Question

Carl finds a lost dog and returns it to its owner, Betty. Betty gives Carl a check for $50 for his efforts, but later stops payment on the check. Carl cashed the check at Cash-All-Checks, who now seeks to recover from Betty. Will Cash-All-Checks be successful?

a. Betty has a real defense against Carl and Cash-All-Checks.
b. Betty has no defense against Cash-All-Checks, hence the latter will be successful.
c. Betty has a personal defense that allows Cash-All-Checks to be successful.
d. Betty has a defense against Cash-All-Checks since the check is less than $100.

Answer 1

Cash-All-Checks is likely a holder in due course and will succeed in recovering funds from Betty since she has no real defense applicable against a holder in due course, making Betty's defense insufficient. The correct answer is option b.

Step-by-step explanation:

The scenario presented involves a legal matter concerning a stopped payment on a check and the rights of parties in the context of negotiable instruments under the Uniform Commercial Code (UCC). Specifically, Cash-All-Checks, which is considered a holder in due course, seeks to recover funds from Betty after she stopped payment on a check she gave to Carl. Under the UCC, a holder in due course takes the instrument free of any personal defenses that the maker could assert against the original payee (in this case, Carl). Therefore, Cash-All-Checks will likely be successful in recovering from Betty.

If Betty's defense against Carl was related to fraud, duress, illegality, or incapacity, such a defense would be a real defense that could defeat the claim even of a holder in due course. However, since that's not indicated, it is presumed that Betty's defense is personal.

Personal defenses cannot be raised against a holder in due course, which Cash-All-Checks likely qualifies as. The amount of the check being less than $100 is not a relevant defense in this scenario. As such, Betty has no defense against Cash-All-Checks, and they will be successful in recovery. Hence, the correct option is option b.