This scenario tests the understanding of the holder in due course (HDC) doctrine and its limitations, specifically concerning a negotiable instrument taken with notice of a defense. Under UCC Article 3, a holder in due course takes an instrument free of most claims and defenses, but this status is lost if the holder has notice of a defense or claim. In this case, Mr. Abernathy received the note from Ms. Gable. He was aware that the note was issued in exchange for a shipment of defective widgets. This knowledge constitutes notice of a defense (failure of consideration) against payment of the note. Therefore, Mr. Abernathy cannot qualify as a holder in due course because he took the instrument with actual knowledge of a defense. Consequently, he is subject to the defense of failure of consideration that the maker, Mr. Barnaby, could assert against Ms. Gable. The fact that Mr. Abernathy paid face value and took the note in good faith is generally relevant for HDC status, but it does not override actual knowledge of a defense.

The scenario describes a promissory note payable to “bearer” that is transferred by mere physical delivery. Under Georgia’s UCC Article 3, specifically O.C.G.A. § 11-3-201, negotiation of an instrument payable to bearer occurs by delivery. The question then focuses on the liability of the transferor, Mr. Silas Croft, when he transfers this bearer instrument to Ms. Anya Sharma without endorsement. Georgia law, as codified in O.C.G.A. § 11-3-415, governs transfer warranties. When an instrument is transferred for value and the transferor is not a guarantor, the transferor warrants to the transferee that the transferor has no knowledge of any defense or claim of any kind that would entitle the maker or drawer to avoid payment. This warranty applies regardless of whether the instrument is endorsed. Therefore, if Silas Croft had knowledge of a defense that would allow the maker of the note to avoid payment, he would be liable to Anya Sharma for breach of this transfer warranty. The question implies that such a defense exists, and Silas’s failure to disclose it, even without endorsement, makes him liable for breach of his transfer warranty. The absence of endorsement does not negate these warranties, which are implied by law upon transfer for value.

Under Georgia law, specifically as codified in UCC Article 3, a holder in due course (HDC) takes an instrument free from most defenses and claims that a prior party could assert against the original payee. For a party to qualify as an HDC, they must take the instrument (1) for value, (2) in good faith, and (3) without notice that the instrument is overdue or dishonored or that there is any defense or claim to it on the part of any person. The concept of “value” is broad and includes taking an instrument as payment for a pre-existing debt. “Good faith” means honesty in fact and the observance of reasonable commercial standards of fair dealing. “Notice” is a factual determination, and a party has notice if they have actual knowledge, receive a notice or notification, or from all the facts and circumstances known to them at the time, they have reason to know of its existence. If a party acquires an instrument with knowledge of a forged signature, this would constitute notice of a defense, preventing HDC status. The question presents a scenario where the indorsee is aware of the forged indorsement of the original payee. This awareness directly violates the “without notice” requirement for HDC status. Therefore, the indorsee cannot be a holder in due course. The indorsee takes the instrument subject to the defense of forgery.

The question pertains to the concept of discharge of a party to a negotiable instrument under UCC Article 3, specifically focusing on the effect of a material alteration. Under UCC § 3-407(b), if a negotiable instrument receives a fraudulent and material alteration, any party whose obligation is based on the altered instrument is discharged, unless that party assents to the alteration. A material alteration is one that changes the contract of any party. Examples include changing the date, the amount payable, or the rate of interest. In this scenario, the payee, Ms. Anya Sharma, altered the principal amount of the note from $5,000 to $15,000 without the consent of the maker, Mr. Ben Carter. This alteration is both fraudulent (intended to deceive) and material (changes the obligation by $10,000). Therefore, Mr. Carter, the maker, is discharged from his obligation on the note as originally executed. The discharge applies to the extent of the alteration, meaning he is no longer liable for the original $5,000 or any interest thereon. The instrument is enforceable against a person who makes, or assents to, the alteration, but not against any other party so discharged. Georgia law, as codified in UCC Article 3, follows this principle.

