1
2. Because the UCC offers special protection to HDCs, innocent makers of
notes or drawers of checks in fraudulent transactions often have no legal recourse. From
an ethical standpoint, how could you justify to the “losers” in such situations the
provisions of the UCC that fail to protect them? Can you think of a way in which such
problems could be handled more fairly or ethically than they are under the UCC? It may
not seem fair that an innocent victim should have to suffer the consequences of another’s
fraudulent act, but the UCC assumes that it would be even less fair if an HDC could not collect
The requirements for HDC status include acting in good faith and taking an instrument for
value without notice of any claims to or defenses against payment. These requirements
presume innocence with respect to fraud. It might be argued that when a maker or drawer is
2 UNIT THREE: NEGOTIABLE INSTRUMENTS
The HDC doctrine reflects the philosophy that when two or more innocent parties are at
risk, however, the burden should fall on the party that was in the best position to prevent the
3. Do you think that the UCC’s provisions have struck an appropriate balance
between the interests of banks and those of bank customers? Why or why not? A
response to this question could come from any point on the spectrum of the UCC’s different
definitions of good faith. There has long been a division of opinion as to how good faith should
A response to this question might also fall anywhere along the range of changing
commercially reasonable standards. The changes are illustrated by the evolving standard of
banks’ signature verification. If a bank fails to verify a signature on a check it receives for
payment and the check turns out to be forged, the bank will normally be held liable to its
customer for the amount paid. At one time in the banking industry, ordinary care was generally
2 UNIT THREE: NEGOTIABLE INSTRUMENTS
The HDC doctrine reflects the philosophy that when two or more innocent parties are at
risk, however, the burden should fall on the party that was in the best position to prevent the
3. Do you think that the UCC’s provisions have struck an appropriate balance
between the interests of banks and those of bank customers? Why or why not? A
response to this question could come from any point on the spectrum of the UCC’s different
definitions of good faith. There has long been a division of opinion as to how good faith should
A response to this question might also fall anywhere along the range of changing
commercially reasonable standards. The changes are illustrated by the evolving standard of
banks’ signature verification. If a bank fails to verify a signature on a check it receives for
payment and the check turns out to be forged, the bank will normally be held liable to its
customer for the amount paid. At one time in the banking industry, ordinary care was generally