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

A party who signs an instrument to provide credit for another party who has also signed the instrument is a denomination party.

When a party signs a negotiable instrument without knowing that it is in fact a negotiable instrument,the party can claim fraud in the exactum.

Which of the following is true regarding liability on negotiable instruments?

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.However,when ABC Bank 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 would be considered the drawer of the check Doreen presented to Betty at Hot Dresses,Inc.?

Run Around.Millie issues a note to Bob.Bob endorses the note and transfers it to Anne.Anne endorses the note and transfers it to Henry.In a timely fashion,Henry endorses the note and presents it to Millie for payment.When Henry presents the note to Millie,she asks him for reasonable identification.He did not have any identification with him and told her that she had no right to dishonor the instrument.Millie,however,refused to provide him the funds until he returned with proper identification.Nevertheless,when he returned with proper identification,Millie refused to pay the note,claiming that she lacked the funds with which to do so.Henry proceeded immediately to request that Anne pay the note,but she told him that he would have to get his money from Bob,who cannot be found.Which of the following is true regarding Anne's statement to Henry that he must seek recovery from Bob?

When a party receives a negotiable instrument as a gift,the party will be a holder instead of a holder in due course.

According to the shelter principle,if a holder cannot attain holder-in-due course status,the holder cannot acquire the rights and privileges of a holder in due course even if the item is being transferred from a holder in due course.

The purpose of the shelter principle is to discourage the marketability of instruments.

Run Around.Millie issues a note to Bob.Bob endorses the note and transfers it to Anne.Anne endorses the note and transfers it to Henry.In a timely fashion,Henry endorses the note and presents it to Millie for payment.When Henry presents the note to Millie,she asks him for reasonable identification.He did not have any identification with him and told her that she had no right to dishonor the instrument.Millie,however,refused to provide him the funds until he returned with proper identification.Nevertheless,when he returned with proper identification,Millie refused to pay the note,claiming that she lacked the funds with which to do so.Henry proceeded immediately to request that Anne pay the note,but she told him that he would have to get his money from Bob,who cannot be found.Which of the following is the likely result if Henry sues Anne,Bob,and Millie?

What was the result in the Rakestraw v.Rodriguez case referenced in the textbook,a case in which a husband had forged his wife's signature to obtain a loan to start a grocery store?

Which of the following is a correct statement regarding discharge by impairment of the collateral?

A right to ________ is the ability of a party to seek reimbursement.

According to the Uniform Commercial Code,if a demand instrument is a check,the check is overdue ________ after its date.