The scenario involves a negotiable instrument, specifically a promissory note, that is transferred. The core issue is whether the transferee can enforce the instrument against the maker. Under Maryland’s UCC Article 3, for a transferee to be a holder in due course (HDC), they must take the instrument for value, in good faith, and without notice that the instrument is overdue or has been dishonored or that there is a defense or claim against it. The maker, Mr. Abernathy, has a defense: the goods for which the note was given were defective. This defense is generally available against a holder who is not an HDC. The question is whether Ms. Gable qualifies as an HDC. She took the note as a gift, not for value. UCC § 3-303(a)(1) defines “value” for purposes of being a holder in due course as, inter alia, the benefit received or detriment incurred by the holder. A gift does not constitute value. Therefore, Ms. Gable is not an HDC. As a result, she takes the note subject to the defense of breach of warranty of conformity of goods, which Mr. Abernathy can assert against her.

This question probes the concept of a holder in due course (HDC) status and its impact on defenses against payment of a negotiable instrument, specifically in the context of Maryland law which follows UCC Article 3. For a party to qualify as an HDC, they must take the instrument for value, in good faith, and without notice of any defense or claim against it. The scenario presents a promissory note made by a consumer to a contractor for home improvement services. The contractor then negotiates the note to a bank. The critical element is whether the bank had notice of any defenses the consumer might have against the contractor. The consumer’s defense is that the services were not performed as agreed, a personal defense. Personal defenses are generally cut off against an HDC. However, if the bank had knowledge of the contractor’s poor performance or the dispute prior to acquiring the note, it would not be a holder in due course. The question implies the bank received notice of the consumer’s dissatisfaction with the work through a direct communication from the consumer before the bank purchased the note. This direct communication constitutes notice of a defense or claim, preventing the bank from achieving HDC status. Consequently, the bank would be subject to the consumer’s personal defense of breach of contract. Maryland Code, Commercial Law § 3-302 defines a holder in due course, and § 3-305 outlines the claims and defenses that can be asserted against a holder. The fact that the bank received notice of the dispute before taking the instrument is determinative.

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 Maryland. A negotiable instrument is transferred to an HDC if it is taken for value, in good faith, and without notice of any claim or defense. Maryland law, like the Uniform Commercial Code, generally shields an HDC from most personal defenses. Personal defenses include things like breach of contract, lack of consideration, or fraud in the inducement. Real defenses, however, can be asserted even against an HDC. Real defenses include infancy, duress, illegality of the transaction, and forgery. In this scenario, the note was obtained by Ms. Albright through fraudulent misrepresentation regarding the value of the antique car. This constitutes fraud in the inducement, which is a personal defense. Therefore, when the note is transferred to Mr. Chen, who qualifies as a holder in due course because he took the note for value, in good faith, and without notice of Albright’s defense, Chen can enforce the note against Albright, despite the fraud. The fact that Chen is a resident of Delaware and Albright is a resident of Maryland is relevant for jurisdiction but does not alter the substantive law of negotiable instruments, which is governed by UCC Article 3. The UCC’s provisions on HDC status and defenses are consistent across states that have adopted it.

The scenario involves a negotiable instrument that was originally payable to a specific payee, then endorsed in blank by that payee, and subsequently specially endorsed by another party. According to Maryland Commercial Law, specifically UCC § 3-205, an instrument payable to a named payee that is specially endorsed becomes payable to the special endorsee. If an instrument is endorsed in blank, it becomes payable to bearer. When an instrument payable to a specific payee is endorsed in blank, it becomes payable to bearer. If a bearer instrument is then specially endorsed, it becomes payable to the special endorsee. In this case, the promissory note was initially payable to “Elias Thorne.” Elias Thorne endorsed it in blank, making it payable to bearer. Subsequently, “Fiona Bellweather” specially endorsed it by writing “Pay to Fiona Bellweather” above her signature. This special endorsement converts the bearer instrument back into an instrument payable to a specific person, Fiona Bellweather. Therefore, only Fiona Bellweather can negotiate the instrument by endorsement. The question asks who can further negotiate the instrument. Since it is now specially endorsed to Fiona Bellweather, she is the only one who can negotiate it by her endorsement. The concept of holder in due course is relevant to defenses, but the ability to negotiate rests with the current holder of the instrument as determined by the chain of endorsements.

