What is the definition of Holder in Due Course in New York?
Full Question:
A payroll service called about a check they cashed after a stop payment was issued because the check cashier claimed he did not receive it so we issued a replacement check for the same amount, but he cashed it anyway and the new check is not stale yet. Is the service in NY really an innocent holder in due course?
04/29/2009 |
Category: Debts and Credit |
State: New York |
#16376
Answer:
NY laws define notice as follows:
Notice, knowledge or a notice or notification received by an
organization is effective for a particular transaction from the time when
it is brought to the attention of the individual conducting that
transaction, and in any event from the time when it would have been brought
to his attention if the organization had exercised due diligence. An
organization exercises due diligence if it maintains reasonable routines
for communicating significant information to the person conducting the
transaction and there is reasonable compliance with the routines. Due
diligence does not require an individual acting for the organization to
communicate information unless such communication is part of his regular
duties or unless he has reason to know of the transaction and that the
transaction would be materially affected by the information.
Good faith is defined as follows:
"Good faith" means honesty in fact in the conduct or transaction
concerned.
Please see the following NY statutes to determine applicability:
§ 3-302 U.C.C. Holder in Due Course.
(1) A holder in due course is a holder who takes the instrument
(a) for
value; and
(b) in good faith; and
(c) without notice that it is overdue or has been dishonored or of any
defense against or claim to it on the part of any person.
(2) A payee may be a holder in due course.
(3) A holder does not become a holder in due course of an instrument:
(a) by purchase of it at judicial sale or by taking it under legal
process; or
(b) by acquiring it in taking over an estate; or
(c) by purchasing it as part of a bulk transaction not in regular
course of business of the transferor.
(4) A purchaser of a limited interest can be a holder in due course only
to the extent of the interest purchased.
§ 3-304 U.C.C. Notice to Purchaser.
(1) The purchaser has notice of a claim or defense if
(a) the instrument
is so incomplete, bears such visible evidence of forgery or alteration, or
is otherwise so irregular as to call into question its validity, terms or
ownership or to create an ambiguity as to the party to pay; or
(b) the purchaser has notice that the obligation of any party is
voidable in whole or in part, or that all parties have been discharged.
(2) The purchaser has notice of a claim against the instrument when he
has knowledge that a fiduciary has negotiated the instrument in payment of
or as security for his own debt or in any transaction for his own benefit
or otherwise in breach of duty.
(3) The purchaser has notice that an instrument is overdue if he has
reason to know
(a) that any part of the principal amount is overdue or that
there is an uncured default in payment of another instrument of the same
series; or
(b) that acceleration of the instrument has been made; or
(c) that he is taking a demand instrument after demand has been made or
more than a reasonable length of time after its issue. A reasonable time
for a check drawn and payable within the states and territories of the
United States and the District of Columbia is presumed to be thirty
days.
(4) Knowledge of the following facts does not of itself give the
purchaser notice of a defense or claim
(a) that the instrument is antedated
or postdated;
(b) that it was issued or negotiated in return for an executory promise
or accompanied by a separate agreement, unless the purchaser has notice
that a defense or claim has arisen from the terms thereof;
(c) that any party has signed for accommodation;
(d) that an incomplete instrument has been completed, unless the
purchaser has notice of any improper completion;
(e) that any person negotiating the instrument is or was a fiduciary;
(f) that there has been default in payment of interest on the
instrument or in payment of any other instrument, except one of the same
series.
(5) The filing or recording of a document does not of itself constitute
notice within the provisions of this Article to a person who would
otherwise be a holder in due course.
(6) To be effective notice must be received at such time and in such
manner as to give a reasonable opportunity to act on it.
(7) In any event, to constitute notice of a claim or defense, the
purchaser must have knowledge of the claim or defense or knowledge of such
facts that his action in taking the instrument amounts to bad faith.
§ 3-306 U.C.C. Rights of One Not Holder in Due Course.
Unless he has the rights of a holder in due course any person takes the
instrument subject to
(a) all valid claims to it on the part of any person;
and
(b) all defenses of any party which would be available in an action on
a simple contract; and
(c) the defenses of want or failure of consideration, non-performance
of any condition precedent, non-delivery, or delivery for a special
purpose (Section 3-408); and
(d) the defense that he or a person through whom he holds the
instrument acquired it by theft, or that payment or satisfaction to such
holder would be inconsistent with the terms of a restrictive
indorsement. The claim of any third person to the instrument is not
otherwise available as a defense to any party liable thereon unless the
third person himself defends the action for such party.
§ 3-307 U.C.C. Burden of Establishing Signatures, Defenses and Due
Course.
(1) Unless specifically denied in the pleadings each signature on an
instrument is admitted. When the effectiveness of a signature is put in
issue
(a) the burden of establishing it is on the party claiming under the
signature; but
(b) the signature is presumed to be genuine or authorized
except where the action is to enforce the obligation of a purported signer
who has died or become incompetent before proof is required.
(2) When signatures are admitted or established, production of the
instrument entitles a holder to recover on it unless the defendant
establishes a defense.
(3) After it is shown that a defense exists a person claiming the rights
of a holder in due course has the burden of establishing that he or some
person under whom he claims is in all respects a holder in due course.
§ 3-305 U.C.C. Rights of a Holder in Due Course.
To the extent that a holder is a holder in due course he takes the
instrument free from
(1) all claims to it on the part of any person; and
(2) all defenses of any party to the instrument with whom the holder has
not dealt except
(a) infancy, to the extent that it is a defense to a
simple contract; and
(b) such other incapacity, or duress, or illegality of the
transaction, as renders the obligation of the party a nullity; and
(c) such misrepresentation as has induced the party to sign the
instrument with neither knowledge nor reasonable opportunity to obtain
knowledge of its character or its essential terms; and
(d) discharge in insolvency proceedings; and
(e) any other discharge of which the holder has notice when he takes
the instrument.
