HDC and Rights

Question 1

Rights of a Mere Holder

Answer 1

Not an HDC - Generally all that one needs because a holder has lots of rights such as the right to enforce payment.

Question 2

When is HDC status important?

Answer 2

When the obligor raises a defense to payment.

Question 3

What is the benefit of an HDC?

Answer 3

Holder can obtain better rights than the transferor and can take free of many defenses.

Question 4

What the the elements of an HDC?

Answer 4

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

Question 5

What does it mean for authenticity not to be apparently in question?

Answer 5

The instrument does not bear evidence of forgery or alteration or is not otherwise so incomplete as to call authenticity in to question

Question 6

Can an party who receives a gift be an HDC?

Answer 6

No because they have not paid value

Question 7

If a party pays $100 for a $10k note can they be a HDC?

Answer 7

No because they likely did not pay the amount in good faith

Question 8

What happens when only a portion of the total price of the instrument is paid?

Answer 8

Party is an HDC for that portion of the purchase price paid.

Question 9

Does past consideration qualify as value for an HDC?

Answer 9

Yes

Question 10

Does filing a document in the public records put a person on notice?

Answer 10

No

Question 11

What does notice to an HDC mean?

Answer 11

Actual knowledge - a subjective test. Receipt of notice coupled with a reasonable opportunity to act on the notice.

Question 12

What is the standard for determining notice?

Answer 12

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.

Question 13

What gives an HDC notice that principal is overdue?

Answer 13

The due date has passed.

Question 14

When has the due date passed for a check?

Answer 14

90 days after it is issued - can still cash it but cant be an HDC.

Question 15

Is overdue interest notice to HDC that principal is overdue?

Answer 15

No

Question 16

Is an instrument dishonored notice to HDC that instrument is no good?

Answer 16

Yes - the instrument not paid upon proper demand such as a check marked for insufficient funds

Question 17

Is an uncurred default with respect to payment of another instrument issue as part of the series notice to HDC?

Answer 17

Yes

Question 18

Is an unauthorized signature notice to an HDC?

Answer 18

Yes

Question 19

What are other notices of there being an issue with an instrument to an HDC?

Answer 19

• Alteration
• Any 3rd party claim to instrument
• Any defense or claim for recoupment - this is a counter claim

Question 20

What is the shelter rule?

Answer 20

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.

Question 21

Is the shelter rule available to a party engaged in fraud or illegality?

Answer 21

No

Question 22

Who has the burden of proof to establish the shelter rule?

Answer 22

The person claiming the holder in due course rights.

Question 23

Are HDCs subject to personal defenses?

Answer 23

No

Question 24

Are HDCs subject to real defenses?

Answer 24

Yes

Question 25

What are the real defenses an HDC is subject to?

Answer 25

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.

Question 26

What does I FLIP SAUDI represent

Answer 26

The real defenses that an HDC is subject to.

Question 27

What is a personal defenses?

Answer 27

Any other contract defense that is not I FLIP SAUDI

Ex: Lack of consideratoin; non-delivery of goods; non performance of services

Question 28

Does an HDC prevail against personal defenses?

Answer 28

Yes - all defenses not I FLIP SAUDI

Question 29

Is breach of warranty a real or personal defenses?

Answer 29

Personal defense - HDC Wins

Question 30

Is Fraud in the inducement a real or personal defenses?

Answer 30

Personal Defense - HDC Wins

Question 31

What is fraud in the inducement?

Answer 31

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.

Question 32

What is Fraud in the Execution/ Fraud in Factum?

Answer 32

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.

Question 33

What is the defense of Payment of Former Holder?

Answer 33

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.

Question 34

When is a notice adequate that a payment should not be made to a prior holder?

Answer 34

1) Signed by the transferor or transferee
2) Identifies the transferred instrument
3) provides an address at which payments should be subsequently made

Question 35

In Florida, what type of defense is payment to a former holder?

Answer 35

It is a personal defense generally.

Question 36

What is an exception to the rule that in Florida payment to a former holder is a personal defense?

Answer 36

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.

Question 37

True or False: Some parties can take an instrument from HDC.

Answer 37

False - No claimant cna take the instrument from HDC; HDC is the perfect defendant.

Question 38

True or False: Even a true owner cannot recover from an HDC.

Answer 38

True