[Check Issues] Kelsey owns and operates a currency exchange. A regular customer, Rafe, comes in and cashes a $2,000 check issued by ABC Trucking. The day after Kelsey cashed the check, she received a notice from ABC Trucking that some checks had been stolen. It was later discovered that the checks she cashed for Rafe had been stolen. At the time she took the check, Kelsey was very busy with several customers in line. She simply glanced at the check and cashed it. A reasonable examination would have revealed that the check had been materially altered and changed from the amount of $200 to $2,000. Kelsey decided that she needed to hire some people to help her because she also had a problem with another check. On the same day that she took Rafe's check, she took a check from another customer, Brett. It was later discovered that the check, which was four months old, was the subject of a dispute between Brett and the issuer of the check for whom Brett had done some work. The issuer claimed that the work was improperly done. Both ABC Trucking and the issuer of the check to Brett had stopped payment on the checks. Kelsey claimed that as a holder in due course, she was entitled to payment on both checks.
-What is the effect of the check's alteration on Kelsey's status as a holder in due course?
A) The alteration has no effect because a holder is not charged with examining an instrument presented for payment.
B) The alteration will likely prohibit her from being a holder in due course.
C) The alteration will affect her status as a holder in due course only if she had been put on notice of prior criminal behavior in the past on the part of Rafe.
D) The alteration will affect her status as a holder in due course only if the issuer can establish that it was not negligent in allowing a thief to gain access resulting in the alteration.
E) On the basis that the law does not want to unduly burden holders, the alteration will affect her status as a holder in due course only because the instrument was written for an amount in excess of $500.

Question

Quizplus · Accepted Answer

The alteration from $200 to $2,000 is a material alteration that would likely prevent Kelsey from being considered a holder in due course, as a reasonable examination of the check would have revealed the alteration, and holders in due course are expected to take checks in good faith without notice of any claims or defenses against it.

[Check Issues] Kelsey Owns and Operates a Currency Exchange