Transferability and Holder in Due Course

A holder of a negotiable instrument usually takes the instrument for a value and in good faith. While accepting the instrument, the holder in due course shall not be informed that the instrument is overdue for payment. Any proceedings of the instrument are not known to the holder while taking the negotiable instrument like the instrument was dishonored earlier, the instrument had a default payment earlier, or other associates instruments to the main negotiable instrument had a default payment. The negotiable instrument holder, in due course, is not aware of any alterations made to the negotiable instrument or any unauthorized signature made. Any claims made about the negotiable instrument are also not known to the holder in due course before taking ownership of the negotiable instrument. The holder, in due course, is merely having the rights of an assignee and retains the rights of what the assignor possesses. There are regulations to protect the buyers of debts and individuals who procure rights to accept due payments. The holder in due course (HDC) doctrine rules protect the individuals assigned the negotiable instruments from the original creditor. The purchaser of the negotiable instrument believes that the negotiable instrument is valid and hence procures it in good faith. The negotiable instrument can be transferred to succeeding parties who take ownership of the instrument through negotiation and endorsement. The rights to transfer the negotiable instrument can be defined under a contract. The rights are shifted from transferor to transferee. The person who is other than the issuer of the negotiable instrument can transfer the negotiable instrument. The person to whom the negotiable instrument is moved is the holder. The negotiable instrument can be transferred through order paper with necessary indorsement and through bearer paper. Negotiation by delivery happens in both cases. On behalf of the holder, someone else writes the directions and signs the negotiable instrument, called indorsement. There are different kinds of indorsement such as blank vs. special, qualified vs. unqualified, and restrictive vs. nonrestrictive.

Basis terms for being a holder in due course are as follows. These requirements prevent the negotiable instrument from being a reason for fraudulent activities.

The individual must be a holder of a comprehensive and genuine negotiable instrument.

The individual must take the negotiable instrument for a value.

The individual must take the negotiable instrument in exchange for actions that are already completed in a transaction.

The individual must take the negotiable instrument in good faith.

The individual must take the negotiable instrument without communication that the negotiable instrument is outstanding.

The individual must take the negotiable instrument without notice that the negotiable instrument was dishonored earlier.

The individual must take the negotiable instrument without familiarity with modifications made to the negotiable instrument.

The individual must take the negotiable instrument without knowledge about the unauthorized signature on the negotiable instrument.

The individual must take the negotiable instrument without knowledge about claims concerning the negotiable instrument.

The individual who takes the negotiable instrument can be a normal holder or holder in due course.

Proof of prior forgery or unauthorized actions on the negotiable instrument is unknown to the holder in due course.

The holder, in due course, must not have any prior knowledge of any defaulting of the negotiable instrument.

Pieces of evidence of additional ownership claims should not be there on a negotiable instrument.

Any disagreements on the negotiable instrument should not be available.