Silver Salon accepted a number of drafts, payable to Branton. The drafts were given as payment in Branton’s preparation of catalogs for physical training equipment for Silver Salon. Branton negotiated the drafts to the Bank, which took them as a holder in due course. When Silver Salon refused to honor the drafts because they were dissatisfied with the quality of the catalogs prepared, the Bank negotiated them back to Branton. Branton brought suit against Silver Salon on the drafts. When Silver Salon sought to assert its defense, Branton claimed that he was not subject to the personal defense in this action because he was a transferee from a holder in due course and therefore had the rights of a holder in due course under the shelter rule. Was Branton correct? Why or why not? Fully explain. 

2. A small local accounting firm received a promissory note from one of its clients. The note was for $2750, being payable “for tax advice.” The client later refused to honor the note, alleging that the tax advice had been incorrect. The CPA firm claimed holder in due course status, and that it was therefore exempt from any personal defense. Is the firm (payee) subject to the defense in this case? Why or why not? Fully explain. 

3. Andrews owed Martin, his accountant, a fee for services rendered. Andrews drew a check on his bank payable to “Cash” and signed it. He left the amount blank because he was not sure of the exact amount owed. On his way to Martin’s office, Andrews lost the check. Oliver found the check, filled it in for $500, and handed it to Ernest to satisfy a $500 debt that Oliver owed to Ernest. Ernest accepted the check in good faith as payment for the debt and immediately presented it to the drawee bank. The drawee bank refused to cash it because of a stop payment order.

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1 Technically Payee of a Negotiable Instrument can become a holder in due course From th... View the full answer