Holder
vs. HDC
Holder is one in possession of
order or bearer paper and the instrument is drawn or indorsed to the
holder.
Holder in Due Course (HDC)
results if the holder also meets the following requirements:
§ Takes for Value.
§ Takes in Good
Faith.
§ Takes without
Notice of a Defense to Payment.
HDC: Taking for “Value”
No value if gift or inheritance.
Not the same as consideration.
Holder can take for value by:
§ Performing the
instrument’s promise.
§ Acquiring a
security interest or other lien in the instrument.
§ Taking
instrument in payment for an antecedent debt.
§ Giving a
negotiable instrument as payment.
§ Giving irrevocable
commitment as payment.
HDC: Taking in “Good Faith”
Good faith is honesty in fact and
the observance of reasonable commercial standards of fair dealing.”
Only applies to holder, not
transferor.
Case 25.2: Maine Family
Federal Credit Union v. Sun Life Assurance (1999).
HDC:
“Taking With Notice”
Holder takes the instrument with
notice if he knows/has reason to know:
§ Instrument is
overdue.
§ Instrument has
been dishonored.
§ Actual knowledge
or any suspicious event.
§ That a claim or
defense exists.
§ So irregular,
incomplete, or bears such evidence of forgery.
Case 25.3: Travelers
Casualty and Surety v. Wells Fargo Bank (2002).
Holder
through an HDC
“Shelter Principle”: Person is
not an HDC but derives title through HDC.
Limitations on the shelter
principle: no fraud, illegality, claim or defense.
HDC
in International Context
Good Faith and Protected-Holder
Status.
UN approved Convention on
International Bills of Exchange and International Promissory Notes (CIBN)
CIBN affords Greater Protection
for Protected Holders.
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