Test 1 (defenses)

Question 1

What defenses are good against even a HDC

Answer 1

Real or universal defenses

Question 2

What are examples of “real” or “universal” defenses?

Answer 2

• Forgeries of makers’ or drawers’ signatures
• Fraud in the execution (factum / essence) ( someone tricked into signing something)
• Material alterations (something originally on the instruments was changed)
• Bankruptcy
• Minority (as far as state law recognizes this)
• Void type of mental incapacity, duress, or other illegality under state law.

Question 3

What are the exceptions to the real defense of forgeries?

Answer 3

1- Ratified forgeries
2- if the drawers negligence contributed to the forgery
3- forged indorsement

Question 4

What may stop someone from being able to use the real defense of “fraud in the execution”?

Answer 4

If the person due to age, experience, and intelligence should have reasonably inquired and discovered the fraud.

Question 5

What does the real defense of “material alterations” have against a HDC?

Answer 5

The HDC can still collect the original tenor of the instrument

Question 6

When can a party not raise the real defense of “material alterations?”

Answer 6

When their own negligence contributed to the successful alteration (such as writing in pencil.)

Question 7

Do personal (limited) defenses work against HDC’s? Holders? Assignee’s

Answer 7

Personal defenses are good against everyone except a HDC.

Question 8

What are examples of personal (limited) defenses?

Answer 8

1- Lack of contractual consideration (by the holder)

2- Breach of contract / warranty (by the holder)

3- Fraud in the inducement (knows what signing, but was tricked…purchased a car, but didn’t know it had major problems)

4- Improper completion (inserting information in a spot that was previously completely blank… so not a material alteration which is a real defense, but a improper completion)

5- voidable types of mental incapacity (not declared yet, but are for this issue…if void, or already declared, then it is a real defense)

6- Discharge by payment or cancellation (if paid someone, and then person paid sells not to another person and they come to collect too–if second is HDC then this defense wont work)

7- Non-delivery or theft

Question 9

How does FTC rule 433 affect HDC status?

Answer 9

It nullifies it