Exam 25: Transfer and Holder in Due Course

Federal Reserve Board guidelines for checks:

In a nonconsumer transaction, a holder in due course takes the instrument free from:

Joanne had a paycheck for $94 made out to her. She indorsed it with her name and gave it to Larry who, in return, agreed to paint her living and dining rooms the next Saturday. In this case:

An indorsement "Pay Alice Adams" is an assignment rather than a negotiation since it lacks words of negotiability.

Phyllrox Co., a large manufacturer, purchased a forklift from Brown's Equipment Co. Phyllrox made a down payment in cash and signed a promissory note for $7,500. For $7,200 Brown's sold the note to Corporate Bank, who took it in good faith without notice of any problems with it. After Phyllrox used the forklift for two weeks, it broke down and could not be repaired. Phyllrox refuses to make any more payments to Corporate Bank. In this case:

Jennifer, who stole a check "payable to cash," cannot be a holder since she did not receive possession by voluntary transfer.

Carmen needs quick cash, so she thinks of a scheme. She tells Frank she is collecting for Laotian refugees. Frank writes a check for $100 payable to the order of Carmen. Carmen indorses the check and delivers it to Pete, who doesn't know of Carmen's scam, for $90 cash. Pete gives the check to Emily as a present. Frank discovers Carmen's deception and refuses to pay Emily. Will he win?

Horst, a holder in due course, buys a note made out by Arthur to Superior Motors. Even though Arthur's debt was discharged through bankruptcy, Horst can collect on the note.

If a person paying an instrument subject to the impostor rule fails to exercise ordinary care, the issuer may recover from the payor to the extent the payor's negligence contributed to the loss.

The transfer of a negotiable instrument in such a manner that the transferee becomes a holder is known as:

Ricardo is the holder of a check that contains the indorsement "Without Recourse, (signed) Mary Roberts." This indorsement:

Any transfer for value of an instrument is a negotiation.

An executory promise, which is valid consideration to support a contract, is also the giving of value to support holder in due course status.

Marty Sandidge wrote a check payable to "Charles Saxon" when the payee's real name was spelled "Charles Saxton." In order to obtain payment, Charles:

Revised Article 3 provides that the impostor rule does not include an impostor who impersonates an agent of a principal and who induces someone to create a negotiable instrument payable to the principal.

Jill issues a negotiable promissory note to Cherice, who indorses it and delivers it to Lee. If Lee knows that the note was given to Cherice in exchange for worthless securities, Lee cannot be a holder in due course.

Jerry takes a $400 check to Primary Bank, where he asks for $75 in cash and he deposits the remaining balance. Primary Bank has "given value" as far as the requirements of holder in due course status to the extent of $75.

Delivery alone is insufficient to negotiate an instrument when it is payable to:

A "without recourse" indorsement eliminates all of an indorser's liability.

An indorsement must be written on the instrument itself.