The question concerns the rights of a holder in due course (HDC) when presented with a negotiable instrument that contains a material alteration. Under UCC Article 3, specifically in Georgia, a holder in due course can enforce a negotiable instrument according to its original tenor if the instrument is materially altered without its assent. However, if the alteration is fraudulent and the holder in due course took the instrument after the alteration, they can only enforce it as originally written, not as altered. The scenario describes a check that was originally for \$500 and was altered to \$5,000. The purchaser, a holder in due course, acquired the check after this alteration. Therefore, their right to enforce the instrument is limited to its original tenor, which was \$500. The UCC defines a holder in due course as one who takes an instrument for value, in good faith, and without notice of any defense or claim. The alteration of a check’s amount is considered a material alteration. When a holder in due course takes an instrument that has been materially altered, they may enforce it according to its original tenor. This means they can collect the amount as it was written before the alteration. The fact that the alteration was fraudulent is relevant to the issuer’s defenses, but the HDC’s ability to enforce is still tied to the original tenor. The UCC aims to protect commerce by allowing HDCs to rely on the apparent tenor of an instrument, but it also balances this by preventing enforcement of altered amounts when the HDC acquired the instrument after the alteration.

In Georgia, under UCC Article 3, a holder in due course (HDC) takes an instrument free from most defenses that the maker could assert against the original payee. 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 it contains any unauthorized signature or alteration. A crucial aspect of “value” is that it must be given for the instrument. If a holder receives an instrument as a gift, they have not given value and therefore cannot be an HDC. Similarly, if the instrument is taken with knowledge of a defense or claim, the holder is not afforded HDC status. For example, if a promissory note payable to “Alpha Corp.” is transferred to “Beta Services” and Beta Services knew that Alpha Corp. had breached its contract with the maker, Beta Services would not be an HDC. The concept of “good faith” in Georgia, as per UCC § 1-201(b)(20), means honesty in fact and the observance of reasonable commercial standards of fair dealing. Notice is also critical; if Beta Services had received the note after its due date or had reason to know of a dispute regarding its payment, it would not be an HDC. The UCC generally protects HDCs to promote the free negotiability of commercial paper.

The scenario describes a promissory note that is payable to “bearer” and is not dated. Under Georgia’s Uniform Commercial Code (UCC) Article 3, specifically O.C.G.A. § 11-3-104, an instrument is a negotiable instrument if it is a promise to pay a fixed amount of money, payable to bearer or to order, on demand or at a definite time, and payable at or before a specified date or at an interval after sight or acceptance. A note payable to “bearer” is payable to anyone who possesses it. When an instrument is not dated, O.C.G.A. § 11-3-113(a) states that the time of issue of an un-dated instrument is the date that it first comes into possession of a holder. Therefore, the note is a negotiable instrument. Furthermore, O.C.G.A. § 11-3-109(a)(2) defines an instrument as payable on demand if it states that it is payable on demand, at sight, at presentation, or otherwise indicates that it is payable immediately. An instrument that is not dated is considered payable on demand. Thus, the note is a negotiable instrument payable on demand to bearer.

The scenario describes a promissory note payable to “bearer” which is then physically transferred by delivery. Under UCC Article 3, as adopted in Georgia, an instrument payable to bearer is negotiated by delivery alone. The UCC defines “bearer” as a person in possession of an instrument that is payable to bearer. Therefore, when Amelia hands the note to Bartholomew, possession of the note by Bartholomew, who is the intended recipient of the bearer instrument, constitutes a valid negotiation. No endorsement is required for a bearer instrument. The question tests the fundamental concept of negotiation for bearer instruments under UCC Article 3, specifically focusing on the distinction between bearer and order instruments and their respective negotiation methods. Georgia’s adoption of UCC Article 3 (O.C.G.A. § 11-3-101 et seq.) governs these principles. The core principle is that delivery is sufficient for a bearer instrument to be negotiated.

In Georgia, under UCC Article 3, a holder in due course (HOC) takes an instrument free from most defenses and claims that a prior party could assert against the original payee. To qualify as a HOC, a person must take the instrument (1) for value, (2) in good faith, and (3) without notice that the instrument is overdue or dishonored or that there is any defense or claim to it. The scenario describes a promissory note made by Ms. Anya Sharma to “Melody Music Store.” Melody Music Store then negotiated the note to Mr. Elias Vance. Mr. Vance took the note on December 15th. The note was dated November 1st and was payable “on demand.” A demand instrument is considered overdue if it has been outstanding for an unreasonably long time. While there is no precise definition of “unreasonably long time” for a demand note, Georgia law, like the UCC, generally considers a demand instrument to be overdue after ninety days from its date if the instrument is payable on demand and no date of payment is stated. Since Mr. Vance took the note on December 15th, which is 45 days after its November 1st date, it has not been outstanding for an unreasonably long time. Furthermore, the problem states that Mr. Vance had no knowledge of any defenses or claims. Assuming Mr. Vance paid value for the note and acted in good faith, he would likely be a holder in due course. Therefore, he would take the note free from any defenses Ms. Sharma might have against Melody Music Store, such as a claim that the goods for which the note was given were defective.

