Whether you’re a business professional who deals with legal documents or a curious reader looking to increase your knowledge of legal terms, you’ve likely heard the phrase “holder in due course” before. But you may not be sure what it really means.
The term “holder in due course” typically applies to the transfer of promissory notes, checks, and other negotiable instruments. A holder in due course is a person who has taken proper steps to obtain these instruments and followed all rules and regulations when doing so. This could mean buying the instrument at fair market value or receiving it as a gift or inheritance.
To be considered a holder in due course, the person must also meet other conditions. They must take the instrument in good faith, without knowledge that it’s been forged or illegally obtained. They must take it for value, meaning they have paid its face value or received it from someone who lawfully obtained it. Finally, they must have taken it before it was overdue, and before notice has been received that the payment was previously dishonored.
What Does Being a Holder in Due Course Mean?
Being a holder in due course brings certain advantages to the holder. Most notably, they are free from the defenses available to the obligor, the person responsible for repaying or performing the instrument. These defenses could include common claims of forgery, fraudulent misrepresentation, or illegal transaction. This means that the holder in due course can use the instrument as a tool for enforcing payment and recovering any interest or damages that may be due.
The concept of a holder in due course serves as a reminder that written agreements and documents are enforceable, and when you enter into a contract with or receive a promissory note from someone else, it should be taken seriously.
By understanding what it means to be a holder in due course, you can better protect your interests and ensure the validity of any agreements or written documents you may make or receive.