The scenario involves a promissory note that was originally payable to “bearer” and then specially indorsed to a specific individual, Ms. Anya Sharma. According to Maryland’s Uniform Commercial Code (UCC) Article 3, specifically concerning the transfer of negotiable instruments, a bearer instrument can be negotiated by mere delivery. However, once a bearer instrument is specially indorsed, it becomes payable to the identified indorsee and can only be negotiated further by indorsement of the indorsee. In this case, Ms. Anya Sharma, the specially indorsed payee, can negotiate the instrument by indorsement. If she were to simply deliver the instrument without her indorsement, it would not constitute a valid negotiation to a subsequent holder. Therefore, for the instrument to be properly negotiated after the special indorsement to Ms. Sharma, her indorsement is required. The question asks about the method of negotiation after the special indorsement.

The question concerns the concept of a holder in due course (HDC) and the defenses available against such a holder under Maryland’s Uniform Commercial Code (UCC) Article 3. A party seeking HDC status must take the instrument without notice of any claim to it or defense against it. Maryland UCC § 3-302 defines a holder in due course. Maryland UCC § 3-305 outlines the claims in recoupment and defenses that can be asserted against a holder, distinguishing between universal (real) defenses and personal defenses. Universal defenses are valid against all holders, including HDCs, while personal defenses are generally not valid against HDCs. Fraud in the essence (or fraud in the factum) is a universal defense, meaning the obligor was deceived about the nature of the instrument itself. Conversely, fraud in the inducement, where the obligor is deceived about the reasons for signing, is a personal defense, not effective against an HDC. In this scenario, Ms. Albright was led to believe she was signing a simple loan application, not a negotiable instrument. This constitutes fraud in the essence because her assent was to a document fundamentally different from what she understood. Therefore, this defense is a universal defense and can be asserted even against a holder in due course.

The core issue revolves around the concept of a holder in due course (HDC) and the defenses available against such a holder. Under UCC Article 3, specifically as adopted in Maryland, a holder in due course takes an instrument free from most real defenses and personal defenses. Real defenses, such as infancy, duress, illegality of the transaction, and fraud in the factum (or fraud that induces the obligor to sign the instrument with neither knowledge nor reasonable opportunity to learn of its character or its essential terms), are generally available against an HDC. Personal defenses, like breach of contract, failure of consideration, or fraud in the inducement, are generally not available against an HDC. In this scenario, the promissory note was obtained by Ms. Albright from Mr. Davies through fraud in the inducement. This means Mr. Davies understood he was signing a promissory note, but he was misled about the underlying reasons or benefits of the transaction. This type of fraud is a personal defense. Since Ms. Albright acquired the note for value, in good faith, and without notice of any claim or defense against it, she qualifies as a holder in due course. As an HDC, she takes the note free from personal defenses, including the fraud in the inducement that Mr. Davies alleges. Therefore, Mr. Davies cannot assert this defense against Ms. Albright to avoid payment. The critical distinction is between fraud in the factum (a real defense) and fraud in the inducement (a personal defense). Maryland law, following UCC Article 3, upholds this distinction.

The core issue revolves around the concept of a holder in due course (HDC) and the defenses available against such a holder. Under Maryland’s Uniform Commercial Code (UCC) Article 3, specifically referencing provisions similar to those found in other states’ UCC Article 3, an HDC takes an instrument free from most personal defenses. Personal defenses include things like breach of contract, failure of consideration, or fraud in the inducement. However, certain real defenses, such as infancy, duress, illegality of the transaction, or discharge in insolvency proceedings, can be asserted even against an HDC. In this scenario, the promissory note was procured through fraud in the inducement, meaning Elara was tricked into signing it based on false representations about the quality of the antique clock. This constitutes a personal defense. If a party qualifies as a holder in due course, they take the instrument free from such personal defenses. To be 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 that there is a defense or claim against it. Assuming Mr. Abernathy acquired the note for value, in good faith, and without notice of the fraud, he would be an HDC. As an HDC, he is generally protected from the personal defense of fraud in the inducement raised by Elara. Therefore, Elara cannot use the fraud in the inducement as a defense to avoid her obligation to pay Mr. Abernathy. The UCC provides specific protections for HDCs to facilitate the flow of commerce by ensuring certainty in negotiable instruments. The underlying transaction’s failure of consideration or the fraudulent misrepresentation is a matter between Elara and the original payee, but it does not typically defeat the rights of a subsequent HDC.

