The scenario describes a promissory note that contains a clause allowing the maker to prepay the principal amount without penalty. Under Ohio Revised Code Section 1303.17, a promise to pay is unconditional even if it is subject to a prepayment privilege. This means that the existence of the prepayment option does not affect the negotiability of the instrument. The critical element for negotiability is that the promise to pay must be certain and not subject to conditions that would limit the payment obligation. The note here clearly states a promise to pay a fixed sum of money. The ability to prepay is a benefit to the maker and does not introduce uncertainty into the payee’s right to receive payment. Therefore, the note remains a negotiable instrument. The other options are incorrect because they misinterpret the impact of prepayment clauses on negotiability. A clause that *requires* payment of an additional sum upon prepayment might affect negotiability if it makes the total amount payable uncertain, but a privilege to prepay without penalty does not. Furthermore, a due date is a required element for negotiability, but the presence of a prepayment option does not negate the existence of a due date; it merely allows for earlier payment. The negotiability is not affected by the source of funds for payment.

The core concept here relates to the holder in due course (HDC) status and the defenses available against a holder not in due course. Under Ohio law, which largely follows the Uniform Commercial Code (UCC) Article 3, a party taking an instrument for value, in good faith, and without notice of any defense or claim is a holder in due course. A holder not in due course takes the instrument subject to all defenses and claims that would be available in a simple contract action. The scenario describes a promissory note payable to “Bear Industries.” “Acme Corp.” purchases the note from “Bear Industries” after it is overdue. Taking an instrument after its due date generally constitutes notice of a claim or defense, preventing the purchaser from being a holder in due course. Therefore, Acme Corp. is merely a holder and not an HDC. As a holder, Acme Corp. is subject to any defenses that would be available against Bear Industries, including the defense of failure of consideration. If the original consideration for the note failed, this defense is valid against Acme Corp. The UCC, as adopted in Ohio, specifically allows for the defense of failure of consideration against a holder who is not a holder in due course. The question asks about the enforceability of the note by Acme Corp. against the maker, assuming the maker has a valid defense of failure of consideration. Since Acme Corp. is not an HDC, it cannot cut off this defense. The maker can raise the failure of consideration as a defense to payment. Therefore, Acme Corp. cannot enforce the note against the maker.

The core issue here is whether the endorsement by Elara, a minor, on the promissory note makes the note voidable or entirely invalid from its inception concerning all parties. Under Ohio’s version of UCC Article 3, a negotiable instrument can be enforced against any party that supplies consideration, unless the instrument is voidable in the hands of the transferor. A contract entered into by a minor is generally voidable at the minor’s option, not void ab initio. This means Elara could choose to disaffirm the endorsement. However, the UCC also addresses the rights of a holder in due course (HDC). If the note was originally issued for value and without notice of any defense, and was then transferred to a holder who qualifies as an HDC, the HDC takes the instrument free of most defenses, including defenses arising from the voidable nature of a transaction by a party with whom the HDC has not dealt. In this scenario, even though Elara’s endorsement is voidable by her, it does not prevent a subsequent holder, who meets the criteria for an HDC, from enforcing the instrument against the maker, assuming no other defenses are available to the maker. The UCC prioritizes the free circulation of negotiable instruments and protects HDCs. Therefore, the maker’s obligation to pay the note to a subsequent holder who qualifies as an HDC is generally not discharged by the fact that an endorsement in the chain of title was made by a minor. The maker’s defense would be against Elara if she sought to disaffirm, not against a proper HDC. The question is framed around the enforceability against the maker, not Elara’s personal liability or the validity of her endorsement in a suit against her. The UCC’s shelter rule, which allows a holder who derives title from an HDC to also be an HDC, is also relevant, but the primary question is about the maker’s liability to an HDC. The maker’s obligation is to pay the holder in due course, notwithstanding the voidable endorsement.

The core issue here revolves around the concept of a holder in due course (HDC) and the defenses available against such a holder. Under Ohio Revised Code Section 1303.34, an HDC 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, also known as universal defenses, can be asserted even against an HDC. These include infancy, duress, illegality of a type that nullifies contractual capacity, fraud in the execution (or forgery), and discharge in insolvency proceedings. Personal defenses, such as breach of contract, lack of consideration, or fraud in the inducement, are generally cut off by an HDC. In this scenario, the note was originally given for a legitimate business purpose, and the subsequent alteration by increasing the principal amount constitutes fraud in the inducement, not fraud in the execution. Fraud in the inducement makes the instrument voidable by the maker against the party who committed the fraud, but it is a personal defense. Since Ms. Albright had no dealings with Mr. Henderson, and Mr. Henderson is presumed to be an HDC because he took the note for value, in good faith, and without notice of any claim or defense, he takes the note free from the personal defense of fraud in the inducement. Therefore, Ms. Albright cannot assert this defense against Mr. Henderson. The fact that the note was altered is relevant, but the nature of the alteration determines the type of defense. An alteration that constitutes fraud in the inducement does not rise to the level of a real defense that can be asserted against an HDC.

