The scenario involves a holder in due course (HDC) situation under UCC Article 3, as adopted in Delaware. For an instrument to be negotiable, it must meet several requirements, including being payable to order or to bearer, containing an unconditional promise or order to pay a sum certain in money, and being payable on demand or at a definite time. The instrument in question is a promissory note. The key issue is whether the note is “negotiable” and whether the transferee, “Art’s Auto Parts,” qualifies as a holder in due course. A holder in due course must take the instrument (1) for value, (2) in good faith, and (3) without notice that it is overdue or has been dishonored or of any defense against or claim to the instrument. In Delaware, similar to other states, UCC § 3-302 defines a holder in due course. The note is made payable to “order” of “Beth’s Bakery,” satisfying the order to pay requirement. It promises to pay a specific sum of money ($5,000) and is payable “on demand,” which is a definite time. The promise is unconditional, as it does not contain any additional clauses that would make it conditional. Therefore, the note itself is a negotiable instrument. Art’s Auto Parts purchased the note from Beth’s Bakery. To determine if Art’s Auto Parts is an HDC, we assess the three elements: 1. **Value:** Art’s Auto Parts gave $4,500 in cash for the note. UCC § 3-303 states that value is given if the holder takes the instrument for payment of, or security for, a money debt or to discharge an antecedent debt. Giving $4,500 in cash for a $5,000 note constitutes taking for value. The discount does not prevent it from being for value, as it is a common business practice. 2. **Good Faith:** The facts do not suggest Art’s Auto Parts acted in bad faith. There’s no indication of dishonesty or a lack of honesty in fact. 3. **Without Notice:** This is the critical element. The facts state that Art’s Auto Parts purchased the note “without any knowledge of the dispute between Beth’s Bakery and the maker.” This means Art’s Auto Parts had no notice of the defense (the failure of consideration/breach of contract by Beth’s Bakery). Since Art’s Auto Parts meets all three requirements, it is a holder in due course. As an HDC, Art’s Auto Parts takes the instrument free from all defenses of any party to the instrument with whom the holder has not dealt, except for “real defenses” (like infancy, duress, or fraud in the execution). The defense of Beth’s Bakery’s failure to deliver the promised flour is a “personal defense” (failure of consideration or breach of contract). Therefore, Art’s Auto Parts, as an HDC, can enforce the note against the maker, even though Beth’s Bakery breached its contract. The maker’s obligation to pay the note is enforced by Art’s Auto Parts, which acquired the note for value, in good faith, and without notice of any defense. The amount Art’s Auto Parts can recover is the full face amount of the note, $5,000, as they are entitled to enforce the instrument according to its terms. The fact that they paid less than face value does not limit their recovery to the amount paid when they are an HDC.

The scenario involves a holder in due course (HDC) and a negotiable instrument that was originally issued in Delaware, governed by UCC Article 3. The question probes the concept of a holder taking an instrument for value, in good faith, and without notice of any defense or claim. Specifically, it tests the understanding of what constitutes “value” under UCC § 3-303. In this case, the bank extended a line of credit to the payee and allowed the payee to draw against that credit. This extension of credit constitutes value, even if the credit has not yet been fully drawn upon, as it creates a security interest in the instrument. The bank’s action of allowing the payee to draw funds against the deposited instrument means the bank has given value. Furthermore, the bank’s lack of knowledge regarding the drawer’s defense (failure of consideration) means it took the instrument in good faith and without notice. Therefore, the bank likely qualifies as a holder in due course.

The core issue revolves around the concept of a holder in due course (HDC) and the defenses available against such a holder under UCC Article 3, specifically as adopted in Delaware. A negotiable instrument is transferred to an HDC if it is taken for value, in good faith, and without notice of any claim or defense. Once an instrument is held by an HDC, they take it free from most personal defenses, such as breach of contract or failure of consideration, but not from real defenses. Real defenses are those that can be asserted against any holder, including an HDC. In this scenario, Ms. Albright issued a promissory note to Mr. Davies for the purchase of a vintage automobile. Mr. Davies subsequently negotiated the note to Ms. Chen. The crucial element is the nature of the defense Ms. Albright wishes to raise. If the defense is that the automobile was significantly misrepresented and ultimately failed to function as represented, this would likely constitute a personal defense (e.g., fraud in the inducement, failure of consideration). Personal defenses are generally cut off when the instrument is negotiated to an HDC. However, if the defense is that Ms. Albright’s signature was forged, or that she was under duress in signing the note, or that the note was materially altered without her consent, these would be considered real defenses. Real defenses can be asserted against an HDC. The question asks about the defense that can be asserted against Ms. Chen, assuming she qualifies as an HDC. Since the scenario implies a dispute related to the underlying transaction (the automobile), the defense likely pertains to the quality or condition of the automobile, which falls under personal defenses. Therefore, Ms. Albright cannot assert a personal defense against Ms. Chen if Ms. Chen is an HDC. The question requires identifying which type of defense is NOT cut off by an HDC. A real defense, such as fraud in the factum (where the maker is deceived about the nature of the instrument itself), illegality of a type that nullifies the obligation, or discharge in insolvency proceedings, is a defense that can be raised against an HDC. Fraud in the inducement, on the other hand, is a personal defense.