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 Maryland. A negotiable instrument is taken by a holder in due course if it is taken for value, in good faith, and without notice of any claim to the instrument or defense against it. Maryland Code Commercial Law § 3-302 defines these requirements. The scenario presents a promissory note that was originally issued for a legitimate business purpose. However, the note was subsequently transferred to a third party, Ms. Anya Sharma, who had actual knowledge that the original payee, “Coastal Builders Inc.,” had failed to complete the construction project for which the note was given. This knowledge constitutes notice of a defense against the instrument, specifically the defense of failure of consideration or breach of contract by the original payee. Under UCC § 3-305, a holder in due course takes the instrument free of most defenses, but not those arising from a defense of the nature described. A holder who has notice of a defense at the time of taking cannot qualify as a holder in due course. Therefore, Ms. Sharma, having knowledge of Coastal Builders Inc.’s failure to perform, cannot be considered a holder in due course. Consequently, the maker of the note, Mr. Elias Thorne, can assert his defenses against Ms. Sharma, just as he could have against the original payee. The defense of failure of consideration is a real defense, which can be asserted against any holder, including a holder in due course, if the holder had knowledge of the underlying circumstances. In this case, Ms. Sharma’s actual knowledge of the uncompleted construction project prevents her from obtaining the status of a holder in due course, and therefore, Mr. Thorne can successfully raise the defense of failure of consideration.

The scenario involves a negotiable instrument that is payable to order. For an instrument to be properly negotiated by delivery alone, it must be payable to bearer. Since the promissory note from Ms. Albright to Mr. Chen is payable “to the order of Chen,” it is payable to order. Negotiation of an order instrument requires endorsement by the payee and then delivery. Mr. Chen’s endorsement of the note to Ms. Davis, followed by delivery of the endorsed note to Ms. Davis, constitutes a valid negotiation. Therefore, Ms. Davis is a holder in due course if she meets the other UCC § 3-302 requirements, which are presumed for the purpose of this question’s focus on negotiation. The question asks about the effect of Mr. Chen’s actions on the instrument’s negotiability and transfer. His endorsement and delivery to Ms. Davis properly negotiated the instrument. The fact that the note is secured by a mortgage in Maryland does not affect its negotiability under UCC Article 3, as such a reference does not make the promise conditional. Maryland law, consistent with UCC Article 3, defines negotiation as the transfer of an instrument by a person other than the issuer so that the transferee becomes a holder. For order paper, this requires endorsement by the holder and delivery. Mr. Chen, as the payee, is the holder until he negotiates it. His endorsement and delivery to Ms. Davis effectuates this transfer.

The scenario involves a promissory note that is payable to a specific individual, Bartholomew Finch. For a negotiable instrument to be properly transferred by negotiation, it must be delivered to the transferee. If the instrument is payable to an identified person, negotiation requires endorsement by that person and delivery. In this case, Bartholomew Finch is the identified payee. The question states that the note was transferred by delivery only, without any endorsement from Bartholomew Finch. Under Maryland’s Uniform Commercial Code (UCC) Article 3, specifically concerning negotiation, a transfer by delivery alone of an instrument payable to an identified person does not constitute a negotiation. Instead, such a transfer operates as a transfer of the transferor’s rights in the instrument, akin to an assignment. The transferee receives only the rights that the transferor had, and the transferor’s rights are subject to any defenses or claims that could be asserted against the transferor. Therefore, the transfer is not a negotiation, and the transferee does not acquire the instrument as a holder in due course, even if they otherwise met the requirements. The critical element missing for negotiation is the required endorsement by the payee.

The core issue here is whether a holder in due course status can be maintained when a negotiable instrument is transferred in a manner that raises questions about good faith and the absence of notice of defenses. Under Maryland’s Uniform Commercial Code, specifically Article 3, a holder in due course (HDC) takes an instrument free of most claims and defenses. However, to qualify as an HDC, the holder must take the instrument for value, in good faith, and without notice that the instrument is overdue or has been dishonored or that there is a defense against or claim to the instrument on the part of any person. In this scenario, Mr. Abernathy’s knowledge that Ms. Gable was experiencing financial difficulties and the fact that the transfer occurred shortly before the due date, coupled with the unusually low purchase price, collectively raise significant red flags regarding his good faith and whether he had notice of potential defenses or claims. The UCC’s definition of good faith requires honesty in fact and the observance of reasonable commercial standards of fair dealing. A price that is substantially less than the instrument’s face value can be evidence that the transferee had notice of a defense or claim, or that the transaction was not conducted in good faith. While a discount itself doesn’t automatically disqualify a holder, a drastic discount, especially when combined with other suspicious circumstances like the timing of the transfer and knowledge of the transferor’s financial distress, can lead a court to conclude that the holder did not act in good faith or had notice of adverse claims. Therefore, Mr. Abernathy’s status as an HDC is questionable, and he likely takes the note subject to any defenses Ms. Gable may have against Ms. Finch.

