A holder will be deemed to have notice of a defect in an instrument if he or she has reason to know that it exists, given all the facts and circumstances known at the time.

Question

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Under the principles of the Uniform Commercial Code (UCC), a holder of a negotiable instrument is considered to have notice of any defect if, based on all the facts and circumstances known at the time, the holder has reason to know that a defect exists. This includes knowledge of facts that would lead a reasonable person to inquire further about potential defects.

A Holder Will Be Deemed to Have Notice of a Defect