Holder in Due Course

Question 1

What are the 4 requirements to be a HDC

Answer 1

1. Acquire status as a holder
2. Pay value for the instrument
3. Take instrument in good faith
4. Without notice of any problems that might affect the obligor’s obligation to pay the instrument

Question 2

Taking the instrument in good faith means

Answer 2

1) Honesty in Fact- What the person receiving the instrument actually knew

2) The observance of reasonable commercial standards of fair dealing (objective standard)

(What the person receiving the instrument should have known given the context in which the instrument was negotiated

Question 3

What is value ?

Answer 3

Forgiving an preexisting obligation, a money, (partial payment = partial HDC rights)

Not a gift or a promise

Question 4

What is notice of a problem ?

Answer 4

Actual/constructive notice of an infirmity (claim in recoupment or overdue instrument)

An check is overdue after 90 days of date of issue and any instrument that is due on demand is overdue after demand for payment is made

Question 5

The FTC protects consumers in certain transactions by requring a certain statement being placed on the NI

Answer 5

This language allows the debtor to assert claims and defenses against the holder, even if that person is an HDC

This notice is required when
1. The maker/Drawer signing note in consumer transaction

2. The transaction is for the sale or lease of goods or services
3. The seller must be one who sells the item in question in his ordinary course of business