Michael issues a check to Paula. She negotiates the check to Harold as payment for a used television. Harold has no notice of any claims or defenses and takes the check in good faith. Harold indorses the check and gives it to his son as a birthday
present. a. Is Harold's son a holder in due course? Explain. b. What rights does Harold's son have with respect to the check? Why? Explain. c. Assume that Michael has a personal defense of fraud in the inducement against Paula. Can he use that defense against Harold? Can he use that defense against Harold's son? Explain.
a. No, he did not give value for the instrument.
b. He has the rights and privileges of a holder in due course, which means he takes the instrument free of most defenses or adverse claims to it. He has these rights because he is a "holder through a holder in due course" and receives these rights under the shelter rule outlined in UCC Sec. 3-203(b).
c. No, a personal defense cannot be used against Harold since he is a subsequent holder in due course. A holder through a holder in due course is granted the same rights, so he could not use it as a defense against the son either.
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