The question revolves around the concept of a holder in due course (HDC) and the defenses that can be asserted against such a holder under UCC Article 3, as adopted in Georgia. 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 even against an HDC. Among the defenses listed, fraud in the execution (also known as real fraud or fraud in the factum) is a real defense. This occurs when a party is induced to sign an instrument by a fraudulent representation of the instrument’s character or essential terms. For example, if someone is tricked into signing a promissory note believing it to be a receipt for a package, that is fraud in the execution. In contrast, fraud in the inducement, where a party is induced to sign an instrument by a fraudulent promise or misrepresentation about the underlying transaction (e.g., being told a faulty product will be repaired), is a personal defense and cannot be asserted against an HDC. Illegality of the transaction, if it renders the obligation void, is also a real defense. Discharge in insolvency proceedings is a real defense. However, a breach of contract by the payee, which is a failure of consideration, is a personal defense and is not available against an HDC. Therefore, a breach of contract by the payee is the defense that cannot 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 such a holder under UCC Article 3, specifically as adopted in Georgia. A negotiable instrument, such as a promissory note, must meet certain requirements to be considered such. If a note is not negotiable, then the transferee takes it subject to all claims and defenses that would be available in an ordinary contract action. For a note to be negotiable, it must be payable to order or to bearer, contain an unconditional promise or order to pay a fixed amount of money, and be payable on demand or at a definite time. It must also not contain any other undertaking or instruction by the person promising or ordering payment to do any act in addition to the payment of money. In this scenario, the note explicitly states, “Payable to the order of [Payee’s Name], provided that the Maker shall have first successfully completed all coursework and received a passing grade in the Advanced Principles of Biomechanics seminar offered by the Institute of Applied Kinesiology.” This condition precedent, tied to the completion of a specific academic seminar and achieving a passing grade, renders the promise to pay conditional. UCC Section 3-104(a)(1) requires an unconditional promise or order. A promise or order is conditional if it states that payment is subject to performance of a condition or that it is to be paid only if a particular event occurs. The inclusion of this seminar completion and passing grade requirement makes the payment contingent on an event that is not solely related to the passage of time or the occurrence of a specified event that is certain to occur. Therefore, the note is not a negotiable instrument. Because the note is not negotiable, Amelia, as the transferee, cannot be a holder in due course. She takes the note subject to all defenses that the maker, Bartholomew, could assert against the original payee, including the defense of failure of consideration or breach of the underlying agreement that led to the note’s issuance. The fact that Bartholomew did not complete the seminar and receive a passing grade directly impacts the enforceability of the underlying obligation, and thus the note itself, even in the hands of an HDC, and certainly in the hands of Amelia who is not an HDC. Therefore, Bartholomew has a valid defense against Amelia’s claim.

The scenario presented involves a negotiable instrument that has been transferred by endorsement. The core issue is determining the rights of the transferee, specifically whether they qualify as a holder in due course (HDC) under UCC Article 3, as adopted in Georgia. To be an HDC, a holder must take the instrument (1) for value, (2) in good faith, and (3) without notice of any claim to the instrument or defense against it. In this case, Mr. Abernathy receives the note as a gift. Taking an instrument as a gift means it was not taken for “value.” Value, in the context of negotiable instruments, typically involves performing an antecedent debt, giving a negotiable instrument for it, or incurring a security interest in it. A gratuitous transfer, or a gift, does not satisfy the value requirement. Therefore, Mr. Abernathy cannot be a holder in due course. Since he is not an HDC, he takes the instrument subject to all defenses and claims that would be available in an action on the simple contract, including the defense of fraud in the inducement available to Ms. Beaumont against the original payee, Mr. Cole. The UCC, specifically under Georgia law, defines value and the requirements for HDC status, emphasizing that a donee, or recipient of a gift, is not afforded the protections of an HDC.

