Question

Scenario 1 – Holders and Holders in Due Course

Greg sold Mitch a fishing boat for $8,500, maintaining to Mitch that the boat was in excellent condition. Mitch gave Greg a check for $8,500, which Greg endorsed and gave to Denise in exchange for a debt he owed her. When Mitch took his friends out on the boat, he discovered that the boat leaked, needed to be painted, and required a new motor. Mitch stopped payment on the check, which had not yet been cashed.

• Describe the status of Greg and Denise as holders or holders in due course.
• Can Denise recover from Mitch as a holder in due course? Discuss

Answer 1

Greg as Holder

• A holder is a person who has legally obtained the negotiable instrument. His name is entitled on it to receive the payment from the parties liable
• A holder has less privileges.
• It is not necessary that instrument is received for some consideration.
• The instrument may or may not be received for good faith.
• A person can become holder before or after the maturity of the instrument.
• A holder cannot sue all the prior parties in case of default in payment.

Denise as holder in due course

• A holder in due course refers to a person who has acquired the instrument bonafide for some consideration and his payment is still due to be received.
• The presence of consideration is necessary.
• A holder in due course has more privileges.
• The instrument must be obtained in good faith
• A holder in due course can sue all other parties.
• Only before the instrument is matured, a person can become a holder in due course.

Yes, Denise as holder in due course can recover the amount from Mitch as holder in due course can sue all prior parties