Under West Virginia law, as codified in UCC Article 3, a holder in due course (HDC) takes an instrument free from most defenses and claims that a prior party might assert against the original payee. To qualify as an HDC, a person must take the instrument (1) for value, (2) in good faith, and (3) without notice that it is overdue or dishonored or that there is any defense or claim against it. The scenario involves a promissory note. The initial transaction between the maker, Mr. Abernathy, and the payee, “Mountain State Music,” involved a dispute over the quality of musical equipment, which could give rise to a defense (e.g., breach of warranty) against payment. When Ms. Carter purchases the note from “Mountain State Music,” we must assess if she meets the HDC criteria. She paid $9,500 for a note with a face value of $10,000, which constitutes taking for value. Assuming she had no knowledge of the underlying dispute and purchased the note on its face, she would likely be considered to have taken in good faith and without notice of defenses. Therefore, she is a holder in due course. As an HDC, Ms. Carter can enforce the note against Mr. Abernathy, despite any defenses Mr. Abernathy might have had against “Mountain State Music.” The UCC specifies that an HDC is subject to “real defenses” such as infancy, duress, or illegality of the transaction, but not “personal defenses” like breach of contract or failure of consideration. In this case, the dispute over equipment quality is generally considered a personal defense. Thus, Ms. Carter can enforce the full $10,000 amount.

The scenario involves a promissory note that is non-negotiable due to the inclusion of a clause stating “subject to the terms and conditions of the agreement dated January 15, 2023.” Under West Virginia’s adoption of UCC Article 3, for an instrument to be negotiable, it must contain an unconditional promise or order to pay a fixed amount of money, payable on demand or at a definite time, and payable to order or to bearer. The presence of a reference to another agreement that governs the terms of payment, such as the one mentioned, makes the promise conditional. A conditional promise is one that is subject to the occurrence or non-occurrence of some event or to the performance of some other obligation. Such a conditionality destroys the negotiability of the instrument, meaning it cannot be transferred by negotiation under UCC Article 3, and therefore cannot be taken by a holder in due course. The UCC § 3-104(a)(1) specifies that a negotiable instrument must be an unconditional promise or order. UCC § 3-106(b)(1) further clarifies that a promise or order is conditional if it states an obligation to do any act in addition to the payment of money, or if all or part of the promise or order is subject to the performance of a condition. The clause “subject to the terms and conditions of the agreement dated January 15, 2023” clearly makes the payment of the note contingent upon the terms of that separate agreement, thus rendering it non-negotiable.

The core issue revolves around the concept of a holder in due course (HDC) and the defenses available against such a holder. Under West Virginia’s Uniform Commercial Code (UCC) Article 3, specifically § 3-305, an HDC takes an instrument free from most defenses, including those of a personal nature. However, certain real defenses are still assertable against an HDC. These real defenses are typically those that render the instrument void or that relate to the fundamental validity of the obligation itself, such as infancy, duress that nullifies assent, fraud that induces the obligation, discharge in insolvency proceedings, or illegality of a type that nullifies consent. Personal defenses, on the other hand, such as breach of contract, failure of consideration, or fraud in the inducement (where the obligor was aware of the nature of the instrument but was deceived about collateral matters), are cut off by an HDC. In this scenario, the alleged misrepresentation by Mr. Abernathy about the “marketability” of the antique clock was a misrepresentation concerning the underlying value or quality of the goods exchanged for the note. This constitutes fraud in the inducement, a personal defense. Since Ms. Gable acquired the note for value, in good faith, and without notice of any claim or defense, she qualifies as a holder in due course. Therefore, she takes the note free from Mr. Abernathy’s personal defense of fraud in the inducement. The UCC, as adopted in West Virginia, prioritizes the free flow of commerce by protecting HDCs from personal defenses.