The scenario describes a promissory note that is payable to “bearer.” Under UCC Article 3, as adopted in Georgia, an instrument payable to bearer is negotiated by delivery alone. This means that the transfer of physical possession of the note to another party is sufficient to effectuate negotiation, and thus, a transfer of the holder’s rights. No endorsement is required. Therefore, when Beatrice delivers the note to Calvin, Calvin becomes the holder of the note. The question asks about the status of the instrument after this transfer. Since the note is payable to bearer, delivery to Calvin makes Calvin the holder, and the instrument remains payable to bearer. The concept of endorsement is relevant for instruments payable to a specific person (order paper), but not for bearer paper. The UCC specifies that negotiation of bearer paper is by delivery. The subsequent actions of Beatrice or Calvin, such as Beatrice having received it from Arthur, are details of prior negotiation but do not alter the fundamental rule for bearer instruments. The critical element is that Beatrice possessed bearer paper and delivered it to Calvin.

The scenario involves a promissory note that is payable on demand. Under Georgia law, specifically as codified in O.C.G.A. § 11-3-108, an instrument that states it is payable on demand, or at sight, or otherwise indicates that it is payable on the happening of a contingency or at a definite time not expressed in the instrument, is payable on demand. When an instrument is payable on demand, the statute of limitations begins to run at the time of issuance or, if the instrument is antedated, at the time of delivery. For a demand instrument, the statute of limitations for enforcement by a holder against the maker is generally six years from the date of issue, as per O.C.G.A. § 11-3-118(a). However, if the instrument is transferred, the statute of limitations for a holder in due course or other holder is also six years from the date of issue. In this specific case, the note was issued on January 15, 2018, and it is payable on demand. The action to enforce the note was commenced on January 10, 2024. The six-year period from the date of issue would expire on January 15, 2024. Since the action was commenced on January 10, 2024, it falls within the six-year statute of limitations. Therefore, the note is enforceable.

The scenario describes a promissory note that is payable on demand. Under Georgia law, specifically UCC § 3-108(a), a promise to pay is “payable on demand” if it states that it is payable on demand, or at sight, or when presented. Alternatively, a note is payable on demand if no time for payment is stated. In this case, the note explicitly states “Payable on demand.” Therefore, the statute of limitations for enforcing the note begins to run from the date of issue, which is the date the note was made. Georgia UCC § 3-118(a) states that an action to enforce an obligation on a note payable on demand must be commenced within six years after the demand for payment has been made, or if no demand for payment has been made, within ten years after the date of the note. However, the question specifies that the note was issued on January 1, 2015, and was payable on demand. The critical factor for determining when the statute of limitations begins to run on a demand instrument is the date of issue, as no specific payment date is otherwise provided, and a demand can be made at any time. Thus, for a demand note, the six-year statute of limitations begins to run from the date of issue unless a demand is made earlier. If no demand is made, the ten-year period from the date of issue applies. Since the question asks when the statute of limitations begins to run, and the note is payable on demand with no other specified payment date, the default commencement date for the statute of limitations is the date of issue. This is because a demand can be made at any time after issuance, and the law anticipates this potential for immediate enforcement. Therefore, the statute of limitations begins to run on January 1, 2015.

In Georgia, under UCC Article 3, the concept of a holder in due course (HDC) is crucial for determining the rights of a party who takes a negotiable instrument. To qualify as an HDC, a person must take the instrument (1) for value, (2) in good faith, and (3) without notice that it is overdue or has been dishonored or that there is any defense or claim to it. If a person meets these criteria, they take the instrument free from most defenses and claims of the maker or drawer. For instance, if a promissory note is made for a fraudulent purpose, but it is negotiated to an HDC, the maker cannot assert the fraud as a defense against the HDC. The value requirement can be satisfied by performing the promise for which the instrument was issued, or by taking it as security for a prior debt. Good faith is generally defined as honesty in fact and the observance of reasonable commercial standards of fair dealing. Notice can be actual knowledge or constructive knowledge derived from facts that would put a reasonable person on inquiry. A person who receives an instrument as a gift, without giving value, cannot be an HDC. Similarly, if a person has knowledge of a defect or a defense against the instrument, they cannot qualify. The specific scenario involves a check that was originally issued for services rendered but was later dishonored due to insufficient funds. The subsequent holder acquired the check after its dishonor. Under Georgia law, taking an instrument after it has been dishonored prevents the holder from being a holder in due course, regardless of whether they took it for value and in good faith. This is because the notice of dishonor itself disqualifies them from meeting the “without notice” requirement. Therefore, the holder takes the check subject to any defenses that the drawer might have had against the original payee, such as a dispute over the services rendered.

