the Uniform Commercial Code establishes the four requirements for becoming a holder in due course?

Banking Problems.Constance and Blair are both loan officers at ABC Bank.Constance,being somewhat dishonest,tells Henry,a customer of the bank who is wealthy and rarely checks the status of outstanding loans and balances,that she is collecting money for a local animal shelter.She asks him to sign a pledge that he will contribute $50 to the animal shelter.In fact,she had him sign a promissory note made out to her for $5,000,which she later endorsed to Richard.Henry proceeds back to one of his businesses,a used car dealership.Taylor comes in to purchase a used car.He and Henry agree that Taylor will purchase a used car for $3,000.Martha also comes in,and she and Henry agree that she will purchase a used car for $4,000.Both Taylor and Martha make out promissory notes payable to Henry.At the end of the day,Henry is looking through the notes and decides that Taylor's was mistakenly made out for $3,000.Henry mistakenly,but honestly,believed that the deal was for $3,500.Therefore,he changes the note to reflect that Taylor owed $3,500.Henry,on the other hand,simply did not like Martha.He decided that $4,000 was not enough for the car.Accordingly,he changed the note to $4,500.Which of the following is true regarding Taylor's liability to Henry?

A holder in due course is free from the defenses of fraud in the inducement in the underlying contract,unauthorized completion or material alteration of the instrument,and unauthorized acquisition of the instrument.

Carl,without Eddie's knowledge,impersonates Eddie and thereby convinces Connie,who has never seen Eddie,to write a check to Eddie.Carl forges Eddie's name on the check and deposits it into his,Carl's,account.Which of the following is true regarding whether Connie will be liable for the amount of the check?

Banking Problems.Constance and Blair are both loan officers at ABC Bank.Constance,being somewhat dishonest,tells Henry,a customer of the bank who is wealthy and rarely checks the status of outstanding loans and balances,that she is collecting money for a local animal shelter.She asks him to sign a pledge that he will contribute $50 to the animal shelter.In fact,she had him sign a promissory note made out to her for $5,000,which she later endorsed to Richard.Henry proceeds back to one of his businesses,a used car dealership.Taylor comes in to purchase a used car.He and Henry agree that Taylor will purchase a used car for $3,000.Martha also comes in,and she and Henry agree that she will purchase a used car for $4,000.Both Taylor and Martha make out promissory notes payable to Henry.At the end of the day,Henry is looking through the notes and decides that Taylor's was mistakenly made out for $3,000.Henry mistakenly,but honestly,believed that the deal was for $3,500.Therefore,he changes the note to reflect that Taylor owed $3,500.Henry,on the other hand,simply did not like Martha.He decided that $4,000 was not enough for the car.Accordingly,he changed the note to $4,500.Which of the following is true regarding Martha's liability to Henry?

Hot Dress.Doreen writes a check for a dress to Hot Dresses,Inc.,a small specialty shop owned primarily by Betty.Betty was getting ready to go on an extended European vacation and temporarily closed down the shop the day after the dress sale to Doreen.When Betty returned,she had a number of other things to do and did not take Doreen's check and some other checks to the bank for three months.Betty was independently wealthy and only ran the shop as a hobby,so she had not been in need of funds.When Betty finally took Doreen's check to the bank,Betty requested that her bank,ABC Bank,deposit the check into her account.When ABC Bank,however,requested payment from Doreen's bank,XYZ Bank,the check was dishonored because of insufficient funds in Doreen's account.Although Betty did not particularly need the funds,she did not like to feel as if she had been cheated; therefore,she demanded that Doreen make the check good.As defined by the Uniform Commercial Code,which of the following actions constituted presentment?

Banking Problems.Constance and Blair are both loan officers at ABC Bank.Constance,being somewhat dishonest,tells Henry,a customer of the bank who is wealthy and rarely checks the status of outstanding loans and balances,that she is collecting money for a local animal shelter.She asks him to sign a pledge that he will contribute $50 to the animal shelter.In fact,she had him sign a promissory note made out to her for $5,000,which she later endorsed to Richard.Henry proceeds back to one of his businesses,a used car dealership.Taylor comes in to purchase a used car.He and Henry agree that Taylor will purchase a used car for $3,000.Martha also comes in,and she and Henry agree that she will purchase a used car for $4,000.Both Taylor and Martha make out promissory notes payable to Henry.At the end of the day,Henry is looking through the notes and decides that Taylor's was mistakenly made out for $3,000.Henry mistakenly,but honestly,believed that the deal was for $3,500.Therefore,he changes the note to reflect that Taylor owed $3,500.Henry,on the other hand,simply did not like Martha.He decided that $4,000 was not enough for the car.Accordingly,he changed the note to $4,500.Which of the following is the most likely result if Henry refuses payment on the promissory note that was endorsed to Richard claiming that he never signed it?

Personal defenses to the payment of an instrument include:

Set forth the five items that a party warrants when the party transfers an instrument for consideration.

Real defenses apply to ________,while personal defenses do not apply to ________.

A(n)________ accepts and signs a draft to agree to pay the draft when it is presented.

If the party that dishonors an instrument is a collection bank,when must the collecting bank give notice of the dishonor to a secondarily liable party?

List the requirements a party must meet in order to be considered a holder in due course.

Hot Dress.Doreen writes a check for a dress to Hot Dresses,Inc.,a small specialty shop owned primarily by Betty.Betty was getting ready to go on an extended European vacation and temporarily closed the shop the day after the dress sale to Doreen.When Betty returned,she had a number of other things to do and did not take Doreen's check and some other checks to the bank for three months.Betty was independently wealthy and only ran the shop as a hobby,so she had not been in need of funds.When Betty finally took Doreen's check to the bank,Betty requested that her bank,ABC Bank,deposit the check into her account.When ABC Bank,however,requested payment from Doreen's bank,XYZ Bank,the check was dishonored because of insufficient funds in Doreen's account.Although Betty did not particularly need the funds,she did not like to feel as if she had been cheated; therefore,she demanded that Doreen make the check good.Which of the following parties is the holder of the check?

To be considered a holder in due course,the holder must take the instrument in ________.