The scenario involves a promissory note that is payable to order, specifically to “the order of Anya Sharma.” Under UCC Article 3, as adopted in Delaware, an instrument payable to order is negotiated by delivery with any necessary indorsement. Anya Sharma, as the named payee, has the right to negotiate the instrument. If Anya Sharma indorses the note by simply signing her name on the back, this constitutes a special indorsement. However, if she wants to transfer the instrument to another party, say, to “Ben Carter,” and wants to ensure that only Ben Carter can further negotiate it, she must indorse it in a specific manner. A special indorsement names the person to whom the instrument is payable after the indorsement. Therefore, to transfer the note to Ben Carter and make it payable to his order, Anya Sharma must indorse it as “Pay to the order of Ben Carter, Anya Sharma.” This indorsement makes the instrument payable to Ben Carter, and subsequent negotiation would require Ben Carter’s indorsement. A blank indorsement, which is just Anya Sharma’s signature, would make the note payable to bearer, allowing anyone in possession to negotiate it. An indorsement “Pay to Ben Carter” without “the order of” would convert it to a special indorsement but would not create a new negotiable instrument payable to Ben Carter’s order, and under UCC 3-205(d), such an indorsement is treated as a special indorsement. The key is that for further negotiability by Ben Carter, the instrument must be made payable to his order.

The scenario involves a promissory note that is payable to “bearer.” Under UCC Article 3, a negotiable instrument payable to bearer is negotiated by delivery alone. No endorsement is required. The UCC specifically addresses bearer instruments in Section 3-109(a)(3), which states that an instrument is payable to bearer if it is payable to “cash” or “cash equivalent,” or to a specified person or bearer. The key here is that the instrument is explicitly made payable to “bearer.” Therefore, when Amelia delivers the note to Bartholomew without any endorsement, she effectively negotiates the instrument. Bartholomew, as the holder, now possesses the note. The question asks about the legal status of Bartholomew’s possession. Since delivery of a bearer instrument constitutes negotiation, Bartholomew becomes the holder of the note.

The question revolves around the concept of a holder in due course (HDC) and the defenses available against them under UCC Article 3, as adopted in Delaware. A negotiable instrument is taken by a holder in due course if it is taken for value, in good faith, and without notice of any claim or defense against it. Under Delaware law, generally, personal defenses such as breach of contract, failure of consideration, or fraud in the inducement are cut off by an HDC. However, real defenses, which go to the validity of the instrument itself, can be asserted even against an HDC. These include infancy, duress, illegality of a nature that nullifies the obligation, fraud in the factum (where the maker did not know the nature of the instrument or was tricked into signing it), and discharge in insolvency proceedings. In this scenario, Mr. Abernathy, a holder in due course, has purchased a promissory note from Ms. Bellweather. The maker of the note, Mr. Carmichael, wishes to assert a defense. The defense raised is that Ms. Bellweather, the original payee, misrepresented the quality and functionality of the antique clock he purchased with the note, leading to a significant financial loss for Mr. Carmichael. This misrepresentation constitutes fraud in the inducement. Fraud in the inducement is a personal defense, meaning it arises from the underlying transaction between the original parties and does not go to the fundamental validity of the instrument itself. Since Mr. Abernathy is a holder in due course, having taken the note for value, in good faith, and without notice of any defenses, he takes the instrument free from this personal defense. Therefore, Mr. Carmichael cannot assert the misrepresentation of the clock’s quality as a defense against Mr. Abernathy.

