Ch. 13: Negotiable Instruments: Transferability and Holder in Due Course – No. 7
Clarkson et al.’s Business Law: Commercial Law for Accountants (1E)
Holder in Due Course (HDC): A holder who
(1) acquires a negotiable instrument for value,
(2) in good faith, and
could be asserted against the transferor or an ordinary holder.
Ch. 13: Negotiable Instruments: Transferability and Holder in Due Course – No. 8
Clarkson et al.’s Business Law: Commercial Law for Accountants (1E)
(2) acquiring a security interest or other lien in the
instrument, excluding liens obtain by judicial process,
(3) taking an instrument in payment of, or as security for, an
antecedent debt,
(4) giving a negotiable instrument as payment, or
Good Faith: An HDC must acquire an instrument honestly
and in a manner consistent with “reasonable commercial
standards for fair dealing.”
Ch. 13: Negotiable Instruments: Transferability and Holder in Due Course – No. 9
Clarkson et al.’s Business Law: Commercial Law for Accountants (1E)
HDC: NOTICE
The holder has notice of a defect whenever she
(1) has actual knowledge of the defect,
(2) received notification of the defect (e.g., letter from bank
identifying serial number of stolen checks), or
(3) has reason to know that a defect exists, given all of the
Ch. 13: Negotiable Instruments: Transferability and Holder in Due Course – No. 10
Clarkson et al.’s Business Law: Commercial Law for Accountants (1E)
HDC: DEFECTS
A time instrument is overdue after the due date shown
on its face.
A series of notes with successive maturity dates is
Incompleteness: A purchaser cannot become an HDC of an
instrument so facially incomplete as to lack one or more
elements required for negotiability.
Irregularities: Any irregularity on the face of the instrument
HDC: SHELTER
Shelter Principle: A person who does not qualify as an HDC
can, nonetheless, acquire the rights and privileges of an HDC
the instrument, or
(2) had notice of a claim or defense against the
instrument.
Ch. 13: Negotiable Instruments: Transferability and Holder in Due Course – No. 8
Clarkson et al.’s Business Law: Commercial Law for Accountants (1E)
(2) acquiring a security interest or other lien in the
instrument, excluding liens obtain by judicial process,
(3) taking an instrument in payment of, or as security for, an
antecedent debt,
(4) giving a negotiable instrument as payment, or
Good Faith: An HDC must acquire an instrument honestly
and in a manner consistent with “reasonable commercial
standards for fair dealing.”
Ch. 13: Negotiable Instruments: Transferability and Holder in Due Course – No. 9
Clarkson et al.’s Business Law: Commercial Law for Accountants (1E)
HDC: NOTICE
The holder has notice of a defect whenever she
(1) has actual knowledge of the defect,
(2) received notification of the defect (e.g., letter from bank
identifying serial number of stolen checks), or
(3) has reason to know that a defect exists, given all of the
Ch. 13: Negotiable Instruments: Transferability and Holder in Due Course – No. 10
Clarkson et al.’s Business Law: Commercial Law for Accountants (1E)
HDC: DEFECTS
A time instrument is overdue after the due date shown
on its face.
A series of notes with successive maturity dates is
Incompleteness: A purchaser cannot become an HDC of an
instrument so facially incomplete as to lack one or more
elements required for negotiability.
Irregularities: Any irregularity on the face of the instrument
HDC: SHELTER
Shelter Principle: A person who does not qualify as an HDC
can, nonetheless, acquire the rights and privileges of an HDC
the instrument, or
(2) had notice of a claim or defense against the
instrument.