1. 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?

2. What do you think would result if the law was changed to allow personal defenses to be successfully raised against HDCs? Who would lose, and who would gain? How would such a change in the law affect the flow of commerce in this country?

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?

Articles 3 and 4 of the Uniform Commercial Code (UCC), which deal with negotiable instruments, constitute an important part of the law governing commercial transactions. These articles reflect several fundamental ethical principles. One principle is that individuals should be protected against harm caused by the misuse of negotiable instruments. Another basic principle—and one that underlies the entire concept of negotiable instruments—is that the laws governing the use of negotiable instruments should be practical and reasonable to encourage the free flow of commerce.

Here, we look first at some of the ethical implications of the concept of a holder in due course (HDC). We then examine some other ethical issues that frequently arise in relation to these instruments.