(a) Yes, Sam can enforce the $500 check against Tim. A check, like other commercial paper, is negotiable so long as it meets the requirements for negotiability, such as execution, definite payment amount and time, and no conditions on payment. Tim's check met these requirements, and so was negotiable, such that Art could negotiate the check to Sam and Sam could then enforce the check against its maker-Tim. Art successfully negotiated the check, since the check is order paper (as it is payable to Art) and Art endorsed the check to Sam. The endorsement completed negoiation of the check to Sam, such that Sam can now enforce the check against Tim, provided no defenses successfully apply to discharge Tim's obligations.

When a check is negotiated, such that a recipient takes physical possession, the taker can take as either a holder or a holder in due course. A holder takes subject to all defenses the maker would have related to the check, including breach of contract. A holder in due course, alternatively, takes free of any defenses except real defenses, which do not include breach of contract. A holder in due course, however, must take for value and without notice of any claims or defenses relating to the instrument.

In this case, Sam is a holder, not a holder in due course, because Sam did not take for value. To take for value, Sam would have needed to give some value to Art in exchange for $500 check. Instead, Sam received the check a gift, with no value returned. Accordingly, Sam is a holder, and takes the check subject to any defenses Tim may claim.

Tim may claim breach of contract against Art, such that Tim is discharged from the obligation to pay the $500 under the instrument, but that defense would likely fail. Tim selected the paint color, thought he would like it, and then Art used the correct paint. Tim had no complaint about Art's workmanship. Accordingly, Tim likely has no claim for breach of contract to discharge Tim's obligation to pay $500.

With no applicable defenses, Sam, as a holder, is entitled to enforce the check for value against Tim.

(b) Collections, Inc. can enforce the $100 check against Art. An order for stop payment merely orders the drawee, here, the Bank, to refuse to pay the check. The drawer remains obligated to pay, unless some defense or exception applies.

Art may assert that the check he wrote payable to Nora was an inter vivos gift, and so was not effective until both delivery and acceptance had occurred. For an inter vivos gift made by check, delivery and acceptance do not occur until the check is cashed. Under this theory, Art would not be prevented from stopping payment to Nora, since the gift had not been completed.

Nevertheless, Nora negotiated the check to Cash Express. As noted above, a holder may negotiate it to another, who can take as a holder or a holder in due course. In this case, Nora endorsed the check, delivered physical possession to Cash Express, and Cash Express took for value in the form of the $80 it gave Nora. It does not matter that Cash Express did not give the full face value of $100. Cash Express needed only to exchange for value, take physical possession, and lack notice of claims or defenses on the check to take the check as a holder in due course. There are no facts to indicate Cash Express knew Art had stopped payment on that check, or that it was subject to a legitimate order to stop payment. Accordingly, Cash Express took as a holder in due course.

When Cash Express presented the check to the Bank, and the Bank stamped the check with notification that payment had been stopped, the Bank ensured that any other holder after Cash Express would not take as a holder in due course. Any other holder, who would take physical possession, would also take with notice of a claim or defense relating to the $100 check, and so could not be a holder in due course. Accordingly, when Cash Express negotiated the check to Collections, Collections took merely as a holder, despite exchanging for value (the $25 paid to Cash Express).

Nevertheless, Cash Express can enforce the $100 check against Art. Cash Express took as a holder from a holder in due course. In this circumstance, the holder can succeed against any claims or defenses the prior endorser (Cash Express) could have succeeded against. Because Cash Express was a holder in due course, and so could enforce the check against Art despite the stop payment, so too could Collections. Therefore, Collections can enforce the $100 against Art.

(c) If Nora did not endorse the $100 check that she cashed as Cash Express, Cash Express can make it a negotiable instrument by later obtaining Nora's endorsement. As explained above, an endorsement is required to negotiate and maintain the negoitability of order paper. Since the check was payable to Nora, Nora's endorsement would be required to negotiate the check further. The endorsement need not occur before or contemporaneously with physical delivery of the instrument. Accordingly, Cash Express can still make the check a negotiable instrument.