The core issue here is whether a holder in due course status can be maintained when the instrument is acquired in a transaction that fundamentally alters its nature or the underlying obligation, particularly concerning the “value” requirement. Under UCC Article 3, specifically Delaware’s adoption, a holder in due course (HDC) must take the instrument for value, in good faith, and without notice of any defense or claim. The concept of “value” is broad and can include taking an instrument as payment of, or as security for, a pre-existing claim. However, if the instrument is taken as collateral for a debt where the collateral is not applied to the debt, or if the transfer is merely a discount without any real consideration passing, the holder may not have given full value. In this scenario, Mr. Abernathy receives the note as security for a pre-existing debt owed by Ms. Gable. Delaware UCC § 3-303 defines value. Taking an instrument as security for, or in total or partial satisfaction of, a pre-existing claim constitutes value. However, the extent to which value is given is important for HDC status. If the instrument is taken as collateral, the holder is a holder for value only to the extent of the collateral’s value or the amount of the debt, whichever is less, if the debt is discharged. If the debt is not discharged, the holder has given value. In this case, Abernathy took the note as security for the $10,000 debt. If he had not received the note, he would have had a claim against Gable for $10,000. By taking the note as security, he has given value for that security interest. The UCC distinguishes between taking an instrument in satisfaction of a debt (which discharges the debt to the extent of the instrument’s value) and taking it as security. Taking as security for a pre-existing claim is value. Therefore, Abernathy gave value for the note by taking it as security for the $10,000 pre-existing debt. This satisfies the value requirement for HDC status, assuming good faith and no notice of defenses. The fact that the note was for a larger amount than the debt does not negate the value given for the security interest in the note itself. The question is about whether Abernathy is an HDC of the note, not the extent to which the note can be enforced against the maker. By taking the note as security for a pre-existing debt, Abernathy has given value under UCC § 3-303. This value is the security interest in the note itself, which secures the $10,000 pre-existing claim. Thus, Abernathy is a holder for value.

The scenario involves a promissory note that is payable to “bearer” and is also undated. Under Delaware UCC § 3-104(a), a negotiable instrument must be a promise to pay a fixed amount of money, payable on demand or at a definite time, and payable to order or to bearer. Delaware UCC § 3-108(a) states that an instrument is payable on demand if it states that it is payable on demand, or at sight, or at presentation, or if it contains no statement of duration. When an instrument is undated, Delaware UCC § 3-113(b) provides that the holder may complete it by filling in the correct date. If the holder improperly completes the instrument, the holder may not recover from any party whose contract is to pay the instrument if the instrument improperly completed is enforceable against the party. However, if the instrument is payable to bearer and undated, the absence of a date does not affect its negotiability as long as it is otherwise a negotiable instrument. The key here is that an undated note payable to bearer is still a negotiable instrument. The holder can fill in the date, and if they do so improperly, it may affect enforceability against certain parties, but the instrument’s fundamental negotiability is not destroyed by the absence of a date for a bearer instrument. Therefore, the note is a negotiable instrument.

In Delaware, under 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 transferor. To qualify as an HDC, a holder must take the instrument for value, in good faith, and without notice that it is overdue or dishonored or that it contains an unauthorized signature or alteration or any defense or claim. The scenario involves a promissory note originally made by Ms. Eleanor Vance to “The Music Emporium” for a custom-made piano. The note contained a clause stating, “This note is subject to the satisfactory performance of the piano as per the contract dated January 15, 2023.” The Music Emporium subsequently indorsed the note in blank and transferred it to Mr. Reginald Finch. Mr. Finch then transferred the note to Ms. Clara Bellweather. Ms. Bellweather received the note on February 20, 2023. The piano, delivered on February 1, 2023, failed to perform as contracted, and Ms. Vance attempted to stop payment on the note. The crucial element here is whether Ms. Bellweather had notice of the defense (failure of consideration due to the piano’s performance issues) at the time she acquired the note. The note itself, by its terms, explicitly links its negotiability to the satisfactory performance of the piano, effectively making it a non-negotiable instrument from its inception due to the express condition. Delaware follows the general UCC principle that an instrument that contains a promise to pay subject to a condition is not a negotiable instrument. Even if it were considered negotiable, the wording “subject to the satisfactory performance of the piano as per the contract dated January 15, 2023” would put any reasonable holder on notice of a potential defense related to that performance. Therefore, Ms. Bellweather, by taking an instrument with such a clause, cannot be considered a holder in due course because she had notice of a defense or claim at the time of acquisition. The UCC § 3-104(a) defines a negotiable instrument, and § 3-106(a) addresses unconditional promises. A promise is conditional if it states an obligation to do anything other than pay money or if it is subject to any right or power to pay except as stated in § 3-104(a)(1) or (2). The clause in the note creates such a condition. Consequently, Ms. Bellweather takes the note subject to all defenses available to Ms. Vance against The Music Emporium, including the defense of failure of consideration.

The scenario involves a holder in due course (HDC) and a defense against payment on a negotiable instrument. Under Delaware law, specifically Delaware UCC § 3-305, a holder in due course takes an instrument free of all defenses and claims except for certain real defenses. Among the real defenses, fraud in the factum (or fraud that induces the obligor to sign the instrument with neither knowledge nor reasonable opportunity to learn of its character or essential terms) is a potent defense that can be asserted even against an HDC. In this case, the maker, Ms. Anya Sharma, was led to believe she was signing a petition to support local park improvements, not a promissory note for a substantial sum. This misrepresentation goes to the very nature of the instrument she signed, making it fraud in the factum. Therefore, the defense is valid against any holder, including an HDC. Other defenses, such as ordinary fraud in the inducement (where the obligor knows they are signing a contract but is deceived about the underlying reasons or benefits), are generally cut off by an HDC. Since the question specifies fraud in the factum, this real defense is effective.

The core of this 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 Delaware. 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 are those that can be asserted against any holder, including an HDC, while personal defenses can only be asserted against a holder who is not an HDC. In this scenario, the promissory note was originally issued by Ms. Albright to “Melody Music Inc.” The note contained a material alteration: the interest rate was changed from 5% to 7% without Ms. Albright’s consent. Melody Music Inc. then negotiated the note to “First State Bank of Wilmington” before its maturity date, and First State Bank took the note for value, in good faith, and without notice of any claim or defense. This establishes First State Bank as a holder in due course. The material alteration of the interest rate is a real defense under UCC § 3-305(a)(2). A holder in due course, while generally protected from personal defenses like breach of warranty or lack of consideration, is subject to real defenses. UCC § 3-305(a)(2) specifically states that a party to an instrument may assert against a holder in due course, among other things, “illegality of the transaction which, under the law of Delaware, renders the obligation of the obligor an unenforceable legal excuse,” and “fraud that induced the obligor to sign the instrument with neither knowledge nor reasonable opportunity to obtain knowledge of its character or essential terms.” While fraud in the inducement is a personal defense, fraud in the factum (or fraud that prevents the obligor from knowing the nature of the instrument) is a real defense. However, the most direct real defense applicable here, and one that is universally recognized under UCC Article 3, is a material alteration. UCC § 3-407(b) states that if an instrument is materially altered, the holder may enforce it according to its original tenor, but if the alteration is made by a holder, the holder cannot enforce it at all. Here, the alteration was made by Melody Music Inc. (the original payee), not by the holder (First State Bank). Therefore, First State Bank, as an HDC, can only enforce the note according to its original tenor, which means at the original interest rate of 5%. The question asks what First State Bank can enforce. Since First State Bank is an HDC and the interest rate change is a material alteration, it can enforce the note according to its original terms. The principal amount of $10,000 and the original interest rate of 5% per annum are enforceable. The altered interest rate of 7% is not enforceable by the HDC. Therefore, First State Bank can enforce the note for the principal amount of $10,000 with interest at the original rate of 5% per annum.

The scenario describes a promissory note that contains a clause allowing the maker to prepay the principal balance without penalty. This clause is an example of a privilege granted to the maker. Under UCC Article 3, specifically concerning terms relating to payment, a promise or order to pay a fixed amount of money is unconditional even though it is subject to a promise or order to pay a definite amount of money, or to another instrument, or to the extent that the amount payable is not greater than the amount of another instrument. Furthermore, UCC § 3-104(a)(1) defines a negotiable instrument as an unconditional promise or order to pay a fixed amount of money, with or without interest or other charges described in the promise or order, if it: (1) is payable to bearer or to order; (2) is payable on demand or at a definite time; and (3) is payable to order or to bearer, and not expressed to be payable to a specific person or to the order of a specific person. A prepayment privilege does not render the promise conditional in a way that destroys negotiability, as the obligation to pay the fixed sum at a definite time remains. The presence of such a privilege is a common feature in many negotiable instruments and does not alter the fundamental nature of the promise to pay a specific sum at a specified time or on demand. Therefore, the note remains a negotiable instrument.

The scenario involves a promissory note that is payable to a specific individual, “Eleanor Vance,” and contains a clause stating it is “subject to the terms of the separate agreement dated January 15, 2023.” Under UCC Article 3, specifically Delaware’s adoption of it, an instrument is a negotiable instrument if it contains an unconditional promise or order to pay a fixed amount of money, payable on demand or at a definite time, and payable to order or to bearer. The inclusion of a reference to another agreement that governs the terms of payment, such as the “subject to the terms of the separate agreement” clause, makes the promise conditional. A conditional promise means the instrument is not negotiable. Therefore, the note, as described, is not a negotiable instrument under UCC Article 3 because the promise to pay is made conditional upon the terms of the separate agreement, thereby destroying its negotiability. This means it cannot be transferred by endorsement and delivery to acquire holder in due course status, and defenses that would be cut off against a holder in due course remain available.

