which of the following is a personal defense against a holder in due course?

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.

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.

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]

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.

Can a payee be a holder in due course?

Payee as Holder in Due Course. The payee can be an HDC, but in the usual circumstances, a payee would have knowledge of claims or defenses because the payee would be one of the original parties to the instrument. Nevertheless, a payee may be an HDC if all the prerequisites are met.

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

Holder in Due Course Is Subject to Real Defenses Bankruptcy (UCC, Section 3-305(a)) Infancy (UCC, Section 3-305(a)) Fraudulent alteration (UCC, Section 3-407(b) and (c)) Duress, mental incapacity, or illegality that renders the obligation void (UCC, Section 3-305(a))

What are examples of personal defense?

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.

Which of the following is true of using the defense of failure of consideration by a maker or drawer of an instrument?

Which of the following is true of using the defense of failure of consideration by a maker or drawer of an instrument? It can be used when the instrument is negotiated to a holder in due course.

What is holder in due course with example?

Holder in Due Course is a legal term to describe the person who has received a negotiable instrument in good faith and is unaware of any prior claim, or that there is a defect in the title of the person who negotiated it. For example; a third-party check is a holder in due course.

What do you mean by holder in due course?

Definition of holder in due course : one other than the original recipient who holds a legally effective negotiable instrument (such as a promissory note) and who has a right to collect from and no responsibility toward the issuer.

What are real and personal defenses?

Ordinarily, when an individual is sued on a negotiable paper, he or she will try to defend his or her right to refuse payment. Certain defenses, known as real defenses, are valid against ordinary holders as well as holders in due course, whereas personal defenses are only valid against ordinary holders.

What are the rights 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 are 5 Requirements to be 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.

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)

Which of the following is true regarding whether an agent's signature may satisfy the requirement of negotiability that the signature of a maker or drawer appear?

Which of the following is true regarding whether an agent's signature may satisfy the requirement of negotiability that the signature of a maker or drawer appear? A duly authorized agent's signature on behalf of his or her principal binds the principal and satisfies the signature requirement for negotiability.

Which of the following is a universal defense to liability for payment on a negotiable instrument?

The following are universal defenses (also called real defenses) against all holders, including holders in due course (HDCs) and holders through HDCs: forgery of a signature on the instrument, fraud in the execution, material alteration, discharge in bankruptcy, minority (if the contract is voidable) and illegality, ...

Why is the holder in due course important?

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.

What is the shelter rule for holder in due course?

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.

What is a mere holder?

A mere holder is simply an assignee, who acquires the assignor’s rights but also his liabilities; an ordinary holder must defend against claims and overcome defenses just as his assignor would. The holder in due course is really the crux of the concept of commercial paper and the key to its success and importance.

What happens if the effect is to render the obligation of the instrument entirely null and void?

If under the state law the effect is to render the obligation of the instrument entirely null and void, the defense may be asserted against a holder in due course. If the effect is merely to render the obligation voidable at the election of the obligor, the defense is cut off.”.

Why did Carter argue that its motion for summary judgment should have been granted?

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.

What is a holder in a commercial paper?

A holder is a person in possession of an instrument payable to bearer or to the identified person possessing it. But a holder’s rights are ordinary, as we noted briefly in Chapter 22 "Nature and Form of Commercial Paper". If a person to whom an instrument is negotiated becomes nothing more than a holder, the law of commercial paper would not be ...

Is a person who has notice that an instrument is overdue an HDC?

The UCC provides generally that a person who has notice that an instrument is overdue cannot be an HDC. What constitutes notice? When an inspection of the instrument itself would show that it was due before the purchaser acquired it, notice is presumed. A transferee to whom a promissory note due April 23 is negotiated on April 24 has notice that it was overdue and consequently is not an HDC. Not all paper contains a due date for the entire amount, and demand paper has no due date at all. In Sections 3-302 (a) (2) and 3-304, the UCC sets out specific rules dictating what is overdue paper.

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 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 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 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 ...

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;

Can a holder of an altered instrument recover on it?

But a holder of an altered instrument may recover on it according to its original tenor. (1) Material alteration a real defense. If a material alteration is made with guilty intent, it amounts to a forgery, and the same rules apply as in the section above.