Exam 29: Liability of the Parties Under Negotiable Instruments

Parties with rights in a negotiable instrument can be assignees or holders.

The law gives certain holders of a negotiable instrument a preferred standing by protecting them from all defenses when they sue to collect payment.

A holder through a holder in due course:

Illegality, such as a note for gambling, is a universal defense.

If a holder learns of a defense after acquiring an instrument, the knowledge works retroactively to destroy the holder's character as a holder in due course.

A person who acquires an instrument with knowledge that there is a defense a party may have cannot be an HDC.

A universal defense is so basic that the social interest in preserving them outweighs the social interest of giving negotiable instruments the freely transferable qualities of money.

Isidro issued a negotiable promissory note to his attorney in return for the attorney's promise to perform legal services.The attorney never rendered the legal services but quickly negotiated the note to Anna, a holder in due course.Anna and Mark were involved in business negotiations and Anna offered to purchase a car from Mark.She offered as part payment for the car the note issued by Isidro.By coincidence, Mark knew both Isidro and the attorney and the facts concerning the note and the unperformed legal services.Despite this, Mark accepted a negotiation of the note from Anna.Isidro refused to pay the note and Mark eventually sued Isidro to collect.What is the probable outcome?

Fraud as to the nature or essential terms of an instrument is a limited defense not available against a holder in due course.

Under the __________doctrine, the holder has taken so many instruments from its transferor or is so closely connected with the transferor that any knowledge the transferor has is deemed transferred to the holder, preventing holder in due course status.

Drawers are secondary parties on a note.

Universal defenses work against all of the following except:

Fraud in factum: