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Due course holder versus simple holder

The advantage of a holder in due course over a simple holder of an instrument is that the holder in due course can:

A. Transfer the instrument to others, thus using it as a substitute for money.
B. Collect on the instrument even if it has been forged.
C. Collect punitive damages from a party who wrongly does not pay a negotiable instrument.
D. Collect on the instrument if the maker or drawer asserts a personal defense.
E. Endorse the instrument "without recourse" thus limiting his liability.

Solution Preview

Best answer: D. collect on the instrument if the maker or drawer asserts a personal defense

Why?

Personal defenses cannot be raised against HDC, and they can still collect on the instrument, which differs from simple holder where the drawer can assert any personal defense (see http://www.scribd.com/doc/2221287/Notes-Chapter-6-REG).

Definition: Holder in due course -- any subsequent owner of a negotiable instrument such as a check, note or other document. The holder ...

Solution Summary

This solution provides the best answer to a multiple choice question concerning due course holder versus simple holder. It also explains why it is the best answer.

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