what is an invalid personal defense against a holder in due course?

A defense of payment before an instrument is overdue is a personal defense only and not good against a holder in due course. Example. M made a note to order of P. M desiring to pay the note before it was due, P represented same was lost, but gave M a receipt.

Full Answer

What are the defenses to the holder in due course rule?

Real defenses consist of infancy, acts that would make a contract void (such as duress), fraud in the execution, forgery, and discharge in bankruptcy. A 1976 trade regulation rule of the Federal Trade Commission abolishes the holder-in-due-course rule for consumer transactions.

What are personal defenses to avoid payment to an ordinary holder?

There are other, less commonly used defenses that can be employed as personal defenses in order to avoid payment to an ordinary holder. Such defenses include discharge by payment, which would involve payment on the negotiable instrument, even though another party has a claim on it so as to eliminate the defending party’s involvement in the negot...

Can a personal defense protect the defender from a negotiable instrument?

In other words, personal defenses will often protect the defender from the first party to hold a negotiable instrument after it is issued, but if that instrument is then transferred to any other party that fills the requirements for being an HDC, then the defending party will not be able to avoid payment to that party.

When is a holder accorded the status of holder in due course?

Thus, a holder may be accorded holder in due course where it acts pursuant to those reasonable commercial standards of fair dealing—even if it is negligent—but may lose that status, even where it complies with commercial standards, if those standards are not reasonably related to achieving fair dealing.” [Citation]

What are the defenses against a holder in due course?

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 ...

What are some personal defenses?

Common personal defenses are as follows: Breach of Contract - Any party to a contract who breaches the agreement cannot enforce payment of a negotiable instrument issued as part of that agreement. Failure of a Condition - Contracts may be subject to conditions precedent and subsequent.

Is a holder in due course immune to all defenses?

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 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 defenses may not be set up against a holder in due course?

Which of the following defenses cannot be raised against a holder in due course? According to the Uniform Commercial Code (UCC), dishonor of a negotiable instrument occurs when: a presentment is made and a due acceptance or payment is refused or cannot be obtained within the prescribed time.

What defenses are are valid against all holders including HDC's what are these defenses called?

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.

Which of the following is a personal defense that is not effective against a holder in due course of a note?

Failure of consideration is a personal defense and lack of consideration is a real defense. They are personal defenses which cannot be used against holders in due course. They are personal defenses which cannot be used against holders in due course.

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

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)

What are the four requirements of a holder in due course?

Requirements for Being a Holder in Due CourseBe a holder of a negotiable instrument;Have taken it: a) for value, b) in good faith, c) without notice. (1) that it is overdue or. ... Have no reason to question its authenticity on account of apparent evidence of forgery, alteration, irregularity or incompleteness.

Which of the following condition is not necessary to become a holder in due course?

not giving value for the instrument.

What is personal defense?

Personal defenses will protect the defending party from payment to ordinary holders, but which will not penetrate the rights of a holder in due course (HDC). In other words, personal defenses will often protect the defender from the first party to hold a negotiable instrument after it is issued, but if that instrument is then transferred ...

What is a defending party?

A defending party can mount this defense if he or she issues a negotiable instrument based on false or fraudulent information given to him or her by the receiving party. For example, if one party is selling a car to another and claims that the car is like new and has very few miles on its odometer, then the buying party may issue ...

What happens when you void a voidable negotiable instrument?

When one of the involved parties chooses to void such a voidable negotiable instrument, then it would be the equivalent of mounting a personal defense against claims to payment on that instrument, instead of a universal defense against such claims. Doing so would not protect against claims from an HDC, however.

Why would a maker claim that the other party broke the warranty?

A maker or issuer of a negotiable instrument could claim that the other party broke warranty in some fashion in order to avoid making a payment on the negotiable instrument involved.

What is voidable in law?

A voidable item, on the other hand, is void only at the discretion of one of the involved parties.

What is consideration in contract?

In legal terms, consideration is some form of value offered in a contract. Consideration can be monetary or it can be based on a service. It can even be an offer to not take a given action. In regard to any negotiable instrument, if consideration is not offered from both parties involved with the negotiable instrument, then that negotiable instrument is actually unenforceable. For example, if someone were to offer another individual a written promise to pay money as a gift, then the transaction would actually lack consideration as the money offered up would be a gift. If the promising party were to mount a defense against paying on the promise, then they could do so based on the condition that the transaction lacked equal consideration.

Can mental incapacity be used as a defense against paying an instrument?

But if the court has not established that a given party suffers from such mental incapacity prior that party’s creation of a given negotiable instrument, then mental incapacity cannot be used as a defense against paying that instrument. This is because the individual would not have been legally mentally incompetent at the time of the instrument’s creation.