Bella contracted with Marco Furnishing to complete the work on her house by November 1, 2013. She gave Marco a negotiable promissory note in the amount of $20,000 payable to the order of Marco on November 1. Marco then negotiated the note to the bank. He, however, could not complete the work by November 1. In this scenario, which of the following statements is true if the bank is able to qualify as a holder in due course?
A) Bella is not liable to the bank because Marco breached the contract, not her.
B) The bank can collect the amount from Marco because he negotiated the note to the bank.
C) The bank can be held liable by Bella if she asserts personal defense against the bank as Marco did not complete the work on time.
D) Bella cannot assert personal defense against the bank and avoid payment as it was a negotiation, and not a simple contract.

Question

Quizplus · Accepted Answer

A holder in due course takes a negotiable instrument free of all personal defenses either of the person obligated on the instrument or of a third party. Marco Furnishing Inc.'s negotiation with the bank made it a holder in due course. Therefore, Bella cannot assert that personal defense against the bank. She would have to pay the note to the bank and then independently seek to recover from Marco for breach of their agreement.

Bella Contracted with Marco Furnishing to Complete the Work on Her