To be a holder in due course, Carol must have taken the instrument (1) for value: (2) in good faith; and (3) without notice that it is defective. It contains unauthorized sig-natures or alterations. Under UCC 3–303, a holder can take an instrument for value in payment of an antecedent claim. Here, the teller owed money to Carol on a gambling debt, so Carol claim although it may not have been a legal contract.

To be a holder in due course, Carol must have taken the instrument (1) for value: (2) in good faith; and (3) without notice that it is defective. It contains unauthorized sig-natures or alterations. Under UCC 3–303, a holder can take an instrument for value in payment of an antecedent claim. Here, the teller owed money to Carol on a gambling debt, so Carol  claim although it may not have been a legal contract. The circumstances of the transfer would probably call into question Carol’s good faith, however. Under the UCC, good faith. Because of the good faith requirement, one must ask whether Carol, at the time she acquired the check, honestly believed that it was not defective. Here, the check was made out to cash and the endorser was a bank teller. Even if Carol was not aware that the endorser worked in a bank, the issue of good faith can be raised on the grounds of suspicious circumstances. Carol should have suspected  something was wrong with the check and that it was for this reason that the person did not simply cash the check and give her the money. The circumstances also might constitute sufficient notice that the instrument was defective. Under the UCC, notice of a defective instrument is given whenever the holder has reason to know that a defect exists, given all the facts and circumstances known at the time in question. Because the check was made out to cash, the endorser’s name did not appear on the face of the check, and Carol was accepting the check in payment for a gambling debt, she arguably had reason to know that the check was defective. A reasonable person would suspect that someone might offer an unauthorized check to pay off a gambling debt.

Reference
Cornell University Law School. (2005). Retrieved August 13, 2011, from U.C.C. – ARTICLE 3 – NEGOTIABLE
INSTRUMENTS: http://www.law.cornell.edu/ucc/3/3-303.html

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