UNIT 5
NEGOTIABLE INSTRUMENTS
ANSWERS TO DISCUSSION QUESTIONS
1. 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
payment. The reasoning underlying this assumption is that an HDC is a third party and unlikely to have
been responsible for—or to have had an opportunity to protect against—the fraud.
2. Allowing personal defenses to be successfully asserted against HDCs would provide more
protection to arguably innocent makers and drawers, and others, but at the cost of removing an
incentive for the use of negotiable instruments by other arguably innocent parties (HDCs). Would this
shift in protection affect the nation’s flow of commerce? The laws governing the use of negotiable
3. 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
be measured or tested. At one end of the spectrum of views is the position that the test of good faith
should be subjective in nature. In other words, as long as a person acts honestly, no matter how