Also known as:holder in due course doctrine · holder-in-due course doctrine · holder in due course · HDC doctrine
Written by attorneys · grounded in primary & secondary sources — see below
A commercial-law principle under which a transferee of a negotiable instrument who takes the instrument in good faith, for value, and without notice of claims or defenses acquires rights to enforce payment free of most defenses that could have been asserted against the original payee.
Sources & Authorities
How it applies
Common Examples
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Priority Over Perfected Security Interest
Hiroshi Hasegawa purchased a negotiable promissory note from a municipal contractor who had granted a perfected security interest in all accounts to a financing company. Hasegawa 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 sales platform. When the city refused payment, the financing company asserted its security interest, but Hasegawa's status allowed him to collect the full amount free of that claim.
Defense Cut Off Against Original Payee
Hassan Hakim bought a note from a seller who had failed to deliver promised goods to the maker. Hakim paid value, acted in good faith, and had no knowledge of the underlying dispute. When the maker refused payment citing the seller's breach, Hakim enforced the note in full because the maker could not raise that defense against him.
Select any source to read its text and confirm it supports the definition.
Uniform Acts
Restatements
Casebooks
Study Supplements
Unico v. Owen232 A.2d 405 (N.J.1967)
Common questions
Frequently Asked
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Does filing a financing statement 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. The doctrine protects the free circulation of negotiable instruments by shielding purchasers from secret liens that do not appear on the face of the instrument.
Supporting sources
What happens when a note is transferred in a bulk sale rather than in the ordinary course?+
The transferee acquires only the rights the transferor possessed and cannot become a holder in due course in its own right. The bulk purchaser therefore remains subject to the same defenses that could have been asserted against the original holder.
Supporting sources
Can an obligor assert a third party's claim to the instrument against a holder in due course?+
Generally no. An obligor may not assert against the person entitled to enforce the instrument a defense or claim of another person unless that other person is joined in the action and personally asserts the claim.
Supporting sources
How does the doctrine interact with an assignee of ordinary contract rights?+
An ordinary assignee of accounts or contract rights takes subject to the debtor's defenses and pre-notice claims. Only a holder in due course of a negotiable instrument receives the special protection that cuts off those defenses.
Supporting sources
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