The scenario involves a promissory note that is payable “on demand.” Under Alabama’s Uniform Commercial Code (UCC) Article 3, a note is payable on demand if it states that it is payable “on demand” or at sight or presentation. Alternatively, it is payable on demand if no time for payment is stated. When a note is payable on demand, it is considered to be payable immediately and presentment for payment is required to charge an endorser or, in some cases, the drawer. The UCC also addresses the concept of a “reasonable time” for presentment for payment. For a demand instrument, presentment for payment must be made within a reasonable time after the party has incurred liability on the instrument. For a check, which is a type of demand instrument, a reasonable time for presentment is generally considered to be within 30 days after the date of issue or 30 days after the date of endorsement, whichever is later. This is important because if presentment is not made within a reasonable time, the holder may lose the right to enforce the instrument against certain parties, particularly endorsers. In this case, the note explicitly states “on demand,” thus meeting the definition of a demand instrument. The subsequent actions of transferring the note and the passage of time are relevant to the enforceability against endorsers, but the fundamental characteristic of the note as a demand instrument is established by its terms. The question asks about the classification of the instrument based on its payment terms, and the explicit “on demand” language clearly categorizes it as such.

The core of this question revolves around the concept of a holder in due course (HDC) and the defenses that can be asserted against such a holder under Alabama law, specifically UCC Article 3. A holder in due course takes an instrument free from most personal defenses. Personal defenses are those that arise from the underlying contract or transaction between the original parties. Real defenses, however, can be asserted against even an HDC. The scenario describes a promissory note where the maker’s obligation is tied to a future contingency (successful completion of a construction project) and a subsequent endorsement to a third party. The key is to identify which defense, if any, would be available against an HDC. In Alabama, as per UCC § 3-305, an HDC takes the instrument subject to defenses of a kind that a holder in ordinary course of business is not barred from asserting. These include infancy, duress, illegality of the transaction that renders the obligation void, fraud that induces the obligor to make the instrument with neither knowledge nor reasonable opportunity to obtain knowledge of its character or its essential terms, and discharge in insolvency proceedings. However, most contract-related defenses, such as failure of consideration, breach of warranty, or misrepresentation that induces the instrument but does not make it void, are personal defenses and are cut off by an HDC. In the given scenario, the maker’s obligation was contingent upon the successful completion of a construction project. This contingency, if it renders the promise conditional, would mean the instrument is not negotiable in the first place under UCC § 3-104(a)(1) because it does not contain an unconditional promise or order. If the promise is indeed conditional, then the instrument would not be a negotiable instrument, and therefore, the concept of a holder in due course would not apply. However, if we assume the instrument was initially negotiable and the contingency was properly expressed to meet the negotiability requirements (e.g., the contingency is simply a due date or a payment term that doesn’t affect the unconditional nature of the promise to pay), then the failure of the construction project would constitute a failure of consideration or a breach of the underlying agreement between the original parties. This type of defense is typically a personal defense. However, if the contingency was so fundamental that it made the promise itself conditional, thereby preventing negotiability from the outset, then the instrument is not a negotiable instrument. In such a case, the transferee would take the instrument subject to all defenses, including the failure of the contingency. The question asks about a defense that can be asserted against the transferee. If the note was non-negotiable due to a conditional promise, then any defense available against the original payee would be available against the transferee. The failure of the construction project directly impacts the maker’s obligation to pay, meaning the consideration for the note has failed. This failure of consideration is a personal defense. If the note was non-negotiable, this personal defense would be effective against the transferee. If the note was negotiable, this personal defense would not be effective against an HDC. The phrasing “obligation to pay was contingent upon the successful completion of a construction project” strongly suggests a conditional promise, thus potentially rendering the instrument non-negotiable. If it is non-negotiable, then the failure of the contingency is a defense against the transferee. Let’s consider the possibility that the contingency was meant to be a condition precedent to liability, not to the promise itself, which is a subtle but important distinction for negotiability. However, the most straightforward reading is that the promise to pay is conditional. If the promise is conditional, the instrument is not negotiable. Therefore, the transferee takes it subject to all defenses, including the failure of the condition. The failure of the construction project means the condition precedent to payment was not met. This failure of consideration or the non-occurrence of the condition precedent is a defense against the original payee and, if the instrument is non-negotiable, against the transferee. The calculation is conceptual. The key is understanding that if an instrument contains a promise or order that is conditional, it is not a negotiable instrument under UCC § 3-104(a)(1). If it’s not negotiable, the transferee takes it subject to all defenses that were available against the original payee. The failure of the construction project is a failure of the condition precedent to payment, which constitutes a defense. This defense is available against the transferee if the instrument was non-negotiable from its inception. Final Answer: The failure of the construction project, which was a condition precedent to the maker’s obligation to pay, is a defense that can be asserted against the transferee if the instrument was not negotiable due to the conditional promise.

