Real Defenses - Real defenses apply against any holder, including a holder in due course. Common real defenses are as follows: Forgery - The forger of an instrument or a payees signature on an instrument is not a holder.
Forgery is a real defense to an action by an HDC. As we have noted, though, negligence in the making or handling of a negotiable instrument may cut off this defense against an HDC—as, for example, when a drawer who uses a rubber signature stamp carelessly leaves it unattended.
Sec. 92. Forgery Forgery is a real defense. Very clearly a person can set up that an instrument sued on is not an instrument made by him or by his authority; but there may be elements of estoppel.119 117. Hosier v. Beard, 54 Ohio State 398. 118. Morton v. Steward, 5. 111. Ap. 533. 119. Ehrler v. Braun, 120 111. 503 Sec. 93. Material Alteration
The rules protecting the inheritors or purchasers who are assigned the right to receive debt payments from an original creditor are called the Holder in Due Course (HDC) doctrine. Understanding the holder in due course doctrine is essential for anyone in business who either takes on debt or who assumes a debt and seeks to collect upon it.
Real Defenses Defined A real defense is one good against any one whether holder in due course or not. There are some defenses good even against a holder in due course. They are called real defenses.
Forgery. Forgery is a real defense to an action by an HDC. As we have noted, though, negligence in the making or handling of a negotiable instrument may cut off this defense against an HDC—as, for example, when a drawer who uses a rubber signature stamp carelessly leaves it unattended.
UCC Article 3 codifies the real defenses, listing them as (1) infancy, (2) duress, (3) legal incapacity, (4) illegality of the transaction, (5) fraud that induced the obligor to sign the instrument without knowledge of its character or essential terms (often called “fraud in the factum”), and (5) discharge in ...
A holder in due course takes a negotiable instrument free of all defenses that could be asserted by any party to the instrument. As a general rule, a holder in due course takes a negotiable instrument subject to any claims that could be asserted to the instrument by any person.
The holder-in-due-course doctrine is important because it allows the holder of a negotiable instrument to take the paper free from most claims and defenses against it. Without the doctrine, such a holder would be a mere transferee.
Hence, when the indorsement is a forgery, only the person whose signature is forged can raise the defense of forgery against a holder in due course. 4.
A real defense is a justification for a maker or drawer not to honor a negotiable instrument even if it has been transferred to a holder in due course (or "HDC") because it makes the instrument “void” according to Uniform Commercial Code §3-305 comment 1, thus the defense can't be "cut off" by the transfer to an HDC.
(1) A holder in due course is a holder who takes the instrument (a) for value; and (b) in good faith; and (c) without notice that it is overdue or has been dishonored or of any defense against or claim to it on the part of any person. (2) A payee may be a holder in due course.
Universal (real) Defenses: Absolute defenses to liability on a negotiable instrument that are valid against all holders, including HDCs and other holders with the rights of HDCs.
An HDC in a nonconsumer transaction is not subject to personal defenses, but he is subject to the so-called real defenses (or “universal defenses”)—they are good against an HDC.
Meaning. A holder is a person who legally obtains the negotiable instrument, with his name entitled on it, to receive the payment from the parties liable. A holder in due course (HDC) is a person who acquires the negotiable instrument bonafide for some consideration, whose payment is still due.
A holder is a person who lawfully obtained the negotiable instrument. The negotiable instrument has his name entitled on it so he can receive the payment from the parties liable. A holder in due course is a person who acquires the negotiable instrument (in good faith) for some consideration, whose payment is still due.
Payment in due course is the payment by a debtor on a negotiable instrument which discharges the negotiable instrument, even though the payment is made on or after the maturity date of the negotiable instrument.
The holder-in-due-course doctrine is important because it allows the holder of a negotiable instrument to take the paper free from most claims and defenses against it. Without the doctrine, such a holder would be a mere transferee. The UCC provides that to be an HDC, a person must be a holder of paper that is not suspiciously irregular, and she must take it in good faith, for value, and without notice of anything that a reasonable person would recognize as tainting the instrument. A payee may be an HDC but usually would not be (because he would know of problems with it). The shelter rule says that a transferee of an instrument acquires the same rights her transferor had, so a person can have the rights of an HDC without satisfying the requirements of an HDC (provided she does not engage in any fraud or illegality related to the transaction).
The shelter rule#N#Under Article 3 of the Uniform Commercial Code, the transferee of an instrument acquires the same rights his or her transferor had.#N#provides that the transferee of an instrument acquires the same rights that the transferor had. Thus a person who does not himself qualify as an HDC can still acquire that status if some previous holder (someone “upstream”) was an HDC.
Section 3-303 of the UCC describes what is meant by transferring an instrument “for value.” In a broad sense, it means the holder has given something for it, which sounds like consideration. But “value” here is not the same as consideration under contract law. Here is the UCC language:
Again, a holder is a person who possesses a negotiable instrument “payable to bearer or, the case of an instrument payable to an identified person, if the identified person is in possession.” Uniform Commercial Code, Section 1-201 (20). An instrument is payable to an identified person if she is the named payee, or if it is indorsed to her. So a holder is one who possesses an instrument and who has all the necessary indorsements.
Section 3-103 (4) of the UCC defines good faith#N#Defined in the Uniform Commercial Code as “honesty in fact and the observance of reasonable commercial standards of fair dealing.”#N#as “honesty in fact and the observance of reasonable commercial standards of fair dealing.”
Carter argues that its motion for summary judgment should have been granted because, as a holder in due course, it has the right to recover on the checks from the drawer, Omni.
It obviously would be unjust to permit a holder to enforce an instrument that he knew—when he acquired it—was defective, was subject to claims or defenses, or had been dishonored. A purchaser with knowledge cannot become an HDC. But proving knowledge is difficult, so the UCC at Section 3-302 (2) lists several types of notice that presumptively defeat any entitlement to status as HDC. Notice is not limited to receipt of an explicit statement; it includes an inference that a person should have made from the circumstances. The explicit things that give a person notice include those that follow.
prev: Chapter 12. Defenses Against Holder In Due Course. A. Defenses Not Available Against Holder In Due Course-Personal Defenses
A real defense is one good against any one whether holder in due course or not. There are some defenses good even against a holder in due course. They are called real defenses. They are, at least generally, defenses of an unusual character, not those going to the merits of a transaction, but rather to its nature as a legal act.
The fraud whereby one is induced to execute, accept or indorse a negotiable instrument under the impression that he is performing some other act with an entirely different legal effect, gives rise to a defense good against every one, unless one is by his negligence estopped to set up the fraud. ...
If not made with guilty intent yet still purposely it is nevertheless an alteration and the maker cannot be made liable upon the instrument as changed. The alteration must be material in order to give the promissor any defense. The statute declares that "Any alteration which changes: 1. The date; 2.
The uniform act provides that where an instrument is altered and has come into the hands of a holder in due course , although the alteration is a good defense against him, he may yet recover on the instrument according to the original tenor. Sec. 94. Fraud Going To The Execution.
The policy of the law of commercial paper requires that a purchaser (holder in due course) be unaffected by any defenses between the immediate parties; but the policy of the law in other fields runs at times counter to those considerations and exerts a pressure that causes the negotiable principle to yield. In this chapter the so-called real ...
If the statute declares the instrument void, it becomes so to all purposes and can give no rights to any one. The chief case in which an instrument is declared void as to everyone is the case of an instrument executed as a part of a gambling transaction.123
Example: Agnes steals a check from Ben and forges his signature. She negotiates the check to Clark, who would otherwise qualify as an HDC if Clark were a holder. Agnes does not have to pay this instrument.
Note: If the instrument was blank and then filled out, the HDC can enforce it for the whole amount. This rule places the risk on the issuer who makes an incomplete instrument.
Example: Agnes issues a promissory note. The note is transferred several times to multiple holders in due course. Agnes files for bankruptcy protection and her obligation to pay the instrument is include in the bankruptcy estate. An HDC would have to make an unsecured claim against the bankruptcy estate of Agnes or seek enforcement against a prior transferor or indorser.
Fraud in Fact - Fraud in fact means that the subject matter of the contract involves an intentional deceit. This is different than fraud in the inducement.
This debt may be included in the debtors bankruptcy estate. The holder or HDC must submit a claim for payment of the instrument to receive anything from the estate. Discharge of the debt discharges the obligation of the debtor to make payment.
So the failure to assert or allege that the claimant is a holder in due course is an admission that at least one of these three elements are missing: payment value, acting in good faith, and no knowledge of the maker’s defenses.
But there are other elements required to achieve the status of a holder in due course. A holder in due course is someone who paid value for the note. They paid value to a person who was either a holder in due course or a holder. They might even have paid value to a thief.
The absence of an assertion and that the claimant is a holder and do course raises an important factual and legal point. A holder in due course may avoid most defenses of the maker of the note. A holder does not have that elevated status. A holder may enforce the note, but it may not enforce the mortgage unless it is paid value for the underlying obligation. See Article 9 § 203 UCC and Article 3 UCC, mortgage and note respectively. Note also that Article 3 presumptions do not apply unless the note is a negotiable instrument.
At such time that the claimant refuses to answer questions about payment value, acting in good faith, or knowledge about the defenses of the maker, a pretty strong argument emerges for the court to grant an order granting a motion in limine, barring the claimant from introducing evidence to prove the truth of the matter that the condition precedent contained in article 9 section 203 of the uniform commercial code has been satisfied.
But in order to be a holder in due course, they must have acted in good faith and without knowledge of the defenses of the maker of the note (the homeowner).
None of this stops a judge from treating the claimant as a holder in due course unless the homeowner raises objections. It is an error to be sure. But on appeal, the appellate panel will see it as not material to the outcome of the case, unless a proper record has been preserved in which other procedural errors are involved.
So the bottom line is that the holder in due course argument is part of a larger argument. It is not a magic bullet. But properly framed and aggressively used in discovery and motion practice will often yield a successful result for the homeowner.