The scenario involves a negotiable instrument that contains an acceleration clause. An acceleration clause permits the holder of the instrument to demand payment of the entire outstanding balance plus accrued interest prior to the stated maturity date if a specified event occurs. Under UCC Article 3, as adopted in Maryland, an instrument is negotiable if it 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 can affect the “definite time” requirement, UCC § 3-108(b) (Maryland Code, Commercial Law § 3-108(b)) clarifies that an instrument is payable at a definite time even if it contains a clause permitting acceleration. This means the presence of such a clause does not, in itself, destroy negotiability. The key is whether the acceleration event is objectively determinable or within the control of the obligor in a way that renders the payment date uncertain. In this case, the acceleration is triggered by the obligor’s failure to pay an installment, which is a common and permissible condition. Therefore, the instrument remains negotiable despite the acceleration clause.

The question revolves around the concept of a holder in due course (HDC) and the defenses available against such a holder under UCC Article 3, specifically as adopted in Maryland. A negotiable instrument is transferred to a holder in due course if it is payable to bearer or order, negotiated to the holder, the holder takes it in good faith, for value, and without notice of any claim or defense against it. In Maryland, like other adopting states, UCC § 3-305 outlines the claims in recoupment and defenses that can be asserted against an HDC. Personal defenses, such as breach of contract, failure of consideration, or fraud in the inducement, are generally cut off by a holder in due course. However, real defenses, which go to the validity of the instrument itself or the maker’s capacity, can be asserted even against an HDC. These real defenses include infancy, duress, illegality of the type that nullifies consent, and fraud in the factum (or fraud that induces the obligation). In the given scenario, the negotiable instrument was procured through fraud in the factum, meaning the maker was deceived about the nature or essential terms of the instrument itself, believing it to be something entirely different. This type of fraud is a real defense and is therefore effective against a holder in due course, even if the holder acquired the instrument for value, in good faith, and without notice of the fraud. Consequently, the original maker can assert this defense to avoid payment.

The scenario describes a situation involving a negotiable instrument where the maker has a defense against payment. Specifically, the instrument is a draft drawn by a corporation, and the defense is failure of consideration. Under Maryland’s Uniform Commercial Code (UCC) Article 3, a holder in due course (HDC) takes an instrument free of most defenses, including personal defenses like failure of consideration. However, to qualify as an HDC, a person must take the instrument for value, in good faith, and without notice that it is overdue or dishonored or that there is a defense against it. In this case, the purchaser of the draft had actual knowledge of the underlying dispute between the drawer corporation and the payee regarding the consideration for the draft. This knowledge constitutes notice of a defense. Therefore, the purchaser cannot be considered a holder in due course. As a result, the purchaser takes the instrument subject to the defense of failure of consideration, meaning the maker can assert this defense against the purchaser. The principle at play is that a holder who is not an HDC is subject to all defenses available against the original payee. Maryland UCC § 3-306 further clarifies that unless the holder is a holder in due course, the right to enforce the instrument is subject to defenses and claims of defense of the kind normally available in contract actions.

The scenario describes a situation involving a negotiable instrument, specifically a check, where a dispute arises regarding its validity and the rights of a holder. The core issue is whether the check, as presented, meets the requirements of a negotiable instrument under UCC Article 3, as adopted in Maryland. A key element is the phrase “subject to satisfactory completion of the audit.” This phrase creates a condition precedent, meaning the obligation to pay is contingent upon a future event. UCC § 3-104(a) defines a negotiable instrument as an unconditional promise or order to pay a fixed amount of money. UCC § 3-105(a)(1) states that a promise or order is unconditional unless it states an express condition to payment. The inclusion of “subject to satisfactory completion of the audit” clearly indicates an express condition to payment. Therefore, the instrument is not a negotiable instrument because the promise to pay is conditional. This lack of negotiability means that the holder cannot claim the status of a holder in due course, which would otherwise provide certain protections against defenses. Instead, the holder takes the instrument subject to all defenses and claims that would be available in a simple contract action. The question asks about the legal status of the instrument. Since the condition renders the promise conditional, it fails the negotiability test.