The scenario involves a negotiable instrument, specifically a draft, that has been transferred. The core issue is determining the rights of the transferee when the instrument is dishonored. Under Alabama law, which largely follows UCC Article 3, a holder in due course (HDC) takes an instrument free from most personal defenses. However, real defenses, such as material alteration or forgery, can be asserted even against an HDC. In this case, the draft was originally for $500 and was materially altered to $1,500. A material alteration is a real defense. When a holder takes an instrument that has been materially altered, their rights are affected. Specifically, under UCC § 3-407(b), if an instrument is materially altered, a holder who is not an HDC takes the instrument according to its original tenor. If the holder is an HDC, they can enforce the instrument according to its altered terms, but only if they took it without notice of the alteration. However, the question states the alteration was “undetectable” which implies it was done in a way that the transferee would not have noticed it. In such a situation, the holder who took the instrument without notice of the material alteration would generally be able to enforce it according to its altered terms. This is because the alteration is a real defense, but the transferee acquired the instrument without notice of the defect. Therefore, the holder can enforce the instrument for the altered amount.

This scenario involves the concept of a holder in due course (HDC) and the defenses available against such a holder under UCC Article 3, as adopted in Alabama. The core issue is whether the manufacturer, having received a promissory note for goods that were later discovered to be defective, can enforce the note against the maker when the note has been transferred to a holder who took it with knowledge of the defect. Under UCC § 3-302, a holder in due course is a holder who takes an instrument if it is issued or indorsed to them or to their order, by the holder or a person taking through a holder, and if it is taken for value, in good faith, and without notice of any claim to the instrument or defense against it. The transferee in this case, “Financier Inc.,” took the note after the maker had already discovered the defects and had a claim against the manufacturer. Financier Inc. received notice of this claim before paying the full value of the note, as it was aware of the ongoing dispute regarding the defective goods. Therefore, Financier Inc. does not meet the criteria of a holder in due course because it had notice of the maker’s claim. Consequently, Financier Inc. is subject to all defenses that would be available in an action on the simple contract, including the defense of breach of warranty or failure of consideration, as provided by UCC § 3-306. The maker can assert the defect in the goods as a defense against Financier Inc. because Financier Inc. is not a holder in due course.

The core of this question revolves around the concept of negotiability and the requirements for an instrument to be considered negotiable under UCC Article 3, as adopted in Alabama. Specifically, it tests the understanding of the “unconditional promise or order” requirement and how certain clauses can render an instrument non-negotiable. Alabama law, following the UCC, mandates that a promise or order must not be subject to any undertaking or instruction by the person promising or ordering that it is subject to or governed by another writing. A clause that makes payment dependent on the performance of a separate contract, or that refers to another writing for terms and conditions that affect the rights or obligations of a party, typically destroys negotiability. In this scenario, the reference to the “terms and conditions of the underlying sales contract” means that the promise to pay is not solely based on the instrument itself but is contingent upon the terms of that separate contract. This contingency means the promise is not unconditional. Therefore, the promissory note is not a negotiable instrument.

The core concept here is the distinction between a holder in due course (HDC) and a holder who is not an HDC, particularly concerning the defenses available against them. A holder in due course takes an instrument free from all defenses except for certain “real” defenses. Under Alabama law, which largely follows the Uniform Commercial Code (UCC) Article 3, a holder in due course is one who takes an instrument that is apparently complete and regular on its face, is not overdue or dishonored, takes it in good faith, for value, and without notice of any claim to it or defense against it. In this scenario, the promissory note was originally issued by Mr. Abernathy to Ms. Blythe. Ms. Blythe then negotiated the note to Mr. Carter. However, Mr. Carter received the note after its due date. An instrument is considered overdue when it is taken after the date on which it is due, or if it is an installment instrument and an installment is overdue. Alabama UCC § 75-3-304(a)(2) explicitly states that a note is overdue if it is taken after the date on which it is due. Since Mr. Carter took the note after the specified due date of June 15, 2024, he cannot be a holder in due course. Because Mr. Carter is not a holder in due course, he takes the note subject to all defenses that were available against Ms. Blythe, the original payee. Mr. Abernathy’s defense of fraud in the inducement is a “personal” defense. Personal defenses are generally cut off when an instrument is negotiated to a holder in due course. However, when the holder is not an HDC, these personal defenses remain available. Therefore, Mr. Abernathy can assert the defense of fraud in the inducement against Mr. Carter.

