Also known as: holders in due course · HIDC · HDC · bona fide holder
Written by attorneys — see sources below.
A person who acquires a negotiable instrument for value, in good faith, and without notice of claims or defenses to it. The status shields the acquirer from most personal defenses while leaving real defenses intact.
Black Solar endorsed a negotiable note from the City of Nashville to Sarah for full value through an online platform. Sarah had no prior dealings with the parties and saw only a general disclaimer. Noon Energy later asserted its perfected security interest in the accounts. Sarah's holder in due course status gave her priority to the payment despite the earlier filing.
A drawer issued a bill of exchange to pay for land whose title later proved defective. The payee transferred the bill to a Maine resident before maturity in satisfaction of a preexisting debt. The transferee took without knowledge of the land dispute. The transferee enforced the bill free of the drawer's fraud defense.
Swift, a citizen of Maine, instituted an action in the circuit court of New York against Tyson on a bill of exchange that Tyson had accepted in New York. The acceptance and indorsement of the bill were admitted at trial. Swift had taken the bill before it became due in payment of a promissory note due to him from Norton & Keith. He was a bona fide holder without notice who believed the bill was justly due. Tyson had accepted the bill as part consideration for lands sold by Norton & Keith, to which those parties had no title and which were of little or no value. The defendant offered to prove that the acceptance had been given under circumstances involving misrepresentation of the quality of the lands and imposition by fraud on the part of the drawer and co-owners. The circuit judges divided on the question of whether, under these facts, the defendant had available to him the same defense against Swift as he would have had against the original parties to the bill. This division resulted in certification of the question to the Supreme Court for resolution.
View caseAn owner sold converted paintings through a chain of possessors. A later purchaser acquired one painting for value without notice of the original owner's claim. The purchaser obtained the rights of any prior holder in due course and could retain the painting against the true owner.
Georgia O'Keeffe, a renowned artist, had three paintings stolen from An American Place gallery in New York in March 1946. The gallery was operated by her husband Alfred Stieglitz. The paintings subject to this action are "Seaweed" and "Cliffs," with a third painting "Fragments" also missing. O'Keeffe did not report the theft to the police or advertise the loss, though she discussed it with associates. Stieglitz died in the summer of 1946. In 1947 O'Keeffe retained Doris Bry to help settle the estate. Bry urged reporting the loss, but O'Keeffe declined. In 1972, O'Keeffe authorized Bry to report the theft to the Art Dealers Association of America, Inc., which maintains a registry of stolen paintings. In September 1975, O'Keeffe learned that the paintings were in the Andrew Crispo Gallery in New York on consignment from Bernard Danenberg Galleries. On February 11, 1976, O'Keeffe discovered that Ulrich A. Frank had sold the paintings to Barry Snyder for $35,000. She demanded their return, but Snyder refused. O'Keeffe filed her complaint for replevin in March 1976 against Snyder, who impleaded Frank as a third-party defendant. The trial court granted summary judgment to Snyder on the ground that the action was barred by the six-year statute of limitations. The Appellate Division reversed and entered judgment for O'Keeffe. The Supreme Court of New Jersey granted certification to consider the issues. Frank traces his possession of the paintings to his father, Dr. Frank, who died in 1968, claiming to have seen them in his father's apartment as early as 1941-1943. Snyder purchased the paintings from Frank in 1975. There are factual disputes regarding the circumstances of the paintings' disappearance and acquisition.
View caseThe purchaser must be a holder of a negotiable instrument, give value, act in good faith, and take without notice of claims or defenses. Filing of a financing statement does not constitute notice.
Yes. Article 9 expressly preserves the rights of a holder in due course of a negotiable instrument even when an earlier security interest was perfected by filing.
Only real defenses such as infancy, duress, illegality, fraud that prevented the obligor from knowing the nature of the instrument, discharge in insolvency, and certain forgery claims survive.
No. General disclaimers do not supply the specific notice of an adverse claim required to defeat the status.
Yes, to the extent the bank acquires a security interest in the item and otherwise meets the good faith and notice requirements of Section 3-302.