HDC and Rights Flashcards
Rights of a Mere Holder
Not an HDC - Generally all that one needs because a holder has lots of rights such as the right to enforce payment.
When is HDC status important?
When the obligor raises a defense to payment.
What is the benefit of an HDC?
Holder can obtain better rights than the transferor and can take free of many defenses.
What the the elements of an HDC?
1) Negotiable Instrument
2) Holder
3) Authenticity not apparently in question
4) Holder must pay value
5) Good Faith
6) Without notice at time of instrument acquisition
What does it mean for authenticity not to be apparently in question?
The instrument does not bear evidence of forgery or alteration or is not otherwise so incomplete as to call authenticity in to question
Can an party who receives a gift be an HDC?
No because they have not paid value
If a party pays $100 for a $10k note can they be a HDC?
No because they likely did not pay the amount in good faith
What happens when only a portion of the total price of the instrument is paid?
Party is an HDC for that portion of the purchase price paid.
Does past consideration qualify as value for an HDC?
Yes
Does filing a document in the public records put a person on notice?
No
What does notice to an HDC mean?
Actual knowledge - a subjective test. Receipt of notice coupled with a reasonable opportunity to act on the notice.
What is the standard for determining notice?
From all the facts and circumstances known to the person at the time in question, the person had reason to known that that the issue exists.
What gives an HDC notice that principal is overdue?
The due date has passed.
When has the due date passed for a check?
90 days after it is issued - can still cash it but cant be an HDC.
Is overdue interest notice to HDC that principal is overdue?
No
Is an instrument dishonored notice to HDC that instrument is no good?
Yes - the instrument not paid upon proper demand such as a check marked for insufficient funds
Is an uncurred default with respect to payment of another instrument issue as part of the series notice to HDC?
Yes
Is an unauthorized signature notice to an HDC?
Yes
What are other notices of there being an issue with an instrument to an HDC?
- Alteration
- Any 3rd party claim to instrument
- Any defense or claim for recoupment - this is a counter claim
What is the shelter rule?
The holder does not qualify as an HDC, but the holder gets the rights that the transferor had. So if Transferor is an HDC, holder gets the rights but is not itself an HDC.
Is the shelter rule available to a party engaged in fraud or illegality?
No
Who has the burden of proof to establish the shelter rule?
The person claiming the holder in due course rights.
Are HDCs subject to personal defenses?
No
Are HDCs subject to real defenses?
Yes