Under Alabama law, specifically UCC Article 3, the concept of a holder in due course (HDC) is crucial for determining the enforceability of negotiable instruments against parties with potential defenses. To qualify as an HDC, a holder must take an instrument that is (1) negotiable, (2) signed by the maker or drawer, (3) a promise or order to pay a fixed amount of money, (4) payable on demand or at a definite time, (5) payable to order or to bearer, and (6) 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. Additionally, the holder must take the instrument (1) for value, (2) in good faith, and (3) without notice that the instrument is overdue or has been dishonored or that there is any defense against or claim to it on the part of any person. In this scenario, the promissory note is a negotiable instrument as it meets the basic requirements: it is written, signed by the maker, promises a fixed amount of money, is payable on demand, and is payable to order. However, Ms. Gable’s knowledge of the underlying contract’s potential breach at the time she acquired the note is critical. According to UCC § 3-302, a holder who has notice of a defense against the instrument cannot be a holder in due course. The fact that the note was acquired for value and in good faith is insufficient if she had notice of a claim or defense. The underlying contract dispute concerning the faulty construction materials constitutes a defense. Therefore, Ms. Gable, having acquired the note with knowledge of this potential defense, does not qualify as a holder in due course. Consequently, she takes the instrument subject to the maker’s defenses, including the defense arising from the breach of contract.

The scenario describes a promissory note that is payable “on demand.” Under Alabama’s Uniform Commercial Code (UCC) Article 3, a promise to pay is for a fixed amount of money and is payable on demand or at a definite time. A note payable on demand is negotiable. The key issue here is whether the note’s negotiability is destroyed by the additional language regarding the collateral. UCC § 3-104(a)(1) states that a negotiable instrument must contain an unconditional promise or order. UCC § 3-105(b) clarifies that a promise or order is not made conditional by the fact that it is subject to a right to payment of or recourse on the instrument is secured by collateral. This means that including a reference to collateral does not make the promise conditional for the purposes of negotiability, as long as the instrument does not state that payment is to be made only out of a particular fund or source. The note explicitly states it is secured by a specific piece of equipment, but it does not limit payment solely to the proceeds from that collateral. Therefore, the note meets the negotiability requirements, and the holder can enforce it.

The core issue revolves around the negotiability of an instrument that contains a promise to pay a fixed sum of money but also includes a clause that permits the holder to demand additional collateral if the market value of the original collateral falls below a certain threshold. Under UCC Article 3, as adopted in Alabama, a negotiable instrument must contain an unconditional promise or order to pay a fixed amount of money. While a promise to pay a fixed amount is present, the additional clause concerning collateral introduces a contingency that affects the certainty of the payment amount. Specifically, the requirement that the maker “maintain collateral with a market value at least 150% of the outstanding balance” and the provision for demanding additional collateral if this condition is not met, transforms the promise from a simple, unconditional one to one that is subject to the fluctuating value of collateral. This type of clause, which makes the payment amount dependent on external factors or actions by the parties, generally renders the instrument non-negotiable because it violates the “fixed amount” and “unconditional” requirements of UCC § 3-104(a). The amount payable is not fixed if the holder can demand additional payment or if the obligation is affected by the collateral’s value. Therefore, the instrument, as described, would likely be considered a non-negotiable contract, not a negotiable instrument, under Alabama law.

Under Alabama law, specifically as codified in 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, and payable to order or to bearer. A key element for negotiability is the absence of any additional undertaking or instruction by the party promising or ordering payment, except as authorized by UCC § 3-104(a). Such additional undertakings or instructions, if they relate to collateral, confessions of judgment, or other stipulations, can render the instrument non-negotiable. For instance, a promise to pay a sum of money and also to perform some other act, such as delivering goods, typically destroys negotiability. However, certain clauses are permitted. UCC § 3-104(a)(3) allows for provisions related to collateral, and UCC § 3-104(a)(4) permits a statement that the instrument is secured by collateral. Moreover, a promise or order is unconditional unless it states an express condition to payment or the order to pay is subject to any other undertaking or instruction. The inclusion of a statement that the instrument is made under or governed by another agreement does not make the promise or order conditional, as per UCC § 3-105(e). Therefore, a clause that merely refers to another agreement for rights as to prepayment or acceleration does not impair negotiability.

