Holders in Due Course Flashcards
Rights of a mere holder
Right to enforce payment
Holder in Due Course
Status is important when the obligor raises a defense to payment
HDC gains better rights, takes free of most defenses
Elements of HDC Status
- Negotiable Instrument
- Holder
- Authenticity not apparently questioned
- Holder must pay value
- Good Faith
- Without notice at time of instrument acquisition
Authenticity Not Apparently Questioned
Instrument does not bear such evidence of forgery or alteration or is not otherwise so irregular or incomplete as to call its authenticity into question
Good Faith
Honesty in fact plus observance of reasonable commercial standards of fair dealing
Without notice at time of instrument acquisition
Actual notice
Receipt of notice coupled with a reasonable time to act on the notice
From all facts and circumstances known to the person at the time in questions, the person has reason to know that it exists
7 Things holder cant have notice of
- Instrument (Principal) Overdue (for a check its 90 days)
- Instrument Dishonored
- Uncured default with respect to payment of another instrument issued as part of same series
- Unauthorized signature
- Alteration
- Claim by 3d Party
- Any defense of claim in recoupment
Shelter Rule
Transfer of instrument vests in the transferee the rights that transferor had
Having HDC rights doesn’t make you HDC
Exception: a person who was party to fraud or illegality cannot get HDC rights by shelter rule
Burden of Proof for HDC
Person claiming HDC status