ch5 rights

8/11/2019 Ch5 Rights

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CH5 RIGHTS OF THE HOLDER:Sec. 51. Right of holder to sue; !"#e$t.The holder of ! $egoti!%le i$stru#e$t #!" to sue thereon in his own name ; !$d !"#e$t to hi#i$ due course discharges the instrument.

Cl!sses of holders:o Si#l" &51'

o For (!lue &)*'

o I$ due course &5)+5,'

Holdero !"ee or i$dorsee of ! %ill or $ote+ -ho is i$ ossessio$ of it+ or the %e!rer thereof

o i$cludes: %e!rer !$d order i$stru#e$ts

Ordi$!r" or #ere holder !./!. !ssig$ee or tr!$sferee does $ot #eet !ll the co$ditio$s to 0u!lif" !s HIDC

ho su%2ect to !$" !$ e(er" defe$se or defect i$ the i$stru#e$t &re!l or erso$!l' 3 !s if it

-ere 44 does $ot #e!$ th!t 44 Sec 5657

o 8 holder $ot HDIC %ut deri(es his title fro# ! HDIC is gi(e$ the rights of the

rior holder

Holder $ot $ecess!ril" the o-$er

Rights of holder1. S9E o$ the i$tstru#e$t o$ his $!#e). RECEIE !"#e$t &if !"#e$t is i$ DC 3 disch!rged i$stru#e$t' Sec 51

o 8 holder o$l" for collectio$ #!" sue o$ his o-$ $!#e

o ledge of ! $ote < holder

Right of tr!$sferee of u$e$dorsed i$stru#e$t to sue 8uthorities !re 4OT u$ifor# !s to 0uestio$ of -hether the tr!$sferee of !$ u$e$dorsed

i$stru#e$t #!" sue i$ his o-$ $!#e Tr!$sferee of u$e$dorsed i$stru#e$t

o 4ot ! holder &sec 171'

o E=C:

(ests title i$ the tr!$sferee such title !s the tr!$sferor h!d

!ss the leg!l t it le

Sec. 5). h!t co$stitutes ! holder i$ due course.A holder in due course is a holder who has taken the instrument under the followingconditions:

(a) That it is complete and regular upon its face;(b) That he became the holder of it before it was overdue, and without notice that it has

been previously dishonored, if such was the fact;(c) That he took it in good faith and for value;(d) That at the time it was negotiated to him, he had no notice of any infirmity in the

instrument or defect in the title of the person negotiating it.

HDIC holder -ho too/ the i$stru#e$t u$der co$dtio$s e$u#er!ted i$ Sec 5) free of #ost defe$ses or !d(erse cl!i#s

Co$ditio$s to 0u!lif" o$e !s HDIC1. rese$ce of 8LL co$ditio$s

!. 8ll #ust co$cur to 0u!lif" HDIC%. 1 !%se$t < = HDICc. ri#! f!cie < e(er" holder is HDIC

). St!tus !s >ERE 8SSIG4EE!. Holder of 44 3 = HDIC &si#le co$tr!ct' < >ERE 8SSIG4EE%. Su%2ect to defe$sesc. 8c0uiri$g $o %etter rights u$der the co$tr!ct th!$ those ossessed %" the

!ssig$ord. 44 3 sig$ of -!r$i$g to rosecti(e urch!ser !$d l!ce hi# o$ gu!rd !$d o$

i$0uir"e. Tr!$sferee recei(i$g !$ i$stru#e$t OTHER th!$ $egoti!tio$ or issue!$ce 3 =

HDIC?. Rights of HDIC !$d 4OT HDIC

!. =hdic 3 !ll rights E=C su%2ect to e(er" !(!il!%le defe$se%. HDIC 3 f!(ored+ free fro# #!$" defe$ses th!t e@ist %et-ee$ the origi$!l

!rties+ !c0uire gr!ter rights u$der ! 4I ossessed %" the !"ee or i$dorsee

!"ee !s ! HDIC

Co$tr!r" 8ffir#!ti(e

HDIC #ust h!(e !c0uired i$stru#e$t throught4EGOTI8TIO4 !$d !$ i$stru#e$t is issued!$d $ot $egoti!ted to ! !"ee

