BLAW 5310 16.3

Pola wants to transfer a check to Quin. The check is defective if it:

has been previously dishonored

Nina wants to transfer a check to Opie. The check is not defective if it:

has been previously honored These other three elements make an instrument defective (1) is incompiete so that an element of negotiability is lacking (2) has an obvious irregularity on its face (3) is overdue

A person will not qualify for HDC protection if he or she is on notice that the instrument being acquired:

is overdue

A holder in due course is a holder who:

takes an instrument free of most of the defenses and claims that could be asserted against the transferor

The UCC requires that HDCs take instruments in good faith. This means that:

the holders must have acted honestly and observed all reasonable commercial standards of fair dealing

Owen is a holder of a promissory note obtained from Purchase Money, Incorporated. Regarding the defenses against payment of the note to which Purchase Money is subject, Owen, as an ordinary holder, is subject to:

the same defenses Feedback: Any defenses against payment that can be raised against the transferor (Purchase Money, Inc.) of an instrument can be raised against the subsequent holder (Owen) So we're looking at the defenses that Purchase Money, Inc. would be subjected to and compare those to Owen's defenses. so would own as an ordinary holder be subject to more defenses than purchase money.

Dan signs a check payable to Eagle Investors, Inc., and gives it to Eagle, leaving the amount blank but authorizing Eagle to fill in the check for $1,000. Eagle fills in $1,500 and negotiates the check to First State Bank, to whom Eagle owes $1,500. First State, an HDC, can enforce the check for:

$1,500 Feedback: First state can enforce the note to the extent it gave value.

Diner's Café receives daily shipments of dairy products from Eagle Dairy. Inc. The price is $900 per month. Diner's pays for one month and an additional five months in advance with a note for $5,400. One month later, Eagle sells the note to First National Bank for $5,100. At the time the note is sold, Eagle is: O O an HDC for $5,400. © an HDC for $5,100. O not an HDC.

An HDC for $900 because the note is given part for a future promise to pay for 5 months or $4,500. Eagle has only given one month of dairy products as value. Eagle is not a HDC holder for $5,400 because the note was given, in part for a future promise to pay for five months or 4500. Eagle is only given one month or $900 in value. So, that $900 is the value that's been exchanged for that note. Eagle is not a HDC holder for $5,100 either. The $5,100 is the amount for which the note is sold and that's not relative to the value that was initially given for the note. "Not a holder in due course," is incorrect because there's nothing to suggest it's not a holder in due course. Eagle gave value, took the instrument in good faith, and without notice, or at least we don't know that the any of those other factors would be missing. So it's a holder in due course. But to the extent that it gave value $900, the first month.

Jen makes a gift of a check to Kilroy who takes it in good faith and without notice of any claim, defense, or defect. With respect to this check, Kilroy is:

An ordinary holder

Kris transfers a note, on which Liu is the maker, to Mia, who takes it for value and in good faith. Mia knows that Kris breached the contract underlying the note, giving Liu a defense against payment. With respect to this note, Mia is:

An ordinary holder Feedback: Mia has notice of a defense (breach of contract) so she cannot be an HDC. So, with respect to this note, what is Mia's status? She's an ordinary holder. She holds the note. We assume it's been made payable to her. So there's title and there's possession. So, Mia is an ordinary holder. Mia is not a HDC because she has notice of a defense (breach of contract). So, Mia can't be a HDC. Because she knows that Kris breached the current contract for which the note was exchanged. UCC Article 3 doesn't recognize any type of "knowledgeable holder in due course" or "ordinary note taker".

When an instrument is presented in a timely manner for payment or acceptance and payment or acceptance is refused, the instrument has been:

Dishonored

Julian receives a promissory note from his grandmother as a birthday present. Is Julian a holder in due course (HDC) with respect to the note?

No, because the note was a gift

Edie is the payee of a bearer instrument- a promissory note in the amount of $10,000. Frank offers to irrigate Edie's ranch next week in exchange for the note. Edie agrees and delivers the note to Frank. Frank is:

Not an HDC, because he did not yet give value for the instrument. Remember, value has to be something that he did previously or that is exchanged presently. So, for example, if he had already irrigated Eddie's Ranch, then Edie gave him the note as payment that past act would have constituted value in exchange for the instrument. "An HDC, because he promised to perform services at a future date," is incorrect because the phrase future date is problematic. Promising to do something in the future is consideration under contract law, but it's not value under the law of negotiable instruments. "An HDC, because the transferor was the original payee on the note," is incorrect because Edie is the payee of a bearer instrument. And to be a payee, somebody must have endorsed the bearer instrument to him. So because the transferor was the original payee is not quite clear. "Not an HDC, because he did not acquire the instrument a good faith," is incorrect because there's nothing to suggest that he didn't act honestly, or didn't observe reasonable commercial standards of Fair Dealing when he acquired the instrument.

Carl gets a $100 check as a gift from Donna. Carl crudely increases the amount of the check to $1,000 an obvious forgery- and tränsfers it to Eagle Computers, Inc., in exchange for a computer. Eagle deposits the check in its bank account at First National Bank. HDs of this check include:

none of these parties

Bruce acquires a series of installment notes that are all identifled with the same indebtedness. At the time of his acquisition, he learns that the maker defaulted on one of the payments. Bruce is:

not an HDC an HDC, If the maker makes all future payments. O an HDC, after the notes are acquired by an unsuspecting third party. O an HDC, because he took the notes with notice.