The scenario presented involves a promissory note that contains a clause stating it is “subject to the terms of the loan agreement dated January 15, 2023.” Under UCC Article 3, a key requirement for negotiability is that the instrument must contain an unconditional promise or order. An instrument is considered conditional if it states that it is subject to, or governed by, another writing. This reference to another writing, even if it only specifies rights and obligations of the parties, makes the promise conditional, thereby destroying the negotiability of the instrument. Alabama law, as codified in UCC Article 3, adheres to this principle. Therefore, the promissory note, by incorporating the terms of the loan agreement by reference, fails the unconditional promise requirement and is not a negotiable instrument. This means it cannot be negotiated by endorsement and delivery, and a holder cannot acquire the rights of a holder in due course. The note can still be transferred as a simple contract, but its status as a negotiable instrument is extinguished.

Under Alabama law, as codified by the Uniform Commercial Code (UCC) Article 3, a holder in due course (HDC) takes an instrument free from all defenses of any party to the instrument with whom the holder has not dealt, except for real defenses. Real defenses are those that can be asserted against any holder, including an HDC. Personal defenses, on the other hand, are only effective against a holder who is not an HDC. Among the defenses listed, the claim that the instrument was obtained by fraud in the inducement is a personal defense. Fraud in the inducement occurs when a party is tricked into signing an instrument by misrepresentations about the underlying transaction or the nature of the obligation, but they are aware they are signing a negotiable instrument. In contrast, fraud in the execution, where a party is deceived about the very nature of the instrument they are signing, is a real defense. Illegality of the transaction, if it renders the instrument void, is also a real defense. Material alteration of the instrument, if it is a fraudulent alteration, can also be a real defense, though a holder in due course can enforce the instrument according to its original tenor. Since the scenario describes fraud in the inducement, it is a personal defense that cannot be asserted against a holder in due course.

Under Alabama law, specifically UCC Article 3, a holder in due course (HDC) takes an instrument free from all defenses of any party to the instrument with whom the holder has not dealt, except for certain real defenses. Real defenses are those that can be asserted against any holder, including an HDC. These typically include infancy, duress that nullifies the obligation, fraud that nullifies the obligation, discharge in insolvency proceedings, and certain types of material alteration. Personal defenses, on the other hand, are those that can only be asserted against a holder who is not an HDC, such as breach of contract, lack of consideration, or fraud in the inducement. In this scenario, the alteration of the principal amount of the promissory note constitutes a material alteration, which is a real defense. Therefore, even if Mr. Abernathy qualifies as a holder in due course, he would be subject to this real defense. The alteration changed the fundamental terms of the note, making it voidable by the maker. Alabama’s UCC § 3-407 addresses the effect of an alteration. Specifically, if an instrument is materially altered, a party whose obligation is affected by the alteration is discharged unless that party assents to the alteration. Since the alteration was made without the maker’s consent and it was a material alteration, the maker has a valid defense against payment of the altered amount. The original terms of the note would still be enforceable if the alteration was not material or if the maker consented, but a material alteration without consent generally discharges the party. In this case, the change in the principal amount is undeniably material.

The scenario describes a situation where a negotiable instrument, specifically a promissory note, has been transferred. The core issue is determining the rights of the transferee when the transfer is made by endorsement and delivery. Under UCC Article 3, as adopted in Alabama, a holder in due course (HDC) takes an instrument free from most personal defenses. To qualify as an HDC, a person must take the instrument for value, in good faith, and without notice of any claim or defense. In this case, Ms. Anya Sharma received the note from Mr. Ben Carter. Mr. Carter’s good faith is not questioned, and he received the note for value from the original maker, Mr. David Lee. The crucial element is whether Ms. Sharma had notice of any defense or claim against the instrument when she took it. The facts state that Ms. Sharma was aware of Mr. Lee’s potential dispute with Mr. Carter regarding the underlying transaction for which the note was issued. This knowledge constitutes notice of a claim or defense. Therefore, Ms. Sharma does not qualify as a holder in due course. Consequently, she takes the instrument subject to all defenses that are available to Mr. Lee against Mr. Carter, including the defense of failure of consideration or misrepresentation in the inducement, which are typically personal defenses. A holder who is not an HDC, but who derives their title through an HDC, may also acquire HDC rights, but this “shelter provision” does not apply here because Mr. Carter himself was not an HDC due to Ms. Sharma’s knowledge of the dispute. Thus, Ms. Sharma’s rights are no greater than those of Mr. Carter.

