acquiring HDC status

Question 1

Acquiring Status

Answer 1

1) must first acquire status as a holder
2) must pay value for the instrument
3) must take the instrument in GF AND
4) without notice that there are any problems that might affect the obligor’s obligation to pay the instrument

Question 2

value

Answer 2

• person must give value, do something of value, or forgive something of value
• gift is not value
• unexpected promises to perform are not value
• paying less than the note’s full face value is ok
• partial performance= partial HDC rights
• forgiving a preexisting obligation constitutes value

Question 3

taking the instrument in GF

Answer 3

1) honesty in fact- what person receiving instrument actually knew and (sub)
2) observance of reasonable commercial standards of fair dealing- what the person receiving the instrument should have surmised given the context in which the instrument was negotiated (obj)

Question 4

taking instrument without notice

Answer 4

-cannot acquire status as HDC if the holder is aware of any reason as to why the legal obligation to pay the note may be compromised

• Notice=
  1) actual
  2) receives notice through the mail
  3) has reason to know there may be a problem

Question 5

infirmity

Answer 5

-holder has notice of any informity
Ex: hearing someone complain about something is notice
-holder has notice of forged, altered, or otherwise irregular instrument
-holder has notice instrument is overdue (90 days after issue)

Question 6

overdue instrument

Answer 6

• 90 days after date of issue
• any instrument that is due on demand is overdue after demand for payment is made
• instruments due at a definite time are overdue the day after the due date
• if the due date is accelerated, the note is overdue the date after accelerated due date
• when payments are due in installments, the instrument is overdue the day after the installment due date

Question 7

special limits on HDC status

Answer 7

• person’s ability to claim status as HDC will be limited sometimes
• Consumer notes- FTC regs protect consumers by requiring notice (long para) be placed on NI before consumer signs NI
• language allows debtor to assert claims and defenses against the instruments holder, even if that person is a HDC
• challenge notice on exam*

Question 8

NOtice required- three criteria

Answer 8

1) maker/drawer is signing the note in a consumer transaction (acquiring for personal or family use)
2) transaction in question must be for the sale or lease of goods or services (ex: buying a boat)
3) seller must be one who sells the item in question in his ordinary course of business