The scenario involves a negotiable instrument, specifically a check, that was altered. The critical concept here is the effect of material alteration on a negotiable instrument, particularly concerning the rights of a holder in due course. Under UCC Article 3, as adopted in Maryland, a holder in due course (HDC) generally takes an instrument free from all defenses of any party to the instrument with whom the holder has had no dealings, except for certain real defenses. However, UCC Section 3-407(b) states that if an instrument is issued with a blank space that is then filled in, the instrument is enforceable as completed if it is completed in accordance with the authority given. If it is completed beyond that authority, it is enforceable as completed only against a person who supplied the information to the instrument, not against any other person. Furthermore, UCC Section 3-407(c) addresses material alteration. A holder in due course can enforce an altered instrument according to its original tenor, but not according to its tenor as altered, unless the alteration was made to correct a clerical error. In this case, the original amount was $500.00, and it was raised to $5,000.00, which is a material alteration. Since Mr. Abernathy had no dealings with the bank and the bank is not asserting HDC status against Mr. Abernathy, the bank can only enforce the instrument according to its original tenor if it were to be enforced against Mr. Abernathy. However, the question focuses on the bank’s ability to collect from the drawer, Mr. Abernathy, after paying the altered amount. When a bank pays a check that has been materially altered, it generally cannot charge the drawer’s account for the amount of the alteration if the alteration was fraudulent. The drawer’s obligation is to pay the instrument according to its original tenor. Therefore, Mr. Abernathy is only obligated to pay the original amount of $500.00. The bank’s payment of the altered amount does not create a new obligation for Mr. Abernathy beyond the original terms of the check. The bank may have recourse against the party who altered the check, but not against Mr. Abernathy for the increased amount.

The scenario involves a negotiable instrument that was originally made payable to the order of “The Baltimore Symphony Orchestra.” Subsequently, a thief altered the instrument by forging the endorsement of “The Baltimore Symphony Orchestra” and then endorsed it in blank. The question asks about the legal status of a holder in due course (HDC) who takes the instrument after these events. Under Maryland’s Uniform Commercial Code (UCC) Article 3, specifically § 3-307, a signature on a negotiable instrument is presumed to be authentic and authorized. However, if a defense of forgery is established, the signature is wholly inoperative, and no party can derive title through that forged signature. This is a real defense, meaning it can be asserted against any holder, including an HDC. Therefore, even if the holder otherwise meets the requirements to be an HDC, they cannot acquire good title through a forged endorsement. The instrument’s chain of title is broken by the forgery. The UCC further clarifies in § 3-306 that a holder in due course takes the instrument free of defenses and claims of a kind specified in § 3-305(a)(2), but forgery is an exception to this rule as it prevents the acquisition of title in the first place. Thus, the holder in due course cannot enforce the instrument because the thief acquired no rights to transfer.

The scenario involves a promissory note that contains a clause allowing the maker to prepay the principal amount at any time, subject to a prepayment penalty of 1% of the principal prepaid. The note also includes a clause stating that if the maker fails to pay any installment when due, the entire unpaid principal balance, with accrued interest, shall become immediately due and payable at the option of the holder. This latter clause is an acceleration clause. Under Maryland’s Uniform Commercial Code (UCC) Article 3, specifically § 3-104, a negotiable instrument must contain an unconditional promise or order to pay a fixed amount of money. The presence of an acceleration clause does not, by itself, render an instrument non-negotiable. This is because the UCC permits acceleration clauses, recognizing that they do not destroy the certainty of payment, but rather affect the timing of when payment can be demanded. The prepayment clause, allowing early payment with a penalty, also does not destroy negotiability. The UCC generally permits provisions for prepayment. The key is that the promise to pay a fixed sum is still present, even if the timing of that payment can be altered by certain conditions or options. Therefore, the note, despite containing both prepayment and acceleration clauses, still meets the criteria for negotiability under Maryland law. The question asks about the negotiability of the instrument, and the presence of these common clauses does not disqualify it.

