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
What are the real defenses an HDC is subject to?
Infancy Durress Lack of Legal Capacity Illegality Fraud in the Execution (Fraud in Factum) Insolvency Statute of Limitations Payment to Former Holder if apparent from face of instrument or HDC knows Alteration Unauthorized signatures and forgeries.
What does I FLIP SAUDI represent
The real defenses that an HDC is subject to.
What is a personal defenses?
Any other contract defense that is not I FLIP SAUDI
Ex: Lack of consideratoin; non-delivery of goods; non performance of services
Does an HDC prevail against personal defenses?
Yes - all defenses not I FLIP SAUDI
Is breach of warranty a real or personal defenses?
Personal defense - HDC Wins
Is Fraud in the inducement a real or personal defenses?
Personal Defense - HDC Wins
What is fraud in the inducement?
A personal defense - maker knowns what they are signing but is mislead regarding the details because they did not have time to read it , etc.
What is Fraud in the Execution/ Fraud in Factum?
The defense exists when a party is fraudulently induced to sign an instrument without knowledge or a reasonable opportunity to learn of its character or essential terms. Whether a reasonable opportunity existed is determined on all relevant factors including the ability of party to speak english, the ability of a party to see, the basis of the party’s confidence in making the representation, and the necessity of acting without delay.
What is the defense of Payment of Former Holder?
It is a real defense.
The liability of the person required to make the payment maybe discharged by the payment to a person formerly entitled unless the obligated had received prior notice that payment was to be made to a new holder.
When is a notice adequate that a payment should not be made to a prior holder?
1) Signed by the transferor or transferee
2) Identifies the transferred instrument
3) provides an address at which payments should be subsequently made
In Florida, what type of defense is payment to a former holder?
It is a personal defense generally.
What is an exception to the rule that in Florida payment to a former holder is a personal defense?
It is a real defense if payment is apparent from the face of the instrument or HDC otherwise knows of the payment.
Party obligated to pay HDC unless HDC knew payment had been made to other party,
Party who has paid 2x can pass liability on to the party they paid in a quasi contract claim.
True or False: Some parties can take an instrument from HDC.
False - No claimant cna take the instrument from HDC; HDC is the perfect defendant.
True or False: Even a true owner cannot recover from an HDC.
True
