1. Collecting Negotiable Instruments
Business & Personal Law
Chapter 34

2. Holder in Due Course (H.D.C.)
special status
preferred in collections
can collect on an instrument even when certain defenses are asserted

3. Requirements for H.D.C. Must be: (1) a holder who takes an instrument
(2) for value,
(3) in good faith, and
(4) without notice.

4. Value
This means that there was some consideration given.

5. Good Faith
The UCC requires “honesty in fact” in the transaction. Whether the holder took in good faith is determined at the time of the transaction.

6. Without Notice Holder cannot have notice
of any claim (i.e. argument of person claiming the instrument),
of any defense to the instrument (i.e. a reason not to pay it),
that the instrument is overdue,
that the instrument has been dishonored.

7. Without Notice (cont’d)
Visible evidence of forgery, alteration, incompleteness, or irregularity defeat the “without notice” requirement.

8. Holder through a H.D.C.
any holder who takes the instrument from a holder in due course
acquires all the rights of the H.D.C.

9. Defenses Personal defenses are not valid against a H.D.C.
Real defenses are valid against anyone, including a H.D.C.

10. Personal Defenses breach of contract failure of consideration
lack of consideration
fraud in the inducement
lack of delivery
payment

11. Real Defenses material alteration infancy illegality duress
fraud as to the essential nature of the instrument
bankruptcy
unauthorized signature

12. FTC Consumer Rule abolished the HDC rule for consumer credit contracts
Consumers can use all defenses available against the seller.

13. The End