HDIC if he #eets Sec 5)

Holder 3 i$cludes !"ee -ho is i$ ossessio$&171'8 HDIC is ! !"ee or i$dorsee -ho is i$ossessio$

Dr!-ee !s HDIC ! !"ee #!" %e HDIC A9T DR8EE C844OT %" !"i$g ! %ill

Holder 3 o$e -ho h!s t!/e$ the i$stru#e$t !s it !sses !lo$g i$ the course of $egoti!tio$ to-!rdsthe dr!-ee !$d $ot the dr!-ee -ho+ o$ the !ccet!$ce !$d !"#e$t of i$stru#e$t+ there%" strisit of !ll $egoti!%ilit" !$d reduces it to ! #ere (oucher or roof of !"#e$t

I$stru#e$t co#lete !$d regul!r uo$ its f!ce1. !$ti$g i$ !$" #!teri!l !rticul!r

! . I4CO>ELTE%. !$ti$g !$" #!teri!l !rticul!r or !rticul!r roer to %e i$serted i$ 4I -6o

-hich the s!#e -ill $ot %e co#letec. h" I4C 3 t!/i$g of !$ I4C i$stru#e$t uts the urch!ser o$ i$0uir"d. Su%2ect to !l ldefe$ses

). 8lter!tio$ !!re$t o$ f!ce of i$stru#e$t!. 4I #ust %e regul!r o$ its f!ce%. >ost co##o$ irregul!rit" 3 !lter!tio$c. >ust %e: (isi%le or !!re$t o$ f!ce of i$stru#e$t


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d. If $ot !!re$t < (oid i$stru#e$t &1)B'

Holder %efore i$stru#e$t -!s o(erdue1. D!te of #!turit"

!. O(erdue < !fter d!te of #!turit"%. !"!%le o$ de#!$d 3 DO> is deter#i$ed %" d!te of rese$t#e$tc. Occurre$ce of secific e(e$ %ou$d to h!e$ed 3 DO> is fi@ed %" h!e$i$g

). 8c0uisitio$ of i$stru#e$t !fter6o$ d!te of #!turit"!. 4I i$ circul!tio$ !st its #!turit" d!te < stro$g i$dic!tio$ of disho$our%. T!/i$g !$ i$stru#e$t o$ DO> t!/es %efore #!turit" %ec!use the ri$ci!l

de%tor h!s the -hole d!" to !"c. = $otice th!t the i$stru#e$t h!s %ee$ disho$oured

Holder -6o $otice of disho$our1. !"s !$d ti#e of disho$our

!. A" $o$ !ccet!$ce AOE%. A" $o$ !"#e$t 3 o$l" t!/e l!ce !t ti#e of #!turit"+ disho$our %" 48 of ! %ill

#!" occur e(e$ %efore DO>). 4egoti!tio$ !fter #!turit" or disho$our

!. O(erdue6disho$oured is$tu#e$t 3 #!" still %e $egoti!ted %" &toe the s!#ee@te$t !s %efore #!turit"'

i. I$dorse#e$t &holder c!$$ot %e HDIC'ii. Deli(er" &holder' C84 AE HDIC -6o $otice'

Holder i$ GF1. Good f!ith 3 ho$est" i$ f!ct i$ the tr!$s!ctio$ co$cer$ed

!. E@!#i$ed se!r!tel" to deter#i$e GF%. 4eg!!ti(e test 3 H !cted i$ GF if AF is $ot rese$tc. Su%2ecti(e test

). A!d f!ith 3 /$o-ledge of f!cts -hich re$der it disho$est for hi# to t!/e ! !rticul!riece of $egoti!%le !er

?. roof of AF 3 $ot $ecess!r" to sho- /-$oedlge of e@!ct truth!. Sufficie$t: such /$o-ledge te$ds to sho- th!t there -!s so#ethi$g -ro$g

-ith the tr!$s!ctio$

Holder for (!lue !lue: !$" co$sider!tio$ sufficie$t to suort ! si#le co$tr!ct = $ecess!r" 3 !de0u!te Lo(e or !ffectio$ 3 = urch!se of i$stru#e$t !t ! DISCO94T $ot re(e$t o$e fro# %ei$g %o$! fide holder

