Quiz 26: Transferability and Holder in Due Course
Material Alteration: Williams may not raise the defense of material alteration to avoid payment on the check because as a holder in due course, Boz would be entitled to the original tenor of the check, $1,000 under the UCC 3-407(b) , if the check had been written in ink. Since Williams materially contributed to the alteration through his negligence by writing the check in pencil the defense of material alteration is not available to him. Under UCC 3-406 , Williams is liable for the entire $10,000.
Signature liability. The applicable provision in this scenario is the fictitious payee rule [UCC 3-404(b) and 3-405] is applied in this situaion.
Signature Liability: The purpose of bankruptcy is to settle with finality all debts under UCC 3-305 (a)(i)(iv). Although Keith qualifies as a holder in due course, Waldo has the defense of bankruptcy and cannot be held liable for the note regardless of the fact that he was the original maker of the note. Since Keith made a proper presentment of the note under UCC 3-415 and it was dishonored, he may under UCC 3-111; 3-414(b), (f); 3-415(a); 3-501(a), (b)(1); 3-502(a)(1), (2) and (b)-(e); 3-503 present the note to the unqualified indorser, Adam within 30 days of Waldo's dishonor. Grace is not liable for her qualified indorsement under UCC 3-416 and has not breached her warranty of holder in due course since she had no knowledge of Waldo's insolvency.