The scenario presented involves a promissory note payable to a specific individual, “Artemis,” and subsequently endorsed in blank by Artemis. The core issue is whether a subsequent holder, “Cassian,” who took the instrument after Artemis’s blank endorsement, can be considered a holder in due course (HDC) despite not having Artemis’s special endorsement to him. Under Alabama law, as governed by UCC Article 3, an instrument payable to a specific person that is endorsed in blank becomes payable to bearer. When an instrument is payable to bearer, it may be negotiated by delivery alone. Therefore, Cassian, by taking delivery of the note after Artemis’s blank endorsement, acquired possession of an instrument payable to bearer. To be an HDC, Cassian must also take the instrument for value, in good faith, and without notice that it is overdue or has been dishonored or of any defense or claim to it on the part of any person. The question does not provide information to suggest Cassian failed any of these additional HDC requirements. The critical element here is the effect of the blank endorsement on negotiability and the subsequent transfer. A blank endorsement converts the instrument into bearer paper, allowing for negotiation by mere delivery. Therefore, Cassian can become an HDC.

The core of this question lies in understanding the concept of a holder in due course (HDC) and the defenses that can be asserted against them under UCC Article 3, as adopted in Alabama. A holder in due course takes an instrument free from all defenses except for those that are real defenses. Real defenses are those that can be asserted against any holder, including an HDC, while personal defenses are generally cut off by an HDC. In this scenario, the promissory note was originally issued for $5,000. The maker, Mr. Abernathy, received only $3,000 in consideration. This constitutes a failure of consideration, which is a personal defense. A subsequent holder, Ms. Dubois, purchased the note for $4,000. To qualify as a holder in due course, Ms. Dubois must have taken the note for value, in good faith, and without notice of any claim or defense against it. Assuming she meets these criteria, she would be a holder in due course. As an HDC, Ms. Dubois can enforce the note against Mr. Abernathy, but she is subject to real defenses. Failure of consideration is not a real defense; it is a personal defense. Therefore, Ms. Dubois, as an HDC, takes the note free from this personal defense. However, the amount she can recover is limited by the amount she paid for the note if she had notice of the defense or did not pay full value. The UCC generally states that if a holder takes an instrument for value but has notice of a defense, they can still be an HDC to the extent of the value given. In this case, Ms. Dubois paid $4,000 for a $5,000 note. Since failure of consideration is a personal defense and she paid value, she can enforce the note for the amount she paid, $4,000. This is because the UCC § 3-302(a) states that a holder in due course takes the instrument free of defenses except those specified in § 3-305(a). Section 3-305(a)(2) allows for defenses of a type that would preclude defense of that person in an action on a simple contract, such as lack of consideration. However, § 3-302(d) states that if an instrument is issued for value but part of the value given is unpaid, the purchaser is a holder in due course only to the extent of the value given. Here, Mr. Abernathy received $3,000 of the $5,000 value. Ms. Dubois paid $4,000. The UCC § 3-302(d) implies that if the holder pays less than face value, and has notice of a defense, they are an HDC only to the extent of the value paid. Since failure of consideration is a personal defense, it is cut off by an HDC, but the recovery is limited to the value paid. Therefore, Ms. Dubois can recover $4,000.

The scenario involves a promissory note that contains a clause stating, “This note is subject to the terms of the separate security agreement between the maker and payee dated January 15, 2023.” Under UCC Article 3, for an instrument to be negotiable, it must contain an unconditional promise or order. While a reference to another agreement does not automatically render a promise conditional, if the reference makes the payment obligation dependent on the terms of that separate agreement, negotiability is destroyed. In this case, the phrase “subject to the terms of” explicitly links the payment of the note to the conditions and stipulations within the security agreement. If the security agreement imposes conditions on payment or performance that are not present in the note itself, the promise becomes conditional. Alabama law, as codified in UCC Article 3, strictly adheres to the requirement of an unconditional promise for negotiability. Therefore, by making the note’s payment contingent on the terms of the security agreement, the maker has introduced a condition that prevents the instrument from being a negotiable instrument. The absence of negotiability means it cannot be transferred by endorsement and delivery in a manner that grants holder in due course status, and its enforceability is subject to all defenses available against the original payee.

The core issue here revolves around the concept of a holder in due course (HDC) and the defenses available against such a holder. A negotiable instrument must meet specific requirements to be considered negotiable under UCC Article 3, as adopted in Alabama. These include being a signed writing, containing 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 bearer. If an instrument lacks any of these essential elements, it is not negotiable, and therefore, a transferee cannot attain HDC status. In this scenario, the instrument is a written promise by Ms. Albright to pay $5,000 to Mr. Bates. However, the promise is contingent upon the successful completion of a specific construction project by a certain date. This contingency makes the promise conditional, thus failing the unconditional promise or order requirement for negotiability. Because the instrument is not negotiable, Mr. Bates’s transfer to Ms. Carter does not make her a holder in due course. Consequently, Ms. Carter, as a mere holder by assignment, takes the instrument subject to all defenses that would be available against Mr. Bates, including the defense that the underlying obligation (the construction project) was not fulfilled. Therefore, Ms. Albright can assert the defense of failure of consideration against Ms. Carter.

