Dave's Delicious Desserts, Inc. buys a refrigerated display case for its store from The Fridge Supply Co. Dave's pays by check made out to the order of the Fridge Supply Co. in the amount of $1000. The Fridge Supply CO. doesn't cash the check. Instead, it properly negotiates the check to The Fridge Supply's landlord in payment for this month's rent. The landlord deposits the check for payment at the bank but it is returned stamped "NSF", meaning Dave's Dessertes has insufficient funds in its account to cover the check. Daves did not have sufficient funds in its account to cover the check because it withdrew all its funds from its account when it found out the refrigerated display case was defective. (It would have been a lot smarter to put a stop payment order on the check, but that is beside the point) The landlord decides that its easier to sell Daves check at a small discount ($950) to Chuck's Check Collection rather than try to recover the money from Dave's or The Fridge Supply Co. When he sells the check to Chuck's, the landlord tells Chuck's that the check has been dishonored due to insufficient funds in Daves account. Chuck then sues Daves seeking to collect on the check. Will Chuck be successful when it sues Dave's to collect on the check?

A) Yes, because Chuck's is holder in due course

B) No, because Chuck's is not a holder in due course

C) No, because Dave's has a real defense which it can assert against Chuck's

D) Yes, because of the shelter rule

Answer rating: 100% (QA)

1 AYes because Chucks is a holder in due course A holder in due course is someon... View the full answer