Also known as:holder in due course · holders in due course
Written by attorneys · grounded in primary & secondary sources — see below
A holder of a negotiable instrument who takes the instrument for value, in good faith, and without notice of claims or defenses to it.
Sources & Authorities
How it applies
Common Examples
2
Investor Acquires Municipal Note
Sarah purchased a negotiable promissory note from Black Solar after it had granted a perfected security interest in its accounts to Noon Energy. She paid full value by wire transfer on the same day, had no prior dealings with either party, and saw only a general disclaimer on the trading platform. When Noon Energy later asserted its security interest against payments due from the City of Nashville, Sarah's status as a holder in due course gave her priority to the funds.
Bank Takes Note from Leasing Company
Campbell Leasing sold a promissory note it had received in a vehicle lease to a bank that paid value and had no knowledge of any disputes between the lessee and the original lessor. After the lessee defaulted and the FDIC took over the bank as receiver, the lessee attempted to assert defenses arising from the lease transaction. The bank's holder in due course status prevented those defenses from being raised against it.
Select any source to read its text and confirm it supports the definition.
Uniform Acts
Restatements
Hornbooks
Dictionaries
Campbell Leasing, Inc. v. F.D.I.C.901 F.2d 1244 (5th Cir. 1990)
Common questions
Frequently Asked
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Does the filing of a financing statement under Article 9 give notice that defeats holder in due course status?+
No. Filing under Article 9 does not constitute notice of a claim or defense to a holder in due course.
What happens when a note contains a statement that rights are subject to claims or defenses against the original payee?+
The instrument cannot support holder in due course status even if it otherwise meets the requirements of negotiability.
Can an obligor assert another person's claim to the instrument against a holder in due course?+
No, unless the other person is joined in the action and personally asserts the claim.
How does a bank acquire holder in due course rights when it takes an item for deposit?+
A bank gives value to the extent it acquires a security interest in the item, provided it otherwise satisfies the requirements of Section 3-302.
232 A.2d 405 (N.J. 1967)Contracts
…the court was delivered by Francis, J. The issue to be decided here is whether plaintiff Unico, a New Jersey partnership, is a holder in due course of defendant’s note. If so, it is entitled to a judgment for the unpaid balance due thereon, for which this suit was brought. The District Court found plaintiff was not such a holder and…
Secured TransactionsApplicability and definitions (§ 9-101, et seq.) · Subject matter of Article 9 (§ 9-109)UBEFoundational