Quiz 30: Liability of the Parties Under Negotiable Instruments
a ) False. Note may be payable to bearer or order for someone to be holder in due course. b) True. The note must be negotiable for someone to be holder in due course. c) False. Prior holders do not need to be a holder in due course in order for a subsequent person to be one. d) False. Someone doesn't have to be a holder in due course to be a payee.
Refer to the case First of America Bank Northeast Illinois v Bocian Case Issue The issue is whether the bank (plaintiff) that deposited a check paid by defendant is a holder in due course of the check. Trial court granted summary judgment in favor of the bank, defendant appealed. Relevant Terms, Laws, and Cases Holder in due course - a holder in due course is a holder that has more legal protections for claiming a payment on an instrument. The holder in due course that is received a check, such as a bank, can claim on payment for the check even if the initial payee and payer are in conflict. UCC 3-302 - defines the provision to be a holder in due course including, taking an instrument by a) giving value, b) good faith, c) no knowledge of that the instrument is overdue, dishonored, or other claims on the check. Opinion The higher court affirmed the decision. The bank is a holder in due course. The court argued that the bank was a holder in due course because it given value, by allowing the payee to draw money from the deposit, there was no dispute of that the bank didn't take the check in good faith, and the bank did not have knowledge of the disputes when they took the check. Hence, the bank met the provisions for holder in due course and may state claim on the check free from defendant's contract claims.
a) True. A discharge in bankruptcy may be defense against a holder in due course. b ) True. Forgery of a negotiable instrument is a defense against a holder in due course. c) True. Fraud in execution of the note is also a defense against a holder in due course. This is because the d) False. Lack of consideration is not a defense for the maker against a holder in due course. The holder in due course only needs to have given something of value for the person who transferred the note to them this person may not be the maker.