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7 Cards in this Set

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Holders in Due Course

Rights of mere holder: normally all that one needs bec a holder has lots of rights, such as right ot enforce payment

HDC status: important when obligor raises a defense to payment
If maker of note doesn't want to pay because product purchased was defective:

- Mere holder would lose to this defense, if it's valid under basic K law
- If holder is HDC, holder can obtain better rights than the transferor and take free of this and most other defenses
HDC Elements:
1) Negotiable Instrument
2) Holder
3) Authenticity not apparently questioned
4) Holder must pay value
5) Good faith
6) W/o notice at time of instrument acquisition
1) Negotiable Instrument
2) Holder
3) Authenticity not apparently questioned
Instrument doesn't bear such evidence of forgeryo r alteration or is not otherwise so irregular/incomplete as to call its authenticity into question
4) Holder must pay value
Holder must pay value for the instrument to deserve the special protection

- negotiable instruments often traded (bought/sold) at amounts different from face values
- if face value difference is excessive, holder unlikely in good faith
5) Good faith
1) Honesty in fact (subjective) AND
2) Observe of reasonable commercial standards of fair dealing (objective)
6) Without notice at time of instrument acquisition

Later notice doesn't matter. Once you get HDC status, it can't be taken away.
Notice means:

- Actual knowledge- subjective test
- Receipt of a notice coupled w/reasonable time to act on notice
- from all facts/circ known to person at time in question (subjective), person has reason to know it exists (objective)

Mere filing in public records doesn't put a person on notice
1) Instrument (principal) overdue: due date has passed For check, 90 days after issue; overdue interest is NOT notice. Only notice if principal is overdue.
2) Instrument dishonored: instrument not paid upon proper demand such as a check marked insuff. funds
3) Uncured default w/respect to payment of another instrument issued as part of the same series
4) Unauthorized signature
5) Alteration
6) Any claim (somebody else asserting rights to possess it)
7) Any defense or claim in recoupment [any reason obligor does not way to pay- e.g., minority, lack of capacity, fraud; recoupment is like counterclaim- obligor's claim against payee arising out of the transaction giving rise to the paper]
Shelter Rule: Transferee has Rights of Transferor

1. Even if a holder does not qualify as HDC, person may still have rights of HDC by shelter
- Transfer of an instrument vests in transferee the rights that transferor had
* Having HDC rights via shelter doesn't make you a HDC

Exception: Person who was a party to fraud or illegality affecting the instrument can't get HDC rights by shelter
Burden of proof is on person who is claiming HDC status