The core concept here revolves around the holder in due course (HDC) status and its protection against claims and defenses. Under UCC Article 3, specifically as adopted in West Virginia, a holder takes an instrument for value, in good faith, and without notice that it is overdue or dishonored or that there is a defense or claim against it. In this scenario, the note was initially issued for a valid consideration, making it a negotiable instrument. When the note was transferred, the bank paid value for it by crediting the seller’s account, indicating value was given. The crucial element is whether the bank had notice of any defenses or claims. The fact that the note was secured by collateral and that the collateral’s value had diminished does not, in itself, constitute notice of a defense or claim on the instrument itself, such as fraud in the inducement or lack of consideration between the original parties. The bank is not obligated to investigate the underlying transaction unless it has specific knowledge of a defect. Therefore, absent any indication that the bank was aware of any issues with the original payee’s claim or any defenses the maker might have against the original payee, the bank likely qualifies as a holder in due course. This status allows the bank to enforce the instrument free from most personal defenses available to the maker against the original payee. The potential for the maker to have a claim against the original payee for the diminished collateral value is a personal defense that a holder in due course can cut off.

The scenario describes a promissory note that contains a clause allowing the holder to demand immediate payment upon the occurrence of certain events, such as the maker’s insolvency or the filing of bankruptcy proceedings. This type of clause is known as an “acceleration clause.” Under West Virginia’s adoption of UCC Article 3, an instrument that contains an acceleration clause is still considered a negotiable instrument, provided that the acceleration is triggered by an event that is certain to occur or is within the control of the maker, and does not make the payment due date indefinite or contingent in a way that would destroy negotiability. Specifically, UCC § 3-108(b) states that an instrument is payable on demand if it states that it is payable “on demand” or “at sight” or otherwise indicates that it is payable at the option of a holder, or when no time for payment is stated. While the acceleration clause here is triggered by events, the underlying obligation is still for a sum certain payable at a definite time (or on demand), which is a requirement for negotiability. The key is that the acceleration does not fundamentally alter the nature of the instrument from a promise to pay a specific amount at a determinable time. The presence of such a clause does not, in itself, render the instrument non-negotiable. The note is for a fixed sum, and the acceleration clause merely provides for an earlier due date under specified circumstances, which is permissible. Therefore, the note remains negotiable.

The core concept here revolves around the requirements for a writing to be considered a negotiable instrument under UCC Article 3, as adopted in West Virginia. Specifically, the question tests the understanding of the “unconditional promise or order” requirement. A promise or order is conditional if it states an express condition to payment or is subject to any right of prepayment or acceleration. In this scenario, the note explicitly states that payment is contingent upon the borrower’s continued employment with “Appalachian Mining Corp.” This creates an express condition to payment, making the promise conditional. Consequently, the instrument fails to meet the criteria for negotiability under West Virginia law, meaning it cannot be negotiated by simple endorsement and delivery to transfer the rights of a holder in due course. Instead, it would be treated as a simple contract, and any transferee would take it subject to all defenses and claims that could be asserted against the original payee. The absence of a sum certain, a fixed date of payment, or a clear payee, while also significant, are secondary to the fundamental flaw of conditionality in determining its negotiability.

The core issue here revolves around the concept of a holder in due course (HDC) and the defenses that can be asserted against such a holder. Under UCC Article 3, an HDC takes an instrument free from most personal defenses. However, real defenses, such as infancy, duress, illegality, and fraud in the factum, can be asserted even against an HDC. Fraud in the factum occurs when a party is induced to sign an instrument believing it to be something entirely different from what it actually is, without knowledge of its character or essential terms. In this scenario, Ms. Albright was led to believe she was signing a simple rental agreement, not a negotiable instrument. This misrepresentation goes to the very nature of the instrument itself, constituting fraud in the factum. Therefore, this defense is a real defense and can be asserted against an HDC, such as the First National Bank of Charleston, even if the bank acquired the note in good faith and for value. The UCC specifically enumerates these real defenses in § 3-305(a)(1). The other defenses mentioned are personal defenses that would not be available against an HDC.

Under West Virginia law, as codified by UCC Article 3, a holder in due course (HDC) takes an instrument free from most defenses and claims that a prior party could assert against the original payee. To achieve HDC status, a holder must take the instrument for value, in good faith, and without notice that it is overdue or has been dishonored or that any defense or claim to it exists. If a negotiable instrument is transferred by negotiation, meaning by delivery if it is payable to bearer, or by indorsement and delivery if it is payable to a specific person, and the transferee meets these criteria, they become an HDC. A forged indorsement, however, is generally a real defense that can be asserted against any holder, including an HDC, because a forged indorsement is ineffective to pass title. Thus, if the indorsement of the original payee was forged, the subsequent holder, even if they paid value in good faith without notice, would not have acquired the instrument by proper negotiation, and therefore would not be a holder in due course. Consequently, they would be subject to defenses, including the claim of the true owner whose indorsement was forged. The question asks about the rights of a holder who acquired an instrument through a forged indorsement. Since a forged indorsement is ineffective to pass title, the subsequent holder cannot be a holder in due course, as they did not take the instrument by proper negotiation. Therefore, they are subject to all claims and defenses, including the claim of the person whose indorsement was forged.

