Chapter 25 Transferability and Holder in Due Course
Chapter 25 Transferability and Holder in Due Course © 2004 West Legal Studies in Business A Division of Thomson Learning 1
Introduction ü Negotiable instruments can be transferred to others by negotiation or by assignment. © 2004 West Legal Studies in Business A Division of Thomson Learning 2
§ 1: Negotiation üTransfer by negotiation creates a holder, who at the very least receives the rights of a previous possessor. AND üA holder in due course (HDC) acquires more rights in the instrument than the previous possessor. This means defenses that can be raised against the transferor may not be able to be raised against the transferee. © 2004 West Legal Studies in Business A Division of Thomson Learning 3
Two Ways to Negotiate üNegotiating Order Instruments—endorsement and delivery required. üNegotiating Bearer Instruments—delivery only. § Converting Order to Bearer and vice versa. üConverting Order Instruments to Bearer Instruments, and Vice Versa. § Must be done at the time of negotiation. © 2004 West Legal Studies in Business A Division of Thomson Learning 4
§ 2: Indorsements üSignature with or without additional words or comments: § § Blank Indorsements. Special Indorsements. Qualified Indorsements. Restrictive Indorsements. © 2004 West Legal Studies in Business A Division of Thomson Learning 5
§ 3: Miscellaneous Indorsement Problems üMisspelled Names. Indorsement should generally be identical to name on instrument. § Misspelled name OK. üInstruments Payable to Legal Entities. § Negotiable by authorized representative of the entity. © 2004 West Legal Studies in Business A Division of Thomson Learning 6
Miscellaneous Indorsement Problems üAlternative or Joint Payees. § In the alternative - either may indorse. § Jointly - both must indorse. üCase 25. 1: GMAC v. Abington Casualty (1992). © 2004 West Legal Studies in Business A Division of Thomson Learning 7
§ § 4 -5: Holder vs. HDC üHolder is one in possession of ORDER or BEARER PAPER. üHolder in Due Course (HDC) results if the holder also meets the following requirements: § Takes for Value. § Takes in Good Faith. § Takes without Notice if defective. © 2004 West Legal Studies in Business A Division of Thomson Learning 8
HDC: Taking for “Value” üNo value if gift or inheritance. Not the same as consideration. üHolder can take 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. © 2004 West Legal Studies in Business A Division of Thomson Learning 9
HDC: Taking in “Good Faith” üGood faith is honesty in fact and the observance of reasonable commercial standards of fair dealing. ” üOnly applies to holder, not transferor. üCase 25. 2: Maine Family Federal Credit Union v. Sun Life Assurance (1999). © 2004 West Legal Studies in Business A Division of Thomson Learning 10
HDC: “Taking Without Notice” üHolder takes the instrument without 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). © 2004 West Legal Studies in Business A Division of Thomson Learning 11
§ 6: Holder through an HDC ü“Shelter Principle”: Person is not an HDC but derives title through HDC. üLimitations on the shelter principle: no fraud, illegality, claim or defense. © 2004 West Legal Studies in Business A Division of Thomson Learning 12
§ 7 HDC In International Context üGood Faith and Protected-Holder Status. üUN approved Convention on International Bills of Exchange and International Promissory Notes (CIBN) üCIBN affords Greater Protection for Protected Holders. © 2004 West Legal Studies in Business A Division of Thomson Learning 13
Law on the Web üLegal Research Exercises on the Web. © 2004 West Legal Studies in Business A Division of Thomson Learning 14
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