The core issue here revolves around the concept of a holder in due course (HDC) and the defenses available against payment on a negotiable instrument. Under Ohio law, specifically UCC Article 3, a holder in due course takes an instrument free from most defenses, including those that are “personal” or “equitable” in nature. However, certain “real” defenses are generally available even against an HDC. These real defenses include infancy, duress, illegality of the transaction, fraud in the factum, and discharge in insolvency proceedings. In this scenario, the forged signature of Ms. Albright means that the instrument is not properly payable as to her. Forgery is a real defense under UCC § 3-305(a)(1)(i) which states that an HDC is subject to defenses of a kind which a holder in ordinary course of business is not empowered to cut off. A forged signature is a fundamental defect in the instrument’s creation and therefore renders it void as to the purported drawer or maker. This is not a personal defense that can be cut off by negotiation to an HDC. Therefore, even though Mr. Davison might otherwise qualify as an HDC, the forged signature of Ms. Albright is a defense that can be asserted against him. The UCC generally protects holders in due course from personal defenses that arise from the underlying contract or transaction between the original parties. However, the validity of the instrument itself, or the capacity of a party to be bound, are fundamental issues that cannot be cured by negotiation to an HDC. The concept of negotiability is predicated on the integrity of the instrument and the signatures thereon. A forged signature fundamentally breaks this chain of integrity.

The core issue revolves around the enforceability of a negotiable instrument that has been materially altered. Under Ohio Revised Code Section 1303.41, a holder in due course (HDC) can enforce an altered instrument according to its original tenor. However, a holder who is not an HDC is subject to the defense of material alteration. A material alteration is defined in Ohio Revised Code Section 1303.40 as an alteration that changes the contract of any party. This includes changing the number or amount of the instrument, or completing it by adding or removing words of negotiability. In this scenario, the original check was for $150.00, payable to “Cash.” The subsequent alteration changed the amount to $1,500.00 and the payee to “Eleanor Vance.” These are both material alterations. Since the question specifies that the bank paid the altered amount and that “Eleanor Vance” is not an HDC, the bank’s recourse is against the party who made the alteration. Ohio law generally places the risk of unauthorized completion of an instrument on the party who signed it in blank. However, for a material alteration, the general rule is that the instrument is discharged as to any party whose contract is affected by the alteration unless that party assents to the alteration. If a party is not an HDC, they cannot enforce the instrument as altered, but they may be able to enforce it according to its original tenor if the alteration was a completion of an incomplete instrument. Here, the alteration is more than just completion; it’s a change to an existing term. The bank, having paid the altered amount, has a right of recourse against the person who committed the fraud or material alteration, assuming that person is identifiable and solvent. However, the question asks about the bank’s ability to recover from the drawer. The drawer’s liability is discharged by a material alteration unless they assent to it. Therefore, the bank cannot recover the difference from the drawer. The bank’s recourse is typically against the presenter of the altered check if they are not a holder in due course, or against the person who committed the alteration. Since the question asks what the bank can recover from the drawer, and the drawer’s contract was materially altered without their assent, the bank cannot recover the difference from the drawer. The bank would have to absorb the loss or seek recovery from the party who presented the altered instrument.

The core issue here revolves around the concept of a holder in due course (HDC) and the defenses available against such a holder under Ohio’s version of UCC Article 3. Specifically, the question probes the distinction between real defenses, which are valid against an HDC, and personal defenses, which are generally not. The scenario describes a promissory note that was procured through fraud in the factum. Fraud in the factum occurs when a party is deceived about the nature or essential terms of the instrument itself, leading them to believe they are signing something entirely different. This is a real defense. Under Ohio Revised Code Section 1303.36, a holder in due course takes an instrument free of defenses of any party to the instrument with whom the holder has not dealt except for those defenses that are real defenses. Real defenses include fraud in the factum, duress that invalidates the obligation, illegality of the transaction that renders the obligation void, discharge in insolvency proceedings, and certain types of material alteration. Personal defenses, on the other hand, such as fraud in the inducement, breach of contract, or lack of consideration, are cut off by an HDC. Since the note was obtained by fraud in the factum, this constitutes a real defense, meaning it can be asserted even against a holder in due course. Therefore, the holder, even if they took the note for value, in good faith, and without notice of any defect or claim, cannot enforce the note against the maker due to this real defense. The other options represent personal defenses or misinterpretations of what constitutes a real defense.

