Chapter 28

Pet World needs to know they aren't a holder in due course and obviously should notice that the kid is a minor.

10 year old pays with check - Pet world not a holder in due course...

Holder and Indorser

A couple gets a check for $2000 and one signs it over for a down payment on a car. The car dealer is a...

True

A holder in due course has more rights than the previous holder.

Not holder is due course because they noticed it was overdue

August 15th - Check was written last year...

Lack of delivery

Big Bank...

Nope

Did the Dept. of Commerce adopt the holder in due course rule?

Both personal defenses. Lack of consideration is when no consideration existed in the contract. Failure of consideration is a breach in contract by not furnishing the agreed consideration.

Difference between "failure of consideration" and "lack of consideration"

Means to refuse to pay a negotiable instrument when it is due or to refuse to accept it when asked to so. Happens when proper presentment is made and acceptance or payment is refused. Also occurs when presentment is excused and the instrument is past due and unpaid.

Dishonor

Yes. Bankruptcy may be used as a defense to all negotiable instruments, even those in the hands of a holder in due course.

Does bankruptcy dismiss you from your debt?

A false statement was made to the maker or drawer about the nature of the instrument being signed

Fraud as to the essential nature of the transaction

The drawer or maker of an instrument is persuaded to enter negotiable instrument into a contract because of a misrepresentation of some fact regarding the item purchased

Fraud in the Inducement

Still result in collecting payment, but it is a real defense.

Giving someone a note while bankrupt can...

Good faith means honesty in fact and fair dealing. It requires that the taker of a commercial instrument act honestly.

Good Faith

Green Grocer took instrument in good faith

Grocery store gets check from someone...

A check is overdue 90 days after its date.

How long is a check good for?

90 days

How long until a check is overdue?

True

If a drawee other than a banks accepts a draft and it is later dishonored, the obligation of the drawer is the same as an indorser.

Breach of Contract is a personal defense.

If one of parties failed to do contract...

No, because illegality is a real defense.

If someone receives something illegal and then stops payment on a check, does the seller have any recourse?

False

If taker is negligent in discovering something wrong...

Mark would have to pay it

Mark finds $400 check from Liberty Industries and indorses without permission...

Doesn't have to pay because it is a real defense

Mentally incompetent forced to sign note

True

No one who has a real defense it required to pay.

Personal defenses are defenses that can be used against a holder but no a holder in due course of a negotiable instrument. The most common personal defenses are breach of contract, failure or lack of consideration, fraud in the inducement, lack of delivery, and payment.

Personal Defense

Payment

Personal Defense...

True

Underage people can disaffirm payment.

Real defenses can be used against everyone, including holders in due course. Used in common law and not in UCC. No one is required to pay an instrument when they have a real defense.

What are real defense rules for?

Fraud in the Inducement

What is inducement for personal defense?

A holder in due course has more rights than the person who held the instrument before them. It protects consumers.

Who does a holder in due course protect?

A holder in due course have more rights than a normal holder. A holder in due course is a holder who takes an instrument for value, in good faith, and without notice that anything is wrong with the underlying transaction.

Who is a holder in due course?

Means fraud as to the essential nature of contract

Wrote promissory note out of an autograph...

True

You don't always have to be in person to collect a check.

lack of consideration

a defense that may be used by a maker or drawer of an instrument when no consideration existed in the underlying contract for which the instrument was issued

failure of consideration

a defense that the maker or drawer may use when the other party breaches the contract by not furnishing the agreed consideration

presentment

a demand made by a holder to pay or accept an instrument

holder in due course

a holder who takes an instrument for value, in good faith, and without notice that anything is wrong with the underlying transaction

holder

a person who is in possession of a negotiable instrument that is issued or indorsed to that person's order or to bearer

shelter provision

a provision whereby a holder who receives an instrument from a holder in due course acquires the rights of the holder in due course even though he or she does not qualify as a holder in due course

holder in due course rule

adopted by the FTC in 1976; under this rule, holders of consumer credit contracts who are holders in due course are subject to all claims and defenses that the buyer could use against the seller

personal defenses

defenses that can be used against a holder but not a holder in due course

real defenses (universal defenses)

defenses that can be used against everyone