what defenses can be used against a holder in due course

Universal defenses include the following:

• (1) Forgery,
• (2) Fraud in the execution,
• (3) Material alteration (complete defense against a holder, partial defense against an HDC),
• (4) Discharge in bankruptcy,
• (5) Minority,
• (6) Illegality (when statute makes it void),
• (7) Adjudicated Mental Incapacity, and
• (8) Extreme Duress.

Full Answer

What are the defenses to a due course claim?

Holders in due course are not immune from all defenses. A real, as opposed to a personal, defense may be asserted against the HDC. Personal defenses include fraud in the inducement, failure of consideration, nonperformance of a condition precedent, and the like.

What is a holder in due course?

The holder in due course is really the crux of the concept of commercial paper and the key to its success and importance. What the holder in due course gets is an instrument free of claims or defenses by previous possessors.

Is an HDC subject to personal defenses?

An HDC is not subject to the obligor’s personal defenses In negotiable-instrument law, defenses that are not good against a holder in due course. . But a holder who is not an HDC is subject to them: he takes a negotiable instrument subject to the possible personal claims and defenses of numerous people.

What does “in due course” mean?

What the holder in due course gets is an instrument free of claims or defenses by previous possessors. A holder with such a preferred position can then treat the instrument almost as money, free from the worry that someone might show up and prove it defective.

Which of the following defenses is a holder in due course HDC subject to?

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.

What rights does a holder in due course have?

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 (or been assigned the right to collect) while acting in good faith.

What are the three 3 elements needed for a person to be considered a holder in due course of a negotiable instrument?

Requirements for Being a Holder in Due Course There cannot be any clear proof of forgery or unauthenticated action of the negotiable document, or instrument. The document must have been accepted for its value. It must have been accepted in good faith.

Which of the following would prevent a holder from becoming a holder in due course?

Constructive notice through public filing or recording is sufficient notice to prevent a person from being a holder in due course. Bill issues a negotiable promissory note to Paula, who indorses it in blank and delivers it to Allen.

What are the essential conditions to constitute a holder in due course?

following conditions: (1) That it is complete and regular upon its face; (2) That he became the holder of it before it was overdue, and without notice that it had been previously dishonored, if such was the fact; (3) That he took it in good faith and for value; (4) That at the time it was negotiated to him he had no ...

What are the conditions to qualify one as a holder in due course?

(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.

What are the 3 negotiable instruments?

(1) A “negotiable instrument” means a promissory note, bill of exchange or cheque payable either to order or to bearer.

Which of the following requirements must be met for a holder to qualify as a holder in due course HDC under the shelter principle?

A holder in due course (HDC) is protected from common law defenses that arise in contracts. To be a HDC, the following requirements have to be met: the note is negotiable, are a holder of the note, the authenticity of the note is not in question, good faith, for value, and without notice.

What are the 4 defenses that can be used against an ordinary holder but are not effective against a holder in due course HDC?

Duress, mental incapacity, or illegality that renders the obligation void (UCC, Section 3-305(a)) Fraud in the execution (UCC, Section 3-305(a)) Discharge of which the holder has notice when he takes the instrument (UCC, Section 3-601)

Which of the following is a real defense in a negotiable instrument?

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.

What are the duties of holder in due course?

A holder in due course acquires the right to make a claim for the instrument's value against its originator and intermediate holders. Even if one of these parties passed the instrument in bad faith or in a fraudulent transaction, a holder in due course may retain the right to enforce it.

What is a holder in due course quizlet?

Holder in Due Course (HDC) A holder who acquires a negotiable instrument for value, in good faith, and without notice that the instrument is overdue, that it has been dishonored, that any person has a defense or claim against it, or in any way question its authenticity. Indorsee.

What is the purpose of holder in due course status quizlet?

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.

What is the public policy behind holder in due course status?

The "holder in due course" doctrine, as implemented by Article 3 of the Uniform Commercial Code, says that a party who acquires a negotiable instrument in good faith, for value, and without notice of certain facts, and who also meets some additional requirements, takes the instrument free of competing claims of ...

What are the two things we need to fully understand to defend our homes?

Imo, there are two very important things we need to fully understand to defend our homes: the UCC and the laws of evidence. The UCC may provide avenues of discovery, as well as reasonable argument that without that discovery, adjudication just can’t be made.

What is Unclean Hands fraud?

Unclean hands used to be an important part of valid law that held some measure of admiration and respect entitled to the honor in which it was held. That intangible principle long ago was dumped in favor of predatory profits as not lucrative enough to remain as a fundamental core of securitization law.

How many certified questions are there before the WA SC?

There are 3 certified questions before the WA SC. One of them is if MERS may be named a ben in WA dots pursuant to a particular WA

What is fraud in execution?

Fraud in the execution occurs when a person is deceived into signing a negotiable instrument believing that he is signing something other than a negotiable instrument. This defense cannot be raised, however if a reasonable inquiry would have revealed the nature and terms of the instrument. Thus, the signer’s age, experience, and intelligence are relevant.

How many states does the Attorney Network exist in?

Attorney Network Expands to Over 150 Lawyers in 37 States

What is a personal defense?

Personal defenses are used to avoid payment to an ordinary holder of a negotiable instrument. Personal defenses are:

Is the UCC cited under article 3?

The UCC cited is under article 3 and is relevant to negotiable instruments . But I can’t help remembering those 2 cases I have somewhere wherein the banksters claimed these notes are not negotiable instruments. Fwiw, I’ll link them when I find them.

What chapter is defenses against holder in due course?

prev: Chapter 12. Defenses Against Holder In Due Course. A. Defenses Not Available Against Holder In Due Course-Personal Defenses

What is a real defense?

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.

What is an alteration if it is not made with guilty intent?

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.

What is the uniform act?

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.

What is the policy of commercial paper?

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 ...

What happens if a statute declares an instrument void?

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

Is personal incapacity to contract a defense?

Personal incapacity to contract is a defense good against any holder. An insane person117 or a minor118 can plead his defense against even a holder in due course. 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;

Description

This section is from the book "American Commercial Law Series ", by Alfred W. Bays. Also available from Amazon: American commercial law series.

Sec. 79. Forgery

A title cannot be acquired against one through forgery of his name; assuming there are no peculiar circumstances estopping him to set up the forgery.

Sec. 80. Material Alteration

That the instrument has been materially altered Is a defense that can be set up against a holder in due course; unless the alteration was made possible by the careless manner in which the instrument was drawn. But a holder of an altered instrument may recover on it according to its original tenor.

Sec. 81. Fraud Going To The Execution

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 everyone, unless one is because of his negligence or otherwise estopped to set it up.

Sec. 82. Illegality Which By 8tatute Makes Instrument Void

By statute In many Jurisdictions it is declared that if an instrument is founded upon certain illegal considerations, as for Instance, a gambling consideration, it shall be utterly void. In such cases the Instrument is of no effect even In the hands of an innocent purchaser for value.