The core issue here is the legal effect of a qualified indorsement on a negotiable instrument. In Maryland, as under UCC Article 3, an indorsement that “without recourse” is a qualified indorsement. This type of indorsement limits the liability of the indorser. Specifically, a qualified indorser does not undertake the obligation of payment if the instrument is dishonored by the maker or drawee. However, a qualified indorsement does not negate all warranties. A qualified indorser still warrants that they have no knowledge of any defense or claim of any kind that would entitle any party to any discharge of the instrument, and that they have no knowledge of insolvency proceedings of the maker, drawer, or acceptor. Therefore, when Mr. Abernathy indorsed the note “without recourse,” he disclaimed his liability for payment upon dishonor by the maker. However, he still implicitly warranted that he had no knowledge of any defenses against the instrument. The question hinges on whether the subsequent holder, Ms. Bellweather, can recover from Mr. Abernathy for breach of this warranty, given that the note was indeed dishonored due to the maker’s insolvency. Since Mr. Abernathy’s indorsement was qualified, he is not liable for the face value of the note upon dishonor. His liability, if any, would stem from a breach of his warranties. The UCC specifies that a qualified indorser warrants against knowledge of defenses. If Mr. Abernathy had knowledge of the maker’s impending insolvency at the time of indorsement, he would have breached this warranty. Without such knowledge, he is not liable. The question implies the note was dishonored due to the maker’s insolvency, which is a fact that would have been known to the maker. The question does not provide information about Abernathy’s knowledge of this insolvency. However, the question asks about his liability *as an indorser*. A qualified indorsement discharges the indorser from the secondary liability of payment upon dishonor. The warranty liability is a separate matter and requires proof of knowledge of a defense or claim. Since the question focuses on his liability *as an indorser* and the nature of the qualified indorsement, the primary effect is the discharge of secondary liability. Therefore, he is not liable for the amount of the note.

The scenario involves a promissory note that is transferred by endorsement. The initial payee, Ms. Anya Sharma, endorses the note in blank by simply signing her name on the back. This converts the note into bearer paper. Subsequently, Mr. Ben Carter obtains possession of the note and writes his name above Anya’s blank endorsement, thereby completing the endorsement into a special endorsement in his favor. According to Maryland Code, Commercial Law § 3-205, a holder in due course (HDC) takes an instrument free from most defenses. To qualify as 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 that any person has a defense or claim to it. In this case, Mr. Carter, by completing the blank endorsement into a special endorsement, effectively becomes a holder. However, the question implies that he may not have met the requirements for HDC status at the point of taking the instrument, specifically regarding notice. If Mr. Carter had notice of a defense or claim when he took the note, he would not be an HDC. If he is not an HDC, he takes the note subject to any defenses that were available against the original payee, Ms. Sharma. The question asks about the status of the note if Mr. Carter had knowledge of a prior claim when he took possession after the blank endorsement but before completing it. The critical point is that completing a blank endorsement does not retroactively cure a lack of good faith or notice. If Mr. Carter had notice of a claim or defense at the time he acquired the note, even if he later completed the endorsement, he would not be a holder in due course. Therefore, he would be subject to the defenses that the maker could assert against the original payee.

In Maryland, as under the Uniform Commercial Code (UCC) Article 3, a holder in due course (HDC) takes an instrument free from most defenses and claims that a prior party could assert against the original payee. To qualify as an HDC, a holder must take the instrument for value, in good faith, and without notice that it is overdue or dishonored or that it contains any unauthorized signature or alteration or that any defense or claim exists against it. In this scenario, the note was issued on January 15, 2023. By the time Amelia purchased the note on March 10, 2023, the payment due on February 15, 2023, had already passed. This constitutes notice that the instrument is overdue. Consequently, Amelia cannot be a holder in due course because she took the instrument with notice of dishonor (specifically, the overdue status). A holder who takes an instrument with notice that it is overdue is subject to all the claims and defenses that are enforceable against the original obligor. Therefore, the defense of failure of consideration, which is a real defense, remains available to Bartholomew against Amelia. The question asks what defense Bartholomew can assert against Amelia. Since Amelia is not an HDC, Bartholomew can assert the defense of failure of consideration.

The core issue here is determining whether a holder in due course status can be established given the circumstances. A holder in due course (HDC) takes an instrument free of most defenses and claims that a prior party could assert against the original payee. To qualify as 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 that any defense or claim to it exists. Maryland law, following UCC Article 3, defines these terms. Taking an instrument for value means giving any consideration sufficient to support a simple contract, or performing or securing performance of the preexisting claim. Good faith means honesty in fact and the observance of reasonable commercial standards of fair dealing. Notice can be actual knowledge, receipt of notice, or reason to know from all the facts and circumstances known to the person at the time. In this scenario, Amelia received the note as a gift. A gift does not constitute taking for value, as no consideration was exchanged. Therefore, Amelia cannot be a holder in due course. She takes the instrument subject to all defenses and claims, including the material alteration by the maker. The material alteration of the note by the maker, without the assent of the party sought to be charged, discharges that party unless that party assents to the alteration. Since Amelia is not an HDC, the maker can assert the defense of material alteration. The alteration from $5,000 to $15,000 is clearly material as it changes the obligation of the maker. Thus, the maker is discharged from liability on the altered instrument.