&fi$!$ci!l co$ditio$ of issuer is 4OT -ell/$o-$'!. E=C: discou$t u$usu!ll" l!rge

Holder -6o $otice of i$fir#it" i$ is$tr#e$t or defect of title1. L!c/ of AF

!. Sec 5* 3 4otice: the holder #ust h!(e h!d !ctu!l or ch!rge!%le /$o-ledge ofi$fir#it" or defect or #sut h!(e !cted i$ AF

%. 8%se$ce of /$o-ledge !$d l!c/ of AF 3 esse$ti!l %!sis < HDICc. = re(e$t fro# HDIC 3 $otice of disho$our or !$" defe$se !g!i$st the

i$stru#e$t !fter it h!s %ee$ !c0uired). AF of !ge$t

!. $o-ledge of !$ !ge$t !cti$g -ithi$ the scoe of his !uthorit" 3 co$structi(e/$o-ledge of the ri$ci!l

%. 8ge$ts < ri$ci!ls < re$der ri$ci!l = HDIC

Sec. 5?. he$ erso$ $ot dee#ed holder i$ due course.here !$ i$stru#e$t !"!%le o$ de#!$d is $egoti!ted o$ !$ u$re!so$!%le le$gth of ti#e !fter itsissue+ the holder is $ot dee#ed ! holder i$ due course.

nstrument !"# $ negotiated on an %&'A"&A*+ length of time after issue - #/

HDIC i$ is$tur#e$t OD1. O$e of the re0s 3 holdi$g %efore it is o(erdue). !lies to !$ i$stru#e$t !"!%le !t ! fi@ed or deter#i$!%le future ti#e?. OD 3 Sec 5? !lies: deter#i$e -hether the urch!se is o$e of !$ o(erdue i$stru#e$tB. Re!so$!%le t i#e

!. 4!ture of i$stru#e$t%. 9s!ge of tr!fe or %usi$essc . F!cts of c!se

Sec. 5B. 4otice %efore full !#ou$t is !id.here the tr!$sferee recei(es $otice of !$" i$fir#it" i$ the i$stru#e$t or defect i$ the title of theerso$ $egoti!ti$g the s!#e %efore he h!s !id the full !#ou$t !greed to %e !id therefor+ he -ill%e dee#ed ! holder i$ due course o$l" to the e@te$t of the !#ou$t therefore !id %" hi#.

Transferee receives &"0# in the instrument or title (before he has paid full amount agreed) #/ only to the amount paid by him

Effect of $otice %efore F9LL !"#e$t1. 4o !#ou$t h!s "et %ee$ !id

!. T!/e$ %ut urch!ser $ot "et !id recei(e $otice of ID < relie(ed fro#o%lig!tio$ to #!/e !"#e$t

%. If he !"s < $ot e$titled to s!#e rotectio$ !s HDIC). H!s %ee$ !id

!. Tr!$sferred i$ co$sider!tio$ of his ro#ise to #!/e future !"#e$ts totr!$sferor < u$der 4O leg!l o%lig!tio$ to 8 the %!l!$ce of the !#ou$t he h!!greed to !" o$ disco(eri$g the i$fir#it" or defect

%. If he !"s < c!$ %e co$sidered HDIC o$l" to e@te$t of the !#ou$t !id %" hi#

Sec. 55. he$ title defecti(e.The title of ! erso$ -ho $egoti!tes !$ i$stru#e$t is defecti(e -ithi$ the #e!$i$g of this 8ct -he$he o%t!i$ed the i$stru#e$t+ or !$" sig$!ture thereto+ %" fr!ud+ duress+ or force !$d fe!r+ or otheru$l!-ful #e!$s+ or for !$ illeg!l co$sider!tio$+ or -he$ he $egoti!tes it i$ %re!ch of f!ith+ or u$der

such circu#st!$ces !s !#ou$t to ! fr!ud.

