qualifications for holder in due course
takes instrument....1. for value2. in good faith3. without notice instrument is overdue, dishonored, forged/altered
executory promise for value?
no, but is enough consideration for a K
instrument given by gift HDC?
no
security interest value?
yes
writing off an anteceding debt value?
yes
giving a negotiable instrument for another negotiable instrument value?
yes
giving an irrevocable commitment as payment value?
yes
shelter/umbrella rule
any transferee of an instrument from or after a HDC acquires the rights of a HDC and may enforce the instrument free of claims and personal defenses
a. ANY TRANSFEREE or HOLDER taking after HDC, but a previous transferee/holder prior to HDC who takes afterwards....
cannot fall under shelter/umbrella.
rights of HDC
takes free of all claims
claims
previous holders/transferees but not maker/drawer
6 Real (universal) Defenses valid against
ALL holders, HDC's and those protected by shelter
personal defenses valid against
holders BUT NOT HDCs and/or those protected by shelter
6 real (universal) defenses-- list
1. forgery2. material alteration3. bankruptcy discharge 4. minor (if K voidable) 5. fraud in execution (rea fraud) 6. illegality, incapacity, duress
personal defenses
anything not real defenses
forgery
signing the maker or drawers name but not them
material alteration
unauthorized change that materially alters an instrument (changing check from 20 to 2000)
bankruptcy discharge
if your debts were discharged in bankruptcy
minor
(can be real or personal) underage, normally 16; look at state law to see what state law says about minor making that contract, if state law says this contract is voidable then it is a real defense ONLY VOIDABLE NOT VOID
illegality, incapacity, duress
must look at state law and see what law does in that situation; only real defenses if the contract is rendered void under state law ONLY VOID
fraud in execution
(real fraud) you don't know what you're doing, lying about the very thing you're getting yourself into (sell baseball bat claiming owned by Babe Ruth, isn't)
fraud in the inducement
(ordinary fraud) know what it is you're doing but I lied to you to get you to do it, "it's a contract but oh well it doesn't matter you can kinda ignore it