The core issue here is whether a holder in due course status can be maintained when the instrument itself contains a reference to a separate agreement that materially alters the terms of payment. Under Maryland’s Uniform Commercial Code (UCC) Article 3, specifically § 3-104 and § 3-105, an instrument must be for a fixed amount of money and payable on demand or at a definite time. Crucially, § 3-106(b)(i) states that a promise or order is NOT unconditional if it states that it is subject to or governed by another writing. This means that if an instrument references another agreement in a way that makes the payment terms dependent on that separate agreement, it fails to meet the requirements of a negotiable instrument. In this scenario, the promissory note explicitly states it is “subject to the terms and conditions of the Master Services Agreement.” This subordination of the note’s payment terms to the separate agreement renders the promise to pay conditional. Consequently, the instrument is not a negotiable instrument under UCC Article 3, and therefore, no party can be a holder in due course of it. This prevents the holder from taking the instrument free from all defenses and claims that are not real defenses. The UCC’s purpose is to promote certainty and negotiability in commercial transactions; making payment contingent on external agreements undermines this.

The scenario involves a promissory note payable to a specific payee, “The Crimson Quill,” which is an entity. Under Maryland’s Uniform Commercial Code (UCC) Article 3, a negotiable instrument must be payable “to order or to bearer.” An instrument payable to a specific entity, like “The Crimson Quill,” without further indication of “to order” or “to bearer” is generally not considered a negotiable instrument. Instead, it would be treated as a simple contract or an assignment of rights. The UCC defines “order” as a direction to pay that is not an authorization but a command and must be payable “to order” or “to bearer” to be negotiable. The absence of “to order” after the payee’s name means it is not a draft or note payable to order. Therefore, if the note simply states “Pay to The Crimson Quill,” it lacks the necessary language of negotiability. This is a fundamental requirement for an instrument to be governed by Article 3, allowing for holder in due course status and streamlined transferability. Without this, the instrument is merely a contractual promise.

The core issue here revolves around the concept of presentment warranties under UCC Article 3, specifically as adopted in Maryland. When an instrument is presented for payment, the person presenting it makes certain warranties to the party who honors it. These warranties are designed to protect the payor from being defrauded. The relevant warranties include that the presenter is entitled to enforce the instrument or is authorized to do so on behalf of a person who is entitled to enforce it, and that the instrument has not been altered. In this scenario, the check was originally payable to “Cash” and was then endorsed in blank by the payee, Mr. Abernathy. However, Ms. Bell, who was not a holder in due course and had no right to enforce the instrument, presented it for payment. The bank, acting as the drawee, paid the check. The warranty that the presenter is entitled to enforce the instrument is breached when someone who is not a holder presents it for payment. While the check was payable to “Cash” and thus could be negotiated by mere delivery, the subsequent endorsement by Abernathy was critical. Bell, by presenting the check, implicitly warranted that she was entitled to payment. Since she was not the named payee (Abernathy) or a subsequent holder, and the endorsement was not properly in her favor, she breached the warranty of entitlement to enforce. The bank, having paid based on this breach, can seek recourse. The UCC also specifies that if an instrument is paid by a bank on which it is drawn, the bank can recover the amount paid if the drawer did not make the instrument or obtain the drawer’s signature for value or in good faith. However, the question focuses on the presenter’s warranties. The bank’s ability to recover from Bell hinges on her breach of the presentment warranty that she was entitled to enforce the instrument. The fact that the check was originally payable to “Cash” and Abernathy endorsed it in blank makes it bearer paper, which can be negotiated by delivery. However, Bell’s claim to it stems from her possession, not from a valid negotiation to her. Therefore, her presentation breached the warranty of entitlement.

