Also known as:HDC · holder in due course status · holder in due course
Written by attorneys · grounded in primary & secondary sources — see below
A protected status conferred on a holder of a negotiable instrument who takes the instrument for value, in good faith, and without notice of claims or defenses. The status shields the holder from most personal defenses and grants priority over earlier security interests even if perfected.
Sources & Authorities
How it applies
Common Examples
2
Priority Over Perfected Security Interest
Hudson Partners holds a perfected security interest in all accounts of Halcyon Motors. Halcyon Motors endorses a negotiable promissory note in blank and sells it to Helena Hoffman for full value through an online platform. Helena pays by wire the same day, has no prior dealings with either party, and sees only a general disclaimer about possible claims. When the maker refuses payment, Hudson Partners asserts its security interest, but Helena's HDC status gives her priority.
Statutory Statement Bars HDC Status
Horizon Realty issues a promissory note containing a required statutory legend stating that any transferee's rights are subject to claims the issuer could assert against the original payee. Harper Hill purchases the note for value in good faith and without actual knowledge of any defense. Because the legend appears on the instrument when it first reaches a holder, Harper Hill cannot qualify for HDC status even though she otherwise meets the usual requirements.
Put it into practice
Test Yourself
6
Practice Questions3
· 8 primary sources
Select any source to read its text and confirm it supports the definition.
Uniform Acts
Restatements
Hornbooks
Common questions
Frequently Asked
3
Does the filing of a financing statement constitute notice that defeats HDC status?+
No. Filing under Article 9 does not constitute notice of a claim or defense to a holder in due course. The rule protects the free circulation of negotiable instruments by preventing secret liens from impairing HDC rights.
Supporting sources
What happens when a note contains a statutory legend subjecting transferees to the issuer's claims against the original payee?+
The instrument cannot support HDC status. The legend prevents the note from qualifying for holder-in-due-course protection even if the purchaser otherwise satisfies the value, good-faith, and notice requirements.
Supporting sources
How does HDC status interact with an earlier perfected security interest in the underlying accounts?+
HDC status prevails. Article 9 expressly preserves the rights of a holder in due course of a negotiable instrument and grants that holder priority over an earlier security interest to the extent provided in Article 3.
Supporting sources
Secured TransactionsApplicability and definitions (§ 9-101, et seq.) · Subject matter of Article 9 (§ 9-109)UBEFoundational