The core issue here is whether the instrument’s terms create a certainty of payment that aligns with the “fixed amount” requirement for negotiability under UCC Article 3, as adopted in Alabama. The instrument states a principal sum of fifty thousand dollars ($50,000.00) plus “interest at the prime rate published in The Wall Street Journal on the date of this instrument, compounded monthly.” While the principal is fixed, the interest rate is variable. UCC § 3-112(b) (Alabama Code § 7-3-112(b)) explicitly states that a instrument is not made nonnegotiable by the fact that it bears a variable rate of interest. The critical factor is that the variable rate is tied to a source readily ascertainable by reference to a published index or other external standard. The prime rate as published in The Wall Street Journal on a specific date fits this description perfectly. Therefore, the instrument contains a promise to pay a fixed amount of money, even with the variable interest, as the total amount due can be calculated at any given time by referencing the specified publication. The instrument is also payable to “order” and contains no other clauses that would destroy its negotiability. The presence of a security agreement, while it may affect enforcement, does not inherently destroy the negotiability of the underlying instrument itself.

The scenario presented involves a negotiable instrument that lacks a specific due date. Under Alabama’s Uniform Commercial Code (UCC) Article 3, specifically concerning the negotiability requirements of a negotiable instrument, a promise or order must be payable on demand or at a definite time. When an instrument states it is payable “on presentation,” or is otherwise stated to be payable on demand, or has no statement of the time of payment, it is considered payable on demand. This is a fundamental characteristic that allows for the instrument to be readily transferable and for parties to understand their payment obligations. The absence of a definite date, coupled with the phrase “on presentation,” clearly aligns with the “payable on demand” requirement. Therefore, the instrument retains its negotiability. The core concept being tested here is the “definite time” element of negotiability as defined in UCC § 3-108. Alabama law, following the UCC, mandates this characteristic for an instrument to be considered negotiable. Instruments payable at a fixed date or within a reasonably short period after a stated event are considered payable at a definite time. However, instruments that are payable upon the happening of an uncertain event or more than a specified time after an event are not negotiable. In this case, “on presentation” signifies a certainty of payment upon demand, thus satisfying the requirement.

Under Alabama 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, and payable to order or to bearer. For an instrument to be payable to order, it must be payable to the order of an identified person or to a specified account or to “cash” or to the order of an estate, trust, or organization. If an instrument is payable to “cash,” it is payable to bearer. If it is payable to a named entity that is not a person, partnership, trust, or organization, it is generally considered payable to bearer. In this scenario, the instrument is payable to “the order of The Mobile Bay Fisherman’s Association.” Since this is a named entity that is not a person, partnership, trust, or organization, it is not payable to order. UCC § 3-110(c)(2) states that if an instrument is payable to an entity that is not a person, partnership, trust, or organization, it is payable to bearer. Therefore, the instrument is payable to bearer.

The scenario describes a situation where a negotiable instrument, specifically a check, has been altered. The original amount was \( \$500.00 \), and it was raised to \( \$5,000.00 \). The critical legal principle in Alabama, as governed by UCC Article 3, concerning such alterations is how a holder in due course (HDC) can enforce the instrument. For an HDC, the rule is that they can enforce the instrument according to its original tenor when it was issued, but they can also enforce it according to its tenor at the time of the alteration if the alteration was made by a party with no authority to do so and the alteration was fraudulent. However, a more significant principle for an HDC is that they are generally protected from real defenses. A material fraudulent alteration is considered a real defense, meaning it can be asserted against anyone, including an HDC, *unless* the HDC took the instrument after the alteration. In this case, the alteration occurred *before* the instrument was negotiated to Ms. Albright. Therefore, as an HDC, Ms. Albright can enforce the instrument only according to its original tenor, which was \( \$500.00 \). This is because a fraudulent material alteration is a real defense that is effective against an HDC if the HDC acquired the instrument after the alteration. Since Ms. Albright acquired the check after the alteration, she can only recover the original amount. The UCC specifically addresses this in Section 3-407. An alteration by a holder that is both fraudulent and material allows the drawer to avoid liability on the instrument altogether. However, when the instrument is taken by an HDC, the HDC can enforce the instrument according to its original tenor. If the alteration is fraudulent and material, the instrument is discharged as to the party whose obligation was materially altered, but an HDC can still enforce it according to its original tenor. In this specific Alabama context, the protection afforded to an HDC against personal defenses does not extend to real defenses like a fraudulent material alteration that occurred before the HDC acquired the instrument. Therefore, Ms. Albright can only enforce the check for the original amount of \( \$500.00 \).

