Exam 26: Transferability and Holder in Due Course

Bowie is a holder of a promissory note obtained from Credit Lenders, Inc. Regarding the defenses against payment of the note to which Credit Lenders is subject, Bowie, as an ordinary holder, is subject to

Giuseppe writes a check "payable to bearer" and hands it to Hamilton. Imogene steals the check and delivers it to Jocelyn, an innocent third person. Hamilton can recover the proceeds of the check from

A person who takes a negotiable instrument from a thief cannot become an HDC even if he or she acted honestly in the process of acquiring the instrument.

A holder takes an instrument for value if he or she accepts the instru?ment in payment of a preexisting obligation.

Discount Retail Warehouse Corporation pays its employees every two weeks. Ethel, a Discount Retail employee, receives her paycheck and indorses the back ("Ethel Smith"), but loses the check before cashing it or depositing it. Garth finds it. Has the check been nego?tiated to Garth? If Garth signs the back of the check beneath Ethel's signature, can he cash it? If so, what might Ethel have done to avoid the loss?

Diego is the payee of a bearer instrument-a promissory note in the amount of $1,000. Emil offers to harvest Diego's field of alfalfa in October in ex?change for the note. Diego agrees and delivers the note to Emil. Emil is not an HDC of the note because he

For a check, a "reasonable time" is ninety days after the date of the check.

To avoid the risk of loss from theft, a holder may convert a blank indorsement to a special indorsement.

A holder takes an instrument for value by promising to perform or give value in the future.

Plumbing & Pipes Supply Company issues a promissory note as a demand instrument with a due date of October 5. Quantum Loan Company accepts the note. Quantum Loan has notice that the note is overdue if the firm takes the note

A blank indorsement can consist of a mere signature.

Secure Loan Company has notice that a promissory note is overdue if the note is a demand instrument and Secure Loan takes it

Flossie signs a check payable to Glenn and gives it to him, leaving the amount blank but authorizing him to fill it in for $1,000. Glenn fills in $1,500 and negotiates the check to Home Federal Bank, an HDC. Home Federal can enforce the check for

A restrictive indorsement does not destroy negotiability.

Muni Investment Company signs a check payable to Enterprise Lenders, Inc., to buy a promissory note executed by Fallow Corporation. This check

There are no limitations on the shelter principle.

Often, whether a holder will be able to obtain payment on an instrument will depend on whether he or she is a holder in due course.

Fact Pattern 26-1B (Questions B8-B10 apply) Destiny obtains a check payable to her order from Eugenia. Destiny signs the back and adds the notation "without recourse." -Refer to Fact Pattern 26-1B. By writing "without recourse" with her signature, Destiny

An instrument payable to two or more persons in the alternative requires the indorsement of both payees for negotiation.

An instrument is dishonored when the party to whom the instrument is presented refuses to pay it.