In West Virginia, as under the Uniform Commercial Code (UCC) Article 3, a holder in due course (HOC) takes an instrument free from most defenses and claims that a prior party might have against an ordinary holder. However, this protection is not absolute. Certain real defenses, which go to the validity of the instrument itself or the maker’s obligation, can be asserted even against an HOC. These real defenses are enumerated in UCC § 3-305(a)(1) and include infancy, duress, illegality of a type that renders the obligation void, fraud in the execution (or “real fraud”), discharge in insolvency proceedings, and certain other types of discharge of which the holder has notice when taking the instrument. Fraud in the inducement, where a party is tricked into signing an instrument but understands its nature, is a personal defense and is cut off by HOC status. The scenario presented involves a negotiable instrument that was obtained through fraudulent misrepresentation regarding its purpose, which constitutes fraud in the inducement. Therefore, an HOC would take the instrument free from this defense.

Under West Virginia law, specifically UCC Article 3, a holder in due course (HDC) takes an instrument free from all defenses of any party to the instrument with whom the holder has not dealt, except for certain real defenses. A party who takes an instrument for value, in good faith, and without notice that the instrument is overdue or dishonored or that there is a defense or claim against it is generally considered an HDC. In this scenario, the bank advanced funds to Ms. Albright, which constitutes taking for value. The question of good faith and notice is crucial. If the bank had knowledge of any infirmity in the instrument or the transaction, it would not be an HDC. However, the prompt implies no such knowledge. The key here is understanding what constitutes a defense against an HDC. Forgery, material alteration, fraud in the essential nature of the transaction (fraud in the factum), discharge in insolvency proceedings, and the issuer’s authorization of a signature by a fiduciary are typically real defenses. Personal defenses, such as breach of contract, lack of consideration, or fraud in the inducement, are generally cut off by an HDC. Therefore, the bank, as an HDC, would be protected from personal defenses like a simple breach of the underlying sales contract by the payee. The bank’s ability to enforce the note against the maker, Mr. Henderson, is subject to any real defenses Mr. Henderson might possess, but not personal ones.

In West Virginia, under UCC Article 3, a draft is an order to pay a specific sum of money. A bank is a person engaged in the business of banking. A check is a draft drawn on a bank and payable on demand. For a check to be properly payable, it must be presented to the bank on which it is drawn. The bank’s obligation to pay is triggered by proper presentment. In this scenario, the check was drawn on “Mountain State Bank” in Charleston, West Virginia. Presentment to “Appalachian Bank” in Huntington, West Virginia, is not presentment to the drawee bank. Therefore, Mountain State Bank has no obligation to pay the check until it is properly presented to it. The fact that Appalachian Bank is a correspondent bank or has some relationship with Mountain State Bank does not alter the requirement of proper presentment to the drawee. The UCC emphasizes that the drawee bank is the entity responsible for honoring a check.

This scenario revolves around the concept of a holder in due course (HDC) and the defenses available against such a holder under West Virginia’s adoption of UCC Article 3. A negotiable instrument is transferred to a holder. For that holder to attain HDC status, they must take the instrument for value, in good faith, and without notice that it is overdue or has been dishonored or that there is any defense or claim to it. In this case, the promissory note was transferred to Ms. Albright. She paid $5,000 for a note with a face value of $10,000, which suggests she took it for value. The question is whether she had notice of any defenses. The fact that the note was issued for a shipment of goods that were later discovered to be defective and returned to the drawer, Mr. Henderson, prior to the transfer to Ms. Albright is crucial. If Ms. Albright had knowledge of this defect or the circumstances surrounding the note’s issuance, she would not qualify as a holder in due course. The UCC generally provides that a holder takes an instrument “without notice” of any claims or defenses. If she was aware of the dispute regarding the defective goods before acquiring the note, she is not a holder in due course. Therefore, Mr. Henderson can assert his defense of failure of consideration against Ms. Albright. The explanation focuses on the elements required for HDC status and how knowledge of a defense, even if not explicitly stated on the instrument, can preclude such status. The UCC § 3-302 defines a holder in due course, and § 3-305 outlines the claims in recoupment and defenses that are available against a holder, including those that are not subject to the holder in due course rule. In West Virginia, these UCC provisions are controlling.