The scenario involves a promissory note that is not payable on demand or at a definite time, and it is also not payable to order or to bearer. Under UCC Article 3, as adopted in Delaware, an instrument must meet certain requirements to be a negotiable instrument. Specifically, for an instrument to be negotiable, it must be payable “on demand or at a definite time” and “to order or to bearer.” The note in question fails both of these requirements. Since it is not payable on demand or at a definite time, it cannot be negotiated by endorsement and delivery. Furthermore, because it is not payable to order or to bearer, it is not payable to a specific person in a manner that would allow for negotiation under the rules of Article 3. Instead, such an instrument is generally treated as a simple contract for the payment of money. This means that it is not governed by the rules of Article 3 concerning holders in due course, discharge, or defenses. Consequently, any transfer of this instrument would be an assignment of a contract right, and the transferee would take the instrument subject to all claims and defenses that were available against the original payee. Therefore, the instrument is not a negotiable instrument under Delaware law.

The scenario involves a promissory note that is payable to “bearer” and is undated. Under Delaware UCC § 3-108(a), an instrument is payable to bearer if it states that it is payable to bearer or to a specific person or bearer. Since the note explicitly states “pay to the order of bearer,” it is a bearer instrument. Delaware UCC § 3-108(b) addresses undated instruments. If an instrument is payable to order or bearer and is undated, the holder may complete it by filling in the date. If the instrument is not completed, it is payable on demand. However, the crucial aspect here is the negotiation of a bearer instrument. Negotiation of a bearer instrument occurs by delivery alone, as per Delaware UCC § 3-201(b). This means that possession of the instrument, coupled with the intent to transfer ownership, is sufficient for negotiation, regardless of any endorsement. Therefore, the delivery of the undated bearer note by the maker to the payee constitutes a valid negotiation. The fact that it is undated does not prevent its negotiation; the holder can complete it by dating it.

The scenario involves a promissory note payable to “Bear Industries” which is a trade name for a sole proprietorship owned by Mr. Bartholomew “Barty” Higgins. Under UCC Article 3, specifically Delaware’s adoption of the Uniform Commercial Code, an instrument is payable to an order if it is payable to the order of an identified person. A trade name can be considered an identified person for the purposes of negotiability. Delaware UCC § 3-110(b) states that an instrument is payable to an identified person if that person is identified by name, but it also allows for instruments to be payable to an entity, such as a business, even if that entity is not a formally recognized legal entity like a corporation or partnership, as long as it is identified. A sole proprietorship operating under a trade name is treated as the individual owner for most legal purposes, and the trade name serves as an identifier. Therefore, a note made payable to “Bear Industries” is effectively payable to the identified person, Mr. Higgins, through his trade name. The subsequent endorsement by “Barty Higgins, proprietor of Bear Industries” is a valid endorsement by the identified payee, making the instrument properly negotiated. The critical element is whether the payee is sufficiently identified. In this case, “Bear Industries” is a specific, albeit informal, designation of the payee.

Under Delaware UCC Article 3, a holder in due course (HDC) takes an instrument free from all defenses and claims of any party with respect to the instrument. However, this protection is not absolute and certain real defenses can be asserted against an HDC. These real defenses are enumerated in Delaware UCC § 3-305(a)(1) and include infancy, duress that nullifies the obligation, fraud that induces the obligor’s assent, discharge in insolvency proceedings, and discharge by a separate agreement that is not part of the instrument itself. The question posits a scenario where a promissory note was procured through fraud in the inducement, meaning the maker understood the nature of the instrument but was misled about the underlying transaction. This type of fraud is a personal defense and does not defeat the rights of an HDC. The question then introduces a subsequent holder who takes the note for value, in good faith, and without notice of any claim or defense. This subsequent holder clearly meets the definition of an HDC under Delaware UCC § 3-302. Therefore, the HDC takes the instrument free from the defense of fraud in the inducement. The correct answer is that the holder in due course can enforce the instrument against the maker, despite the fraud in the inducement, as this is a personal defense that is cut off by HDC status.

The question probes the concept of holder in due course (HDC) status under UCC Article 3, specifically concerning a negotiable instrument acquired with notice of a defense. For a party to qualify as a holder in due course, they must take the instrument for value, in good faith, and without notice of any claim to the instrument or defense against it. In this scenario, the purchaser of the note, Wilmington Financial, received the note on June 15th. However, on June 10th, Wilmington Financial’s acquisition department was informed by its due diligence team about a potential material misrepresentation made by the issuer to the original payee, which could constitute a defense against payment. This knowledge, acquired before the actual transfer of the note, constitutes notice of a defense. Therefore, Wilmington Financial cannot be a holder in due course because it took the instrument with notice of a defense. The UCC defines “notice” broadly, including actual knowledge and receiving notification or having reason to know from all the facts and circumstances known to them at the time of the acquisition. The fact that the due diligence report was internal and shared within the company prior to the final acquisition is sufficient to impute notice. Consequently, Wilmington Financial takes the note subject to any defenses that the maker might have against the original payee.