Under Georgia’s Uniform Commercial Code (UCC) Article 3, a holder in due course (HOC) takes an instrument free from most defenses and claims of the obligor. To qualify as a HOC, a person must take the instrument for value, in good faith, and without notice that the instrument is overdue or dishonored or that there is any defense or claim against it. Value is given if the holder takes the instrument as payment of or security for a preexisting claim, or if the holder takes it in satisfaction of a money debt. Good faith means honesty in fact and the observance of reasonable commercial standards of fair dealing. Notice can be actual knowledge or reason to know from all the facts and circumstances known to the person at the time of acquisition. If a party acquires an instrument with knowledge of a material alteration, they cannot be a HOC. A material alteration is one that changes the contract of any person on the instrument. In this scenario, the alteration of the payee’s name from “Acme Corporation” to “Acme Enterprises” is a material alteration because it changes the identity of the party to whom payment is due. Since the holder acquired the instrument after this material alteration, they cannot meet the requirements of taking the instrument without notice of a defense or claim, as the alteration itself constitutes a defect or defense. Therefore, the holder is not a holder in due course.

The scenario presented involves a promissory note that contains a clause allowing the maker to prepay the principal amount without penalty. UCC Article 3, specifically in Georgia, governs negotiable instruments. For an instrument to be negotiable, it must contain an unconditional promise to pay a fixed amount of money. The presence of an option to prepay the principal does not render the promise conditional, as it is a privilege granted to the maker, not a condition that triggers the obligation to pay. This is because the payment obligation itself is not contingent upon an uncertain event. The note is payable on demand or at a definite time, and the prepayment option is a feature of how that payment can be made, not a factor that alters the fundamental obligation to pay. Therefore, the note remains a negotiable instrument despite the prepayment clause. The key concept here is that a privilege to accelerate payment or an option to prepay does not destroy negotiability. UCC § 3-104(a)(1) requires an unconditional promise to pay a fixed amount of money. UCC § 3-108(b) addresses payment on demand or at a definite time, and prepayment is permissible.

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, as adopted in Georgia. A holder in due course takes an instrument free from most defenses, but not from certain real defenses. Real defenses are those that can be asserted against any holder, including an HDC. Among the real defenses listed in UCC § 3-305(a)(1), infancy, duress that nullifies the obligation, lack of essential validity, and illegality of the transaction rendering the obligation void are explicitly mentioned. Fraud in the factum, where a party is deceived about the nature of the instrument itself rather than the inducement to sign it, is also a real defense. In this scenario, the forged signature of Mr. Abernathy renders the entire note void ab initio (from the beginning) under Georgia law, as a forged signature is generally a nullity. This lack of essential validity, akin to a void instrument, constitutes a real defense that can be asserted even against an HDC. Therefore, Ms. Gable, as the holder of the note, cannot enforce it against Mr. Abernathy because his signature was forged, making the instrument void.

The scenario describes a promissory note that is payable “on demand.” Under Georgia law, specifically O.C.G.A. § 11-3-108(a), an instrument is payable on demand if it states that it is payable “on demand,” “at sight,” or “when presented,” or if it contains any other indication that it is payable on demand. For a note payable on demand, the statute of limitations for enforcement begins to run at the time of issuance or, if the note is undated, from the time of issuance. O.C.G.A. § 11-3-113(a) states that an instrument payable on demand is due on presentation. The statute of limitations for an action to enforce an obligation on a note payable on demand is six years after the demand for payment has been made. If no demand for payment is made, the statute of limitations does not begin to run until the instrument is issued. However, the question implies that a demand *has been made* by stating “when the bank received the notice of default and demand for payment.” Therefore, the six-year period commences from the date of that specific demand. The note was issued on January 1, 2018, and the demand was made on July 1, 2020. The statute of limitations for enforcement of an instrument payable on demand begins to run from the date of the demand. Thus, the six-year period to enforce the note begins on July 1, 2020. The bank would have until July 1, 2026, to bring an action to enforce the note.

