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ANSWER KEY
Chapter 17 Holders in Due Course, Defenses, and Liabilities
Opening Case Questions
2. The textbook states, “The UCC sets the standard for determining if an ordinary holder is really a
holder in due course. In order to demonstrate that it is a holder in due course, the UCC says that a party
A Question of Ethics
Special Directions to the Instructor: Instructors often find it challenging to foretell the variety of
replies that students will provide for the ethical question asked in the Question of Ethics feature in this
Questions for Review and Discussion
1. A holder in due course is a holder who takes the instrument for value, in good faith, and without
4. A holder who receives an instrument from a holder in due course acquires the rights of the holder
5. The six personal defenses are breach of contract, failure of consideration, lack of consideration,
6. Holders of consumer credit contracts who are holders in due course are subject to all the claims
7. Real defenses may be used against everyone, including a holder in due course. Real defenses are
8. Primary liability means that a party is obligated to pay an instrument without
reservations of any kind. Those primarily liable include (1) the maker of a
10. To hold a secondary party liable the following conditions must be met (1) the
instrument must be properly presented to the drawee or party obligated to pay
the instrument, and payment must be demanded (2) the instrument must be
Cases for Analysis
1. No. Unless ratified, an unauthorized signature (well, let’s call it what it really is, a forgery) does
2. No. The bank was not a holder in due course, because without a valid indorsement of
3. Yes. To be negotiable, an instrument must contain the words of negotiability Pay to the order of
or Pay to bearer. This instrument lacked the words of negotiability. Since it was not negotiable, the
transfer by Great Lake Nursery Corporation to First Investment Company was an assignment rather
4. Yes. A holder in due course takes an instrument free from all defenses of any party to the
5. Yes. Fraudulent misrepresentation that induces the execution of an otherwise valid contract
6. When this case was decided, the UCC said that a telephone call is not a proper presentment. UCC
Revised (1990) 3-501 now says that presentment may be made by any commercially reasonable means,
7. No. To hold an indorser liable on an instrument, presentment must be made to the maker on the
END CHAPTER SEVENTEEN