#efective title obtained the instrument, or any signature thereto, by fraud, duress, or forceand fear, or other unlawful means, or for an illegal consideration, or when he negotiates itin breach of faith, or under such circumstances as amount to a fraud

he$ title of ! erso$ defecti(e1. !c0uisi tio$

!. o%t!i$ed the i$stru#e$t+ or !$" sig$!ture thereto+ %" fr!ud+ duress+ or force!$d fe!r+ or other u$l!-ful #e!$s+ or for !$ illeg!l co$sider!tio$


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). $egoti!t io$!. $egoti!tes it i$ %re!ch of f!ith+ or u$der such circu#st!$ces !s !#ou$t to !

fr!ud.

Duress or force !$d fe!r < !cts -hich o(erco#e the sig$ers -ill

Sec. 5*. h!t co$stitutes $otice of defect.To co$stitutes $otice of !$ i$fir#it" i$ the i$stru#e$t or defect i$ the title of the erso$ $egoti!ti$gthe s!#e+ the erso$ to -ho# it is $egoti!ted #ust h!(e h!d !ctu!l /$o-ledge of the i$fir#it" ordefect+ or /$o-ledge of such f!cts th!t his !ctio$ i$ t!/i$g the i$stru#e$t !#ou$ted to %!d f!ith.

&otice of infirmity or defect 1 actual knowledge of the infirmity or defect, or knowledge ofsuch facts that his action in taking the instrument amounted to bad faith

h!t co$stitutes $otice of i$fir#it" or defect !ctu!l /$o-ledge of i$fir#it" or defect /$o-ledge of f!cts &= !e!r o$ f!ce' th!t his !ctio$ i$ t!/i$g the i$stru#e$t !#ou$ts to

AF!. 8 3 sho-$ %" i$stru#e$t itself

>ere $eglige#ce to #!/e i$0uiries < = sufficie$t 5B65*: $eglige$ce is $ot sufficie$t to co$stitute $otice; = e0ui(!le$t of either 8 or AF uestio$ of AF GF < 0uestio$ of f!ce Susicious circu#st!$ces 4OT e$ough Co$sult!tio$ of !tt" 3 = AF I$dorse#e$t -6o recourse 3 = AF

$o-ledge !#ou$ti$g to AF E@iste$ce of susicious circu#st!$ces S 8ctu!l susicio$ of holder

o H 3 8 of susicious circu#st!$ces #e!$s of re!dil" i$for#i$g hi#self of

f!cts -ilfull" !%st!i$ed fro# #!/i$g i$0uiries+ i$te$tio$!l ir$ogr!$ce < AF urch!ser -ho t!/es i$stru#e$t !fter %ei$g told th!t the #!/er

i$te$ds to resist !"#e$t or th!t the tr!$sferor h!s $o leg!l right totr!$sfer < = HDIC

Gross i$!de0u!c" of rice < 2ustif" AF

!id 1/ for ! $ote of 1 3 sol(e$c" !$d credit of #!/er

is -ell/$o-$

Effect of $otice of defect $o-ledge or ch!rg!%le $otice of !$" defect &!t the ti#e of t!/i$g of !$ i$stur#$t' -hich

destro"s the st!tus of ! holder !s HDIC < oe$s !ll defe$ses other-ise cut off !g!i$st

hi# !$d $ot #erel" th!t rel!ti$g to the defect of -hich he h!d $otice Holder -ith /$o-ledge of f!ilure of co$sider!tio$ 3 su%2ect to defe$se th!t $ote -!so%t!i$ed %" fr!ud

Sec. 5,. Rights of holder i$ due course.8 holder i$ due course holds the i$stru#e$t free fro# !$" defect of title of rior !rties+ !$d freefro# defe$ses !(!il!%le to rior !rties !#o$g the#sel(es+ !$d #!" e$force !"#e$t of thei$stru#e$t for the full !#ou$t thereof !g!i$st !ll !rties li!%le thereo$.

