Rights of a Holder in Due Course

Question 1

Subject to Real Defenses

Answer 1

Infancy
Duress
Lack of Legal Capacity
Illegality
Fraud in the execution- signer lacked knowledge of instrument character or essential terms AND signer lacked reasonable opportunity to learn of character or essential terms
Discharge in Insolvency
Statute of Limitations- Note 6 years from due date; Unaccepted draft (check) earlier of three years after dishonor or 10 years after issue
Payment to Former Holder
Alteration
Unauthorized Signatures & Forgeries

Question 2

Payment to Former Holder

Answer 2

The liability of a person obligated to pay on an instrument may be discharged by payment to a person who was formerly entitled to enforce the note unless the obligated party has received a proper notification that the note was transferred and
that payment is to be made to the new holder (the transferee).

A notification is adequate only if it is signed by the transferor or the transferee, reasonably identifies the transferred note, and provides an address at which payments subsequently are to be made.

The defense of payment to a person who is no longer entitled to enforce is effective against an HDC. But, the HDC can prevent this defense from being effective by providing the proper notice.

Question 3

Protected from Personal Defenses

Answer 3

HDC will prevail against all other defenses of the obligor that are not real defenses

Ex: failure of consideration, breach of warranty, fraud in inducement

Question 4

HDC is free from claims of others to the instrument

Answer 4

No claimant can take an instrument from HDC