Exam 29: Liability of the Parties Under Negotiable Instruments

Ordinarily, a maker's lack of capacity may be raised as a defense against a holder in due course.

Bill decided that it was time to remodel his home. Among the features that Bill had included in his remodeling plan was the addition of several very large picture windows. Because of the great expense of the windows, Bill financed the cost through the issuance of a promissory note. The manufacturer of the windows sold the promissory note to a bank. Just after the promissory note matured, the windows began to leak badly. Bill refused to pay on his promissory note and brought action against the manufacturer for breach of contract. Will the bank recover on the promissory note?

In 1976 the FTC adopted a rule that expands the rights of a holder in due course in a consumer credit transaction.

Parties with rights in a negotiable instrument can be assignees or holders.

An altered instrument can be enforced according to its original terms.

Illegality, such as a note for gambling, is a universal defense.

A contract signed by a minor raises a universal defense against any kind of holder.

Fraud as to the nature or essential terms of an instrument is a limited defense not available against a holder in due course.

Which of the following is not a universal defense available against all holders?

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

Value is similar to consideration..

Drawers are secondary parties on a note.

A negotiable promissory note was issued by Gold. It was properly issued in all ways. Nevertheless, the payee managed to alter the note and raise the amount from $500 to $5,000. A holder in due course presented the note for payment to Gold who discovered the alteration. In this case: