The scenario involves a promissory note that is payable to a specific individual, Eleanor Vance. Under Tennessee law, as codified by UCC Article 3, for a negotiable instrument to be order paper, it must be payable “to order” or “to bearer.” A note payable “to Eleanor Vance” without further qualification is considered payable to a specific person. UCC § 3-109(b) states that if an instrument is payable to a specified person, it is payable to that person or, if the instrument is an order instrument, to any person to whom the instrument is negotiated by the specified person. However, the critical point here is the absence of “to order” or “to bearer.” An instrument that is payable only to a specified person is not negotiable. Therefore, the note is not a negotiable instrument in the hands of anyone, including a holder in due course. This means that the defenses available against the original payee, Eleanor Vance, would also be available against any subsequent holder. The absence of “to order” or “to bearer” is a fundamental requirement for negotiability, and its omission renders the instrument a simple contract for the payment of money, not a negotiable instrument governed by Article 3. Consequently, a holder in due course cannot acquire rights superior to those of the original parties.

Under Tennessee law, specifically UCC Article 3, a holder in due course (HIDC) takes an instrument free from most defenses and claims that a prior party might have against the instrument. To qualify as an HIDC, a person must take the instrument for value, in good faith, and without notice of any claim or defense. The scenario involves a promissory note executed by a construction company in Tennessee. The note was later negotiated to a third party. The key is to determine if the third party’s knowledge of the ongoing litigation between the original parties constitutes notice of a defense. Under Tennessee Code Annotated § 47-3-302, “notice of an instrument being overdue or having been dishonored or of any defense or claim against it” prevents a holder from being an HIDC. If the third party had actual knowledge or received notification of the litigation, or if the facts and circumstances were such that the third party’s acquisition of the instrument constituted bad faith (which is a higher bar than mere negligence), then they would not be an HIDC. The question hinges on the interpretation of “notice” under the UCC. A general awareness of a potential dispute, without specific knowledge of a defense that would render the instrument invalid or unenforceable, might not be sufficient to deny HIDC status. However, if the litigation directly related to the validity of the underlying obligation for which the note was given, and the third party was aware of this specific connection, then notice would be established. The UCC requires a holder to take the instrument without notice of a defense or claim. Knowledge of a lawsuit that directly challenges the enforceability of the instrument itself, or the underlying transaction, would typically constitute notice of a defense. Therefore, if the third party was aware that the litigation concerned the very basis of the debt represented by the note, they would not be an HIDC.

The scenario describes a negotiable instrument that was originally payable to order. The UCC, specifically Article 3, governs negotiable instruments. Under Tennessee law, which adopts the UCC, an instrument payable to order is negotiated by delivery with any necessary indorsement. If an instrument is payable to two or more persons in the alternative, it is payable to any one of them and may be negotiated by the indorsement of any one of them. However, if an instrument is payable to two or more persons not in the alternative, it is payable to all of them and may be negotiated only by their joint indorsement. In this case, the instrument is payable to “Alice or Bob.” This phrasing indicates alternative payees. Therefore, the instrument can be negotiated by the indorsement of either Alice or Bob individually. The question asks about the proper negotiation of the instrument. Since it is payable to “Alice or Bob,” negotiation requires the indorsement of either Alice or Bob. The provided options must reflect this understanding of alternative payees under UCC Article 3 as adopted in Tennessee.

The scenario involves a promissory note that is payable to a specific individual, Silas Croft, and contains a clause allowing for acceleration of the due date upon the occurrence of a specific event: the borrower, Eliza Vance, failing to maintain a certain debt-to-income ratio. This acceleration clause, by making the exact payment date uncertain and dependent on a future event that is not a fixed or determinable time, renders the instrument non-negotiable. Under Tennessee Code Annotated § 47-3-104, a negotiable instrument must be payable on demand or at a definite time. An acceleration clause that is triggered by a condition not solely within the control of the maker, or that is not objectively determinable, violates the “definite time” requirement. The specific condition here, maintaining a debt-to-income ratio, is subject to fluctuations and external financial reporting, making the exact date of payment indefinite. Therefore, the note is not a negotiable instrument under Article 3 of the Uniform Commercial Code as adopted in Tennessee.

The scenario involves a promissory note that is payable to an order and contains a clause that allows the holder to accelerate the due date upon the occurrence of certain events. Specifically, the note states it is due “upon demand or, if no demand is made, on December 31, 2024.” This type of clause, which makes the instrument payable on demand or at a definite time, does not affect its negotiability. Under Tennessee Code Annotated § 47-3-108, an instrument is payable on demand if it states that it is payable on demand, at sight, or on presentation. Alternatively, it is payable at a definite time if it is payable on elapsed time after sight or acceptance, or on or before a definite date or at an interval after a definite date. A note payable “on demand or, if no demand is made, on December 31, 2024” meets the definition of being payable at a definite time because the latest possible payment date is fixed. The holder’s right to demand payment earlier does not make the due date indefinite; rather, it provides an option for earlier payment. Therefore, the note remains a negotiable instrument.

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 Tennessee. A negotiable instrument, such as a promissory note, can be transferred to an HDC who takes the instrument for value, in good faith, and without notice of any defense or claim. Once an instrument is held by an HDC, most real defenses are cut off. However, personal defenses are generally not available against an HDC. Among the defenses listed, fraud in the factum (or fraud in the execution) is a real defense, meaning it can be asserted even against an HDC. This occurs when a party is induced to sign an instrument believing it to be something entirely different, such as a receipt or a contract for a different purpose. Conversely, fraud in the inducement, where a party is deceived about the underlying consideration or value of the transaction, is a personal defense and is cut off by an HDC. The scenario describes a situation where Ms. Albright was tricked into signing a document that she believed was a simple loan application for a small sum, but it was in fact a negotiable promissory note for a significantly larger amount, payable to a third party. This constitutes fraud in the factum. Therefore, even if Mr. Sterling qualifies as a holder in due course, the fraud in the factum defense would still be available to Ms. Albright. The other options represent personal defenses or concepts not applicable to cutting off an HDC’s rights in this context. Lack of consideration is a personal defense. Illegality of the underlying contract is generally a personal defense unless it renders the instrument void. A mere mistake in the amount, without the element of deception about the nature of the instrument itself, would likely be considered a personal defense.

The core issue revolves around the concept of a holder in due course (HDC) and the defenses available against such a holder. Under Tennessee law, as codified in UCC Article 3, a holder in due course takes an instrument free of most defenses and claims. However, certain defenses, known as real defenses, can be asserted even against an HDC. These real defenses are typically those that go to the validity of the instrument itself or the capacity of the obligor. Examples include infancy, duress that nullifies assent, fraud that induces the inducement of the instrument, discharge in insolvency proceedings, and any other discharge of which the holder has notice when taking the instrument. Personal defenses, such as breach of contract, failure of consideration, or fraud in the inducement, are generally cut off by an HDC. In this scenario, the promissory note was obtained through fraudulent misrepresentation regarding the quality of goods sold, which constitutes fraud in the inducement. This is a personal defense. Since Ms. Gable took the note for value, in good faith, and without notice of any defense or claim, she qualifies as a holder in due course. Therefore, the personal defense of fraud in the inducement cannot be asserted against her. The UCC, specifically Tennessee Code Annotated § 47-3-305, outlines these principles. The question tests the understanding of the distinction between real and personal defenses and the requirements for HDC status.

The scenario involves a promissory note that was originally payable to “cash.” Under Tennessee law, as governed by UCC Article 3, an instrument payable to “cash” or similar words is considered payable to bearer. When an instrument is payable to bearer, it can be negotiated by mere delivery. The question asks about the effect of a restrictive endorsement “Pay to the order of Amelia Vance” made by the holder of the note. A restrictive endorsement generally does not affect the negotiability of an instrument, but it does dictate how the instrument can be used or paid. However, the critical point here is that the instrument was initially payable to bearer. A subsequent endorsement in the chain of title, even if restrictive, does not change the fact that the instrument was bearer paper. Therefore, the holder can still negotiate the instrument by delivery, despite the restrictive endorsement, as the restrictive endorsement only affects the rights of the endorser and subsequent transferees, not the fundamental negotiability of the instrument itself. The concept of “holder in due course” is relevant, but the question focuses on the act of negotiation. An instrument payable to bearer is negotiated by delivery. A restrictive endorsement like “Pay to the order of Amelia Vance” on a bearer instrument does not convert it into order paper. The holder can still negotiate it by delivery, and Amelia Vance, as the named payee, can then negotiate it further. The endorsement itself does not prevent further negotiation by delivery.

The scenario describes a promissory note payable to “Bear Creek Outfitters” which is a fictitious business name, not a legal entity. Under Tennessee law, specifically UCC § 3-110, an instrument payable to a fictitious person is generally payable to the bearer. A person to whom an instrument is payable is identified by the name in the instrument. If the name is that of a fictitious person, the instrument is payable to bearer. Bear Creek Outfitters, as a fictitious name, does not identify a specific legal entity or person. Therefore, the note is payable to bearer. A holder in due course (HDC) takes an instrument free of most defenses and claims. To be an HDC, a holder must take the instrument for value, in good faith, and without notice that it is overdue or has been dishonored or of any defense or claim against it. In this case, the note is payable to bearer, meaning possession of the note is sufficient to establish the right to enforce it, provided the possessor meets the HDC requirements. The question asks who can enforce the note. Since it’s payable to bearer, any holder in possession of the note who qualifies as a holder in due course can enforce it against the maker, assuming no other defenses are available to the maker. The fact that the payee name is fictitious is the key determinant of its bearer instrument status. The note’s enforceability by a holder in due course is a fundamental concept in negotiable instruments law, protecting the free flow of commerce.

The scenario describes a promissory note payable to “bearer.” Under Tennessee law, as codified in UCC Article 3, an instrument payable to bearer is negotiated by delivery alone. This means that possession of the instrument, coupled with the intent to transfer ownership, is sufficient to effectuate a valid transfer. No endorsement is required. Therefore, when Eliza delivers the note to Finn, and Finn takes possession with the intent to own it, Finn becomes the holder of the note. The fact that the note is also marked “non-negotiable” is irrelevant to the bearer status for negotiation purposes under UCC § 3-109(a)(1) if it otherwise meets the requirements of a negotiable instrument. However, the core principle for bearer paper is transfer by delivery. The question hinges on the method of negotiation for bearer instruments.

The scenario involves a promissory note that is payable “on demand” but also contains a clause stating it is due “upon the completion of the construction project.” Under Tennessee law, specifically UCC § 3-108(b), an instrument that is payable on demand or at the option of the holder is considered payable on demand. However, UCC § 3-108(a)(2) also states that an instrument is payable at a definite time if it is payable upon the occurrence of a specified event, provided the event is certain to occur. The crucial point here is whether the completion of a construction project constitutes a “specified event” that is “certain to occur.” While construction projects are generally expected to be completed, the timing and certainty of completion can be subject to numerous contingencies such as funding issues, regulatory approvals, or unforeseen site conditions. Therefore, an instrument made payable upon the completion of a construction project is generally not considered payable at a definite time because the event, while probable, is not certain to occur within a commercially reasonable or determinable time frame. This ambiguity regarding the certainty of the event prevents it from qualifying as a definite time under UCC § 3-108(a)(2). Consequently, the note would be treated as payable on demand. The question asks about the legal effect of this dual phrasing on the instrument’s negotiability. For an instrument to be negotiable, it must be payable at a definite time or on demand. Since the “completion of the construction project” clause introduces uncertainty regarding the exact time of payment, it does not satisfy the definite time requirement. The “on demand” phrasing, however, does satisfy the alternative requirement for negotiability. Therefore, the instrument is treated as payable on demand, and its negotiability is preserved. The correct answer focuses on this dual classification and its impact on negotiability.

The core issue here revolves around the concept of a holder in due course (HDC) and the defenses available against such a holder. Under Tennessee law, as codified in UCC Article 3, 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, which can be asserted even against an HDC, include 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, and discharge in insolvency proceedings. Personal defenses, such as breach of contract or failure of consideration, are generally cut off by an HDC. In this scenario, the alleged misrepresentation by Silas concerning the “special endorsement” does not rise to the level of fraud in the factum (real defense) because Elara had the opportunity to read the instrument and understand its terms. She understood she was signing a promissory note. Therefore, Silas’s claim that the note is voidable due to misrepresentation is a personal defense. Since Beatrice is a holder in due course, having taken the note for value, in good faith, and without notice of any claim or defense, she is generally protected from personal defenses. Thus, Beatrice can enforce the note against Elara.

The scenario involves a promissory note that was initially payable to order. The original payee, Ms. Eleanor Vance, indorsed the note in blank by simply signing her name on the back. Subsequently, Mr. Silas Croft, who received the note from the blank indorser, wrote “Pay to Silas Croft” above Ms. Vance’s signature. This action constitutes a special indorsement, converting the instrument from bearer paper (after the blank indorsement) back to order paper. According to Tennessee Code Annotated \(§ 47-3-205(c)\), when an instrument is indorsed in blank, it becomes bearer paper. However, a subsequent holder of bearer paper can convert it to order paper by specially indorsing it. A special indorsement specifies the person to whom the instrument is payable. Therefore, after Mr. Croft’s special indorsement, the note is payable to Silas Croft or his order. If Mr. Croft then further indorses the note, it will again become bearer paper if he indorses it in blank, or order paper if he specially indorses it. The question asks about the status of the note immediately after Mr. Croft’s action. The conversion from bearer paper to order paper by a special indorsement means that only Silas Croft, or his order, can negotiate the instrument.

The scenario involves a promissory note that is payable to “bearer” and is also post-dated. Under Tennessee law, as codified by UCC Article 3, a negotiable instrument must be payable on demand or at a definite time. A post-dated instrument is generally not payable until the date specified on the instrument. However, if the instrument is payable to bearer, the holder can negotiate it by delivery alone. The critical issue here is whether the post-dating affects the negotiability or the holder’s rights. Tennessee Code Annotated (TCA) § 47-3-108 states that an instrument is payable on demand if it states that it is payable on demand, at sight, or otherwise. If an instrument is not payable on demand, it is payable at a definite time if it is payable on elapse of a definite period of time after sight or acceptance, or at a definite time after its issue, or at a fixed period after date. TCA § 47-3-113 addresses postdating. It states that the time of payment of a postdated instrument is determined by the stated date. Therefore, the note is not payable until July 15, 2024. However, the question asks about the rights of a holder in due course. A holder in due course (HDC) takes an instrument free from most defenses and claims. To be an HDC, a holder must take the instrument for value, in good faith, and without notice of any claim to the instrument or defense against it. The fact that the instrument is post-dated does not, by itself, constitute notice of a claim or defense. Therefore, if Ms. Gable took the note for value, in good faith, and without notice of any defect, she could be a holder in due course. The post-dating simply dictates the time of payment. The bearer status means it can be negotiated by delivery. The ability to enforce the instrument is tied to possession and the absence of a defense against the holder. Since the note is payable to bearer, it is negotiable by delivery. The post-dating does not prevent negotiation, only the date on which it becomes payable. A holder in due course can enforce the instrument even if it is post-dated, provided they meet the other requirements for HDC status. The question implies that Ms. Gable took the note in good faith and for value. The critical element is the ability to enforce it. Because it is a bearer instrument, possession is key. The post-dating affects the payment date, not the negotiability or the ability of an HDC to enforce it once that date arrives. Therefore, Ms. Gable, as a holder in due course, can enforce the note against Mr. Abernathy on or after July 15, 2024. The question asks about the enforceability against Mr. Abernathy. The calculation, while not strictly mathematical, involves understanding the temporal aspect of the instrument. The note is issued on June 1, 2024, but post-dated to July 15, 2024. This means it is not legally due and payable until July 15, 2024. However, for a holder in due course, the ability to enforce arises when the instrument is properly presented for payment on or after its due date. Since Ms. Gable is presumed to be a holder in due course, she can enforce the instrument once the due date arrives. Therefore, she can enforce it on July 15, 2024.

This scenario tests the concept of holder in due course (HDC) status and the limitations imposed by a defense that is real versus personal. A real defense is available against all holders, including HDCs, while a personal defense is generally not available against an HDC. In Tennessee, as under the Uniform Commercial Code (UCC) Article 3, a forged signature is a real defense. When a negotiable instrument is materially altered, it can also be a real defense for the party whose obligation is altered, but the UCC provides specific rules for such situations. Specifically, UCC § 3-407 addresses the effect of an alteration. If an instrument is made payable to a fictitious payee and the issuer knows this, it is treated as payable to bearer. However, the critical element here is the unauthorized endorsement. An endorsement is a signature on the instrument. If Elara’s endorsement is forged, it is an unauthorized signature. Under UCC § 3-404, an unauthorized signature is wholly inoperative unless the party against whom it is asserted is precluded from asserting the lack of authority. Preclusion typically arises from ratification or negligence. Elara did not ratify the endorsement. Furthermore, the facts do not suggest Elara was negligent in a way that would preclude her from asserting the forgery. Therefore, the forged endorsement renders the instrument void as to Elara. Because the instrument was void as to Elara due to the unauthorized endorsement, it could not be negotiated by Elara’s purported indorsee, Silas. Silas therefore could not have obtained good title. Consequently, when Silas transferred the instrument to Bartholomew, Bartholomew also did not acquire good title. As a result, Bartholomew cannot enforce the instrument against Elara, as Elara has a real defense (unauthorized signature) which is valid against any person, including a holder in due course. The question asks about Bartholomew’s ability to enforce the instrument against Elara. Since Bartholomew does not have good title due to the initial forged endorsement by Silas (purporting to be Elara), Bartholomew cannot enforce it against Elara. The UCC § 3-305(a)(2) states that an HDC takes the instrument subject to a defense of a kind specified in subsection (b) that is a real defense. An unauthorized signature is listed as a real defense in UCC § 3-305(a)(2) and § 3-404(a). Therefore, Bartholomew, even if he were an HDC, cannot enforce the instrument against Elara.

The question revolves around the concept of a holder in due course (HDC) and the defenses available against such a holder under Tennessee law, specifically UCC Article 3. A negotiable instrument is transferred to an HDC, who takes it for value, in good faith, and without notice of any defense or claim. However, certain defenses are real defenses, meaning they can be asserted even against an HDC. Among the defenses listed, fraud in the execution (also known as fraud in the factum) is a real defense. This occurs when the maker of the instrument did not intend to sign a negotiable instrument at all, or was misled as to the nature of the instrument they were signing. For example, if a party is tricked into signing a promissory note believing it to be a receipt, that constitutes fraud in the execution. Other defenses, such as fraud in the inducement (where the maker knows they are signing a note but is misled about the underlying transaction), are personal defenses and are cut off by an HDC. The scenario describes a situation where the maker was deceived about the very nature of the document they signed, making it fraud in the execution. Therefore, this real defense can be raised against an HDC.

The scenario describes a promissory note payable to a specific entity, “The Memphis Music Hall of Fame,” which is an organization. For a negotiable instrument to be payable to an “organization,” it must be payable to the organization itself, not to a specific person within the organization or to the organization in a manner that creates ambiguity. Under Tennessee Code Annotated § 47-3-110, an instrument is payable to an organization if it is payable to the organization’s legal name or to its representative by name or office. In this case, the note is made payable to “The Memphis Music Hall of Fame,” which is the legal name of the organization. Therefore, the instrument is properly payable to the organization. The fact that it is a promissory note and the issuer is identified as “Rockin’ Ronnie’s Records” is relevant to the issuer’s liability but not to the instrument’s negotiability concerning its payee. The core issue is whether the payee designation meets the requirements for negotiability. Payable to an organization’s legal name is a valid form of payee designation under UCC Article 3, as adopted in Tennessee.

The scenario involves a negotiable instrument that was initially made payable to a specific payee but was subsequently altered to be payable to a different individual. Under Tennessee law, specifically UCC Article 3, a holder in due course (HDC) can enforce an instrument even if it has been materially altered, but only to the extent of the original tenor of the instrument. In this case, the original instrument was payable to “Arthur Pendelton.” The alteration changed the payee to “Morgan LeFay.” When an instrument is payable to order, and the payee is changed without the consent of the person whose obligation is being enforced, the instrument is enforceable by an HDC only according to its original tenor. Therefore, an HDC taking the altered note would be able to enforce it against the maker, but only for the original amount and payable to the original payee, Arthur Pendelton. Since the question asks what an HDC can enforce, and the alteration is to the payee, the HDC can enforce the note as if it were still payable to Arthur Pendelton. The fact that it was altered to Morgan LeFay does not prevent enforcement by an HDC, but it limits enforcement to the original terms. The original terms included Arthur Pendelton as the payee.

In Tennessee, under UCC Article 3, the concept of discharge of a party from liability on a negotiable instrument is governed by specific provisions. One crucial aspect is the discharge of a party by a holder’s material alteration of the instrument without the consent of that party. A material alteration is defined as one that changes the contract of any party in any respect. For instance, changing the date, the amount payable, or the number or relation of the parties would be considered material. If a holder materially alters a note without the consent of an accommodation maker, that accommodation maker is discharged from liability. This discharge applies even if the accommodation maker would otherwise have been liable to a subsequent holder in due course. The rationale is that the accommodation maker’s obligation is fundamentally altered, and they should not be bound by a contract they did not agree to in its altered form. This principle is rooted in the idea of fairness and preventing a party from being held to a different obligation than the one they undertook. The accommodation maker’s role is akin to a surety, and suretyship defenses, including discharge by alteration, are generally preserved.

The scenario involves a negotiable instrument that has been materially altered. Under Tennessee law, specifically UCC § 3-407, a holder in due course (HDC) can enforce an altered instrument according to its original tenor if the alteration was not fraudulent. However, if the alteration was fraudulent, the HDC cannot enforce the instrument at all. In this case, the instrument was originally payable to “Amelia Vance” but was altered to be payable to “Amelia Vance or Bernard Finch.” This alteration changes the payee, which is a material alteration. The critical question is whether the alteration was fraudulent. The problem states that Bernard Finch altered the instrument “for his own benefit.” This implies a fraudulent intent, as he is attempting to gain an advantage through an unauthorized change to the instrument. Tennessee law, following the general principles of UCC § 3-407, treats a fraudulent material alteration as a discharge of any party whose contract is thereby changed, unless that party assents to the alteration. Since the alteration was fraudulent and made by Bernard Finch for his own benefit, it discharges the drawer, Mr. Abernathy, from liability on the instrument as originally drawn. An HDC can only enforce an altered instrument against a party whose signature was on the instrument prior to the alteration if the alteration was not fraudulent. Because the alteration was fraudulent and made by Bernard Finch, Mr. Abernathy is discharged from his obligation. The value of the instrument is irrelevant to this determination of discharge due to fraudulent alteration.

The question tests the understanding of the requirements for an instrument to be considered a negotiable instrument under UCC Article 3, specifically focusing on the “unconditional promise or order” requirement and the concept of “fixed amount” of money. A check is generally a negotiable instrument if it meets these criteria. In this scenario, the instrument is a check drawn on a bank, payable on demand, for a specified dollar amount. The additional clause, “subject to the conditions of the borrower’s employment contract,” renders the promise conditional. UCC § 3-104(a) defines a negotiable instrument as 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. UCC § 3-106(a) states that a promise or order is unconditional unless it states an obligation to do any act in addition to the payment of money, or it states that the promise or order is subject to or governed by another writing. By making the payment contingent upon the borrower’s employment contract, the issuer has imposed a condition on the payment, thus destroying its negotiability. Therefore, the instrument is not a negotiable instrument.

The scenario involves a promissory note that is payable to an order but is then specially indorsed to a third party. A special indorsement, under UCC Article 3, as adopted in Tennessee, requires the indorsement to identify the person to whom it makes the instrument payable. Once specially indorsed, the instrument becomes payable only to the person named in the indorsement. Any subsequent transfer of the instrument requires a further indorsement by the special indorsee. Therefore, if a holder of a specially indorsed instrument attempts to negotiate it by mere delivery, it is not a negotiation that makes the transferee a holder in due course. Instead, it constitutes a transfer of the holder’s rights, but the transferee does not acquire the status of a holder in due course. This means the transferee takes the instrument subject to any defenses or claims that could be asserted against the transferor. In this case, the note was payable to the order of Eleanor Vance. Eleanor Vance specially indorsed it to her nephew, Silas. For Silas to negotiate the note, he must indorse it. If Silas delivers the note to Beatrice without his indorsement, Beatrice does not become a holder. She acquires only the rights of a transferee, subject to any defenses that might be available. Therefore, the note is not properly negotiated to Beatrice, and she cannot enforce it against the maker if the maker has a valid defense, such as failure of consideration, against Eleanor Vance. The question asks about the effect of Silas delivering the note to Beatrice without his indorsement. This is a transfer, not a negotiation, and Beatrice does not become a holder.

