A holder is a person who is in possession of a negotiable instrument, such as a check or promissory note, and is entitled to receive payment from the party who originally issued the instrument.
A holder can become the owner of a negotiable instrument in a number of ways, such as by being the payee named on the instrument, by receiving a transfer from another holder, or by being a bearer who has possession of the instrument.
As a holder, a person has the right to enforce the instrument against the party that transferred it to them, subject to any defenses or claims that might exist against the instrument. However, the holder’s rights may be limited if there are legal defects or issues with the underlying transaction, or if they are not a holder in due course.
Holder in Due Course
A holder in due course is a term used in negotiable instrument law to refer to a person who receives a negotiable instrument, such as a check or promissory note, in good faith and for value, and without notice of any defects or claims against the instrument. In other words, a holder in due course is a person who acquires a negotiable instrument without any knowledge of any legal issues or problems that might exist with it.
The holder in due course has certain legal rights that are different from those of other holders of the negotiable instrument. For example, a holder in due course can generally enforce the instrument against the original maker or issuer, even if there are legal defects or disputes with the underlying transaction.
To be considered a holder in due course, certain criteria must be met, such as:
- The holder must have acquired the instrument for value, which means that they must have given something of value in exchange for the instrument, such as money or services.
- The holder must have taken the instrument in good faith, which means that they must not have any knowledge of any legal issues or defects with the instrument.
- The holder must have taken the instrument without notice of any claims or defenses against it.
If these criteria are met, the holder in due course has certain legal protections and rights under the law. However, if the holder does not meet these criteria, they may not be considered a holder in due course and may not have the same legal rights and protections.
| Holder | Holder in Due Course | |
| Definition | A person who possesses a negotiable instrument | A person who possesses a negotiable instrument and meets certain legal criteria |
| Legal Rights | Can enforce the instrument against the party that transferred it to them, but subject to any defenses or claims against the instrument | Can enforce the instrument against the original maker or issuer, even if there are legal defects or disputes with the underlying transaction |
| Notice of Defects | May have notice of any legal issues or problems with the instrument | Must not have any knowledge of any legal issues or defects with the instrument |
| Value | May or may not have given value in exchange for the instrument | Must have acquired the instrument for value, which means that they must have given something of value in exchange for the instrument |
| Good Faith | May or may not have taken the instrument in good faith. | Must have taken the instrument in good faith, which means that they must not have any knowledge of any legal issues or defects with the instrument. |