The scenario involves a negotiable instrument that is transferred by endorsement and delivery. For a holder in due course (HIC) status to be established under UCC Article 3, which is adopted in West Virginia, the holder must take the instrument for value, in good faith, and without notice of any claim or defense. In this case, Anya receives the note as a gift, which means she did not give value for it. Taking an instrument as a gift, without giving anything in return that constitutes value, prevents her from acquiring HIC status. Therefore, Anya is subject to any defenses that the maker, Mr. Henderson, could raise against the original payee, Ms. Gable. The defense of failure of consideration is a real defense available against a holder who is not an HIC. Since Anya is not an HIC, Mr. Henderson can assert this defense.

Under West Virginia law, as codified in UCC Article 3, a holder in due course (HDC) takes an instrument free from all defenses and claims of any party with whom the holder has not dealt, except for certain real defenses. A person qualifies as an HDC if the instrument is taken for value, in good faith, and without notice of any claim or defense. Value is given if the holder takes the instrument as payment of or security for a pre-existing claim that is part of the consideration for an instrument. Good faith means honesty in fact and the observance of reasonable commercial standards of fair dealing. Notice includes actual knowledge, receipt of notice, or reason to know from all the facts and circumstances known to the person at the time. In this scenario, Ms. Albright purchased the promissory note from Mr. Henderson. She paid $8,000 for a note with a face value of $10,000, which indicates she gave value. The question implies she had no knowledge of the underlying dispute between Mr. Henderson and the maker, nor any reason to suspect its existence, suggesting good faith and lack of notice. Therefore, she likely qualifies as a holder in due course. A holder in due course is generally not subject to defenses such as breach of contract or failure of consideration, which are typically personal defenses. Real defenses, such as infancy, duress, or fraud in the factum (fraud that induces the obligor to sign the instrument with neither knowledge nor reasonable opportunity to obtain knowledge of its character or its essential terms), would still be available against an HDC. However, the scenario describes a dispute over the quality of goods provided, which constitutes a personal defense. Consequently, Ms. Albright, as a holder in due course, would take the note free from this personal defense.

The scenario describes a draft that was presented for acceptance. Under West Virginia’s Uniform Commercial Code (UCC) Article 3, specifically § 3-409, a draft does not operate as an assignment of funds in the hands of the drawee. Therefore, the drawee is not liable on the draft unless the drawee has signed the draft as the drawer, accepted the draft, or is otherwise liable under Article 3. Acceptance is defined in § 3-409(a) as the drawee’s signed engagement to pay the draft as presented. Without acceptance, the drawee has no obligation to the holder of the draft. The fact that the drawee received notice of the draft and had sufficient funds to cover it does not create liability. The UCC emphasizes the need for a specific act of acceptance to bind the drawee. This principle is crucial for understanding the contractual nature of commercial paper and the distinct roles of parties involved. The drawer’s intent to transfer funds is not sufficient to create a direct obligation on the drawee to a third-party holder of the draft.

The scenario describes a promissory note that contains a clause stating it is “subject to the terms and conditions of a separate agreement dated October 15, 2023, between the maker and the payee.” Under West Virginia’s Uniform Commercial Code (UCC) Article 3, specifically § 46-3-104(a), a negotiable instrument must contain an unconditional promise or order to pay a fixed amount of money. The presence of a reference to another agreement that could modify or affect the terms of payment, such as the amount due or the due date, generally renders the promise conditional. This conditionality destroys the negotiability of the instrument because a holder cannot be assured of the exact terms of payment without examining the referenced document. Therefore, the note is not a negotiable instrument. The fact that the reference is to a separate agreement, even if the agreement itself is readily accessible, is the critical factor. The UCC requires the promise to be absolute on the face of the instrument.

