Question

3.   A check drawn by Cullen for $500 is made payable to the order of Jordan and issued to Jordan for goods Jordan sold to Cullen. Jordan owes his landlord $500 in rent and transfers the check to his landlord with a blank indorsement. After the transfer of the check of the landlord, the landlord is informed by Cullen that the goods provided by Jordan were nonconforming. Determine whether the landlord is a holder in due course. Be sure to give the legal justification for your response. Will Cullen be required to pay the landlord?

b) How would your answer to #3 change, if at all, if the landlord knew that the goods provided by Jordan were nonconforming at the time of the transfer.

Answer 1

The landlord is a holder in due course. A defense of a defect in the contract is a limited defense. Hence, the landlord would not be subject to this defense and it means that Cullen must pay his landlord.

In case the landlord already knew that the goods were nonconforming before the transfer, the landlord would be taken the instrument with knowledge of a defense, meaning that he would not be a holder in due course. Hence, he would only be a holder. In case of holders, they are subject to all defenses, both universal and limited. This would then mean that Cullen would not have to pay the landlord.