How does a transferee qualify as a holder in due course?

Question 1

Requirements to be a Holder in due course

Answer 1

1-for value;
2- in good faith; and
3- without notice that it is overdue or has been dishonored or is subject to any defense or claim.

Question 2

Value

Answer 2

Distinguish from consideration.

Mere promise is not value.

Old value is good value (to pay debts).

Question 3

In good faith

Answer 3

Subjective test- honesty in fact

Question 4

Without notice

Answer 4

Objective test- did the holder know or have reason to know that the instrument is:

• overdue,
• has been dishonored,
• or is subject to any defense or claim.

Question 5

Holder in due course and the shelter rule

Answer 5

A transferee acquires whatever rights her transferor had.

Question 6

Benefits of holder in due course status

Answer 6

HDC takes free from claims and personal defenses, but subject to real defenses.

Question 7

Real Defenses

Answer 7

MAD FIFI4

Material Alteration
Durress
Fraud in the Factum
Incapacity
Illegality
Infancy
Insolvency

Question 8

Material Alteration Defense

Answer 8

change in the terms of the instrument.

If payee changes amount, maker is not liable.
-However, if maker was negligent, he is estopped from raising material alteration as a defense.

Negligence includes leaving blanks or wide open spaces on the check.

Question 9

Real Fraud

Answer 9

Lie about the instrument (misrepresentation as to what it is, not as about why it was given).
-If Maker knew she was signing the instrument, can’t bring this defense.