The core issue here revolves around the concept of a holder in due course (HDC) and the defenses available against such a holder under Maryland’s Uniform Commercial Code (UCC) Article 3. A negotiable instrument must meet specific requirements to be considered such, including being payable to order or bearer, for a fixed amount, and on demand or at a definite time. If an instrument is not negotiable, then the protections afforded to an HDC do not apply, and all defenses available against the original payee are also available against subsequent transferees. In this scenario, the “IOU” explicitly states it is “payable to the order of myself.” While the maker acknowledges a debt, the phrasing “payable to the order of myself” creates ambiguity regarding the intent to create a negotiable instrument. UCC § 3-104(a) requires an instrument to be payable “to order or to bearer.” A promise to pay “to myself” is generally not considered payable to order or bearer, as it does not designate a specific payee or a bearer. Maryland case law and UCC interpretations lean towards requiring clear intent for negotiability. Therefore, the instrument is likely non-negotiable. If the instrument is non-negotiable, then the transferee, Mr. Abernathy, takes the instrument subject to all defenses that would be available against the original payee, Ms. Bellweather. These defenses include any defenses arising from the underlying transaction or contract, such as failure of consideration or fraud in the inducement. Consequently, Mr. Abernathy cannot enforce the instrument against Ms. Bellweather if she has a valid defense against Ms. Bellweather. The UCC does not provide a calculation here, but rather a legal determination based on the instrument’s form and content. The key is the negotiability of the instrument, not a numerical outcome.

The scenario describes a situation where a promissory note is made payable to the order of “Cash.” Under Maryland’s Uniform Commercial Code (UCC) Article 3, specifically § 3-109, an instrument is payable to bearer if it is payable to “Cash,” “the order of Cash,” or any other indication that does not purport to name a payee. When an instrument is payable to bearer, it is negotiated by delivery alone. Indorsement is not required. Therefore, a person in possession of such a note, having obtained it through legitimate delivery, is the rightful holder. The question revolves around how such an instrument is properly negotiated. Negotiation of a bearer instrument is accomplished by physical transfer, or delivery, without the need for any endorsement. The UCC emphasizes that the holder of a bearer instrument has the right to enforce it.

The scenario describes a holder in due course (HDC) situation involving a promissory note. For a party to be considered a holder in due course under UCC Article 3, as adopted in Maryland, they must meet several criteria. First, the instrument must be a negotiable instrument. Second, the holder must take the instrument for value, in good faith, and without notice of any claim or defense against it. In this case, the note is a negotiable instrument. Ms. Anya Sharma purchased the note from Mr. Boris Volkov. The purchase price of \$9,500 for a note with a face value of \$10,000 is a significant discount, but it does not automatically negate that value was given. The critical element here is notice. Ms. Sharma had actual knowledge of the underlying dispute between Mr. Volkov and Ms. Clara Bellweather concerning the defective goods that formed the basis of the original transaction. This knowledge constitutes notice of a defense to payment. Therefore, Ms. Sharma does not qualify as a holder in due course because she took the instrument with notice of a defense. As a result, she takes the note subject to Ms. Bellweather’s defense of breach of warranty. The question asks about Ms. Sharma’s ability to enforce the note against Ms. Bellweather. Since she is not an HDC, she can only enforce it to the extent of her rights, which are subject to the defenses available against her transferor, Mr. Volkov.

The core issue here revolves around the concept of holder in due course (HDC) status and its interaction with defenses against payment on a negotiable instrument. Under UCC Article 3, specifically as adopted in Maryland, 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. These real defenses, such as infancy, duress, illegality of the type that nullifies the obligation, and fraud in the factum, can be asserted even against an HDC. Personal defenses, like breach of contract, failure of consideration, or fraud in the inducement, are generally cut off by an HDC. In this scenario, the note was issued in Maryland. The payee, a contractor, failed to complete the agreed-upon renovation work, which constitutes a failure of consideration or a breach of contract, both of which are personal defenses. The subsequent holder, Ms. Anya Sharma, acquired the note. To qualify as an HDC, she must have taken the instrument for value, in good faith, and without notice that it is overdue or dishonored or that there is any defense or claim to it on the part of any person. Assuming Ms. Sharma meets these criteria, she would normally take the note free from the maker’s personal defenses. However, the question implies a potential issue with the instrument itself or its negotiation. If the note contained a conspicuous statement to the effect that it is subject to claims or defenses arising out of a sale or lease of property or services, it would not be a negotiable instrument under UCC § 3-104(a)(1) as adopted in Maryland, and thus HDC status would not be achievable. Such a clause would destroy negotiability. Therefore, the maker’s defense, even if personal, would be effective against any holder, including Ms. Sharma. The crucial element for determining whether the defense is effective against Ms. Sharma is whether the note was a negotiable instrument in the first place, which is directly impacted by any such conspicuous statement. If the note is not negotiable, then no holder can be an HDC.