What is the effect of 'real defenses' on a holder in due course?

A holder in due course (HIDC) is entitled to certain protections under the Uniform Commercial Code (UCC), particularly regarding negotiable instruments. The concept of "real defenses" refers to specific defenses that can defeat the rights of an HIDC. These defenses include, among others, fraud in the execution, a material alteration of the instrument, incapacity, duress, and illegality.

When a holder has the status of a holder in due course, they typically take the instrument free from many claims and defenses that could be raised against the original payee. However, real defenses can supersede the rights of an HIDC. This means that if a real defense is proven, it can invalidate the HIDC’s claim to enforce the instrument, even if the HIDC has taken the instrument in good faith and without notice of any issues.

This principle is fundamental in maintaining fairness in transactions involving negotiable instruments. It acknowledges that certain serious issues—like fraud or mental incapacity—should allow a party to contest the enforcement of an instrument, regardless of whether it has been held by a holder in due course. As a result, option B accurately reflects this key aspect of the law regarding the protection of holders in due course against real defenses.