Definition of Holder in Due Course

By: Unknown on 2:37 AM

Definition of Holder in Due Course

The primary purpose of commercial paper or payment agreement between two parties is to act as substitute for money or value. There are two parties involve the holder and maker. A holder is a person in possession of an instrument payable to bearer or to the identified person possessing it. If the payment are not done on negotiable instrument, when it is due the holder can use court system to enforce the instrument, such that the holder has ordinary right. A holder simply hold the right of assignor’s to specific time more than that a holder can also have a right to acquire assignor’s personal liabilities if he/she fail to to make payment on pre agreement instrument. A holder with such a preferred position can then treat the instrument almost as money, free from the worry that someone might show up and prove it defective (Schmitz, 2012).

The holder in due course is unique in the field of negotiation instrument. A holder in due course is a holder who takes an instrument for value, in good faith and without notice that is defective or is overdue (Cheeseman, 2006). The personal defense cannot be raised against HDC its only raise real defense. The HDC should honestly pay for the instrument and not know of anything wrong with it. If the instrument is overdue then HDC can use the court system to enforce system.

Requirements for Being a Holder in Due Course

Under Section 3-302 of the Uniform Commercial Code (UCC), to be a holder in due course (HDC), a transferee must fulfill the following:

1. be a holder of a negotiable instrument;

2. Have taken it:

a) For value,

b) In good faith,

c) Without notice that it is overdue or has been dishonored (not paid), or

d.) the instrument bears no apparent evidence of forgery, alteration or irregularity.

References

Cheeseman, H. R. (2006). Holder in Due course and Liabilty . In Contemporary Business and Online Commerce Law (pp. 413-419). Upper Saddle River, New jersery: Pearson Education Inc.

Schmitz, A. (2012, Dec 29). Holder in Due Course and Defenses. In Legal Aspects of Commercial Transactions (Chapter 24). Customary Creative Commons. Retrieved from http://2012books.lardbucket.org/books/legal-aspects-of-commercial-transactions/s27-holder-in-due-course-and-defen.html