The core issue here revolves around the concept of a holder in due course (HDC) and the defenses available against such a holder. Under Ohio law, which largely follows the Uniform Commercial Code (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 certain real defenses. Real defenses are those that can be asserted against any holder, including an HDC. Fictitious payee situations, where the person to whom the instrument is payable is not intended to have any interest in it, are typically handled by attributing the instrument’s issuance to the person who supplied the name of the payee. If the person signing the instrument intended the named payee to receive payment, but was deceived about the payee’s identity or the payee’s right to payment, this constitutes fraud in the inducement, which is a personal defense and is cut off by an HDC. However, fraud in the execution, which involves deception about the very nature of the instrument itself, is a real defense. In this scenario, the negotiable instrument was a check drawn by Mr. Abernathy. He intended to pay Ms. Bellweather, a legitimate payee, but was deceived by Mr. Croft regarding the actual amount owed to Ms. Bellweather. This is fraud in the inducement, not fraud in the execution. Therefore, when the check is negotiated to a holder in due course, Mr. Abernathy cannot assert this fraud as a defense against the HDC. The amount of the check, $5,000, is irrelevant to the legal principle being tested. The key is the nature of the fraud.

The core concept here is the effect of a restrictive endorsement on the negotiability and transfer of an instrument under Ohio’s UCC Article 3. A restrictive endorsement, such as “Pay to the order of Anya Sharma only,” or “For deposit only,” signals a limitation on the further negotiation or use of the instrument. Under Ohio Revised Code Section 1303.26 (UCC 3-206), a person taking an instrument with a restrictive endorsement is subject to the restriction unless they are a depositary bank that takes the instrument for collection. If the instrument is transferred to a subsequent holder who is not a depositary bank, and that subsequent holder pays no value or has notice of the restriction, they are not a holder in due course. However, if a subsequent holder takes for value and without notice of the restriction, they may be able to enforce the instrument. In this scenario, the bank, acting as a depositary bank, can apply the funds for deposit. Anya Sharma, as the intended payee and subsequent holder, can indeed enforce the instrument against the drawer because the restriction “for deposit only” is intended to protect the payee’s interest in the funds being deposited into their account. The restriction does not invalidate the instrument itself but dictates how it must be handled. The bank’s ability to accept it for deposit and Anya’s ability to enforce it are consistent with the purpose of such endorsements, which is to ensure the funds reach the intended destination or are used for a specific purpose. The restriction does not create a condition precedent to payment but rather a condition on how the payment should be processed. Therefore, Anya can enforce the instrument.

The scenario involves a promissory note payable to order. The key issue is whether the indorsement by the payee’s sister, who shares the payee’s surname but is not the payee, affects the negotiability or the ability of a subsequent holder to become a holder in due course. Under Ohio Revised Code Section 1303.21 (UCC 3-204), an instrument payable to an identified person is payable to that person. An indorsement must be of the entire instrument. If an indorsement is made by someone other than the payee, it is an unauthorized indorsement. A transfer of an instrument by unauthorized indorsement does not transfer the rights of the holder. Consequently, any subsequent holder who takes the instrument from the person who received it through the unauthorized indorsement is not a holder in due course and takes the instrument subject to all claims and defenses. In this case, the sister’s indorsement is unauthorized because she is not the named payee, Eleanor Vance. Therefore, the instrument was not properly negotiated to Beatrice Vance. Any subsequent transfer of the instrument from Beatrice Vance would not be a negotiation of a negotiable instrument, and the transferee would not acquire the rights of a holder in due course. The note remains subject to any defenses that could be asserted against Eleanor Vance. The fact that the sister has the same last name is irrelevant to the legal requirement of proper indorsement by the named payee.

The scenario describes a promissory note originally payable to Amelia Chen. Amelia indorsed the note in blank, which under Ohio Revised Code Section 3-205(b) converts the instrument into bearer paper. Bartholomew Reed then specially indorsed the instrument to himself. For Bartholomew to be a holder in due course (HDC), he must have taken the instrument for value, in good faith, and without notice of any claim or defense against it, as per Ohio Revised Code Section 3-302(a). If Bartholomew is an HDC, he takes the instrument free of most defenses, including those of the maker. If Bartholomew is not an HDC, but he acquired the instrument from an HDC, he may acquire the rights of that HDC through the shelter doctrine, as outlined in Ohio Revised Code Section 3-203(b). This shelter provision allows a holder to step into the shoes of a prior HDC, provided the current holder was not a party to any fraud or illegality affecting the instrument. Therefore, the ability to enforce the note against the maker who has a defense hinges on whether the current holder is an HDC or can claim the rights of an HDC through the shelter doctrine. The question tests the understanding of these fundamental principles of holder in due course status and the shelter doctrine in the context of Ohio’s adoption of UCC Article 3.

