Business, Legal & Accounting Glossary
A holder in due course is an innocent buyer of debt.
n. one holding a check or promissory note, received for value (he/she paid for it) in good faith and with no suspicion that it might be no good, claimed by another, overdue or previously dishonored (a bank had refused to pay since the account was overdrawn). Such a holder is entitled to payment by the maker of the check or note.
Holder in due course, or (HDC) is a term used in law to refer to an innocent party who purchases a negotiable instrument for value without any apparent defect in the instrument nor any notice of dishonour (Black’s Law Dictionary 2nd Pocket ed. 2001 pg. 322).
An HDC must purchase for value, meaning that he or she must pay for the property rather than simply being the beneficiary of a gift, although the value does not have to be 100% of the market value.
Depending on the laws of the relevant jurisdiction, when a party sells a negotiable instrument with a non-apparent defect to an HDC, such as by selling them an instrument upon which another has a claim, that HDC takes good title to the property despite the competing claims of the other party unless the other party has a real defense, such as lack of capacity or fraud in the factum. Other parties with a claim to ownership will have a cause of action against the party who sold the negotiable instrument to the HDC. Most states in the USA have codified into law Uniform Commercial Code Article § 3-302 defining an HDC and § 3-305 protecting the HDC from most claims by other parties.
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This glossary post was last updated: 6th August, 2021 | 4 Views.