Also known as:holder in due course · holders in due course
Written by attorneys — see sources 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.
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How its tested
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.
Put it into practice
Test Yourself
7
Practice Questions4
· 8 primary sources
Uniform Acts
Restatements
Campbell Leasing, Inc. v. F.D.I.C.901 F.2d 1244 (5th Cir. 1990)