1. John gives a check to Sally to 1,000 kilograms of maple syrup for John. The p
ID: 365669 • Letter: 1
Question
1. John gives a check to Sally to 1,000 kilograms of maple syrup for John. The price of the syrup is constantly fluctuating. Sally asks John to leave the amount of the check blank and allow her to fill in the price when making the purchase. John agrees. Sally buys the syrup when the price is $2,000, but fills in the check for $3,000. Sally has a pre-existing debt to Vermont Maple for $1000. The check is negotiated as payment for a $3,000 debt to Vermont Maple Syrup, Inc. which takes the check in good faith and without notice of Sally’s act. Vermont Maple later learns that Sally was not authorized to fill in the check for $1,000 over the price. Is Vermont Maple an HDC? If so, for how much? Please quote (cite) UCC law or your textbook for your rationale.
2. Sherry lies and states to Candy that the note she is signing is merely an acknowledgement of debt. It is in fact a promissory note. However, Candy is an an older, savvy business person who has experience and knowledge in the business world. Candy signs as she is in a hurry. Sherry then turns the note over to Eve for a cash price. However, Eve does not know of the fraud. Indeed, she takes the note for value and in good faith.
(a) Is Eve an HDC? Is this an example of a universal defense? (What is the significance of this type of defense? What would its name be?
(b) Even then sells the note to Fannie, who sells the note back to Sherry. Does Sherry acquire Eve’s HDC rights in the note, if any? Please quote (cite) UCC law or your textbook for your rationale.
3. Jocomm Corporation pays Samson his paycheck, who then indorses the back (“Samson Smith”), and, on his lunch hour, goes to cash it at his bank, First Bank. On the street, in a crowd, he loses the check. Bob Smith finds it.
(a) Has the check been negotiated to Bob?
(b) Bob signs the back of the check beneath Samson’s signature and cashes it. What might Samson have done to avoid this loss?
Explanation / Answer
1. Yes, Vermont is a holder in due course because he acquires the negotiable instrument. He acquires the same from Sally in good faith without the intentions of Sally. He is holder in due course for $1000.
2 a) Yes, as per the promissory note signed Eve who is unaware of the fraud becomes the HDC. Yes, its a universal defence except personal defense which Eve is not subjected to.
b) Yes, Sherry acquires all the HDC rights.
3 a) The check has not been negotiated by Bob, but Bob has found it and can encash it lawfully to his own account.
b) To avoid Bob to encash it Samson could have put an account payee to the check.
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