Also known as:duly negotiate · duly negotiates · duly negotiating
Written by attorneys · grounded in primary & secondary sources — see below
Negotiation of a negotiable document of title to a holder that purchases it in good faith, for value, and without notice of any defense or claim, unless the negotiation is not in the regular course of business or financing.
Sources & Authorities
How it applies
Common Examples
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Priority Over Perfected Security Interest
Delta Dynamics grants Drake Logistics a security interest in all present and future negotiable bills of lading and perfects by filing. Delta Dynamics later issues negotiable bills covering a copper shipment and endorses them in blank to Derek Douglas. Derek Douglas sells the bills for value to Diana Delgado, who takes in good faith and without notice of the filing. When Delta Dynamics defaults, Diana Delgado holds the bills free of Drake Logistics's earlier perfected interest.
Warehouse Receipt Transfer to Buyer
Dawson Steel stores fungible steel coils at Dixon Foods, a warehouse that also buys and sells such goods. Dixon Foods issues a negotiable warehouse receipt to Dawson Steel. Dawson Steel endorses and delivers the receipt for value to Dustin Donovan, who takes in good faith and without notice of any prior claims. Dustin Donovan obtains the coils free of any claim under the receipt.
Put it into practice
Test Yourself
6
Practice Questions4
· 8 primary sources
Select any source to read its text and confirm it supports the definition.
Uniform Acts
Casebooks
Study Supplements
Common questions
Frequently Asked
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What elements must be satisfied for a document of title to be duly negotiated?+
The transferee must receive the document by the manner stated in UCC § 7-501, purchase it in good faith, for value, and without notice of any defense or claim, and the negotiation must occur in the regular course of business or financing.
Supporting sources
Does a prior perfected security interest defeat the rights of a holder to whom a negotiable document has been duly negotiated?+
No. UCC § 9-331(a) provides that Article 9 does not limit the rights of such a holder, who takes priority over an earlier security interest even if perfected.
Supporting sources
Does filing a financing statement constitute notice that defeats due negotiation?+
No. Filing does not constitute notice of a claim or defense to a holder to whom a negotiable document has been duly negotiated.
Supporting sources
What rights does a holder acquire when a negotiable document of title has been duly negotiated?+
Subject to limited exceptions, the holder acquires title to the document and to the goods it represents, together with the right to enforce the issuer's obligation to deliver the goods.
Supporting sources
Secured TransactionsRights of third parties; perfected and unperfected security interests; rules of priority (§ 9-301, et seq.) · Protection of buyers of goods and chattel paper (§§ 9-320, 9-330), including protection of holders and purchasers of negotiable instruments (§ 9-331)UBEIntermediate