The scenario involves a promissory note that is payable on demand. Under West Virginia UCC § 3-108(a), a promise to pay is payable on demand if it states that it is payable “on demand,” “at sight,” or “when presented.” Alternatively, if no time for payment is stated, the instrument is payable on demand. In this case, the note explicitly states “Payable on demand.” Therefore, the holder can demand payment at any time. The fact that the note was issued in West Virginia is relevant as it dictates the application of the Uniform Commercial Code as adopted by West Virginia. The UCC provides a framework for commercial transactions, including negotiable instruments. The holder’s right to demand payment is not contingent on any specific event or notice period beyond what is stated in the instrument itself, or the default rule for unstated payment terms. The UCC aims to promote certainty and predictability in commercial dealings, and the “on demand” provision is a clear indicator of immediate negotiability and presentment rights. The principal amount of the note and the absence of a stated interest rate do not alter the fundamental nature of its demand payment status.

The core issue here is whether the endorsement by the minor, Elara, creates a valid negotiation of the instrument. Under West Virginia law, as codified in UCC Article 3, a negotiable instrument can be transferred by negotiation. Negotiation typically occurs by delivery if the instrument is bearer paper, or by delivery and endorsement if it is order paper. However, the capacity of the parties involved is crucial. Minors, as a general rule, have the power to enter into contracts, but these contracts are voidable at the minor’s election. This power to void extends to endorsements on negotiable instruments. Therefore, while Elara’s endorsement appears to be a valid negotiation on its face, it is subject to her right to disaffirm it due to her minority. If Elara disaffirms the endorsement, the transfer is effectively undone, and the instrument is not properly negotiated to Mr. Abernathy. This would mean Mr. Abernathy does not acquire the rights of a holder in due course, nor does he acquire any rights to enforce the instrument against the drawer or any prior endorsers. The UCC specifically addresses the effect of minority on negotiation, stating that a negotiation by a minor is effective until the minor disaffirms. Upon disaffirmance, the instrument is deemed not to have been negotiated. This principle is fundamental to protecting minors from improvident transactions. The question hinges on the legal effect of a minor’s endorsement, which, while seemingly complete, is voidable.

The core concept here revolves around the holder in due course (HDC) status and its protection against claims and defenses, specifically focusing on the concept of “shelter.” When a holder takes an instrument from an HDC, that holder also acquires the rights of an HDC, even if the subsequent holder has knowledge of a defense or is otherwise disqualified from being an HDC. This is known as the “shelter principle” and is codified in UCC § 3-203(b). In this scenario, Ms. Albright is an HDC because she took the note for value, in good faith, and without notice of any defense or claim. She then negotiates the note to Mr. Peterson. Even though Mr. Peterson may have knowledge of the original payee’s fraud in the inducement, he acquires the rights of Ms. Albright, the HDC transferor. Therefore, Mr. Peterson can enforce the note against the maker, Mr. Davies, free from the defense of fraud in the inducement, provided he is not himself a party to the original fraud. The question implies Mr. Peterson is merely a transferee from an HDC, not a party to the original fraud.

Under West Virginia law, as codified in UCC Article 3, the concept of discharge of a party from liability on a negotiable instrument is governed by specific provisions. One such method of discharge occurs when a party to the instrument is discharged by the occurrence of an event or condition that discharges the obligor on a simple contract. For example, if a party is discharged from a contract due to impossibility of performance or frustration of purpose, and that party is also liable on a negotiable instrument related to that contract, their liability on the instrument may also be discharged. This is not an exhaustive list of all discharge methods, but it highlights the interplay between contract law principles and negotiable instrument law when a discharge event is tied to an underlying contractual obligation. The UCC generally aims to provide a framework for commercial transactions, and this provision ensures that discharge of liability on an instrument is consistent with general contract principles where applicable, unless specifically preempted by other UCC provisions.

The scenario involves a promissory note that contains an acceleration clause. An acceleration clause allows the holder of the note to declare the entire unpaid balance due and payable immediately upon the occurrence of a specified event, such as a default in payment. In West Virginia, as under UCC Article 3, such clauses are generally enforceable. The note states that upon failure to pay any installment, the entire principal sum “shall become immediately due and payable at the option of the holder.” This language clearly indicates that the holder has the right, but not the obligation, to accelerate the debt. The question asks about the legal effect of this clause. If the maker defaults on an installment payment, the holder can choose to exercise their option to accelerate the debt. This means the entire remaining principal balance, along with any accrued interest, becomes due and payable at that moment. The note does not automatically become due; it requires the holder’s election. The existence of an acceleration clause does not render the instrument non-negotiable, provided it is otherwise compliant with UCC Article 3 requirements for negotiability, which typically include a sum certain, payable on demand or at a definite time, payable to order or to bearer, and containing no other undertaking or instruction by the maker except as authorized by UCC Article 3. The acceleration clause is considered a permissible undertaking related to payment. Therefore, upon default, the holder has the power to make the entire note immediately due.