The scenario describes a promissory note payable to “bearer” that is transferred by mere physical delivery. Under Georgia’s UCC Article 3, a negotiable instrument made payable to bearer is negotiated by transfer of possession alone. When such an instrument is transferred, the transferee becomes a holder. If the transferee takes the instrument for value, in good faith, and without notice of any claim or defense, they may become a holder in due course (HDC). An HDC takes the instrument free from most defenses and claims of prior parties. The question asks about the legal status of the person who receives the note. Since the note is payable to bearer and is transferred by delivery, the recipient becomes a holder. The explanation of why the other options are incorrect is as follows: A holder in due course requires more than just delivery; it requires taking for value, in good faith, and without notice. A payee is the person to whom the instrument is originally made payable, which is not the case here as it’s payable to bearer and then transferred. A holder through a holder in due course (shelter rule) applies when someone acquires rights from an HDC, but the initial acquisition by the bearer note holder through delivery is the primary focus here. The core concept being tested is the negotiation of a bearer instrument under UCC § 3-201, which is accomplished by delivery.

Under Georgia law, specifically UCC Article 3, a negotiable instrument must contain an unconditional promise or order to pay a fixed amount of money, payable on demand or at a definite time, to order or to bearer, and must not state any other undertaking or instruction by the person promising or ordering payment to do any act in addition to the payment of money. This is codified in O.C.G.A. § 11-3-104. The scenario describes a promissory note that includes a clause for the maker to pay additional fees and costs of collection, including attorney’s fees, if the note is not paid when due. While O.C.G.A. § 11-3-104(a)(1) generally requires an unconditional promise to pay a fixed amount of money, O.C.G.A. § 11-3-104(a)(3) specifically allows for the inclusion of clauses that provide for attorney’s fees or collection costs if the instrument is not paid when due, without rendering the instrument non-negotiable. Therefore, the inclusion of such a clause does not destroy the negotiability of the note under Georgia law. The key is that these are secondary obligations contingent upon default, not conditions precedent to payment of the principal sum.

The scenario involves a promissory note payable to “bearer” which is then transferred by physical delivery. Under UCC Article 3, as adopted in Georgia, an instrument payable to bearer is negotiated by delivery alone. The question asks about the effectiveness of the endorsement by the payee. Since the instrument is payable to bearer, an endorsement is not required for negotiation. The physical delivery of the instrument from the original payee to a subsequent holder constitutes a valid negotiation. Therefore, any endorsement, whether properly executed or not, is superfluous to the transfer of rights in a bearer instrument negotiated by delivery. The key concept here is the distinction between instruments payable to order and instruments payable to bearer in terms of their negotiation. For bearer instruments, possession is paramount for negotiation, not a specific endorsement.

The scenario involves a promissory note that is payable to “bearer.” Under UCC Article 3, as adopted in Georgia, an instrument payable to bearer is negotiated by transfer of possession alone. This means that simply handing the note to another person is sufficient to transfer ownership, regardless of whether that person is identified or named. The UCC distinguishes between instruments payable to order and instruments payable to bearer. For order paper, negotiation requires endorsement and delivery. For bearer paper, only delivery is necessary. Therefore, when the original holder of the note, Mr. Abernathy, delivers the note to Ms. Baker, who then transfers possession to Mr. Carter, the negotiation is complete with each transfer of possession. The fact that the note is undated or that the payment terms are not specified does not affect the negotiation process itself, although it might affect enforceability in other contexts. The core principle here is the method of negotiation for bearer instruments.

Under Georgia law, specifically 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 person must take the instrument (1) for value, (2) in good faith, and (3) without notice that the instrument is overdue or dishonored or that there is any defense or claim to it on the part of any person. If a negotiable instrument is transferred by negotiation, the transferee acquires whatever rights the transferor had, but to be a holder in due course, the transferee must meet the specific statutory requirements. A person who takes an instrument with knowledge of a material alteration or that it is irregular in form cannot be an HDC. For instance, if an instrument has been materially altered and the transferee has notice of this alteration, they cannot claim HDC status. The UCC defines “value” broadly, including the performance of the an act or the giving of security for a bank’s deposit account. Good faith, as defined in UCC § 1-201(b)(20), means honesty in fact and the observance of reasonable commercial standards of fair dealing. Notice can be actual or constructive, meaning knowledge of facts that would put a reasonable person on inquiry. Therefore, a transferee who receives an instrument after its maturity date, or with knowledge of a dispute concerning its origin or validity, cannot attain HDC status and remains subject to any defenses available against the transferor.

