Holders in Due Course

Question 1

Rights of a mere holder

Answer 1

Right to enforce payment

Question 2

Holder in Due Course

Answer 2

Status is important when the obligor raises a defense to payment

HDC gains better rights, takes free of most defenses

Question 3

Elements of HDC Status

Answer 3

1. Negotiable Instrument
2. Holder
3. Authenticity not apparently questioned
4. Holder must pay value
5. Good Faith
6. Without notice at time of instrument acquisition

Question 4

Authenticity Not Apparently Questioned

Answer 4

Instrument does not bear such evidence of forgery or alteration or is not otherwise so irregular or incomplete as to call its authenticity into question

Question 5

Good Faith

Answer 5

Honesty in fact plus observance of reasonable commercial standards of fair dealing

Question 6

Without notice at time of instrument acquisition

Answer 6

Actual notice
Receipt of notice coupled with a reasonable time to act on the notice
From all facts and circumstances known to the person at the time in questions, the person has reason to know that it exists

Question 7

7 Things holder cant have notice of

Answer 7

1. Instrument (Principal) Overdue (for a check its 90 days)
2. Instrument Dishonored
3. Uncured default with respect to payment of another instrument issued as part of same series
4. Unauthorized signature
5. Alteration
6. Claim by 3d Party
7. Any defense of claim in recoupment

Question 8

Shelter Rule

Answer 8

Transfer of instrument vests in the transferee the rights that transferor had

Having HDC rights doesn’t make you HDC

Exception: a person who was party to fraud or illegality cannot get HDC rights by shelter rule

Question 9

Burden of Proof for HDC

Answer 9

Person claiming HDC status