The core issue revolves around the concept of a holder in due course (HDC) and the defenses that can be asserted against such a holder. Under West Virginia law, as codified in UCC Article 3, a person who takes an instrument for value, in good faith, and without notice of any claim or defense to it is a holder in due course. A holder in due course takes the instrument free from most defenses, including those arising from simple contract disputes or illegality of consideration, except for certain real defenses. Real defenses, such as infancy, duress, fraud in the execution, or discharge in insolvency proceedings, can be asserted even against an HDC. In this scenario, the promissory note was originally issued for a loan of gambling chips, which is considered illegal consideration in West Virginia. However, the illegality of the original transaction is a defense that is generally cut off by a holder in due course. The question is whether the illegality of the underlying consideration constitutes a real defense that can be asserted against an HDC. West Virginia Code § 47-3-305(a)(2) lists “illegality of the transaction which is, by statute or other law, rendered void” as a defense that can be asserted against a holder in due course. Gambling debt, when the gambling itself is illegal, can render the underlying transaction void. Since the promissory note was directly tied to an illegal gambling transaction in West Virginia, the defense of illegality of the transaction, rendering the note void, can be asserted against an HDC. Therefore, even though Ms. Gable took the note for value and in good faith, she cannot enforce it against Mr. Abernathy because the underlying transaction was void due to illegality in West Virginia.

The core issue revolves around the concept of a holder in due course (HDC) and the defenses available against them under UCC Article 3, as adopted in West Virginia. A negotiable instrument is taken by a holder in due course if it is taken (1) for value, (2) in good faith, and (3) without notice that it is overdue or dishonored or that there is a defense or claim to it. In this scenario, the note was originally made by Ms. Gable to “Cash” and then endorsed in blank by the payee. Mr. Thorne purchased the note from Mr. Sterling. The critical factor is Mr. Thorne’s knowledge of the underlying dispute between Ms. Gable and Mr. Sterling concerning the faulty construction work. UCC § 3-302 defines a holder in due course. UCC § 3-305 outlines the claims in recoupment and defenses against a holder in due course. While a holder in due course generally takes the instrument free from all defenses of any party to the instrument with whom the holder has not dealt, except for certain real defenses (e.g., infancy, duress, illegality that renders the obligation void), personal defenses are generally cut off. A claim in recoupment is treated as a defense under UCC § 3-305(a)(2). Mr. Thorne’s knowledge of the construction defect and the resulting dispute between Ms. Gable and Mr. Sterling constitutes notice of a defense or claim to the instrument. Specifically, he had notice of Ms. Gable’s potential claim in recoupment against Mr. Sterling for the cost of repairing the faulty work, which she could assert as a defense against payment. Therefore, Mr. Thorne does not meet the “without notice” requirement of UCC § 3-302(a)(2)(v). He is not a holder in due course because he acquired the note with actual knowledge of a defense. Consequently, Ms. Gable can assert her personal defenses, including her claim in recoupment for the cost of repairs, against Mr. Thorne. The amount of the repair cost, \$8,500, would be subtracted from the \$15,000 principal amount of the note. Thus, the amount Ms. Gable is obligated to pay is \$15,000 – \$8,500 = \$6,500.