The scenario involves a negotiable instrument, specifically a promissory note, payable to a specific payee. The core issue is the effect of a restrictive endorsement. A restrictive endorsement, such as “Pay to the order of First National Bank only,” limits further negotiation. Under UCC § 3-206, a person taking an instrument with a restrictive endorsement can become a holder in due course (HDC) or otherwise acquire rights in the instrument only if they comply with the restriction. In this case, the bank receiving the note with the restrictive endorsement “Pay to the order of First National Bank only” and then attempting to further negotiate it to another bank would be in violation of that restriction. Therefore, the second bank, by taking the note with knowledge of the restrictive endorsement and attempting to use it contrary to its terms, cannot acquire rights as a holder in due course, nor can it enforce the instrument against the maker. The restrictive endorsement effectively stops the chain of negotiation for anyone other than the named restrictive endorsee. The maker of the note, having issued it with a specific restriction in mind for the initial payee, is discharged from any obligation to pay a subsequent party who fails to honor that restriction.

The core issue here is determining the enforceability of a promissory note against a guarantor when the principal debtor’s obligation is discharged due to a statutory defense, specifically the statute of limitations on the underlying debt. Under Georgia law, which largely follows UCC Article 3 for negotiable instruments, a guarantor’s liability is generally tied to the principal debtor’s obligation. However, the discharge of the principal debtor does not automatically discharge the guarantor if the discharge is due to a defense that is personal to the principal debtor or if the guarantor has waived such defenses. In this scenario, the statute of limitations is a defense that can be asserted by the principal debtor. If the statute of limitations has run on the original debt owed by Atlas Corp. to Commerce Bank, Commerce Bank would be barred from suing Atlas Corp. for that debt in Georgia. The question is whether this discharge of Atlas Corp.’s obligation by operation of law (the statute of limitations) also discharges the guarantor, Mr. Sterling. UCC § 3-601 (Georgia Code § 11-3-601) addresses discharge of parties. While it lists various methods of discharge, it does not automatically discharge a secondary obligor (like a guarantor) when the principal obligation is discharged due to the running of the statute of limitations on the principal obligation itself, unless the guarantor has a right of recourse against the principal debtor that is impaired. More specifically, UCC § 3-605 (Georgia Code § 11-3-605) deals with the discharge of a party by impairment of recourse or collateral. However, the statute of limitations is not typically considered an “impairment of recourse” or “impairment of collateral” in the sense contemplated by § 3-605, which usually involves actions or omissions by the holder that diminish the guarantor’s ability to seek reimbursement from the principal. Georgia law, like the UCC, generally distinguishes between defenses available to the principal debtor and those that can be asserted by a guarantor. The statute of limitations is a procedural defense that bars the remedy, not a defense that voids the underlying obligation itself in all circumstances. While the bank cannot sue Atlas Corp., the debt technically still exists. The guarantor’s liability is often construed to remain unless the guarantor can show that the holder’s actions or inaction directly impaired the guarantor’s rights. The most pertinent concept is that a guarantor’s liability typically survives the running of the statute of limitations on the principal debt, especially when the guarantor has not been released by the holder’s actions. The guarantor’s promise is to pay if the principal does not. The statute of limitations bars the creditor’s remedy against the principal, but it doesn’t extinguish the debt in a way that would necessarily release the guarantor, particularly if the guarantor’s contract did not specify otherwise or if the guarantor had an independent basis for liability. In this specific case, the statute of limitations has run against Atlas Corp. in Georgia. Commerce Bank cannot sue Atlas Corp. for the principal debt. Mr. Sterling, as guarantor, is liable for the debt if Atlas Corp. does not pay. The running of the statute of limitations against Atlas Corp. does not automatically discharge Mr. Sterling’s obligation as guarantor, because the discharge is based on a procedural bar to suit, not a discharge of the underlying debt itself by payment, cancellation, or a holder’s action that impaired the guarantor’s recourse. Therefore, Commerce Bank can still enforce the note against Mr. Sterling.