Tennessee law, specifically under UCC Article 3 as adopted in Tennessee, governs negotiable instruments. When a holder in due course (HDC) takes an instrument, they are generally protected from certain defenses that the maker or drawer could raise against the original payee. These protected defenses are known as “real defenses.” However, defenses that arise from the underlying contract or transaction between the original parties are generally not available against an HDC. These are called “personal defenses.” In this scenario, the forged endorsement on the check means the instrument was not properly negotiated to Ms. Albright. Under Tennessee Code Annotated § 47-3-305(a)(1), a holder cannot be a holder in due course if the instrument is incomplete or not authentic. Forgery of a necessary signature, like an endorsement, renders the instrument not authentic. Therefore, Ms. Albright, despite her good faith and lack of notice, cannot be a holder in due course because the endorsement is forged. As a result, she takes the check subject to all defenses, including the defense of lack of proper negotiation and the drawer’s right to stop payment due to the forged endorsement. The bank, having paid on a forged endorsement, would typically be liable to the drawer for the amount of the check.

The core issue revolves around the concept of a holder in due course (HDC) and the defenses available against such a holder. Under Tennessee law, which largely follows UCC Article 3, a holder in due course takes an instrument free from most defenses, including those based on simple contract disputes or lack of consideration. However, certain real defenses, such as fraud in the execution or forgery, can be asserted even against an HDC. In this scenario, the negotiable instrument was a promissory note. The original payee, Meridian Bank, is the party seeking to enforce the note against the maker, Ms. Anya Sharma. Ms. Sharma’s defense is that the note was procured through fraudulent misrepresentation by the original seller of the antique clock, Mr. Silas Croft, who then negotiated the note to Meridian Bank. The critical question is whether Meridian Bank qualifies as a holder in due course. To be an HDC, Meridian Bank must have taken the note for value, in good faith, and without notice of any claim or defense. Assuming Meridian Bank purchased the note at a discount, paid value, and had no actual knowledge of the fraud at the time of acquisition, it would likely be considered an HDC. Fraud in the inducement, as described (misrepresentation about the clock’s condition), is generally a personal defense, not a real defense, and thus is cut off by an HDC. Therefore, Meridian Bank, as a presumed HDC, can enforce the note against Ms. Sharma, despite the underlying fraud in the sale of the clock. The UCC, specifically Tennessee Code Annotated \(T.C.A.\) § 47-3-305, outlines the defenses available against a holder, distinguishing between real and personal defenses. Fraud in the inducement is a personal defense.

The scenario involves a promissory note that is payable to a specific individual, meaning it is a “bearer instrument” only if it is made payable to cash or to a specified person or entity. In this case, the note is payable to “Jane Doe,” making it an order instrument. An order instrument requires endorsement and delivery to be negotiated. If the note is transferred by mere delivery without endorsement, it is not a negotiation. Instead, it constitutes a mere assignment. Under Tennessee law, specifically referencing UCC § 3-201 (which deals with transfer and negotiation), an instrument payable to an identified person can only be negotiated by the person’s indorsement. Without Jane Doe’s indorsement, the transfer to Mr. Smith is not a negotiation that vests him with the rights of a holder. Therefore, Mr. Smith cannot enforce the note against the maker under Article 3 as a holder in due course or even as a holder. He would have to proceed with an action for assignment, which is a different legal framework and does not grant the same protections or rights as holding a properly negotiated instrument. The maker’s defense of failure to pay is a real defense that can be asserted against anyone who is not a holder in due course. Since Mr. Smith is not even a holder, this defense is valid against him. The value of the note is \( \$5,000 \). The principal amount of the note is \( \$5,000 \). The interest rate is \( 7\% \) per annum. The maturity date is \( 12 \) months from the date of issue. The total interest accrued would be \( \$5,000 \times 0.07 \times 1 \text{ year} = \$350 \). The total amount due at maturity, assuming no payments were made, would be \( \$5,000 + \$350 = \$5,350 \). However, the question is about the enforceability of the note by Mr. Smith, not the calculation of the amount due. The core issue is the method of negotiation.

The scenario involves a promissory note payable to “Cash” and subsequently endorsed in blank by the payee. Under Tennessee law, as governed by UCC Article 3, an instrument payable to bearer is negotiated by delivery. When a promissory note is made payable to “Cash,” it is considered payable to bearer. Therefore, when the original payee, who is identified as “Cash” on the note, endorses it in blank, the note becomes bearer paper. Any subsequent holder who is in possession of the note is then a holder in due course if they meet the requirements of good faith, without notice of any defense or claim, and for value. The question asks about the status of the note after it is transferred by mere physical delivery to a third party, Beatrice. Since the note is bearer paper, physical delivery is sufficient for negotiation. Beatrice, by taking possession of the note through delivery, becomes a holder. To be a holder in due course, Beatrice must also acquire the instrument for value, in good faith, and without notice of any claim or defense. The question implies that Beatrice has met these criteria by asking about her ability to enforce the instrument. Therefore, Beatrice is a holder and can enforce the note against the maker. The key concept here is the negotiability of bearer instruments and the requirements for a holder to enforce them.