The core issue here is determining the holder in due course (HDC) status of a transferee when the instrument contains a conspicuous statement that it is subject to a separate agreement. Under Ohio Revised Code Section 1303.32 (UCC 3-302), a holder takes an instrument for value, in good faith, and without notice of any claim or defense. However, Ohio Revised Code Section 1303.37 (UCC 3-307) addresses the effect of a statement of negotiability or non-negotiability. Specifically, if an instrument contains a conspicuous statement that it is subject to a separate agreement, it may be a draft, but it is not a negotiable instrument under Article 3. This means that it cannot be taken by a holder in due course. The phrase “This note is subject to the terms and conditions of the Purchase Agreement dated January 15, 2023” is a clear and conspicuous statement indicating that the terms of the separate agreement modify or limit the promise to pay. Consequently, the instrument is not a negotiable instrument, and therefore, no holder can achieve HDC status. The transferee, Mr. Henderson, receives the note subject to all claims and defenses that would be available in an action on the instrument by the holder in due course, which in this case is none, as HDC status is precluded. Therefore, Mr. Henderson cannot enforce the note against Ms. Gable, as she can assert her defenses arising from the purchase agreement.

The scenario involves a promissory note that was transferred by indorsement to a holder in due course. A holder in due course (HDC) takes an instrument free from all defenses of any party to the instrument with whom the holder has had no dealings, except for real defenses. Real defenses, which can be asserted against any holder, including an HDC, are specifically enumerated in UCC § 3-305(a)(1) and include infancy, duress that nullifies assent, fraud that nullifies assent, illegality of the type that nullifies assent, and discharge in insolvency proceedings. Fiduciary indorsement is not a real defense; rather, it is a personal defense that can be cut off by an HDC. In this case, the note was originally made by Ms. Gable to Mr. Sterling, who then indorsed it to Ms. Dubois. Ms. Gable’s defense that Mr. Sterling breached their fiduciary duty by using the note for personal gain is a personal defense. Ms. Dubois, having taken the note for value, in good faith, and without notice of any claim or defense, qualifies as a holder in due course. Therefore, Ms. Dubois takes the note free from Ms. Gable’s personal defense of breach of fiduciary duty. The question asks what defense Ms. Gable can assert against Ms. Dubois. Since Ms. Dubois is an HDC and the defense is personal, Ms. Gable cannot assert this defense against Ms. Dubois.

The scenario involves a promissory note that contains a clause for attorney’s fees and collection costs upon default. Under Ohio Revised Code Section 1303.06(A), a promise to pay is unconditional if it is not subject to any undertaking or instruction by the person promising to pay to do any act in a transaction except to pay the instrument. While the inclusion of attorney’s fees and collection costs is a common feature in many promissory notes, for an instrument to be negotiable under UCC Article 3, such clauses must not make the promise to pay conditional on events beyond the mere payment of the principal and interest. Ohio law, consistent with the Uniform Commercial Code, generally permits such clauses without destroying negotiability, as they are considered incidental to the collection process rather than a condition precedent to payment. The rationale is that these fees are a consequence of default, not a requirement for the initial promise to be honored. Therefore, the note remains negotiable.

The scenario involves a promissory note that contains a clause for acceleration upon default. Under Ohio law, specifically Revised Code Section 1303.11(A)(2) (which mirrors UCC § 3-104(a)(2)), a promise to pay is unconditional even if it is subject to acceleration. This means that the note remains negotiable despite the acceleration clause. The acceleration clause itself does not alter the fundamental nature of the instrument as a negotiable instrument, as long as the other requirements of negotiability are met (in writing, signed by the maker, containing an unconditional promise to pay a fixed amount of money, payable on demand or at a definite time, and payable to order or to bearer). The acceleration feature is a common contractual term that affects the timing of payment upon a specified event, but it does not make the promise to pay contingent in a way that would destroy negotiability. Therefore, the presence of this clause does not prevent the instrument from being a negotiable instrument under Article 3 of the Uniform Commercial Code as adopted in Ohio.

The core concept here revolves around the concept of a holder in due course (HDC) and the defenses available against such a holder under Ohio’s version of UCC Article 3. A negotiable instrument is transferred by endorsement and delivery. If the transferee takes the instrument for value, in good faith, and without notice of any claim or defense, they become an HDC. An HDC takes the instrument free from most real defenses (e.g., infancy, duress, illegality, discharge in insolvency proceedings) but is subject to personal defenses (e.g., breach of contract, fraud in the inducement, lack of consideration). In this scenario, the note was originally issued for a consignment of goods, implying a contractual relationship. The subsequent sale of the note to a third party, who qualifies as an HDC, means that the maker’s personal defenses arising from the original contract are generally cut off. However, if the defense is a real defense, it can still be asserted against the HDC. The scenario specifies that the goods were “substantially defective” and “unfit for their intended purpose,” which constitutes a breach of warranty or a failure of consideration, a personal defense. Therefore, the HDC can enforce the note against the maker. The calculation is conceptual: HDC status grants protection against personal defenses. Since the defense is personal, it is cut off.

The core issue here is whether the handwritten notation on the promissory note alters its negotiability under Ohio’s UCC Article 3. Negotiability requires an unconditional promise to pay a fixed amount of money, payable on demand or at a definite time, to order or to bearer. Ohio Revised Code Section 1303.104(A)(1) defines a negotiable instrument as an “unconditional promise or order to pay an amount certain.” Section 1303.105(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 will of the holder. A statement of the transaction that gave rise to the instrument does not affect negotiability unless it states that payment is subject to performance or promises performance. In this scenario, the notation “subject to successful completion of the landscaping project” imposes a condition precedent to payment. This condition means that payment is not guaranteed and depends on an external event (the successful completion of the project), thus rendering the promise conditional. A conditional promise destroys negotiability. Therefore, the note is not a negotiable instrument under UCC Article 3.

The scenario involves a negotiable instrument that is payable “on demand.” Under Ohio’s Uniform Commercial Code (UCC) Article 3, specifically ORC § 1303.08, an instrument is payable on demand if it states that it is payable on demand, at sight, or on presentation, or if no time for payment is stated. When an instrument is payable on demand, the statute of limitations for bringing an action on that instrument begins to run at the time of issuance or, if the instrument is a draft, at the time of the last necessary indorsement. For promissory notes payable on demand, the statute of limitations generally commences at the time of issuance, as there is no future date specified for payment. ORC § 1303.19(A)(1) states that the statute of limitations for an action to enforce an obligation on an instrument is five years after the due date. For an instrument payable on demand, the due date is considered the date of issuance. Therefore, if the promissory note was issued on January 15, 2018, and is payable on demand, the five-year statute of limitations would begin to run on January 15, 2018. An action to enforce the note must be commenced by January 15, 2023. Since the action was filed on February 10, 2023, it is filed after the statute of limitations has expired.

The core issue here revolves around the concept of a holder in due course (HDC) and the defenses available against such a holder under UCC Article 3, as adopted in Ohio. A negotiable instrument, such as a promissory note, can be transferred to an HDC, who then takes the instrument free from most personal defenses that the maker might have against the original payee. However, certain real defenses, which go to the validity of the instrument itself or the maker’s obligation, can be asserted even against an HDC. In this scenario, the note was procured through fraud in the inducement. This means that while the maker understood they were signing a promissory note, they were deceived about the underlying consideration or the circumstances of the transaction. Fraud in the inducement is generally considered a personal defense. Personal defenses are cut off when the instrument is negotiated to an HDC. The UCC, specifically in Ohio, defines a holder in due course in Section 3-302. To qualify as an HDC, a holder must take the instrument (1) for value, (2) in good faith, and (3) without notice that it is overdue or has been dishonored or of any defense or claim against it. Assuming Ms. Albright meets these criteria for the note from Mr. Peterson, she would be an HDC. The critical distinction is between fraud in the inducement (personal defense) and fraud in the factum or execution (real defense). Fraud in the factum occurs when the maker does not know they are signing a negotiable instrument or is so misinformed about its essential nature that they do not understand they are signing it. This is a real defense. Since Mr. Peterson was aware he was signing a promissory note, even though he was misled about the car’s condition, it constitutes fraud in the inducement. Therefore, as an HDC, Ms. Albright can enforce the note against Mr. Peterson, notwithstanding his personal defense of fraud in the inducement. The amount of the note is $5,000, and since she is an HDC, she can collect this full amount.

The core issue here revolves around the concept of a holder in due course (HDC) and the defenses available against such a holder under Ohio law, specifically referencing UCC Article 3. An HDC takes an instrument free from most defenses, including personal defenses. However, certain real defenses can be asserted even against an HDC. Among the defenses listed, fraud in the inducement is a personal defense. Fraud in the execution, on the other hand, is a real defense because it concerns the very nature of the instrument or the signer’s understanding of what they were signing. 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. In this scenario, if the maker was tricked into signing a promissory note believing it was a completely different document, such as a receipt, this constitutes fraud in the execution. This type of fraud goes to the essence of the agreement and prevents the instrument from being truly voluntary or understood as a negotiable instrument. Therefore, even a holder in due course would be subject to this defense. The UCC, as adopted in Ohio, specifically lists fraud in the execution as a real defense. Personal defenses, such as fraud in the inducement, duress, undue influence, or lack of consideration, are cut off when an instrument is negotiated to an HDC. The calculation is conceptual: the presence of a real defense (fraud in the execution) negates the protected status of the HDC concerning that specific defense.

The core issue here revolves around the concept of a holder in due course (HDC) and the defenses available against such a holder under Ohio’s Uniform Commercial Code (UCC) Article 3. For a party to be an HDC, they must take the instrument for value, in good faith, and without notice of any claim to it or defense against it. If these conditions are met, the HDC takes the instrument free from most personal defenses. However, certain real defenses are always available against any holder, including an HDC. These real defenses are typically those that render the instrument void or voidable from its inception, such as infancy, duress that nullifies assent, fraud that induces the inducement of the obligation, or illegality that renders the obligation void. In this scenario, the forged signature of Mr. Abernathy on the promissory note is a critical defect. A forged signature is generally ineffective to transfer rights or create liability for the person whose signature was forged. Under UCC § 3-404(a), an unauthorized signature is wholly ineffective except as the signature of the unauthorized signer. This means that Mr. Abernathy is not bound by the note. Furthermore, the UCC provides that a holder in due course takes the instrument subject to real defenses. Forgery of a necessary signature is considered a real defense under UCC § 3-305(a)(1)(A), which states that “the obligation of a party with respect to a negotiable instrument is enforceable against the party to the extent afforded by law, but the obligor is not liable on the instrument if the obligor proves defenses such as… illegality of the transaction which, under the law of this state, nullifies the obligation.” While the explanation for the correct option refers to illegality, the underlying principle of a void instrument due to forgery is analogous to illegality that nullifies the obligation. The note, having a forged signature of a necessary party, is void as to that party. Therefore, even if Ms. Bell were an HDC, she could not enforce the note against Mr. Abernathy. The question asks about the enforceability against Mr. Abernathy. Since his signature is forged, he has a real defense, making the note unenforceable against him. The calculation is conceptual: Forgery (Real Defense) + HDC Status = Unenforceable against the forged party.

The scenario involves a promissory note that is initially payable to order, specifically to “Acme Corp.” The note is then transferred by endorsement in blank by Acme Corp. to a holder, “Beta LLC.” Subsequently, “Beta LLC.” endorses the note in full to “Gamma Inc.” The crucial point is that the note is then stolen from Gamma Inc. by an unknown thief, who then negotiates it to “Delta Enterprises” by merely delivering the note without any further endorsement. Under Ohio Revised Code Section 1303.24, a holder in due course (HDC) takes an instrument free from defenses of the issuer, except for certain real defenses. However, to be an HDC, a person must take the instrument for value, in good faith, and without notice of any claim or defense. In this case, Delta Enterprises receives the note from a thief. The thief’s possession of the note was wrongful, and any subsequent negotiation from the thief is likely to be tainted by this initial illegitimacy. Crucially, for a thief to negotiate an instrument payable to order, a necessary endorsement is missing. The note was endorsed in full to Gamma Inc., meaning it was payable only to Gamma Inc. or its order. A thief, not being Gamma Inc., cannot properly endorse the note in full. Therefore, Delta Enterprises cannot acquire good title to the note through a thief who possesses it without proper endorsement. Even if Delta Enterprises paid value, acted in good faith, and had no notice of the theft, the lack of a necessary endorsement by Gamma Inc. (or its authorized agent) to Delta Enterprises prevents Delta Enterprises from becoming a holder, let alone an HDC, of the note. This is because the thief could not pass good title to the instrument when it was not properly negotiated to Delta Enterprises. The proper negotiation of an order instrument requires endorsement by the holder. Without Gamma Inc.’s endorsement, the thief could not negotiate the note to Delta Enterprises. Therefore, Delta Enterprises does not have good title.

The scenario describes a promissory note that contains a clause stating that the principal amount is due “upon demand” but also includes a specific maturity date. Under Ohio Revised Code Section 1303.08(B) (UCC 3-108(b)), 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 on demand. It also states that an instrument that is otherwise payable on demand is also payable on demand if no time for payment is stated. However, if an instrument is payable on demand but also contains a definite time for payment, the definite time for payment controls. In this case, while the note contains a “upon demand” clause, it also specifies a definite maturity date. Therefore, the note is payable at the definite maturity date, not on demand. The concept of negotiability requires certainty in the time of payment. A fixed maturity date provides this certainty. If a note is payable both on demand and at a specific future date, the specific future date is generally considered the operative payment term, as it provides a fixed point for performance. This interpretation aligns with the principle that terms in a negotiable instrument should be clear and unambiguous to facilitate commerce and the ready transfer of such instruments.

The scenario describes a promissory note that is payable to “bearer” and is also marked “non-negotiable.” Under Ohio’s Uniform Commercial Code (UCC) Article 3, a negotiable instrument must contain certain elements, including being payable to order or to bearer. However, the UCC also addresses the effect of clauses that attempt to limit negotiability. Specifically, Ohio Revised Code Section 1303.104(D) states that a promise or order otherwise unconditional is not made conditional by the fact that it contains a statement of the transaction that gave rise to the instrument. More importantly, Ohio Revised Code Section 1303.104(B)(1) defines a negotiable instrument as one that is payable to bearer or to order when issued or at the time it is first issued. While a “non-negotiable” clause is present, the UCC generally interprets such clauses in a manner that preserves negotiability if the instrument otherwise meets the requirements. The critical factor here is the “payable to bearer” designation. An instrument payable to bearer is negotiable by delivery alone. The presence of a “non-negotiable” clause does not automatically render an instrument non-negotiable if it otherwise conforms to the requirements of negotiability under UCC Article 3. In this context, the instrument, being payable to bearer, is negotiable. The UCC prioritizes the substantive requirements for negotiability over restrictive language that might attempt to curtail it, especially when the instrument is payable to bearer. Therefore, despite the “non-negotiable” notation, the instrument remains negotiable because it is payable to bearer.

The scenario involves a promissory note that contains a clause allowing the holder to accelerate the payment if the maker “deems himself insecure.” This type of clause, often referred to as an “at-will” acceleration clause or a “due-on-insecurity” clause, is specifically addressed by UCC Article 3, as adopted in Ohio. Under Ohio Revised Code Section 1303.08(A) (which mirrors UCC § 3-109(c)), an instrument that states it is payable “on demand or at a definite time” is payable on demand. However, the key consideration here is whether the acceleration clause renders the instrument non-negotiable. Ohio Revised Code Section 1303.03(A) (which mirrors UCC § 3-104(a)) defines a negotiable instrument as one that contains 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. While acceleration clauses generally do not destroy negotiability if they are tied to a specific event (like default), an acceleration clause that allows acceleration “at will” or “when the holder deems himself insecure” can be problematic. Ohio law, following the general UCC approach, permits such clauses as long as they do not make the payment obligation entirely discretionary. The “deems himself insecure” language, by itself, does not automatically render the promise conditional in a way that destroys negotiability, provided that the holder must act in good faith in exercising the acceleration right. The question tests the understanding of when such clauses impact negotiability. The correct answer hinges on the fact that such clauses, when exercised in good faith, do not destroy negotiability under Ohio law. The UCC, and by extension Ohio law, permits acceleration at the option of the holder if it is based on a good faith belief of insecurity. The ability to accelerate payment does not make the promise to pay contingent on an event that is within the holder’s complete discretion without any standard of performance. Therefore, the note remains negotiable.

The core issue revolves around the enforceability of a promissory note against a guarantor who has also signed the note in a different capacity. Under Ohio Revised Code Section 1303.21, a person who signs an instrument is engaged in the business of banking if they are not a bank and the signing is done to facilitate the business of banking. However, the scenario describes a personal guarantee, not an act within the banking business. Ohio Revised Code Section 1303.47 addresses the liability of an accommodation party. An accommodation party is one who signs the instrument for the purpose of enabling another party to obtain credit or other benefit thereby. The accommodation party is liable in the capacity in which they sign. In this case, Elias signed as an accommodation maker. An accommodation maker is primarily liable on the instrument, just like the principal debtor. The fact that Elias also signed as a guarantor on a separate agreement does not alter his primary liability as an accommodation maker on the note itself. Therefore, the bank can pursue Elias directly for payment of the note as an accommodation maker, without first exhausting remedies against the principal debtor, Maya. The separate guarantee agreement is a contractual undertaking that may provide additional recourse for the bank, but it does not negate Elias’s liability as a maker on the note. The liability of an accommodation party is that of a maker, drawer, or acceptor, according to the capacity in which they sign. Since Elias signed as a maker, he is primarily liable.

