Enforcing Negotiable Instruments

Question 1

If a holder loses a note or it was stolen, can you still enforce it?

Answer 1

Yes

Question 2

What must you show to enforce a lost/stolen instrument?

Answer 2

1. Must prove by other evidence the terms of the instrument and entitlement to enforce it. and
2. make gets “adequate protection” against someone else coming forward

Question 3

What is a holder in due course?

Answer 3

A holder who can enforce the instrument FREE of claims to the instrument except for 3 defenses

Question 4

How do you become a holder in due course?

Answer 4

1. Must be the holder
2. Must have acquired the instrument for “value”
3. Must have taken instrument in good faith: honesty in fact and the observance of reasonable standards of commercial fair dealing
4. Must have acquired the instrument WITHOUT NOTICE of certain encumbrances on the note

Question 5

What are the 4 problems a Holder in due course be ignorant of when taking a note?

Answer 5

1. the instrument is overdue, dishonored, or is in principal payment default
2. the instrument contains an unauthorized signature (forged) or has been altered
3. Someone has a claim to the instrument
4. Any drawer or maker of the instrument has a defense to payment or a claim in recoupment

Question 6

What are the only 4 real defenses against a Holder in Due Course?

Answer 6

1. Infancy of the maker/drawer
2. Illegality of the debt underlying the instrument
3. Fraud in factum (maker did not know that signed paper was an instrument)
4. Discharge in bankruptcy of the debt-federal law.

Question 7

What is the shelter doctrine?

Answer 7

Anyone who acquires the instrument from a holder in due course FOR VALUE, they are sheltered as an HIDC EVEN IF they had knowledge of any of the problems etc.

Question 8

When enforcing an instrument against a secondarily liable party, what more must you show?

Answer 8

1. Dishonor by the maker or drawee bank’s refusal to pay note or check when due and presented

OR

If maker of a note tries to pay and holder refuses to “tender” of payment, accommodation parties are discharged to the extent of the amount tendered.

2. Timely notice of dishonor has been given to endorser
3. Endorsers can waive liability to pay dishonored instruments by signing “without recourse

Question 9

What five warranties are given when an instrument is transfered?

Answer 9

1. Transferor was entitled to enforxe the instrument
2. all signatures are authentic and authorized
3. Instrument has not been altered
4. Instrument is not subject to any defenses or claims
5. Transferor doesn’t know that maker/drawer has initiated bankruptcy.

Question 10

Can these transfer warranties be waived?

Answer 10

NO for checks, YES for notes.