The scenario involves a promissory note that is payable on demand. Under UCC Article 3, as adopted in Delaware, a demand instrument is generally due upon its presentation to the maker. When a demand instrument is presented for payment, the maker has a reasonable time to honor the presentment. However, the question focuses on the initial creation of the instrument and its characteristics. A key aspect of a demand instrument is that it is payable “on demand,” “at sight,” or “when presented.” The UCC specifies that if an instrument is payable on demand, the holder may present it for payment at any time. The UCC also addresses when the statute of limitations begins to run for demand instruments. For a draft (like a check), the statute of limitations begins to run when the draft is due or, if no date is stated, 10 years after the date of the draft. For a note payable on demand, the statute of limitations begins to run at the time of issuance or, if issued more than 10 years before the cause of action accrues, 10 years after the date of issuance. The question is about the legal effect of a note stating it is payable “upon notification.” This phrasing is legally equivalent to “on demand” or “when presented” under UCC § 3-108(a). Therefore, the note is a demand instrument. The question asks about the maturity date. For a demand instrument, there is no fixed maturity date in the traditional sense; it is due whenever the holder chooses to present it for payment. The UCC defines “issue” as the first delivery of an instrument for the purpose of giving rights on the instrument to any person. The question states the note was made and delivered to the payee. The payee can present it for payment at any time after delivery. Therefore, the note is immediately due and payable upon presentation by the payee.

The scenario involves a negotiable instrument that is payable to bearer. Under UCC Article 3, specifically Delaware’s adoption of it, a person in possession of an instrument payable to bearer becomes a holder. A holder of a negotiable instrument is generally entitled to enforce it. The question asks about the enforceability of the note by Mr. Abernathy, who found the note. For Mr. Abernathy to be a holder in due course (HDC), he would need to meet additional criteria beyond mere possession, such as taking the instrument for value, in good faith, and without notice of any claim or defense. However, the question simply asks if he can enforce it. Since the note is payable to bearer, possession alone is sufficient to establish status as a holder entitled to enforce the instrument, regardless of whether he qualifies as an HDC. The UCC § 3-301 explicitly states that a holder may enforce an instrument. Delaware follows these general principles. Therefore, Mr. Abernathy, as the possessor of a bearer instrument, can enforce it.

The scenario describes a promissory note that is payable to a specific individual, Elias Thorne, and also includes a clause that allows for acceleration of the due date upon the occurrence of a specific event: the maker’s default on a separate, secured loan. UCC § 3-108(a) defines a negotiable instrument as a promise or order to pay a fixed amount of money, if it is payable to bearer or to order at the time it is issued or first possessed by a holder. UCC § 3-104(a) outlines the requirements for negotiability, including that the instrument must contain an unconditional promise or order to pay a fixed amount of money and be payable on demand or at a definite time. While the note is payable to Elias Thorne (making it payable to order), the acceleration clause does not render the payment due date indefinite for the purposes of negotiability. UCC § 3-108(b) states that an instrument is payable at a definite time if it is payable on stated date or dates, or at a time readily ascertainable by reference to a separate agreement or event. The acceleration clause, tied to a default on another loan, makes the time of payment readily ascertainable by reference to that separate event. Therefore, the instrument meets the criteria for negotiability under Delaware’s adoption of UCC Article 3. The key is that the payment amount is fixed and the due date, while subject to acceleration, is still determinable by reference to a specific event.

This question explores the concept of a holder in due course (HIDC) and the defenses available against such a holder under UCC Article 3, as adopted in Delaware. A key element is understanding what constitutes a “real” defense versus a “personal” defense. Real defenses are generally available against all holders, including HDCs, while personal defenses are not. The scenario involves a promissory note that was initially valid but later became subject to a defense arising from a subsequent event. The critical point is that the defense of discharge by a subsequent agreement, such as a novation or accord and satisfaction, is typically a personal defense. This means that if a holder takes the instrument for value, in good faith, and without notice of the defense, they are protected from this defense. The question tests the understanding of whether the discharge of the original obligation by a new agreement constitutes a defense that can be asserted against an HIDC. Delaware law, consistent with the UCC, classifies defenses arising from subsequent agreements as personal. Therefore, a holder who qualifies as a holder in due course would take the note free from this defense, as the defense arose after the instrument was issued and was not apparent on its face. The concept of discharge under UCC § 3-601 and the definition of holder in due course under UCC § 3-302 are central to this analysis. The subsequent agreement to discharge the original debt in exchange for a new promise or performance would typically be considered a personal defense, not a real defense that can be asserted against an HIDC.