The scenario involves a promissory note that contains a clause for acceleration upon default. Specifically, the note states that the entire unpaid balance becomes due immediately upon failure to pay any installment when due. This is a common feature in negotiable instruments, and its effect is governed by UCC Article 3, as adopted in Ohio. Under Ohio Revised Code Section 1303.08(A), 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. However, the note here specifies a payment schedule, making it payable at a definite time, not on demand. The acceleration clause does not render the time of payment indefinite. Instead, it modifies the time of payment by making the entire obligation due upon a specific event of default. The UCC permits such clauses. When the maker of the note, Mr. Abernathy, defaults on his monthly payment, the acceleration clause is triggered. This means the entire remaining principal balance, plus accrued interest, becomes immediately due and payable to the holder, Ms. Chen. The question asks about the status of the note after the default. The default event, non-payment of an installment, causes the acceleration provision to operate. Therefore, the note is no longer payable in installments; it is now a demand for the full outstanding amount. This is a fundamental aspect of how acceleration clauses function under negotiable instruments law in Ohio.

The core concept here is the effect of a restrictive endorsement on the negotiability and transfer of a negotiable instrument under Ohio’s UCC Article 3. A restrictive endorsement, such as “For deposit only,” places limitations on how the instrument can be negotiated or applied. While such an endorsement does not prevent further negotiation, it does require that the instrument be applied in accordance with the endorsement’s terms. A bank that pays an instrument with a restrictive endorsement to a person not entitled to payment under the restriction, or otherwise fails to comply with the restriction, may be liable for conversion or breach of contract. In this scenario, the maker of the note, Mrs. Gable, issued a negotiable instrument. The payee, Mr. Henderson, endorsed it restrictively as “Pay to the order of First National Bank, for deposit only.” He then gave it to Ms. Vance, who, instead of depositing it, cashed it at a different bank, “Second State Bank.” Second State Bank, by cashing the instrument for Ms. Vance, did not adhere to the “for deposit only” restriction. Consequently, Second State Bank is not a holder in due course with respect to the instrument because it had notice of the restrictive endorsement and failed to comply with its terms. Ohio Revised Code Section 1303.24 (UCC 3-206) addresses restrictive endorsements. It states that an instrument with a restrictive endorsement is enforceable against the drawer or maker by a person who becomes a holder in due course if the restrictive endorsement is not effective. However, if the restrictive endorsement is effective, a person who takes the instrument for value and with knowledge of the restriction cannot enforce it against the drawer or maker unless the person complies with the restriction. Here, Second State Bank took the instrument for value but did not comply with the “for deposit only” restriction, thus it cannot enforce the instrument against Mrs. Gable. The question asks about the enforceability of the note against Mrs. Gable. Since Second State Bank did not comply with the restrictive endorsement, it cannot enforce the note against Mrs. Gable, the maker.

The scenario involves a promissory note that contains a clause stating, “Interest will be at the rate of 7% per annum, or the maximum rate permitted by Ohio law, whichever is less.” This type of clause is known as a “variable rate” or “floating rate” provision. For an instrument to be negotiable under UCC Article 3, it must contain an unconditional promise to pay a fixed amount of money. While the principal sum is fixed, the interest rate’s variability could potentially impact negotiability if it were not tied to a specific, ascertainable standard. However, UCC § 3-112(b) explicitly states that a promise to pay a fixed amount of money is not made invalid by the fact that payment is to be made with “interest at a variable rate.” The key is that the rate is tied to a publicly ascertainable standard, such as a legal maximum. In Ohio, as in many states, such clauses are permissible and do not destroy negotiability because the rate, while variable, is determined by reference to a standard that is readily ascertainable at the time of payment. The reference to “maximum rate permitted by Ohio law” provides such a standard. Therefore, the note remains negotiable. The question tests the understanding of what constitutes a “fixed amount of money” in the context of negotiable instruments, specifically addressing variable interest rates tied to legal limitations. The core principle is that negotiability is preserved as long as the amount payable can be determined with certainty at the time of payment, even if it fluctuates based on an objective, external standard.

The scenario describes a promissory note where the maker, Agnes, issues a note to the payee, Barnaby. The note contains a clause stating, “This note is subject to the terms and conditions of the separate written agreement between Agnes and Barnaby dated January 15, 2023.” Under Ohio Revised Code Section 1303.110 (UCC 3-104(a)), for an instrument to be a negotiable instrument, it must contain an unconditional promise or order to pay a fixed amount of money, payable on demand or at a definite time, payable to order or to bearer, and stating no other promise, order, obligation, or power given by the maker or drawer except as authorized by this section. The inclusion of the phrase “subject to the terms and conditions of the separate written agreement” makes the promise to pay conditional upon the performance or existence of terms within that separate agreement. This external reference and dependency means the promise is not unconditional, thereby destroying the negotiability of the instrument. The Uniform Commercial Code, as adopted in Ohio, strictly requires an unconditional promise for an instrument to qualify as negotiable. Therefore, the note is not a negotiable instrument.