We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.
Contract

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

What is a Holder in Due Course?

Mary McMahon
By
Updated: May 16, 2024
Views: 13,390
Share

A holder in due course is someone who has taken good faith possession of a negotiable instrument. The holder in due course is often considered innocent of any claims against the negotiable instrument and prior holders because he or she has not been notified of any problems with the instrument. There are some important legal implications behind this concept and it has been a subject of litigation in some cases. The law surrounding transfer of negotiable instruments varies between nations and cases and people who are unclear on the specifics of a particular situation may want to consult a lawyer.

In order to be considered a holder in due course, someone must exchange value of some kind for the negotiable instrument. In a simple example of how this might work, a consumer might obtain a residential mortgage from a bank. The bank in turn could sell the mortgage to another bank. The new bank becomes the holder in due course because it exchanged something of value for the mortgage. It is now the legal owner of the mortgage and can take action against the debtor in its own name if the debtor defaults or fails to fulfill the terms of the mortgage.

One historic problem with the concept of the holder in due course is that it was sometimes used abusively. Initially, people were absolved of any liability related to the negotiable instrument when they could demonstrate that they obtained it in good faith and were not aware of problems. This was used by unscrupulous individuals who would do things like make a loan on a bad car and then turn around and sell the loan. The debtor has no legal recourse because the holder in due course could refuse to provide support or services, arguing that it did not know the circumstances. This practice has been challenged as unfair, and now there are some circumstances in which someone who acquires a negotiable instrument can be held responsible for misdeed of the prior owner.

It is important to note that the law surrounding negotiable instruments differs from the law surrounding property. If someone acquires a negotiable instrument in good faith, he or she is the legal owner, whether or not there are problems with the instrument such as a claim against it. On the other hand, someone who acquires property with an unclear title, such as stolen party, may do so in good faith but still does not retain ownership of the property once the problem is uncovered.

Share
MyLawQuestions is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Mary McMahon
By Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a MyLawQuestions researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

Discussion Comments
Mary McMahon
Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a...

Learn more
Share
https://www.mylawquestions.com/what-is-a-holder-in-due-course.htm
Copy this link
MyLawQuestions, in your inbox

Our latest articles, guides, and more, delivered daily.

MyLawQuestions, in your inbox

Our latest articles, guides, and more, delivered daily.