The scenario presented involves a promissory note that is payable to a specific individual, thereby making it payable to order. Under Delaware UCC § 3-109(b), an instrument is payable to order when it is payable to the order of an identified person or to a transferee of an identified person. The note is made payable to “the order of Anya Sharma.” This designation clearly indicates that the instrument is intended to be payable to Anya Sharma or to whomever she orders it to be paid. When Anya Sharma endorses the note in blank by simply signing her name on the back, she converts it into an instrument payable to bearer. According to Delaware UCC § 3-109(c), an instrument that is payable to order and endorsed in blank becomes payable to bearer. Consequently, any subsequent holder in due course who takes possession of the note without further endorsement from Anya Sharma can enforce it. The critical aspect here is the transition from order paper to bearer paper upon a blank endorsement, which simplifies negotiation. The Uniform Commercial Code, as adopted by Delaware, governs these principles of negotiability and transfer.

The scenario presented involves a promissory note that contains a clause stating “Payable to the order of bearer.” Under UCC Article 3, as adopted in Delaware, an instrument that is payable to bearer is negotiated by mere delivery. The concept of “order” paper, which requires endorsement and delivery, is distinct from “bearer” paper. When an instrument is made payable to a specific person or to bearer, it is bearer paper. The UCC distinguishes between instruments payable to a specific person (order paper) and instruments payable to cash, a specific person or bearer, or any other indication that it is not payable to a specific person (bearer paper). Negotiation of bearer paper is accomplished by the physical transfer of the instrument, without the need for any endorsement by the transferor. This is a fundamental principle of negotiable instruments law, differentiating the transfer requirements for different types of instruments. The question probes the understanding of how bearer paper is negotiated, a key aspect of UCC Article 3.

The scenario describes a holder in due course (HDC) situation involving a negotiable instrument. Under UCC Article 3, specifically Delaware’s adoption of it, a holder in due course takes an instrument free from most defenses and claims that a prior party could assert against the original payee. The key requirements for HDC status are that the holder must take the instrument for value, in good faith, and without notice that it is overdue or has been dishonored or that it contains an unauthorized signature or has been altered or that any defense or claim exists against it. In this case, Ms. Anya Sharma purchased the promissory note from Mr. Ben Carter. She paid value for it, as she gave him a significant sum of money. The question implies she had no knowledge of the underlying dispute between Mr. Carter and the maker, Mr. David Chen. Therefore, she is presumed to be a holder in due course. A maker of a promissory note cannot assert personal defenses, such as failure of consideration or a breach of contract related to the underlying transaction, against a holder in due course. The dispute between Mr. Carter and Mr. Chen regarding the quality of the antique furniture sold is a personal defense. As a holder in due course, Ms. Sharma can enforce the note against Mr. Chen despite this defense. The principle is that the law protects innocent purchasers of commercial paper to facilitate commerce. The UCC, as adopted in Delaware, prioritizes the free negotiability of instruments. Therefore, Mr. Chen’s defense of failure of consideration is not available against Ms. Sharma.

The core issue revolves around the concept of a holder in due course (HDC) and the defenses available against such a holder. Under UCC Article 3, specifically as adopted in Delaware, 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, which can be asserted even against an HDC, include fraud in the factum (or fraud that induces the obligor to sign the instrument with neither knowledge nor reasonable opportunity to obtain knowledge of its character or its essential terms), and discharge in insolvency proceedings. Personal defenses, such as breach of contract or lack of consideration, are generally cut off by an HDC. In this scenario, Ms. Gable has a claim against Mr. Finch for breach of contract related to the faulty plumbing installation, which is a personal defense. However, Mr. Finch has negotiated the promissory note to Ms. Peterson, who purchased it for value, in good faith, and without notice of any claim or defense. This establishes Ms. Peterson as a holder in due course. Therefore, Ms. Peterson’s status as an HDC shields her from Mr. Finch’s personal defense of breach of contract. Mr. Finch cannot assert this defense against Ms. Peterson to avoid payment on the note. The relevant Delaware statute, mirroring UCC § 3-305, outlines these principles. The promissory note itself is a negotiable instrument, and its negotiation to an HDC generally allows the HDC to enforce it against prior parties, subject only to real defenses.