The core concept here revolves around the holder in due course (HDC) status and the defenses available against payment. Under UCC Article 3, as adopted in West Virginia, a holder in due course takes an instrument free from all defenses of any party to the instrument with whom the holder has not dealt except for real defenses. Real defenses are those that can be asserted against any holder, including an HDC. Examples of real defenses include infancy, duress, illegality, fraud in the execution (or “the paper”), and discharge in insolvency proceedings. Personal defenses, on the other hand, such as breach of contract, lack of consideration, or fraud in the inducement, are generally cut off by an HDC. In this scenario, the forged signature of the maker, Mr. Abernathy, renders the instrument void ab initio as to him. Forgery of a necessary signature is a real defense. Therefore, even though Ms. Gable acquired the note for value, in good faith, and without notice of any claim or defense, she cannot enforce the note against Mr. Abernathy because his signature was forged. The UCC explicitly states that an instrument is not enforceable in favor of a person who becomes a holder in due course if the instrument is a forged instrument or if the holder had notice of the forgery. West Virginia follows this principle under its adoption of UCC Article 3. The fact that the note was a bearer instrument and Ms. Gable took possession of it does not alter the fundamental invalidity of the signature.

The concept tested here revolves around the holder in due course (HDC) status and the defenses available against such a holder under UCC Article 3, specifically as adopted in West Virginia. A holder in due course takes an instrument free from most defenses, but certain real defenses can be asserted even against an HDC. Among the defenses listed, fraud in the factum is a real defense. Fraud in the factum occurs when a party is induced to sign an instrument without knowing its nature or its essential terms, believing it to be something else entirely. This is distinct from fraud in the inducement, where a party knows what they are signing but is deceived about the underlying transaction. Forged signatures are also a real defense. Illegality of the consideration, unless it is of a type that makes the obligation void, is typically a personal defense, meaning it cannot be asserted against an HDC. Breach of warranty by the seller in a consumer transaction, while a defense, is generally considered a personal defense against an HDC unless specifically made a real defense by statute. In West Virginia, as in most states, fraud in the factum and a forged signature are universally recognized real defenses that can be raised against even a holder in due course. Illegality of consideration, if it merely makes the contract voidable, is a personal defense. Therefore, the defense that is unequivocally a real defense against an HDC is fraud in the factum.

The scenario involves a promissory note where the maker, a resident of West Virginia, issues a note to a payee, a resident of Ohio. The note contains a clause stating that it is governed by the laws of Kentucky. Under UCC Article 3, which is adopted by West Virginia, the enforceability and interpretation of negotiable instruments are primarily determined by the law of the jurisdiction chosen by the parties in the instrument, provided that jurisdiction has a reasonable relation to the parties or the transaction. West Virginia Code §46-3-101 et seq. (UCC Article 3) allows for such choice of law provisions. If the chosen law is not contrary to West Virginia public policy and bears a reasonable relation to the transaction, it will generally be honored. Kentucky law is not inherently contrary to West Virginia public policy concerning commercial paper. Therefore, the note’s enforceability and interpretation will be governed by Kentucky law as specified in the note itself, assuming Kentucky has a reasonable relation to the transaction (e.g., if the note was made, delivered, or is payable in Kentucky, or if one of the parties resides there). The UCC’s allowance for choice of law in commercial paper is a key principle for facilitating interstate commerce.

The core concept here is the distinction between a holder in due course (HDC) and a mere holder of a negotiable instrument, particularly concerning defenses against payment. Under West Virginia’s adoption of UCC Article 3, specifically § 3-302, an HDC takes an instrument free from most defenses that the issuer could assert against a party with ordinary status as a holder. These defenses are categorized as either “real defenses” (which can be asserted even against an HDC) or “personal defenses” (which cannot). Real defenses include issues like infancy, duress, illegality of the transaction, fraud in the factum (where the maker was deceived about the nature of the instrument itself), and discharge in insolvency proceedings. Personal defenses, on the other hand, are more contractual in nature, such as breach of contract, failure of consideration, or fraud in the inducement (where the maker was induced to sign by a false promise). In the scenario provided, the promissory note was procured by Mr. Abernathy through fraudulent misrepresentation regarding the quality of the antique furniture purchased. This constitutes fraud in the inducement, a personal defense. Ms. Carmichael, who acquired the note from Mr. Abernathy, took it for value and in good faith, and without notice of any defense against it, thus meeting the criteria to be a holder in due course. Because fraud in the inducement is a personal defense, it is ineffective against an HDC. Therefore, Ms. Carmichael can enforce the note against Mr. Abernathy despite his claim of fraud. The amount of the note, $15,000, is relevant to the value exchanged but does not alter the legal principle regarding the type of defense available against an HDC.