The scenario involves a negotiable instrument that is payable to order. Under Tennessee law, specifically Tennessee Code Annotated § 47-3-109, an instrument is payable to order if it is payable to the order of a named person or to a named person or assignee. When an instrument is payable to order, it is negotiated by delivery with any necessary indorsement. If a holder of an order instrument delivers it to a transferee without indorsement, the transferee acquires the instrument, but they do not become a holder in due course until they obtain the indorsement. Until the indorsement is made, the transferor retains the right to enforce the instrument, and the transferee holds the instrument subject to any defenses or claims that could be asserted against the transferor. However, the transferee does not have the power to enforce the instrument against parties obligated to pay it without that indorsement. Therefore, the lack of indorsement prevents the transferee from becoming a holder and thus from exercising the rights of a holder, including the right to enforce payment against the maker.

This question probes the concept of holder in due course (HDC) status and the defenses available against a holder in due course under Tennessee law, specifically as governed by UCC Article 3. A holder in due course takes an instrument free from most personal defenses. However, certain real defenses are effective against all holders, including HDCs. Among these real defenses is fraud in the factum, which occurs when a party is induced to sign an instrument without knowledge or reasonable opportunity to learn its character or essential terms. This is distinct from fraud in the inducement, where a party knows what they are signing but is deceived about the underlying transaction. In the scenario provided, Mr. Abernathy signed the note believing it was a receipt for a donation to a local charity, not a legally binding promise to pay. He was unaware of the true nature of the document he was signing. This misrepresentation goes to the very character of the instrument itself, constituting fraud in the factum. Therefore, this defense is a real defense and is effective against any holder, including an HDC. The UCC, as adopted in Tennessee, enumerates these defenses. The other options represent personal defenses or situations that do not negate HDC status. For instance, a breach of contract or failure of consideration are personal defenses that are cut off by HDC status. A mere dispute over the amount owed, without more, would also likely be a personal defense. The critical element here is Abernathy’s lack of knowledge regarding the nature of the instrument itself.

In Tennessee, as governed by UCC Article 3, a holder in due course (HOC) takes an instrument free from most defenses and claims that a prior party could assert against the original payee. However, certain real defenses, enumerated in UCC § 3-305(a)(1), can be asserted even against an HOC. These include infancy, duress, illegality of a type that nullifies contractual capacity, and fraud in the factum (real fraud). 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 an HOC. In this scenario, the maker, Ms. Eleanor Vance, understood she was signing a promissory note for a loan, but was misled about the specific terms and the lender’s identity. This constitutes fraud in the inducement, not fraud in the factum. Therefore, the HOC, Mr. Silas Croft, who purchased the note for value and in good faith without notice of the fraud, would take the note free from this defense. The question asks what defense Ms. Vance *can* assert against Mr. Croft. Since the fraud was in the inducement, it is a personal defense. Personal defenses are generally cut off by a holder in due course. Real defenses, however, can be asserted against an HOC. Fraud in the factum is a real defense, but Ms. Vance’s situation, where she knew she was signing a note but was deceived about its terms, is fraud in the inducement. Therefore, she cannot assert this defense against an HOC. The question is designed to test the distinction between real and personal defenses, specifically the nuances of fraud.

The core issue here is the effect of a forged endorsement on the negotiation of a negotiable instrument. Under Tennessee law, specifically UCC Article 3, a forged endorsement is generally ineffective to transfer title to a negotiable instrument. This means that a person who takes an instrument bearing a forged endorsement cannot acquire good title, even if they are a holder in due course. Therefore, any subsequent transfer of the instrument by such a person is also ineffective to pass good title. The original payee, whose endorsement was forged, retains their rights in the instrument. The question asks about the status of the instrument in the hands of the subsequent holder, who received it from the person who took it under the forged endorsement. Since the initial transfer was void due to the forged endorsement, the subsequent holder also cannot possess good title. The instrument remains subject to the claims of the original payee.