Alabama law, like the Uniform Commercial Code (UCC) Article 3, defines a negotiable instrument as a writing 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. For an instrument to be negotiable, it must meet several criteria. First, it must be in writing and signed by the maker or drawer. Second, it must contain an unconditional promise or order. Conditions that affect the promise or order, such as requiring an act other than payment of money, or stating that the promise is subject to or governed by another writing, generally destroy negotiability. Third, the promise or order must be for a fixed amount of money. This means the principal amount must be ascertainable, although provisions for interest, late charges, or attorney fees do not necessarily destroy negotiability. Fourth, the instrument must be payable on demand or at a definite time. An instrument is payable on demand if it states it is payable on demand, at sight, or presentation, or otherwise indicates no time for payment. A definite time is one that can be determined from the instrument itself without reference to external circumstances. Finally, it must be payable to order or to bearer. “Payable to order” means payable to a named person or their order, or to a named person and anyone they designate. “Payable to bearer” means payable to anyone who possesses it. In the given scenario, the promissory note explicitly states that payment is subject to the borrower’s successful completion of a postgraduate degree program, which is a condition precedent to payment. This makes the promise conditional, thus rendering the instrument non-negotiable under UCC Article 3 as adopted in Alabama.

The scenario involves a promissory note that contains a clause allowing for acceleration of the due date upon the occurrence of a specified event. In Alabama, under UCC Article 3, a promise or order is unconditional if it does not state any other undertaking or instruction by the person promising or ordering to do any act in addition to the payment of money. However, UCC Section 3-104(a)(1) permits a promise or order to be conditional if it states “an acceleration clause.” An acceleration clause allows the holder of the note to demand payment of the entire outstanding balance upon the happening of a specified event, such as default in payment of an installment or a change in the maker’s financial condition. The note in question explicitly states that the entire principal balance becomes immediately due and payable if the maker’s net worth falls below a certain threshold. This provision for acceleration, as long as it relates to the payment of money and does not impose an additional obligation beyond securing payment, does not destroy the negotiability of the instrument. The note is for a fixed amount of money, payable to order, and due on demand. Therefore, the acceleration clause, in this context, does not render the note non-negotiable. The core principle is that the instrument must be for a fixed amount of money and payable at a definite time or on demand. An acceleration clause, by its nature, makes the payment time definite upon the occurrence of the triggering event.

Under Alabama law, specifically UCC Article 3, a holder in due course (HDC) takes an instrument free from all defenses of any party to the instrument with whom the holder has not dealt, except for real defenses. Real defenses are those that can be asserted against any holder, including an HDC. These typically involve fundamental flaws in the instrument or its creation. Personal defenses, on the other hand, can only be asserted against parties with whom the holder has dealt or against holders who are not HDCs. The scenario describes a promissory note that was originally issued for a legitimate business purpose but was later altered without the maker’s consent by increasing the principal amount. This alteration constitutes a material alteration. While a holder who takes an instrument with knowledge of a material alteration cannot be an HDC, if the holder acquired the instrument before the alteration and did not have notice of it, they could potentially qualify as an HDC. However, even an HDC takes the instrument subject to real defenses. A material alteration that increases the obligation of a party is generally considered a real defense under UCC § 3-305(a)(2) and § 3-407(b). Therefore, the maker can assert the defense of material alteration against the HDC, preventing recovery on the altered amount. The HDC can only recover the original amount of the note, as if the alteration had not been made, provided the HDC is not the one who made the alteration. Since the question implies the note was acquired by the HDC after the alteration, and the alteration increases the obligation, the maker can assert this as a real defense. The HDC’s rights are thus limited to the original principal amount. The calculation would be: Original Principal Amount = \( \$10,000 \). Altered Principal Amount = \( \$15,000 \). Amount recoverable by HDC against maker due to real defense of material alteration = Original Principal Amount = \( \$10,000 \).

In Alabama, as under the Uniform Commercial Code (UCC) Article 3, the concept of “negotiability” is paramount for an instrument to be treated as a negotiable instrument. A key element of negotiability is that the instrument 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. Alabama law, mirroring UCC § 3-104, specifies these requirements. A post-dated check, while still a draft, might raise questions about its “definite time” payment if the date is significantly in the future, but generally, a check is payable on demand. However, the critical factor here is the additional clause “or upon the successful completion of the Tuscaloosa Amphitheater renovation project.” This condition makes the payment contingent on an event that is not certain to occur and is not tied to a specific, ascertainable date or period. Such a condition violates the “unconditional promise or order” and “payable at a definite time” requirements for negotiability. Therefore, this instrument, despite being a signed writing promising payment of a fixed sum, is not a negotiable instrument under UCC Article 3 as adopted in Alabama. It would likely be treated as a simple contract or an assignment of rights.