The question revolves around the concept of holder in due course (HDC) status and its protection against defenses. Under UCC Article 3, specifically as adopted in Georgia, a holder in due course takes an instrument free from all defenses of any party to the instrument with whom the holder has not dealt, except for real defenses. Real defenses, also known as universal defenses, are those that can be asserted against any holder, including an HDC. These are typically defenses that go to the validity of the instrument itself or the obligor’s capacity. Examples include infancy, duress, fraud in the execution (or the “real” fraud), illegality of a type that makes the obligation void, discharge in insolvency proceedings, and such issue of a negotiable instrument that is void or so severely irregular in form as to call its validity into question. Personal defenses, on the other hand, are those that arise from the contract or transaction between the immediate parties. These include breach of contract, lack of consideration, fraud in the inducement, and payment or discharge of the instrument. A holder in due course is protected from personal defenses. In the given scenario, the maker of the note, Mr. Abernathy, is attempting to raise the defense of fraud in the inducement, which is a personal defense. He was induced to sign the note based on false representations by the payee, Ms. Bellweather, regarding the quality of the antique clock. Ms. Bellweather then negotiated the note to Mr. Carter. For Mr. Carter to be a holder in due course, he must have taken the instrument for value, in good faith, and without notice that it was overdue or had been dishonored or that there was any defense against it. Assuming Mr. Carter meets these criteria, he would take the note free from Mr. Abernathy’s personal defense of fraud in the inducement. Therefore, Mr. Abernathy cannot assert this defense against Mr. Carter. The calculation is conceptual: Fraud in the inducement is a personal defense. A holder in due course is immune to personal defenses. Mr. Carter, if an HDC, prevails.

Under Georgia’s UCC Article 3, a holder in due course (HOC) takes an instrument free from most defenses and claims that a prior party could assert against the original payee. To achieve HOC status, a person must take the instrument for value, in good faith, and without notice of any defense or claim against it. Notice is critical here. If a purchaser has knowledge of a defense or claim, or has reason to know that a defense or claim exists, they cannot be a HOC. For instance, if the instrument is so irregular as to call its validity or terms into question, or if it is overdue or dishonored, the purchaser has notice. In this scenario, the instrument was dated January 15th and presented for payment on February 20th. Under UCC § 3-304, an instrument is overdue when a due date for payment has passed. For a demand instrument, it is overdue if it is taken after demand for payment has been made. For a note payable at a definite time, it is overdue on the day after its due date. While the question doesn’t explicitly state the due date, the presentation on February 20th for an instrument dated January 15th, without further context suggesting it’s a demand instrument or payable on a later date, implies it could be overdue if the due date was before February 20th. However, the crucial element for notice is *knowledge* or *reason to know*. Simply presenting an instrument shortly after its date does not automatically constitute notice of a defense unless the circumstances surrounding the presentation itself indicate a problem. The fact that the instrument was payable “on demand” is key. For a demand instrument, it is overdue if it is taken more than a reasonable period after its issue. What constitutes a “reasonable period” depends on the nature of the instrument and the facts. For checks, UCC § 3-304(a)(2) provides a presumption that a check is overdue if it is taken more than 90 days after its date. For other demand instruments, the period is less defined but is generally considered to be shorter than for checks, often weeks rather than months, unless specific circumstances suggest otherwise. The prompt states the instrument was presented on February 20th, which is only 36 days after January 15th. This timeframe, for a note payable on demand, does not automatically trigger the “overdue” status that would provide notice of a defense under UCC § 3-304(a)(2) unless a demand had already been made and dishonored prior to the purchase, which is not stated. Therefore, the purchaser would not have notice of it being overdue solely based on this presentation date.

The scenario involves a negotiable instrument that is transferred by endorsement. When an instrument is endorsed in blank, it becomes payable to bearer. According to UCC Article 3, as adopted in Georgia, a person in possession of an instrument payable to bearer is a holder and can negotiate it by mere delivery. If a holder then endorses the instrument specially, it becomes payable to the special endorsee. Subsequent negotiation requires the endorsement of the special endorsee. In this case, after the blank endorsement by Anya, the note became bearer paper. When Ben endorsed it specially to Clara, it became order paper, payable to Clara. For David to be a holder in due course, he must take the instrument for value, in good faith, and without notice of any claim or defense. If David receives the note from Clara by mere delivery, and Clara did not endorse it, David would not be a holder because the instrument is payable to Clara’s order. For David to become a holder, Clara must endorse the instrument to him. Without Clara’s endorsement, David cannot be a holder, and therefore cannot be a holder in due course, regardless of whether he paid value, acted in good faith, or had notice. The UCC requires that the instrument be transferred by delivery if it is payable to bearer, or by endorsement and delivery if it is payable to order. Since the note became order paper payable to Clara, her endorsement is necessary for subsequent negotiation to a holder.