This question concerns the concept of “holder in due course” (HDC) status under UCC Article 3, specifically focusing on the requirement of taking an instrument without notice of any claim or defense. In West Virginia, as in other adopting states, UCC § 3-302 outlines the criteria for becoming a holder in due course. These criteria include taking the instrument for value, in good faith, and without notice that the instrument is overdue or has been dishonored or that there is an uncured default of another obligation secured by the instrument, or that any person has a claim to the instrument or a defense against it. Notice can be actual knowledge or reason to know from all the facts and circumstances known to the person at the time in question. In the scenario presented, Ms. Albright’s knowledge of the ongoing dispute regarding the quality of goods supplied by “Appalachian Artisans Inc.” constitutes notice of a potential defense (breach of warranty or failure of consideration) to the underlying transaction. This knowledge, even if she acquired it before full payment but after taking possession, would prevent her from being a holder in due course. Therefore, she would take the instrument subject to the defenses that could be asserted by the maker against the original payee. The UCC does not require a specific dollar amount to be paid to constitute “value,” but rather that the holder has given something of benefit for the instrument. However, the crucial element here is the notice of the defense.

This scenario involves a negotiable instrument that was originally payable to order but was later transferred by endorsement. Under West Virginia law, specifically UCC Article 3, when an instrument is payable to order, it requires the payee’s endorsement for a valid transfer of rights. If the instrument is transferred without the required endorsement, the transferee does not become a holder in due course, even if they otherwise meet the criteria. The transfer is merely an assignment of the transferor’s rights. An assignee of a negotiable instrument takes it subject to all claims and defenses that could have been asserted against the transferor, including those of the drawer or maker. Therefore, if the instrument was subject to a defense by the drawer, that defense remains valid against the assignee. The concept of a holder in due course (HOC) is crucial here. To be a HOC, a person must be a holder of a negotiable instrument that was taken for value, in good faith, and without notice of any claim or defense. A holder is someone in possession of an instrument drawn or issued to them or to their bearer. Possession alone does not make one a holder if the instrument is not properly endorsed for order paper. The question hinges on whether the transferee acquired the status of a holder, which is a prerequisite for holder in due course status. Without the endorsement, the transferee is not a holder of an order instrument, and thus cannot be a holder in due course. Consequently, any defenses available against the original payee are also available against the transferee.

The scenario involves a negotiable instrument that has been altered. Under West Virginia law, specifically UCC Article 3, a holder in due course (HDC) of an instrument that has been materially altered is generally entitled to enforce the instrument according to its original tenor. However, if the alteration is fraudulent and the HDC took the instrument with knowledge of the alteration, or if the HDC is not a holder in due course, the rights may be different. In this case, the note was originally for $5,000 and payable to “B. Henderson.” It was then altered to read $15,000 and made payable to “C. Davies.” The critical point is whether C. Davies is a holder in due course. To be an HDC, C. Davies must have taken the instrument for value, in good faith, and without notice of any defense or claim, including the alteration. If C. Davies took the instrument for value, in good faith, and without notice of the alteration, they can enforce it according to its original tenor, which is $5,000. If C. Davies is not an HDC, or if they had notice of the alteration, they may only enforce it according to its original tenor if the alteration was not fraudulent, or if it was fraudulent, they may be barred from recovery depending on the specifics of their knowledge and the nature of the alteration. However, the most common and fundamental rule for an HDC facing a material alteration is enforcement according to the original terms. The question focuses on the rights of a holder who is *not* a holder in due course. For a holder who is not an HDC, a fraudulent and material alteration generally discharges any party whose contract is affected by the alteration unless that party assents to the alteration. Since the question specifies C. Davies is not an HDC, and the alteration was fraudulent and material (changing the amount and payee), the original obligor, Ms. Gable, is discharged from any obligation on the instrument. The UCC § 3-407(b) states that if an instrument is issued with a fraudulent and material alteration, the instrument is voidable by the issuer, but a holder who is not an HDC may enforce it according to its original tenor. However, UCC § 3-407(a) states that if a holder makes a fraudulent and material alteration, the holder loses the right to enforce the instrument. Since C. Davies is not an HDC and the alteration was fraudulent and material, the instrument as altered is not enforceable by C. Davies against Ms. Gable, and Ms. Gable is discharged from liability on the instrument due to the fraudulent and material alteration by the prior holder. Therefore, C. Davies cannot enforce the instrument against Ms. Gable.