The core issue revolves around the concept of a holder in due course (HDC) and the defenses available against them. For an instrument to be negotiable, it must meet specific criteria outlined in UCC Article 3, which Alabama has adopted. These include being a signed writing, containing 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 bearer. If these requirements are met, the instrument is considered negotiable. A holder in due course is a holder who takes the instrument for value, in good faith, and without notice of any claim or defense against it. Alabama law, like the UCC, generally shields an HDC from personal defenses, such as breach of contract, misrepresentation in the inducement, or lack of consideration. However, real defenses, such as infancy, duress, illegality of the transaction, or material alteration, are generally available even against an HDC. In this scenario, the promissory note is for a fixed amount, signed, and payable at a definite time. The crucial element is whether the maker has a defense that can be asserted against an HDC. The fact that the note was given in exchange for a promise to deliver rare Alabama-grown pecans, which were never delivered, constitutes a failure of consideration, which is a personal defense. Therefore, if Mr. Abernathy qualifies as a holder in due course, he would take the note free from this personal defense and could enforce it against the maker. The UCC, as adopted in Alabama, defines “value” broadly and “good faith” as honesty in fact and the observance of reasonable commercial standards of fair dealing. Notice typically means actual knowledge or reason to know. Assuming Mr. Abernathy meets these criteria, he would be an HDC. The question tests the understanding of which defenses are cut off by HDC status.

In Alabama, as governed by UCC Article 3, a holder in due course (HDC) takes an instrument free from all defenses of any party to the instrument with whom the holder has not dealt, except for real defenses. Real defenses are those that can be asserted against any holder, including an HDC. Personal defenses, on the other hand, are generally not effective against an HDC. Among the listed options, fraud in the inducement is a personal defense. This occurs when a party is induced to sign an instrument by a fraudulent representation about the nature or value of the consideration. The maker understands the nature of the instrument they are signing but is deceived about the reasons for signing it. This defense is typically cut off by an HDC. Conversely, fraud in the execution (or inception) is a real defense, where the signer is deceived about the very nature of the instrument itself. Illegality of the transaction, if it renders the instrument void under Alabama law, is also a real defense. Payment is a discharge of the instrument, and if made to the proper person, it discharges the obligation, and this defense is generally available against any holder. Therefore, fraud in the inducement is the defense that would most likely be cut off by a holder in due course.

The scenario describes a situation where a promissory note, governed by Alabama’s Uniform Commercial Code (UCC) Article 3, is transferred. The initial holder, Beatrice, endorses the note in blank and delivers it to her nephew, Charles. Subsequently, Charles writes “Pay to the order of David” above Beatrice’s blank endorsement and delivers it to David. This action transforms the blank endorsement into a special endorsement. David then transfers the note to Emily by merely delivering it without any further endorsement. Under Alabama UCC § 3-205, a blank endorsement creates an instrument payable to bearer. However, a subsequent special endorsement converts it to an instrument payable to a specific person. Once an instrument is payable to a specific person, it can only be negotiated by endorsement and delivery. Since David did not endorse the note before delivering it to Emily, the transfer from David to Emily is not a negotiation. Instead, it constitutes an assignment. As an assignee, Emily takes the note subject to all claims and defenses that could have been asserted against David, including any defenses the maker might have had against Beatrice or David. Therefore, Emily does not acquire the rights of a holder in due course.

In Alabama, as governed by UCC Article 3, the concept of “negotiability” is central to an instrument’s ability to circulate freely as a substitute for money. For an instrument to be negotiable, it must meet several specific requirements outlined in UCC § 3-104. These include being a written document, signed by the maker or drawer, containing an unconditional promise or order to pay a fixed amount of money, payable on demand or at a definite time, and payable to order or to bearer. The question presents a scenario where a written promise to pay a sum of money is made, but it contains a condition precedent. Specifically, the payment is contingent upon the successful completion of a construction project by a third party. This conditionality fundamentally undermines the unconditional promise or order requirement for negotiability. Under UCC § 3-104(a)(1), the promise or order must be unconditional. A promise or order is conditional if it states an obligation to do any act in addition to the payment of money or if it states that it is subject to or governed by another writing. The stipulation that payment is contingent upon the successful completion of a construction project by a separate entity constitutes a condition precedent, making the instrument non-negotiable. Therefore, even if all other requirements were met, the presence of this condition would prevent the instrument from being a negotiable instrument under Alabama law. The instrument might still be a valid contract or an assignable claim, but it cannot be treated as a negotiable instrument for the purposes of Article 3.