Also known as: holder in due course
Written by attorneys · grounded in primary & secondary sources — see below
A purchaser of a negotiable instrument who acquires it for value in good faith and without notice of claims or defenses. The status shields the purchaser from most defenses and claims that could be asserted against the original payee and confers priority over earlier security interests in the instrument.
Haven Medical sold a negotiable promissory note it received from a customer to Holly Hayes for full face value. Holly had no prior dealings with Haven Medical and received only a general disclaimer in the sale documents. When the customer later refused payment citing defects in services, Haven Medical's secured lender asserted a perfected security interest in the note. Holly qualifies as an HDC and therefore takes the note free of the lender's claim.
Highland Farms endorsed a customer note to Highland Steel in payment for equipment. Highland Steel knew the note arose from a disputed delivery and paid only half its face value. When the customer raised a defense of failure of consideration, Highland Steel could not claim HDC protection and remained subject to the defense.
Select any source to read its text and confirm it supports the definition.
The purchaser must show it is a holder that gave value, acted in good faith, and took the instrument without notice of claims or defenses. Filing of a financing statement does not constitute notice under the Code.
Supporting sources
Yes. UCC Article 9 expressly preserves the rights of an HDC against an earlier security interest even if the interest was perfected by filing before the transfer.
Supporting sources
No. A boilerplate disclaimer that does not identify a specific claim or defense does not put the purchaser on notice. The purchaser may still qualify as an HDC if it otherwise satisfies the statutory elements.
Supporting sources
…example, the bylaws of the Hastings Democratic Caucus provided that “any full-time student at Hastings may become a member of HDC so long as they do not exhibit a consistent disregard and lack of respect for the objective of the organization as stated in Article 3, Section 1.” (emphasis added). The constitution of the…