Holder in Due CourseCredit Repair Definition
Someone who acquires a negotiable instrument (like a check or promissory note) in good faith, for value, without notice of defects, gaining special legal protections.
Definition
A Holder in Due Course (HDC) is a legal status under the Uniform Commercial Code (UCC) that applies to someone who takes possession of a negotiable instrument (such as a check, promissory note, or draft) under specific conditions. To qualify as an HDC, the person must acquire the instrument: (1) For value (giving something in return); (2) In good faith (honestly and without intent to defraud); and (3) Without notice that the instrument is overdue, has been dishonored, contains unauthorized signatures or alterations, or that there are any claims or defenses against it. The significance of being an HDC is that they take the instrument free from most 'personal defenses' that the original maker or drawer might have against the original payee (e.g., breach of contract, fraud in the inducement, lack of consideration). They are only subject to 'real defenses' (e.g., forgery, material alteration, infancy, duress). This doctrine facilitates the transferability of negotiable instruments.
Frequently Asked Questions
Why is Holder in Due Course status important?
It encourages the free transfer and acceptance of negotiable instruments in commerce. Buyers know they can acquire instruments like checks or notes without worrying about most disputes between the original parties, making these instruments function more like cash.
What are examples of 'personal defenses' that an HDC is protected against?
Personal defenses include: breach of contract, failure of consideration (the goods paid for were defective), fraud in the inducement (being tricked into signing), non-delivery of the instrument, and prior payment.
What are examples of 'real defenses' that can be asserted even against an HDC?
Real defenses include: forgery of the maker's or drawer's signature, material alteration of the instrument, infancy (maker was a minor), certain types of duress or illegality that render the contract void, fraud in the factum (being deceived about the nature of the instrument itself), and discharge in bankruptcy.
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