Cheeseman Chapter 23
Business Law, 7e (Cheeseman)
Chapter 23 Transferability and Holder in Due Course
61) How does the definition of value for purposes of holder in due course differ from the definition of consideration? Why do you think there is a difference? Should there be a difference?
Answer: An unfulfilled promise qualifies as consideration, but is not considered value given under Article 3 of the UCC. This is because a holder has not actually performed the promise, and thus has lost nothing yet, and therefore does not need the protections that a holder in due course receives.
Diff: 2 Skill: Ethics and Policy
62) Why is fraud in the inducement treated as a personal defense and fraud in the inception treated as a real defense? Is this distinction justifiable? …show more content…
If all of the transfers in question were for value and there are no other defenses available: a. Who has primary liability of the instrument? Who is secondarily liable on the instrument?
b. Who has warranty liability? Why? Explain.
c. From whom can Fred try to collect now that Carl has refused to pay?
Answer: a. Carl has primary liability on the instrument. His defense is personal defense that cannot be used against a holder in due course. Fred would seem to be a holder in due course.
Anyone who indorses an instrument has secondary liability, so David would have secondary liability. b. David has warranty liability as does Edward, even though he did not indorse the instrument.
c. If Fred cannot collect from Carl, he can collect from David based on his secondary liability or from Edward based upon warranty liability. If David or Edward pays, either can recoup their payment from Carl.
Diff: 3 Topic: Defenses Skill: Factual Application
76) Terry has a business in which he visits with client's pet cats in the client's home while the client is out of town. The primary purpose is to prevent the cats from becoming psychotic due to the owner's absence. Terry contracted to visit Valerie's cat daily for a 2-week period
Chapter 23 Transferability and Holder in Due Course
61) How does the definition of value for purposes of holder in due course differ from the definition of consideration? Why do you think there is a difference? Should there be a difference?
Answer: An unfulfilled promise qualifies as consideration, but is not considered value given under Article 3 of the UCC. This is because a holder has not actually performed the promise, and thus has lost nothing yet, and therefore does not need the protections that a holder in due course receives.
Diff: 2 Skill: Ethics and Policy
62) Why is fraud in the inducement treated as a personal defense and fraud in the inception treated as a real defense? Is this distinction justifiable? …show more content…
If all of the transfers in question were for value and there are no other defenses available: a. Who has primary liability of the instrument? Who is secondarily liable on the instrument?
b. Who has warranty liability? Why? Explain.
c. From whom can Fred try to collect now that Carl has refused to pay?
Answer: a. Carl has primary liability on the instrument. His defense is personal defense that cannot be used against a holder in due course. Fred would seem to be a holder in due course.
Anyone who indorses an instrument has secondary liability, so David would have secondary liability. b. David has warranty liability as does Edward, even though he did not indorse the instrument.
c. If Fred cannot collect from Carl, he can collect from David based on his secondary liability or from Edward based upon warranty liability. If David or Edward pays, either can recoup their payment from Carl.
Diff: 3 Topic: Defenses Skill: Factual Application
76) Terry has a business in which he visits with client's pet cats in the client's home while the client is out of town. The primary purpose is to prevent the cats from becoming psychotic due to the owner's absence. Terry contracted to visit Valerie's cat daily for a 2-week period