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

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

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

10. To hold a secondary party liable the following conditions must be met (1) the

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

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