#/ $ holds instrument free from any defect of title of prior parties 2 free from defensesavailable to prior parties among themselves 2 may enforce payment of instrument for fullamount against all liable parities

'ights of #/ (')3. "+# instrument free from any defect of title of prior parites4. "+# instrument free from defenses available to prior parities5. &6"'/ payment for full amount against all liable parties7. '/8 payment (if payment is #/ $ discharge instrument)9. % on instrument in his own name

Re!l defe$ses !(!il!%le !g!i$st HDIC erso$!l defe$ses &e0uities' 3 c!$$ot %e set u !g!i$st HDIC

o Free fro# !ll erso$!l defe$ses 3 $ecessit" if co##erci!l !ers !re to

circul!te freel" !$d rosecti(e urch!sers !re to !ccet the# routi$el" !$d-illi$gl"

Re!l defe$ses &!%solute' 3 !tt!ch to i$stru#e$t itself+ !(!il!%le !g!i$st !ll erso$s e(e$HDIC

=HDIC 3 su%2ect to 8LL defe$ses ere !ssig$ee or 44'

Sec. 5. he$ su%2ect to origi$!l defe$se.I$ the h!$ds of !$" holder other th!$ ! holder i$ due course+ ! $egoti!%le i$stru#e$t is su%2ect tothe s!#e defe$ses !s if it -ere $o$$egoti!%le. Aut ! holder -ho deri(es his title through ! holderi$ due course+ !$d -ho is $ot hi#self ! !rt" to !$" fr!ud or illeg!lit" !ffecti$g the i$stru#e$t+ h!s!ll the rights of such for#er holder i$ resect of !ll !rties rior to the l!tter.

-#/ $ & is subect to same defenses as if &&*%T: older who #'8 his title through a #/ 2 who is &"T a party to A& 6'A%# or++


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set u the defe$se %ut = !g!i$st those to-ho# such defe$se is $ot !(!il!%le+ such !sforger"+ erso$s recluded fro# setti$g it u

!rities or = HDIC

Ch!lle$ge (!lidit" of !gree#e$t

E@!#les:1. I$c!!ci t"). Illeg!lit" of co$tr!ct?. !$t of deli(er" of I4C i$stru#e$tB. Forger"5. !$t of !uthorit"+ !!re$t !$d re!l*. Duress !#ou$ti$g to forger",. Fr!ud i$ f!ctu# or fr!ud i$ esse

co$tr!ctus. Fr!udle$t !lter!tio$ %" holder7. rescrit io$1. Other i$fir#ities o$ f!ce11. Disch!rge !t or !fter #!turit"

12. ri$ci!l sho- th!t !ge$t h!d $ote@ress+ i#lied+ or !!re$t!uthorit" to sig$ &-!$t of !uthorit" of!ge$t'

E@!#les1. Filli$g u of -ro$g d!te). Fill u of %l!$/s = i$ !ccord!$ce -ith

!uthorit" gi(e$ !$d -ithi$ re!so$!%leti#e

?. !$t of deli(er" of co#letei$stru#e$t

B. 8%se$ce or f!ilure of co$stider!tio$5. Si#le fr!ud or i$duce#e$t*. 8c0uisitio$ of i$stru#e$t %" DFF &@

sig$!ture',. 8c0uisitio$ of i$stru#e$t for !$ illeg!l

co$sider!tio$. 4egoti!tio$ i$ %re!ch of f!ith7. 4egoti!tio$ u$der circu#st!$ces th!t

!#ou$t to ffr!ud1. I$$oce$t !lter!tio$ or soli!tio$11. Set off %et-ee$ I1). Disch!rge %" !"#e$t or

re$u$ci!tio$ or rel!se %efore #!turit"1?. Disc2!rge of !rt" )$d!ril" li!%le %"

disch!rge of rior !rt"1B. !$t of !uthorit" of the !ge$t -ho

h!s !!re$t !uthorit"

Soli!tio$ 3 !lter!tio$ #!de %" ! str!$ger to !$ i$stru#e$t. If origi$!l #e!$i$g c!$ %e !scert!i$ed < HDIC #!" reco(er !ccordi$g to its origi$!l

te$or

Fr!ud i$ f!ctu# Fr!ud i$ i$duce#e$t

Fr!ud i$ the e@ecutio$ Si#le fr!ud

1. 8 erso$+ -6o $eglige$ce+ sig$ed !$i$stru#e$t -hich -!s ! 4I %ut -!sdecei(ed !s to the ch!r!cter of thei$stru#e$t !$d -6o /$o-ledge of it

