Commercial and Consumer Credit Law—First Circuit Properly Construes Holder in Due Course Doctrine Under Massachusetts Law—Jelmoli Holding, Inc. v. Raymond James Financial Services, Inc., 470 F.3d 14 (1st Cir. 2006)

First Circuit Review 2008

Under Massachusetts law, a holder in due course takes a negotiable instrument free from the claims of others; however, when the taker obtains the instrument with notice of another’s claim to the instrument, notice will negate the taker’s holder in due course defense. Notice of a fiduciary breach concerning the instrument is notice of a claim, so that a person who takes the instrument from a payor with notice of the payor’s fiduciary breach to another is not a holder in due course. In Jelmoli Holding, Inc. v. Raymond James Financial Services, Inc., the First Circuit Court of Appeals considered whether, under Massachusetts law, a plaintiff may negate a holder in due course defense when the defendant had no actual knowledge that the person presenting the instrument was a fiduciary. The First Circuit held, pursuant to the General Laws of Massachusetts, that a plaintiff must demonstrate that a defendant had actual knowledge of a fiduciary’s status, in addition to notice of the fiduciary’s underlying breach of duty. . . .