Question

A1) Celine issued a ninety-day negotiable promissory note payable to the order of Hayden. The amount of the note is left blank, pending a determination of the amount of money Hayden will need to purchase a used car for Celine. Celine authorizes any amount not to exceed $2,000. Hayden, without authority, fills in the note in the amount $5,000 and thirty days later sells the note to First National Bank of Oklahoma for $4,850. Hayden does not buy the car and leaves the state. First National Bank has no knowledge that the instrument was incomplete when issued or that Hayden had no authority in the amount of $5,000. Does the bank qualify as a holder in due course? Explain.

A2) Through negotiation, Emilio (without knowledge of such dishonesty) has received from dishonest payees two checks:

a.   The drawer issued a check to the payee for $9. The payee cleverly altered the amount on the check from $9 to $90 and changed the written word from “nine” to “ninety.”

b.   The drawer issued the check to the payee without filling in the amount. The drawer authorized the payee to fill in the amount for no more than $90. The payee filled in the amount of $900.

Discuss whether Emilio, by giving value to the payees can qualify as a holder in due course of the checks. Also, discuss whether Emilio will be subject to the defenses in (a) and (b).

Answer 1

answer-

A1- according to me, bank does qualify as a holder in the due course because

for being a holder in due course(HDC) UCC 3–302, bank should do -

• must take the instrument for value, in good faith,
• and without being put on notice that a defense exists against it,
• that it has been dishonored, or that it is overdue

in above case, the bank has given almost full value amount  $4,850 & took the instrument in good faith or notice of the original incompleteness of the instrument or the lack of authority of Hayden to complete the instrument in an amount over $2,000.

as EA, i can answer one out of multiple questions.hope this answer would help you.good luck.