The scenario presented involves a promissory note that is payable to the order of “cash.” Under UCC Article 3, as adopted in Delaware, an instrument payable to “cash” or to bearer is treated as payable to bearer. When an instrument is payable to bearer, it can be negotiated by mere delivery. The question concerns whether the holder of this note, who received it through delivery from the original payee (who was the maker), has a right to enforce it. The maker of the note, in this case, is also the initial payee. When the maker delivers the note to themselves, it is essentially a nullity until it is delivered to a holder. However, the scenario states the maker then delivered the note to another party. Since the note is payable to bearer, delivery to any person constitutes a transfer of rights. The question of whether the holder took the instrument for value, in good faith, and without notice of any claim or defense (i.e., as a holder in due course) is relevant for determining if they take free of certain defenses, but it does not affect their basic right to enforce the instrument as a bearer instrument. The UCC § 3-301 defines who is entitled to enforce an instrument, which includes a holder of the instrument, or a non-holder in possession of the instrument who has the rights of a holder. In this case, the party who received the note by delivery from the maker is a holder. Therefore, they are entitled to enforce it. The fact that the note was originally made payable to “cash” means it is a bearer instrument, and negotiation occurs by delivery. The maker delivering it to themselves and then to another party does not invalidate the subsequent transfer of bearer status.

Under Delaware UCC Article 3, the concept of “discharge” refers to the various ways a party’s obligation on a negotiable instrument can be terminated. One significant method of discharge is through a voluntary cancellation by the holder. This occurs when the holder intentionally surrenders the instrument to the obligor, or otherwise manifests an intent to discharge the obligor. For example, if a holder tears up a promissory note with the clear intention of forgiving the debt, the obligor is discharged. This discharge is effective even if there is no consideration exchanged. Another method is by a subsequent agreement, such as a novation, where a new obligation replaces the old one, or a release, where the holder agrees to relinquish their rights. Alteration of the instrument can also lead to discharge, but typically only if the alteration is fraudulent and material, and it discharges any person whose obligation is affected by the alteration. However, if the holder has no knowledge of a fraudulent alteration and pays the instrument according to its original tenor, they may still be able to recover from a prior party who was not discharged. In this scenario, the holder of a check, Amelia, intentionally surrenders the check to the drawer, Mr. Chen, with the express intent to forgive the debt represented by the check. This act constitutes a voluntary cancellation of the instrument by the holder, thereby discharging Mr. Chen’s obligation on the check. Delaware UCC § 3-604(a) explicitly states that a person is discharged on an instrument if the holder discharges the obligation in question. The physical surrender of the instrument with the intent to discharge is a clear manifestation of such an intent. Therefore, Mr. Chen is discharged from his liability on the check.

The scenario involves a promissory note payable to the order of “Bearers” which is then specially indorsed to “Alice”. Under UCC Article 3, a note payable to bearer is treated as payable to bearer, meaning it can be negotiated by mere delivery. However, when a bearer instrument is specially indorsed, it becomes payable to the indorsee (Alice) and can only be negotiated by indorsement of the indorsee. The subsequent indorsement by “Bob,” who is not Alice, is a forged indorsement. A holder in due course (HDC) generally takes an instrument free from defenses of the obligor, but not from claims of ownership or defects in title. A forged indorsement is wholly ineffective to pass title. Therefore, even if the subsequent holder was an HDC, they could not acquire good title from a thief or someone who obtained the instrument through a forged indorsement. Since the note was specially indorsed to Alice, only her indorsement could negotiate it. Bob’s indorsement is a forgery, breaking the chain of title. Thus, any subsequent holder, including an HDC, cannot be a holder in due course of this instrument because they cannot obtain good title. The original obligor, the maker of the note, would have a defense against any holder who does not have good title, including one derived through a forged indorsement. The question asks about the status of the holder who took the note after Bob’s forged indorsement. This holder cannot be a holder in due course because they did not acquire the instrument through a valid chain of title.

Under Delaware law, specifically 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 of any claim or defense. The scenario describes a promissory note that was originally issued for a fraudulent purpose. The UCC defines “value” broadly. For a holder to take for value, they must have given any consideration sufficient to support a simple contract. This can include performing the requested service, or giving a negotiable instrument for it. In this case, the holder provided legal services, which constitutes value. Good faith, under Delaware’s UCC, means honesty in fact and the observance of reasonable commercial standards of fair dealing. The facts do not suggest a lack of honesty or commercial reasonableness in the holder’s acquisition of the note. Crucially, the holder must also take without notice of any claim or defense. Notice includes actual knowledge, receipt of notice, or reason to know from all the facts and circumstances known to the person at the time. The fact that the note was originally issued for a fraudulent purpose is a defense to payment. If the holder had knowledge of this fraud at the time of acquisition, they would not be a HOC. However, the scenario explicitly states the holder had no knowledge of the fraud and conducted a reasonable inquiry into the maker’s financial stability. This inquiry, while prudent, does not equate to knowledge of the underlying fraud. Therefore, the holder meets all three requirements: taking for value (legal services), in good faith (honesty in fact and commercial reasonableness), and without notice of the fraud. As a HOC, the holder takes the note free from the defense of fraud in the inducement.