Holder in Due Course (HIDC) is part of the Uniform Commercial Code (UCC) that significantly impacts an organization’s liability for check fraud and the checks it issues. After learning about HIDC claims, prudent companies are often motivated to use high security checks and change check disbursement procedures to protect themselves. The following is a brief explanation of Holder in Due Course.
Hauser Contracting appealed the decision, arguing that summary judgment was improperly granted because the Court failed to properly address Hauser Co.’s defense that the checks were invalid negotiable instruments and therefore erred in finding the plaintiff a Holder in Due Course. However, the Appellate Court agreed with the lower court.
This is one of the few cases Robert Triffin lost. It illustrates the value of using high security, controlled check stock to protect oneself from some Holder in Due Course claims. In this case, the Court was asked whether an innocent party, whose check stock was replicated and whose signature was forged, can be held liable when another innocent party pays that check in good faith. The answer is No. On April 20 and 21, 2002, a check cashing store cashed 18 counterfeit checks, in amounts ranging between $380 and $398, purportedly issued by Pomerantz Staffing Services. Each check bore Pomerantz’s full name and address and a facsimile signature of “Gary Pomerantz.” Printed on the face of each check was a warning: “THE BACK OF THIS CHECK HAS HEAT SENSITIVE INK TO CONFIRM AUTHENTICITY.” Without examining the checks as suggested by this warning, the store cashed the checks, which the bank returned unpaid and stamped: “COUNTERFEIT” and “DO NOT PRESENT AGAIN.” (The fact that the bank caught checks of such low dollar value suggests that Pomerantz was utilizing its bank’s Positive Pay service. Visit www.PositivePay.Net .)
Check 21 has a rule (“Warranty”) that specifically prohibits a check or its image from being presented for payment more than once , and, when combined with Holder In Due Course laws, provides a powerful recovery remedy if it occurs.
The statute of limitations for a Holder to sue the drawer is 10 years from the issue date, or three (3) years from the date the check was deposited and returned unpaid, whichever comes first. A Holder can assign, sell, give, or otherwise transfer its rights to another party, as long as the third party wasn't involved with any underlying fraud pertaining to the check.
Cigna’s bank dishonored the check, stamped it with “Stop Payment,” and returned the check to Sun’s bank. Had Sun’s Market filed a claim against Cigna as the issuer of the check, Sun would have been entitled to be paid because of its status as a Holder in Due Course. However, Sun either did not know about the law or chose not to pursue it, because it merely tacked the check up on its bulletin board.
The holder in due course is a concept that refers to the party who holds an important, and often negotiable, document. This document is sometimes referred to as an instrument because it is often an instrument of payment. This might include a bank note, draft, or check. The holder is temporarily the owner of the document that holds value.
The holder in due course is in a unique position with protection against others. In order to prevent this power from becoming abusive; they are still required to follow these rules: There cannot be any clear proof of forgery or unauthenticated action of the negotiable document, or instrument.
One of the requirements of the holder in due course is that the instrument must be taken for value. This means that the transfer of the document must have been for its value. In contrast, it cannot be accepted as a gift.
If one party accepts the instrument but does not complete their end of the deal, they are not the true holder of the item. There are two exceptions to this executory promise rule: If the instrument is given in exchange for a negotiable item. If the instrument is transferred from an irrevocable obligation to a third party.
If the instrument is transferred from an irrevocable obligation to a third party. Additionally, the holder in due course must accept the payment in good faith. If there is any evidence of fraud or foul play, the holder in due course should not accept the instrument of payment. The holder in due course has specific rules ...
There are five different methods in which the holder in due course can accept the document as a source of value:
At some point, the document is negotiated and used as a useful commercial tool. The holder is referred to as the assignee. They are in possession of the assignor's rights and liabilities. The holder is in a very important role. They are responsible for the document that is free of claims from other owners.
The rules protecting the rights of a holder in due course to collect on debt are very important to facilitating business transactions. These rules make it possible for checks to move from bank to bank without worrying the check writer will try to assert a defense challenging the validity of the right to collect on the debt. When a check is written to someone who subsequently deposits the check, for example, the depository bank becomes the holder in due course.
Under UCC Section 3-302, a holder in due course who is entitled to protection of the law and vested with the right of debt collection must have purchased the right to collect on the debt ...
Among the provisions set forth in the UCC are rules protecting the purchasers of debts and protecting those who are assigned the right to receive debt payments. The rules protecting the inheritors or purchasers who are assigned the right to receive debt payments from an original creditor are called the Holder in Due Course (HDC) doctrine.
a. Phillip can assert the failure of the forklift as a defense to making payments to Corporate
order of Clint. Clint then negotiates the instrument to Eric, a holder in due course, and later
Blane indorsed his paycheck in blank and cashed it at a store where he was a well-. known customer. The check was then stolen from the store. The store immediately notified Blane's. employer, who gave the drawee bank a stop payment order. The thief indorsed the check in a false.
c. Both answers (a) and (b) are correct.
c. could be a holder, but not a holder in due course.
Erin stole a paycheck from Carl prior to his indorsing it. She then forged Carl's
b. Corporate Bank is a holder in due course if it took the note in good faith and had no notice