Alternatively, the check, if bearer paper, does not require Nora's endorsement to be negotiated or negotiable. The facts do not state the check is order paper, merely that is payable to Nora. Assuming, while unlikely, that the check is actually bearer paper, then Cash Express can freely negotiate the check by merely delivering physical possession to another.

Article III of the UCC applies to negotiable instruments. A negotiable instrument is a writing that promises a payment of sum certain upon presentment or at an ascertainable definite time in the future and the writing does not impose any additional requirements upon payment. Checks are negotiable instruments. The three questions below all discuss checks, so Article III applies to these transacitons.

In three-party transactions, a drawer writes a check that is made payable to a drawee who can then seek payment from a third-party payee, typically a bank. The drawor is entitled to assert any defenses against a subsequent transferee of the check, unless the subsequent transferee is a holder in due course, meaning that the transferee took the check for value in good faith and without notice of any infirmaties in the check.

3(a) Tim wrote Art a check for $500 because Art painted Tim's car. In writing the check, Tim "issued" the check to Art. Art later "negotiated" the check to his son, Sam, as a birthday present for Sam's birthday. At that point, Tim already had issued a stop-payment at his bank, the payee, on the check Tim gave to Art. Because Sam did not take the check for value, meaning that Sam did not give consideration for the check, he simply received it as a gift, Sam is not a holder in due course. Thus, standing alone, Sam is not entitled to enforce the check against Tim.

But a subsequent transferee who receives a check from a holder in due course is entitled to holder in due course status under the shelter rule. Art is a holder in due course because he took the check for value--he painted Tim's car. Additionally, Art was unaware that Tim had issued the stop payment because Tim did not notify Art. Thus, Art did not know of any infirmaties in the check. Because Art is a holder in due course, Sam receives that same protection under the shelter rule.

A drawer can assert only a limited number of defenses against a holder in due course. These defenses include infancy, incapacity, fraud in the factum, and duress. A claim of recoupment, such as a breach-of-contract claim is not a defense that a drawer can assert against a holder in due course.

Tim stopped payment on the check because he did not like the color of the paint job on his car. That likely means that Time will attempt to assert a breach-of-contract claim against Art in order to seek some sort of recovery. Unfortunately for Tim, a recoupment claim is not a valid defense against a holder in due course. Because Sam is a holder in due course, Tim cannot not pay Sam simply because Tim may have a valid breach-of-contract claim against Art.

3(b) Art, the drawer, wrote a check to Nora, the drawee, as a birthday gift. Because Nora did not take the check for value, i.e., Nora did not give consideration, Nora is not a holder in due course. Nora, not knowing about the stop-payment order issued by Art, negotiated the check by endorsing it and cashing it at Cash Express for a $20 handling fee. Cash Express gave value for the check in good faith without any notice of infirmaties related to the check. Thus, Cash Express is a holder in due course. Upon presenting the check to Art's bank, the bank declined payment because of the stop-payment order. The bank also stamped the check with a notification that the payment had been stopped. Collections, Inc., then took the check for value by paying $25 for the check.

Art may argue that when Collections, Inc., took the check, Collections, Inc., had notice of the infirmaties because Collections paid only a portion of the check's value and the check had a stop- payment stamp across it. Collections, however, is entitled to Cash Express's holder in due course protection under the shelter rule. Thus, Collections, just like Cash Express, is a holder in due course. Art's reason for issuing the stop-payment order was for a dispute that he had with Nora. That is not a sufficient defense against a holder in due course. Thus, Collections can enforce the $100 check against Art.

3(c) A negotiable instrument can be either a order instrument or a bearer instrument. Bearer instruments need not be endorsed and are payable upon presentment. An order instrument must be endorsed and presented to be payable. Absent an endorsement by the holder entitled to enforce the instrument, the holder cannot demand payment. Checks are order instruments because they are made payable "to the order of _____" and must be endorsed by the individual to whom the check is made payable.

Art made the check payable to Nora. Thus, upon endorsement and presentment, Nora was entitled to obtain payment on the check. Assuming Nora did not endorse the check when she cashed it at Cash Express, Cash Express could assert a claim against Nora to have her endorse the check on the grounds that Cash Express gave part value for the check. If Nora ultimately endorsed the check, Cash Express would then have a negotiable instrument properly endorsed.