). here ! $ote -!s sig$ed %" o$eu$der the %elief th!t he -!s sig$i$g!s ! -it$ess to ! deed

?. here sig$!ture -!s rocured %"fr!udule$t use of c!r%o$ !er

u!lit"+ 0u!$tit"+ (!lue or ch!r!cter ofco$sider!tio$ of i$stru#e$t

$e- -h!t he -!s sig$i$g %ut -!si$duced %" fr!ud to sig$

Sig$ ! $ote for t he rice of !-orthless stoc/ -hich -!sfr!udule$tl" rerese$ted !s -ith

(!lue

Re!l defe$se < = co$tr!ct &= /$o- -h!t he-!s sig$i$g'

erso$!l defe$se &= re(e$t co$tr!ct'

Rights of =HDIC &SER8'1. S9E o$ i$stru#e$t i$ his o-$ $!#e). E4TITLED to i$stru#e$t %ut holds su%2ect to s!#e defe$ses < 44?. RECEIE !"#e$t &if DC 3 disch!rge i$stru#e$t'

B. 8LL RIGHTS of HDIC fro# -ho# he deri(es his title i$ resect of !ll !rties rior toholder &RO: = ! !rt" to fr!ud or illeg!lit"'

Rights of ! urch!ser fro# HDIC dee$ds uo$ further !ct of st!tus !s HDIC or !s t!/er through such holder +T' '%+0!'&/!+: a person who does not =ualify as a holder in due

course can, nonetheless, ac=uire the rights and privileges of a holder in duecourse if he derives his title to the instrument through a holder in due course.

>ere tr!$sferee Tr!$sferee fro# HDIC

=HDIC Holder through ! HDIC

4o$ $ego i$stru#e$t Holder -ho deri(es ! title fro# HDIC c!$ stille$2o" the seci!l rights of the l!tter e(e$though he hi#self is ! #ere tr!$sferee

= free fro# D Re0s:1. DERIES his title through HDIC). 4OT !rt" to fr!ud or illeg!lit"

Defecti(e: c!$$ot %etter it %" selli$g i$stru#e$tto HDIC !$d %u"i$g it !g!i$

Sec. 57. ho is dee#ed holder i$ due course.E(er" holder is dee#ed ri#! f!cie to %e ! holder i$ due course; %ut -he$ it is sho-$ th!t the titleof !$" erso$ -ho h!s $egoti!ted the i$stru#e$t -!s defecti(e+ the %urde$ is o$ the holder toro(e th!t he or so#e erso$ u$der -ho# he cl!i#s !c0uired the title !s holder i$ due course.Aut the l!st#e$tio$ed rule does $ot !l" i$ f!(or of ! !rt" -ho %ec!#e %ou$d o$ the

i$stru#e$t rior to the !c0uisitio$ of such defecti(e title.

!rima facie #/ $ every holder*%T: defective instrument was negotiated burden is on to prove that he or some personunder whom he claims ac=uired the title as #/- A!!+: in favour of a party who became bound on the instrument prior to the ac=uisitionof such defective title

he$ H resu#ed HDIC !rises o$l" i$ f!(our of ! erso$ -ho is Holder u$der 71 !"ee+ i$drosee+ %e!rer

roof of %ei$g ! holder o$ce ! erso$ through -hose h!$ds !$ i$stru#e$t h!s !ssed sho-s th!t he is !

holder does $ot h!(e to ro(e if he s!tisfies 5)

Aurde$ of roof -he$ it is sho-$ th!t the title of !$" erso$ -ho h!s $egoti!ted the i$stru#e$t -!s

defecti(e+ !s -he$ i$stru#e$t is $ot !"!%le to hi# or to %e!rer < AO shifts to holder

E@cetio$ H h!s $ot %urde$ of ro(i$g th!t he is HDIC i$ f!(our of ! !rt" -ho %ec!#e %ou$d o$

the i$stru#e$t rior to the !c0uisitio$ of such defecti(e title


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